Contents

• Introduction
• IRA Assets and Sources of Funds
• Traditional IRAs
• Eligibility
• Contributions
• Investment Options
• Deductibility of Contributions
• Withdrawals
• Early Distributions
• Rollovers
• Rollovers Limited to One Per Year
• Inherited IRAs
• Roth IRAs
• Eligibility and Contribution Limits
• Investment Options
• Conversions and Rollovers
• Withdrawals
• Return of Regular Contributions
• Qualified Distributions
• Non-Qualified Distributions
• Distributions After Roth IRA Owner's Death
• Retirement Savings Contribution Credit

Summary

In response to concerns over the adequacy of retirement savings, Congress has created incentives to encourage individuals to save more for retirement through a variety of retirement plans. Some retirement plans are employer-sponsored, such as 401(k) plans, and others are established by individual employees, such as Individual Retirement Accounts (IRAs).

This report describes the primary features of two common retirement savings accounts that are available to individuals. Although the accounts have many features in common, they differ in some very important aspects. Both traditional and Roth IRAs offer tax incentives to encourage individuals to save for retirement. Contributions to traditional IRAs may be tax-deductible for taxpayers who (1) are not covered by a retirement plan at their place of employment or (2) have income below specified limits. Contributions to Roth IRAs are not tax-deductible and eligibility is limited to those with incomes under specified limits.

The tax treatment of distributions from traditional and Roth IRAs differs. Distributions from traditional IRAs are generally included in taxable income whereas distributions from Roth IRAs are not included in taxable income. Some distributions may be subject to an additional 10% tax penalty, unless the distribution is for a reason specified in the Internal Revenue Code (for example, distributions from IRAs after the individual is aged 59 ½ or older are not subject to the early withdrawal penalty).

Individuals may rollover eligible distributions from other retirement accounts (such as an account balance from a 401(k) plan upon leaving an employer) into IRAs. Rollovers preserve retirement savings by allowing investment earnings on the funds in the retirement accounts to accrue on a tax-deferred, in the case of traditional IRAs, or a tax-free basis, in the case of Roth IRAs.

The Retirement Savings Contribution Credit (also known as the Saver's Credit) is a non-refundable tax credit of up to $1,000. It was authorized in 2001 to encourage retirement savings among individuals with income under specified limits.

This report explains the eligibility requirements, contribution limits, tax deductibility of contributions, and rules for withdrawing funds from the accounts, and provides data on the account holdings. It also describes the Saver's Credit and provisions enacted after the Gulf of Mexico hurricanes in 2005 and the Midwestern storms in 2008 to exempt distributions to those affected by the disasters from the 10% early withdrawal penalty.

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Traditional and Roth Individual Retirement Accounts (IRAs): A Primer

Introduction

Individual Retirement Accounts (IRAs) are tax-advantaged accounts that individuals (or married couples) can establish to accumulate funds for retirement. Depending on the type of IRA, contributions may be made on a pre-tax or post-tax basis, and investment earnings are either tax-deferred or tax-free.¹

IRAs were first authorized by the Employee Retirement Income Security Act of 1974 (ERISA; P.L. 93-406). Originally limited to workers without pension coverage, all workers and spouses were made eligible for IRAs by the Economic Recovery Act of 1981 (P.L. 97-34). The Tax Reform Act of 1986 (P.L. 99-514) limited the eligibility for tax-deductible contributions to individuals whose employers do not sponsor plans and to those whose employers sponsor plans but who have earnings below certain thresholds. The Taxpayer Relief Act of 1997 (P.L. 105-34) allowed for certain penalty-free withdrawals and authorized the Roth IRA, which provides tax-free growth from after-tax contributions.

