Unpacking America's Retirement Savings: Key Insights for CPA Firms
As CPA firms, we're often at the forefront of helping clients navigate the complex landscape of retirement savings. A recent Tax Foundation report sheds light on crucial trends in American retirement and tax-preferred savings accounts. Here's what your firm needs to know:
The Big Picture
Americans contributed a whopping $332.5 billion to defined contribution accounts (like 401(k)s) and $70 billion to IRAs in 2018.
Mid-career workers (ages 35-55) are the powerhouse of 401(k) contributions, making up nearly half of all contributions.
IRA Insights
While most IRA withdrawals occur post-60, about 15% are made by working-age individuals – a potential red flag for early withdrawal penalties.
IRA balances peak for the 65-70 age group, totaling nearly $1.8 trillion in 2018.
Income and Contribution Patterns
59% of retirement contributions come from those earning between $50,000 and $200,000 annually.
Participation rates in retirement accounts increase significantly with income levels.
The Complexity Challenge
The current system's intricacy can be a deterrent, especially for younger and lower-income savers.
The report suggests Universal Savings Accounts (USAs) as a potential simplification measure.
For CPA firms, these insights underscore the importance of tailored retirement planning strategies. As we advise clients, consider:
Emphasizing the importance of mid-career saving to maximize retirement contributions.
Educating clients on the implications of early withdrawals from retirement accounts.
Developing strategies to encourage retirement saving across all income levels, particularly for younger and lower-income clients.
Want to discuss how these trends might impact your firm's approach to retirement planning services? Our outsourcing services can provide your firm with the additional expertise and capacity needed to offer comprehensive retirement planning advice to your clients, please contact us to schedule a time to speak.
