IRAs: They are a Huge Opportunity

That is the word that one CEO used to describe his credit union's approach to the newly expanded IRA contribution limits. These limits go up 50% or 75% next year depending on whether the contributor is over 50 years old. Ultimately the maximum contribution will be $6,000 per year for a person over 50 years of age or $12,000 per couple, that is 300% greater than the current $2,000 and $4,000 limits.

 
 

IRAs: They are a Huge Opportunity That is the word that one CEO used to describe his credit union's approach to the newly expanded IRA contribution limits. These limits go up 50% or 75% next year depending on whether the contributor is over 50 years old. Ultimately the maximum contribution will be $6,000 per year for a person over 50 years of age or $12,000 per couple, that is 300% greater than the current $2,000 and $4,000 limits.

For the CEO of this credit union, which has a 100% loan-to-share ratio and a below average retirement plan at its main sponsor, the other "huge" factor was the experience that IRA accounts tend to be long-term savings.

However, most credit unions are not seeking more savings, are uncertain what to do with the funds should they come in and therefore are doing nothing special. This caution could be a mistake. Here's why:

  • Credit union IRA CD and money market options are viewed in a much more favorable light since the stock market's reversal;
  • The over 50 segment can contribute at the higher of the new limits, is generally the most loyal group of current members and tends to prefer less risky investments for their IRA choices;
  • IRAs are becoming the single largest pool of self-managed retirement savings today with total $2.7 trillion in assets or over $1 trillion larger than all 401(k) and other defined contribution plans. Credit unions generally are not an option in 401(k) plans, but have complete authority to compete for IRA funds;
  • IRAs tend to be a life-long commitment and therefore a centerpiece for a long-term credit union relationship;
  • Credit unions have about twice the market share of IRAs in insured deposits than they hold for all insured savings-that's because credit unions tend to pay higher rates than banks; moreover, credit unions today have both on- and off-balance sheet products to offer.
  • No other depositories are interested in the IRA funds!

To help credit unions assess the awareness of their members of the new limits and their interest in looking at credit union options, we have developed a short, online survey that can provide you immediate information to plan your IRA campaign.


 

 

 

Jan. 7, 2002


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