The Economic Growth and Tax Relief Reconciliation Act of 2001 (P.L. 107-16) significantly affected the contribution limits in these plans in three ways: (1) it increased the limits, (2) it indexed the limits to inflation, and (3) it allowed for individuals aged 50 and older to make additional "catch-up" contributions. Among other provisions, the Pension Protection Act of 2006 (P.L. 109-280) temporarily allowed for tax-free distributions for charitable contributions; made permanent the indexing of contribution limits to inflation; and allowed taxpayers to direct the Internal Revenue Service (IRS) to deposit tax refunds directly into an IRA.²

This report describes the two kinds of IRAs that individual employees can establish: traditional IRAs and Roth IRAs.³ It describes the rules regarding eligibility, contributions, and withdrawals. It also describes a tax credit for retirement savings contributions. An Appendix explains rules related to penalty-free distributions for those affected by the 2005 Gulf of Mexico hurricanes and the 2008 Midwestern floods. The appendixAppendix also describes relief provided by the IRS to those affected by Hurricane Sandy in 2012. also describes relief provided by the IRS to those affected by Hurricane Sandy in 2012.

IRA Assets and Sources of Funds

Table 1 contains data on the end-of-year assets in traditional and Roth IRAs from 2004 to 2013. According to the Investment Company Institute, traditional IRAs held much more in assets than Roth IRAs. At the end of 2013, there was $6.0 trillion held in traditional IRAs and $505 billion held in Roth IRAs. Within traditional IRAs, more funds flowed from rollovers from employer-sponsored pensions compared with funds from regular contributions.⁴ For example, in 2010 (the latest year for which such data are available) funds from rollovers were $288.4 billion, whereas funds from contributions were only $12.8 billion.⁵

Traditional IRAs

Traditional IRAs are funded by workers' contributions, which may be tax-deductible. The contributions accrue investment earnings in an account, and these earnings are used as a basis for retirement income. Among the benefits of traditional IRAs, two are (1) pre-tax contributions, which provide larger bases for accumulating investment earnings and, thus, provide larger account balances at retirement than if the money had been placed in taxable accounts; and (2) taxes are paid when funds are distributed. Since income tax rates in retirement are often lower than during working life, traditional IRA holders are likely to pay less in taxes when contributions are withdrawn than when the income was earned.

Eligibility

Individuals under 70½ years old in a year and who receive taxable compensation can set up and contribute to IRAs. Examples of compensation include wages, salaries, tips, commissions, self-employment income, alimony, and nontaxable combat pay. Individuals who receive income only from non-compensation sources cannot contribute to IRAs.

Contributions

Individuals may contribute either their gross compensation or the contribution limit, whichever is lower. In 20152016, the contribution limit is $5,500 unchanged from 20142015. Since 2009, the contribution limit has been indexed to inflation, although the change in the Consumer Price Index was insufficient for a cost-of-living adjustment to the 2011 or 2012 contribution limit. Individuals aged 50 and older may make additional $1,000 catch-up contributions. For households that file a joint return, spouses may contribute an amount equal to the couple's total compensation (reduced by the spouse's IRA contributions) or the contribution limit ($5,500 each, if younger than the age of 50, and $6,500 each, if 50 years or older), whichever is lower. Contributions that exceed the contribution limit and are not withdrawn by the due date for the tax return for that year are considered excess contributions and are subject to a 6% "excess contribution" tax. Contributions made between January 1 and April 15 may be designated for either the current year or the previous year.

Because IRAs were intended for workers without an employer-sponsored pension to save for retirement, contributions to an IRA may only come from work income, such as wages and tips. The following non-compensation sources of income cannot be used for IRA contributions:

• earnings from property, interest, or dividends;
• pension or annuity income;
• deferred compensation;
• income from partnerships for which an individual does not provide services that are a material income-producing factor; and
• foreign earned income.

Investment Options

IRAs can be set up through many financial institutions, such as banks, credit unions, mutual funds, life insurance companies, or stock brokerages. Individuals have an array of investment choices offered by the financial institutions and can transfer their accounts to other financial institutions at will.

