No Surprise: IRS says $1 trillion of IRA assets were erased when markets tanked in '08

An article in IRS's Spring, 2012, Statistics of Income Bulletin found that the year-end fair market value of all IRAs fell from $4.7 trillion in 2007 to $3.7 trillion in 2008 (the latest year for which figures were available), a $1 trillion, 22.5% drop. While most of the drop was attributable to declines in financial asset values (to some extent recouped in subsequent years), other dynamics may be at work as well, the article found.

The IRS article found that:

• The number of taxpayers taking IRA withdrawals increased by 28%, and total IRA withdrawals increased by 36.1% from $167.1 billion in 2007 to $227.5 billion in 2008. This may be due in part to individuals withdrawing IRA funds due to necessity. It also may be due to the first wave of baby boomers commencing their withdrawals from IRAs.
• Rollovers from 401(k)-type plans to IRAs decreased, from $322.3 billion in 2007 to $272.1 billion in 2008. While the number of taxpayers rolling over assets actually increased slightly, the average value of the rollovers decreased by 33.5%.
• Contributions to IRAs decreased from $58.8 billion in 2007 to $55.6 billion in 2008. The number of taxpayers making contributions decreased by 10%, but the average value of IRA contributions actually increased by 5.1%. The article concludes that the increase in the average contribution was due largely to taxpayers taking advantage of more liberal contribution limits for traditional, Roth, and SEP-IRAs.

Consistent with earlier years, for 2008, the percentage of taxpayers making contributions rose with higher levels of income. For example, the article found that those making between $100,000 and $200,000 were more than twice as likely to contribute to an IRA as those making $30,000 to $40,000. The average IRA contribution also increased with the age of the taxpayer, consistent with previous years.

While traditional IRA plans still accounted for the vast majority of year-end fair market value in 2008, the article found that Roth IRA plans accounted for approximately 32.7% of total IRA contributions. Older taxpayers are contributing the most to Roth IRAs. Taxpayers age 40 to 65 represented 55.4% of the number of taxpayers making Roth IRA contributions, and they contributed 61.2% of total Roth contributions by all taxpayers.