18% of traditional IRA investors withdrew money in 2007 and 2008

Nearly one in five traditional IRA investors took withdrawals from their accounts in 2007 and 2008, according to new research by the Investment Company Institute.

Withdrawal activity increased with the age of the investor, in part reflecting the rules that govern traditional IRA distributions.  Fewer than one in 10 traditional IRA investors aged 59 or younger took withdrawals in 2007, and they probably faced a 10 percent penalty. About one in five traditional IRA investors in their 60s chose to take withdrawals in 2007 and nearly eight in 10 traditional investors age 70 or older took withdrawals in 2007, reflecting rules requiring distributions from traditional IRAs after age 70 ½. A similar pattern of traditional IRA withdrawal activity was observed in 2008.

Investors who made less money were more likely to take withdrawals from their traditional IRA plans, the report found. Nearly one-quarter of traditional IRA investors with less than $35,000 in income took withdrawals in 2007, compared with 15 percent of traditional IRA investors with income of $140,000 or more.

The amount withdrawn from IRAs tended to rise with investors through age 64. The median amount withdrawn by those age 60 to 64 in 2007 was $14,000, compared with a median withdrawal of $3,730 among those age 25 to 29 and $4,170 for those over age 70.

The report also found that investors who withdrew less than $6,000 were taking out the majority of their account balances. On average, traditional IRA investors with withdrawals took 62 percent of their IRA balances as a withdrawal. They may have been reacting to financial stress or taking advantage of exemptions from penalty for certain withdrawals, like buying a house or paying for their education.

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