Several transactions could result in additional taxes or the loss of IRA status. These transactions include borrowing from IRAs; using IRAs as collateral for loans; selling property to IRAs; and investing in collectibles like artwork, antiques, metals, gems, stamps, alcoholic beverages, and most coins.⁶

4

Deductibility of Contributions

IRA contributions may be non-tax-deductible, partially tax-deductible, or fully tax-deductible, depending on whether the individual or spouse is covered by a pension plan at work and thetheir level of adjusted gross income (AGI). Individuals are covered by a retirement plan if (1) the individuals or their employers have made contributions to a defined contribution pension plan or (2) the individuals are eligible for a defined benefit pension plan (even if they refuse participation).

For individuals and households notnot covered by a pension plan at work, Table 21 contains the income levels at which they may deduct all, some, or none of their IRA contributions, depending on the spouse's pension coverage and the household's AGI. Individuals without employer-sponsored pensions and, if married, whose spouse also does not have pension coverage may deduct up to the contribution limit from their income taxes regardless of their AGI.

For individuals and households who are covered by a pension plan at work, Table 32 contains the income levels at which they may deduct all, some, or none of their IRA contributions, depending on the individual's or household's AGI.

Individuals may still contribute to IRAs up to the contribution limit even if the contribution is non-deductible. Non-deductible contributions come from post-tax income, not pre-tax income. One advantage to placing post-tax income in traditional IRAs is that investment earnings on non-deductible contributions are not taxed until distributed. Only contributions greater than the contribution limits as described above are considered excess contributions. Worksheets for computing partial deductions are included in "IRS Publication 590,-A, Contributions to Individual Retirement Arrangements (IRAs)."⁷

5

Withdrawals

Withdrawals from IRAs are subject to income tax in the year that they are received.⁸6 Early distributions are withdrawals made before the age of 59½. Early distributions may be subject to an additional 10% penalty.

To ensure that IRAs are used for retirement income and not for bequests, IRA holders must begin making withdrawals by April 1 of the year after reaching the age of 70½ (i.e., the required beginning date). The minimum amount that must be withdrawn (i.e., the required minimum distribution) is calculated by dividing the account balance on December 31 of the year preceding the distribution by the IRA owner's life expectancy as found in IRS Publication 590-B.⁷.⁹ Although females live longer on average than males, the IRS does not separate life expectancy tables for males and females for this purpose.¹⁰8 Required minimum distributions must be received by December 31 of each year. Failure to take the required minimum distribution results in a 50% excise tax on the amount not distributed as required. Congress suspended the Required Minimum Distribution (RMD) provision for 2009.¹¹

9

Beginning in 2007, distributions from IRAs after the age of 70½ could be made directly to qualified charities and excluded from gross income. This provision for Qualified Charitable Distributions expired December 31, 2013.¹²

10

Early Distributions

Early distributions are withdrawals made before the age of 59½. Early distributions—just like distributions after the age of 59½—are subject to federal income tax. To discourage the use of IRA funds for pre-retirement uses, most early distributions are subject to a 10% tax penalty.¹³11 The early withdrawal penalty does not apply to distributions before the age of 59½ if they

• occur if the individual is a beneficiary of a deceased IRA owner;
• occur if the individual is disabled;
• are in substantially equal payments over the account holder's life expectancy;
• are received after separation from employment after the age of 55;
• are for unreimbursed medical expenses in excess of 7.5% of AGI;
• are for medical insurance premiums in the case of unemployment;
• are used for higher education expenses;
• are used to build, buy, or rebuild a first home up to a $10,000 withdrawal limit;
• occur if the individual is a reservist called to active duty after September 11, 2001;
• were distributions to residents in areas affected by Hurricanes Katrina, Rita, and Wilma from around the storms' landfalls to January 1, 2007; or
• were distributions to residents in areas affected by the Midwestern floods in 2008 from after the applicable disaster date and before January 1, 2010.

WhileAlthough individuals may make early withdrawals from IRAs without a reason, they will be subject to the 10% tax penalty unless they meet one of the conditions above. There are no other general "hardship" exceptions for penalty-free distributions from IRAs.

