The Shift from 401(k)s to IRAs
The differences in asset size between individual retirement accounts (IRAs) and 401(k) plans might seem striking. By the close of 2025, the amount in 401(k)s reached $19.2 trillion, while IRAs only held $10.1 trillion, as reported by the Investment Company Institute, which represents asset managers.
Interestingly, not many individuals actually make direct contributions to their IRAs. The annual limit for savings is significantly lower compared to that of 401(k) plans.
In fact, most IRA funds come from rollovers—when money is transferred from a workplace retirement plan—like a 401(k). This transition typically occurs when an individual changes jobs or retires.
Increasing Transfers to IRAs
According to recent IRS data, nearly 6 million people are expected to move their funds to IRAs in 2023, up from around 4 million in the early 2000s. In total, investors contributed $682 billion to IRAs this year, which is more than three times the amount seen in the early 1980s. In contrast, direct contributions to IRAs were only about $89 billion in 2023.
David Blanchett, a certified financial planner, reflects that people generally don’t save directly in IRAs. “All of the IRA funds come from rollovers,” he says. Financial experts believe that the choice to roll over is a critical financial decision for many households, potentially affecting their finances by hundreds of thousands of dollars.
Looking ahead, Cerulli Associates anticipates that investors could roll over over $941 billion into IRAs by 2026 and around $1.3 trillion by 2031. This growth has emerged amidst the setback of Biden-era investor protection rules, which the financial industry successfully challenged in court.
Demographics Driving the Change
Experts point out that demographic changes are a significant factor contributing to the rise in rollover assets. Baby boomers are hitting retirement age at a remarkable rate. According to the Alliance for Lifetime Income, over 11,000 Americans turn 65 every day, totaling over 4 million annually.
Many of these retirees are opting to transfer their funds from workplace plans into IRAs.
Philip Chao, a financial planner, mentions that there’s also a psychological element at play. Individuals who leave their jobs often feel reluctant to keep their assets in a former employer’s 401(k). They may prefer to unify their financial assets in one location.
Between 2020 and 2025, traditional IRAs saw a growth of $5.2 trillion in assets, with rollovers accounting for $3.8 trillion of that total, while contributions added a mere $119 billion.
Weighing the Pros and Cons of Rollovers
Experts caution that rollovers may not be ideal for everyone. Blanchett notes that some individuals would likely benefit from retaining at least a portion of their funds in a 401(k) plan, where investment options and services often come at competitive prices.
Once money is transferred from a 401(k) to an IRA, returning it to a 401(k) is not an option.
Investors usually enjoy more legal protections within their 401(k) plans, due to employers’ fiduciary duty to act in the best interests of their employees. However, such protections may not carry over to IRAs, raising concerns that some financial sellers might suggest rollovers that aren’t necessarily beneficial for clients.
Chao warns about the risks posed by aggressive sales tactics. Yet, there are scenarios where an IRA could be a better choice. For instance, withdrawal flexibility in 401(k)s can sometimes complicate immediate access to funds.
