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Pandemic Drove Bump in Rollovers

IRA Rollover

Rollovers from defined contribution plans to IRAs increased by more than 12.6% in 2020, according to a recently released study. 

The Secure Retirement Institute estimates that rollovers from DC plans to IRAs totaled approximately $623 billion in 2020, up from the $565 billion transferred in 2019. SRI expects the total to exceed $760 billion within five years.

Not everyone chose to move their money into a IRA, however. SRI says that 3% of those changing jobs converted the funds into an annuity. It is possible, they say, that the number is that low in part because annuity payouts are not a widespread option. 

The phenomenon is not brand new, SRI suggests. In earlier research it found that 60% of investors between the ages of 40 and 75 who participated in a DC plan and left their employer rolled the funds into an IRA. In 2020, SRI says, increased job departures due to the pandemic are behind the jump in rollovers. 

SRI says that in 2020, 54% decided to make a rollover before they even left their employer, and more than half of them hit upon that plan 90 or more days before quitting or retiring. It was more likely, SRI found, that those with higher balances would take such action. To wit: 68% of those who rolled $500,000 into an IRA did so before leaving their employer, and 57% of those with such assets decided to do so 90 days or more before they did. Meanwhile, less than 40% of those who rolled $5,000-$25,000 into an IRA decided to do so before they quit.

SRI emphasizes that rollovers from DC plans to IRAS are driven largely by the accumulation of revenue in employer-provided retirement plans. This is especially important, SRI says, because “rollovers rank among the largest financial transactions Americans will make.”

Deciding to roll a balance from a DC plan to an IRA is a complex decision,” SRI says, observing that recent retirees, as well as those who voluntarily changed jobs or were laid off, “face distinct challenges.”