Rollovers

Rollovers are transfers of assets from one retirement plan to another upon separation from the original employer. Rollovers are not subject to the 59½ rule, the 10% penalty, or the contribution limit. Rollovers can come from traditional IRAs, employers' qualified retirement plans (e.g., 401(k) plans), deferred compensation plans of state or local governments (Section 457 plans), tax-sheltered annuities (Section 403(b) plans), or the Thrift Savings Plan for federal employees.

Rollovers can be either direct trustee-to-trustee transfers¹⁴12 or issued directly to individuals who then deposit the rollovers into traditional IRAs. Individuals have 60 days to make rollover contributions. Rollovers not completed within 60 days are considered taxable distributions and may be subject to the 10% early withdrawal penalty. In addition, in cases where individuals directly receive a rollover, 20% of the rollover is withheld for tax purposes. Direct trustee-to-trustee transfers are not subject to withholding taxes. In cases where individuals directly receive a rollover, they must have an amount equal to the 20% withheld available from other sources to place in the new IRA. If the entire distribution is rolled over within 60 days, the amount withheld is applied to individuals' income taxes paid for the year.

Rollovers Limited to One Per Year

A January 2014 U.S. Tax Court decision requiresrequired that, in certain circumstances, individuals are limited to a total of one rollover per year for their IRAs.¹⁵13 Rollovers subject to this rule are those between two IRAs in which an individual receives funds from an IRA and deposits the funds into a different IRA within 60 days. The one-rollover-per-year limit applies to rollovers between two traditional IRAs or two Roth IRAs. It does not apply to rollovers from a traditional IRA to a Roth IRA. The limitation does not apply to trustee-to-trustee transfers or rollovers from qualified pension plans (such as from 401(k) plans).

Inherited IRAs

When the owner of an IRA dies, ownership passes to the account's designated beneficiary or, if no beneficiary has been named, to the decedent's estate. Federal law has different distribution requirements depending on whether the new owner is a

• designated beneficiary who is the former owner's spouse;
• designated beneficiary who is not the former owner's spouse; or
• non-designated beneficiary.

The distribution rules are summarized in Table 43. The distribution rules also depend on whether the IRA owner died prior to the required beginning date, the date on which distributions from the account must begin. It is April 1 of the year following the year in which the owner of an IRA reaches the age of 70½. Distributions from inherited IRAs are taxable income but are not subject to the 10% early withdrawal penalty. Failure to take the RMD results in a 50% excise tax on the amount not distributed as required.

Designated spouse beneficiaries who treat inherited IRAs as their own can roll over inherited IRAs into traditional IRAs or, to the extent that the inherited IRAs are taxable, into qualified employer plans (such as 401(k), 403(b), or 457 plans). Non-spouse beneficiaries cannot roll over any amount into or out of inherited IRAs.

In some cases, IRAs have beneficiaries' distributions requirements that are more stringent than those summarized in Table 43. For example, an IRA's plan documents could require that a designated spouse or designated nonspouse beneficiary distribute all assets in the IRA by the end of the fifth year of the year following the IRA owner's death. In such a case, the beneficiary would not have the option to take distributions over a longer period of time. Unless the IRA plan documents specify otherwise, it is possible to take distributions faster than required in Table 43. For example, a beneficiary may elect to distribute all assets in a single year. In such a case, the entire amount distributed is taxable income for that year.

Roth IRAs

Roth IRAs were authorized by the Taxpayer Relief Act of 1997 (P.L. 105-34). The key differences between traditional and Roth IRAs are that contributions to Roth IRAs are made with after-tax funds and qualified distributions are not included in taxable income; hence, investment earnings accrue free of taxes.¹⁶

14

Eligibility and Contribution Limits

In contrast to traditional IRAs, Roth IRAs have income limits for eligibility. Table 54 lists the adjusted gross incomes at which individuals may make the maximum contribution and the ranges in which this contribution limit is reduced. For example, a 40-year-old single taxpayer with income of $90,000 can contribute $5,500 in 20152016. A similar taxpayer making $120,000 would be subject to a reduced contribution limit, whereas a taxpayer with income of $140,000 would be ineligible to contribute to a Roth IRA.

