The FRED Blog has discussed the growth of 529 saving plans to pay for college expenses. Because withdrawals became tax-exempt in 2001, their value soared. Today we discuss another type of saving plan with tax benefits: individual retirement arrangements (IRA) plans.
The FRED graph above shows data from the Board of Governors of the Federal Reserve System reporting the dollar value of savings held in tax-advantaged retirement plans:
- IRA accounts: This is the generic name of a whole family of retirement plans. In some plans, the contributions are tax-exempt and in others it is the withdrawals that are tax-exempt.
- Keogh accounts: This is a seldom-used name for retirement plans for those who are self-employed. Like 529 saving plans, their name is associated with the federal law that codified them.
The data in the graph have been adjusted for consumer price inflation to accurately compare their change over time. Notice how, between 1984 and 1991, the value of individual retirement accounts increased by $884 billion, or 146%. That’s more than double in 7 years.
Also notice the bump in the value of all IRA accounts during 2020, the onset of the COVID-19 pandemic. At that time, the US Congress granted additional tax benefits to unplanned, albeit temporary, withdrawals. However, since saving is the difference between income and spending, reduced spending during those uncertain times resulted in fast growth in overall retirement saving account balances. And these remained elevated for quite some time afterward. Learn more about excess savings from Masataka Mori and Juan M. Sánchez.
How this graph wase created: Search FRED for and select “IRA and Keogh Accounts: Total.” From the “Edit Graph” panel, select the “Line 1” tab to customize the data. Start by searching for “Consumer Price Index for All Urban Consumers: All Items in U.S. City Average.” Click on “Add” and then type the formula (a/b)*100. Last, use the “Format” tab to select “Graph type: Bar.”
Suggested by Diego Mendez-Carbajo.
