Study: Wealthy, Married Workers Contribute More To Retirement Plans

August 11, 2003 ( - When it comes to saving for retirement in tax-favored savings plans, wealthy, middle-aged married workers and their spouses are much more likely to participate in their plans than any other group.

This group was found to a have a strong participation across all variables measured.   By age, the 45 to 59 group contributed at a 64% clip; by adjusted gross income, the group of $80,000 to $120,000 had a 79% participation rate and slightly more than half (51%) married workers chipped into their retirement accounts, according to a Congressional Budget Office (CBO) examination of 1997 tax returns.

On the other end of the spectrum are unmarried workers under age 30 with income of less than $20,000 annually.   By age, the under-30 group had only a 35% participation rate; by adjusted gross income, those with annual earnings below the $20,000 mark had a scant 22% participation rate and only 41% of single earners elected to participate in these plans.

But this is not to say that participation in tax-deferred plans was particularly lacking.   Overall, just over half (51%) of all US workers actively participated in a tax-deferred retirement savings plans, either contributing to the plan themselves or via an employer contribution.

Instead the differences were found in the demographics.   Middle-aged workers who are in their peak earning years and nearing retirement generally have more disposable income available for saving and are more concerned about building up retirement funds.   On the other hand, the lower savings rate of young workers is due to a combination of being single and having a lower income, with retirement far in the future.   However, the CBO noted that as this group ages and its income increases, there is a greater chance young workers will increases their saving rates.

Employer Sponsored Domination

When it comes to participation in tax-deferred retirement plans in 1997, employment based plans ruled the roost.   Across all measures, 47% of workers participated in an employment-based plan versus only 7% that contributed to an IRA or Keogh plan. Much like the overall results, the same participation rates were seen for the various demographics, with the greatest participation in these plans noted among workers age 45 to 59 (58% employment based; 11% IRA/Keogh).   Among the other groups, participation rates for the two plans showed:

  • Under 30 – 33%; 3%
  • 30 to 44 – 54%; 7%
  • 60 and over – 34%; 11%

Likewise, the greater participation rate in employment-based plans was recorded in the $80,000 to $120,000 in annual earners group, with a 72% rate.   Varying only slightly, however, was this group having only the second highest contribution rate among IRA/Keogh plans, at 12% compared to 19% in the group of wage earners between $120,000 and $160,000.   This group also had a strong showing in employment-based plans with a 67% participation rate.   Among the other groups, participation rates for the two plans revealed:

  • Under $20,000 – 20%; 2%
  • $20,000 to $20,000 – 52%; 7%
  • $40,000 to $80,000 – 65%; 8%
  • $160,000 and over – 59%; 26%

Holding to form, married earners showed a 47% participation rate for employment-based plans and a 7% rate for IRA/Keogh plans, compared to 38% and 4%, respectively, for their single counterparts.

With such a strong preference toward employment-based retirement plans, it may be a bit surprising to see large contribution amounts for Keogh plans versus IRA and the employment based options.   Overall, across all employee types, the average Keogh plan had 1,159 participants chipping in $8,115, compared to 7,818 participants in $1,593 in IRA and 35,666 participants and $2,772 in the average 401(k) type option.

However, some of the disparity can be explained by the maximum amount allowed to be contributed to the three types of plans.   Whereas IRA plans had a contribution cap of $2,000 annually in 1997 and 401(K) plans were topped out at $9,500 a year, Keogh contributions were limited by a dollar cap of $30,000 in conjunction to the amount of an individual's self employment income.    Breaking it down, 121 workers over the age of 60 contributed $8,612 to their Keogh plans, versus 1,012 workers in the same group adding $1,713 to IRAs and 1,889 putting in $3,213 to 401(k) type plans.   Other groups showed participant counts and amounts in the various plans of:

  • Under 30 - IRA (1,020 - $1,417); Keogh (24 - $4,675); 401(k) type (6,128 - $1,592)
  • 30 to 44 - IRA (2,815 - $1,530); Keogh (469 - $8,050); 401(k) type (16,288 - $2,681)
  • 45 to 59 - IRA (2,971 - $1,675); Keogh (546 - $8,211); 401(k) type (11,360 - $3,466)

Rising Income; Rising Contributions

Likewise with income, employee contributions showed a direct correlation to increasing income in all plans. At the highest income levels for 401(k)-type plans, 40% of participants made the maximum allowable contribution of $9,500 compared to virtually no one at the lowest income levels contributed the maximum (1%).   Among other income groups, 21% earning between $120,000 and $160,000 per year contributed the maximum; 10% of those earning between $80,000 and $120,000 and only 4% of those in the $40,000 to $80,000 range.

Those contributions averaged $7,015 for the $160,000 in annual earnings and above group, followed by:

  • $5,451 - $120,000 to $160,000
  • $4,148 - $80,000 to $12,000
  • $2,621 - $40,000 to $80,000
  • $1,504 - $20,000 to $40,000
  • $630 - under $20,000.

As was the case with 401(k)-type plans, average contributions to Keogh plans increased with income, but their levels were consistently higher. The percentage contributing the maximum amount was actually higher for groups with income below $40,000 than it was for groups with income between $40,000 and $160,000, due to Keogh contributions limiting not only by a dollar cap of $30,000 but also by the amount of an individual's self employment income. It is the latter limit that is binding at lower levels of income.

Average IRA contributions varied little with income, rising from $1,489 at the lowest income level to $1,918 at the highest. A majority of participants in every income category contributed the maximum amount of $2,000. Average contributions to IRAs are much less affected by income levels than are contributions to 401(k)-type plans. In fact, for groups with income under $40,000, average IRA contributions are higher than average 401(k) contributions.

A copy of the complete Utilization of Tax Incentives for Retirement Saving can be found at .