Individuals aged 50 and older can make additional $1,000 catch-up contributions. The AGI limit for eligibility has been adjusted for inflation since 2007; beginning in 2009, the traditional and Roth IRA contribution limit has also been adjusted for inflation. A worksheet for computing reduced Roth IRA contribution limits is provided in IRS Publication 590-A.

Investment Options

Roth IRAs must be designated as such when they are set up. As with traditional IRAs, they can be set up through many financial institutions. Transactions prohibited within traditional IRAs are also prohibited within Roth IRAs.

Conversions and Rollovers

Individuals may convert amounts from traditional IRAs, SEP-IRAs, or SIMPLE-IRAs to Roth IRAs.¹⁷15 Since 2008, individuals have been able to rollover distributions directly from qualified retirement plans to Roth IRAs. Amounts that would have been included in income if the conversion had not been madeThe amount of the conversion must be included in taxable income. Conversions can be a trustee-to-trustee transfer, a same trustee transfer by redesignating the IRA as a Roth IRA, or a rollover directly to the account holder. Inherited IRAs cannot be converted.

The rules for rollovers that apply to traditional IRAs, including completing a rollover within 60 days, also apply. Additionally, withdrawals from a converted IRA prior to five years from the beginning of the year of conversion are non-qualified distributions and are subject to a 10% penalty.

Tax-free withdrawals from one Roth IRA transferred to another Roth IRA are allowed if completed within 60 days. Rollovers from Roth IRAs to other types of IRAs or to employer-sponsored retirement plans are not allowed.

Withdrawals

The three kinds of distributions from Roth IRAs are (1) return of regular contributions, (2) qualified distributions, and (3) non-qualified distributions. Returns of regular contributions and qualified distributions are not included as part of taxable income.

Return of Regular Contributions

Distributions from Roth IRAs that are a return of regular contributions are not included in gross income nor are they subject to the 10% penalty on early distributions.

Qualified Distributions

Qualified distributions must satisfy both of the following:

• they are made after the five-year period beginning with the first taxable year for which a Roth IRA contribution was made,¹⁸16 and
• they are made on or after the age of 59½; because of disability; to a beneficiary or estate after death; or to purchase, build, or rebuild a first home up to a $10,000 lifetime limit.

Non-Qualified Distributions

Distributions that are neither returns of regular contributions nor qualified distributions are considered non-qualified distributions. Although individuals might have several Roth IRAs from which withdrawals can be made, for tax purposes non-qualified distributions are assumed to be made in the following order:

• 1. the return of regular contributions,
• 2. conversion contributions on a first-in-first-out basis, and
• 3. earnings on contributions.

Non-qualified distributions may have to be included as part of income for tax purposes. A worksheet is available in IRS Publication 590-B to determine the taxable portion of non-qualified distributions. A 10% penalty applies to non-qualified distributions unless one of the exceptions in 26 U.S.C. Section 72(t) applies. The exceptions are identical to those previously listed for early withdrawals from traditional IRAs.

Distributions After Roth IRA Owner's Death

If the owner of a Roth IRA dies, the distribution rules depend on whether the beneficiary is the spouse or a nonspouse. If the beneficiary is the spouse, then the spouse becomes the new owner of the inherited Roth IRA. If the spouse chooses not to treat the inherited Roth IRA as their own, or if the beneficiary is a nonspouse, then there are two options. The beneficiary can distribute the entire interest in the Roth IRA (1) by the end of the fifth calendar year after the year of the owner's death, or (2) over the beneficiary's life expectancy. As with an inherited traditional IRA, a spouse can delay distributions until the decedent would have reached the age of 70½.

Distributions from inherited Roth IRAs are generally free of income tax. The beneficiary may be subject to taxes if the owner of a Roth IRA dies before the end of (1) the five-year period beginning with the first taxable year for which a contribution was made to a Roth IRA or (2) the five-year period starting with the year of a conversion from a traditional IRA to a Roth IRA. The distributions are treated as described in the "Non-Qualified Distributions" section, above.

