There's Some Great News About Americans' IRAs

When it comes to retirement, you'll typically hear a lot of bad news. For example, Americans aren't saving enough. And Social Security's trust fund is in trouble. And it is indeed true that a good number of people may find themselves without the funds they need to retire comfortably -- and that Social Security benefit cuts could be needed in the coming decades without congressional action.

But for once, there is some actual good news. It centers around IRA accounts, and there are a lot of positive data points to rejoice about.

More Americans are saving, and account balances as growing

According to recent research from Fidelity, a growing number of Americans have opened IRA accounts in recent years. In fact, as of the third quarter of 2023, there were 14.6 million IRA accounts -- an 11% increase compared with the same time the prior year.

Gen Z has been especially responsible when it comes to opening and investing in IRAs. This age group alone saw a 63% increase in the number of IRA accounts in 2023 compared with the prior year. Not only that, but the overall dollar contributions they made was up by 51% during that same time period.

IRA balances have also been growing for all Americans. The average balance hit $109,600 in the third quarter of 2023. While this was a 4% decrease from the prior quarter, it was an 8% increase from the prior year. It's also 28% higher than the average account balance was just a decade ago.

All of this suggests more people are opening IRAs, investing in them, and seeing their money grow -- which is great news. A big IRA balance can provide essential support during retirement.

Is an IRA right for you?

With so many Americans seeing success in their IRAs, you may be wondering if you should open one if you haven't already. But the answer depends on your situation.

What if you already have a 401(k)?

If you have access to a workplace 401(k), you should generally be contributing enough to that first to earn your full employer match. An employer match is a contribution your employer makes to your account when you put money into it. For example, your employer might match 50% or 100% of your contributions up to 4% or 6% of your salary.

You'll want to get this free money whenever possible as your first priority. Once you have met your employer match, though, opening an IRA can be a good idea rather than contributing more to your 401(k).

What if you don't have a 401(k)?

If you don't have an employer match or a 401(k) at all, an IRA can be a great tool to save for retirement. See, you can open an IRA with any brokerage firm, so you don't need an employer to provide one. Depending on whether you open a traditional or a Roth IRA, you can also get a tax break for your contributions in the year you make them (with a traditional IRA) or can take tax-free withdrawals from your account in retirement (with a Roth IRA).

IRAs provide access to more investment choices than 401(k)s do, and some of those choices may be less expensive than what 401(k)s offer. This gives them a big edge over your workplace plan once your match has been earned. And if you're self-employed, there are even special IRA options for you.

So if you have a little extra money after maxing out your 401(k) match, or if you don't have a 401(k) at all, then opening an IRA is definitely worth considering. You could join the growing number of Americans finding success with these retirement investment plans.