Mutual fund IRAs jump 63%
The number of individual retirement accounts (IRAs) invested in mutual funds jumped 63 percent in the first two months of this year, the Investment Company Institute reports. ''Mutual funds have made a gratifying start toward their target of around $6 billion a year in IRAs for the next several years,'' ICI president David Silver said.
The ICI said the increase was six times as fast as the average for comparable periods in other years. Since Jan. 1, when new tax rules opened these tax-deferred retirement programs to virtually everyone who works for a living, more than 300,000 new accounts have been started.
By the beginning of March, 814,000 new IRAs were invested in mutual funds. At the beginning of January, the total was almost exactly 500,000.
In the two intervening months the assets of mutual fund IRAs went up to $3.1 billion, a 21 percent increase of $530 million.
Money market mutual funds accounted for 68 percent of the gain in assets, the ICI said. The growth in the actual number of accounts, however, was about equally divided between money funds and all other mutual funds.
An IRA has two tax advantages. First, any contributions are tax free, thus reducing the contributor's current taxes immediately.
Second, all earnings on an IRA investment are tax-free until the money is withdrawn, probably after the contributor retires. At that time, most people's incomes fall sharply, so they move into a lower tax bracket.