Retirement Savings Contribution Credit

The Economic Growth and Tax Relief Reconciliation Act of 2001 (P.L. 107-16) authorized a non-refundable tax credit of up to $1,000 for eligible individuals, or $2,000 if filing a joint return, who contribute to IRAs or employer-sponsored retirement plans.¹⁹17 The tax credit is in addition to the tax deduction for contributions to traditional IRAs or other employer-sponsored pension plans. To receive the credit, taxpayers must be at least 18 years old, not full-time students, not an exemption on someone else's tax return, and have AGI less than certain limits. The limits are in Table 65. For example, individuals who make a $2,000 IRA contribution in 20142016, have income of $15,000, and list their filing status as single would be able to reduce their 20142016 tax liability by up to $1,000. Taxpayers must file form 1040, 1040A, or 1040NR. It is not available on form 1040EZ, which may limit the use of the credit.

pub/irs-news/IR-15-118.pdf. Data on IRA Assets, Sources of Funds, and Ownership Table 6 contains data on the end-of-year assets in traditional and Roth IRAs from 2005 to 2014. According to the Investment Company Institute, traditional IRAs held much more in assets than Roth IRAs. At the end of 2014, there was $6.4 trillion held in traditional IRAs and $550 billion held in Roth IRAs. Within traditional IRAs, more funds flowed from rollovers from employer-sponsored pensions compared with funds from regular contributions.¹⁸ For example, in 2012 (the latest year for which such data are available) funds from rollovers were $301.0 billion, whereas funds from contributions were only $14.1 billion.¹⁹ However, within Roth IRAs in 2012 more funds flowed from contributions ($17.7 billion in 2012) than from rollovers ($4.4 billion in 2012).²⁰ Table 6. Traditional and Roth IRAs: End of Year Assets

(in billions of dollars)

 

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

Traditional IRAs

3,034

3,722

4,187

3,257

3,941

4,340

4,531

5,109

6,019

6,421

Roth IRAs

156

196

232

177

239

355

365

420

505

550

Source: The Congressional Research Service (CRS) table using data from the Investment Company Institute, The U.S. Retirement Market, Third Quarter 2015, Table 8, available at http://www.ici.org/info/ret_15_q3_data.xls. Table 7 provides data on IRA ownership and account balances among households that owned IRAs in 2013 and Table 8 provides data on three types of IRAs: traditional, Roth, and rollover IRAs. The data are from CRS analysis of the 2013 Survey of Consumer Finances (SCF).²¹ The SCF is a triennial survey conducted on behalf of the Board of Governors of the Federal Reserve and contains detailed information on U.S. household finances, such as the amount and types of assets owned, the amount and types of debt owed, and detailed demographic information on the head of the household and spouse. The SCF is designed to be nationally representative of the 122.5 million U.S. households in 2013.

The following are some key points regarding ownership of IRAs:

28% of U.S. households had an IRA in 2013. Among households that owned IRAs, the median account balance ($50,000) was smaller than the average account balance ($191,702), which indicates that some households likely had very large IRA account balances.

Except for households in which the head of the household was 75 or older in 2013, the older that the head of the household was in 2013, the more likely the household was to have an IRA. Households that were 75 or older were more likely to have income from a traditional defined benefit pension plan and my not have had as great a need to establish an IRA or have a 401(k) account from which to make a rollover.²²

The percentage of households with an IRA and the median and average account balances increased with the income of the household. Among the explanations for this finding are that (1) households with more income are better able to save for retirement and (2) households with higher income are more likely to participate in a defined contribution (DC) plan (like a 401(k)) and therefore have an account to roll over.²³

Married households are more likely to have an IRA than single households and their median and average account balances are also larger.

