Most IRA funds come from 401(k) rollovers, not contributions

Individual retirement account assets are similar to those of 401(k) plans.

IRAs hold about $19.2 billion by the end of 2025, while 401(k)s hold $10.1 trillion, according to the Investment Company Institute, a trade group that represents asset managers.

However, few people contribute money directly to IRAs. Also, their annual savings limits are much lower than those of 401(k)s.

Instead, IRAs are primarily a repository for “rollovers” from workplace retirement plans, experts say. In other words, they capture the money that came from 401(k)s and similar plans but the investors left over time at a legally specified time, such as when they changed jobs or retired.

About 6 million people put money into an IRA by 2023, up from about 4 million in the early 2000s, according to the latest IRS data.

Investors withdrew $682 billion from IRAs by 2023 — more than triple the amount since the initial controversy. In contrast, they made $89 billion in direct IRA contributions by 2023.

“Most people don’t save in IRAs at all,” says David Blanchett, a certified financial planner and head of retirement research for Prudential Financial. “All the money in IRAs comes from rollovers.”

Rollover decisions are perhaps one of the most important financial decisions many families make, often involving hundreds of thousands of dollars or more, experts say.

Cerulli Associates, a market research firm, estimates that investors will move more than $941 billion into IRAs by 2026 and $1.3 trillion by 2031.

That growth comes as the financial industry defeated Biden-era investor protection legislation in federal court. The Trump administration has refused to continue defending the law, which seeks to raise investment advice standards for insurance agents and others who request rollovers from retirement savers.

Demographics are playing a major role in the growth of consignments, experts say.

Baby boomers are reaching normal retirement age at a historic pace. More than 11,000 Americans a day — more than 4 million a year — turn 65 years old, according to the Alliance for Lifetime Income, an insurance industry trade group.

Many investors choose to roll their money out of a workplace plan into an IRA in retirement, experts say.

This is partly psychological, as employees retiring from an employer no longer want to park their assets in a company 401(k), says Philip Chao, CFP, founder and chief investment officer of Experiential Wealth, based in Cabin John, Maryland. Investors may also want to consolidate their financial accounts in one place, he said.

Traditional — or, pre-tax — IRAs have gained about $5.2 billion in total assets from 2020 to 2025, according to Cerulli. Of that, rollovers accounted for $3.8 trillion, while contributions added only $119 billion, it said.

Of the rest, market appreciation added $3.9 trillion, while investors withdrew about $2.5 billion.

Rollovers aren’t for everyone, experts say.

In fact, most Americans would generally be better off keeping at least some of their money in their 401(k) plan after retirement, because they often have access to certain investments and services at “very competitive” rates relative to IRAs, Blanchett said.

When investors move their money from a 401(k) to an IRA, they’re unlikely to reinvest, Blanchett said.

Additionally, investors typically have greater legal protection in a 401(k) plan, Chao said.

Employers have a legal obligation, called “fiduciary duty”, to serve the best interests of employees participating in their company retirement plan.

However, that same job may not exist outside the context of a 401(k) plan, depending on the situation, experts say. Some observers are concerned that this is leading some financial brokers to recommend rollovers when it is not in investors’ interest to do so.

“Many people fall prey to overzealous salespeople,” Chao said.

However, IRAs can make more sense in some situations, experts say.

For example, not all companies or 401(k) managers allow flexible withdrawals from 401(k), making it difficult to draw money on an ad-hoc basis from such retirement plans, experts say.