Table 7. Ownership and Account Balances for IRAs in 2013  

Percentage of Households with Account

Median Account Balance

Average Account Balance

All Households

28.0%

$50,000

$191,702

Age of the Head of the Household:

Younger than 35

13.8%

$10,000

$23,003

35 to 44

25.2%

$25,000

$73,173

45 to 54

28.1%

$46,000

$116,354

55 to 64

38.1%

$70,000

$224,426

65 to 74

40.9%

$126,000

$395,853

75 and Older

26.4%

$70,000

$228,620

Household Income:

Less than $30,000

6.6%

$23,000

$79,036

$30,000 to $49,999

19.2%

$26,500

$77,434

$50,000 to $74,999

29.0%

$45,000

$130,533

$75,000 to $124,999

40.4%

$50,000

$182,329

$125,000 or more

64.1%

$200,000

$690,515

Household Marital Status:

Married

34.3%

$114,000

$527,171

Single

19.6%

$48,000

$160,789

Source: CRS analysis of the 2013 Survey of Consumer Finances.

Note: Median and average account balances are calculated among households that owned IRAs.

Table 8 provides data on three types of IRAs: traditional, Roth, and rollover IRAs.

The following are key points regarding ownership of three types of IRAs in 2013:

• A larger percentage of households had traditional IRAs than had either Roth or rollover IRAs.
• With the exception of the median account for traditional IRAs in which the head of the household was aged 45 to 54, median and average account balances were higher for rollover IRAs than for either traditional or Roth IRAs. Funds contributed to rollover IRAs consist of defined contribution plan account balances (such as from a 401(k) plan) whereas traditional and Roth IRAs consist of accumulated contributions (which are limited to $5,500 per year ($6,500 for individuals 50 and older)).
• Among the age group classifications, ownership percentages for each of types of IRAs increased from the youngest age group (younger than 35) to the 55-to-64 age group. For the 65-to-74 age group, ownership percentages increased for traditional and rollover IRAs and decreased for Roth IRAs. For the three types of IRAs, ownership percentages decreased from the 65-to-74-year-old age group to the 75-and-older age group. With the exception of the oldest age group, median and average account balances also increased as the age of the head of the household increased for each of the three types of IRAs.
• Among the income group classifications, ownership percentages of each of the three types of IRAs increased as the household income increased. With the exception of the average rollover IRA account balance as household income increased from less than $30,000 to $30,000 to $49,999, median and average account balances increased as household income increased.
• Married households were more likely to have any of the types of IRAs compared to single households. Married households also had higher median and average balances for each of the three types of IRAs.

Table 8. Ownership and Account Balances for Traditional, Roth, and Rollover Individual Retirement Accounts (IRAs) in 2013  

Traditional IRAs

Roth IRAs

Rollover IRAs

 

Percentage of Households with Account

Median Account Balance

Average Account Balance

Percentage of Households with Account

Median Account Balance

Average Account Balance

Percentage of Households with Account

Median Account Balance

Average Account Balance

All Households

14.9%

$50,000

$154,234

10.5%

$20,000

$67,966

10.2%

$75,000

$230,602

Age of the Head of the Household:

Younger than 35

4.1%

$10,000

$20,763

8.3%

$6,000

$13,052

4.1%

$9,800

$30,122

35 to 44

9.3%

$23,000

$58,373

12.4%

$16,000

$46,873

8.5%

$35,000

$85,357

45 to 54

14.6%

$40,000

$79,157

12.1%

$21,000

$65,698

11.8%

$38,000

$112,026

55 to 64

22.4%

$60,000

$177,052

13.7%

$30,000

$73,944

14.0%

$100,000

$256,386

65 to 74

25.6%

$80,000

$290,562

10.7%

$50,000

$142,168

17.0%

$157,000

$424,939

75 and Older

19.9%

$56,000

$123,928

3.0%

$50,000

$156,134

6.8%

$150,000

$456,075

Household Income:

Less than $30,000

3.5%

$15,000

$42,327

1.7%

$8,200

$57,931

2.0%

$46,000

$129,538

$30,000 to $49,999

9.3%

$35,000

$72,689

6.7%

$10,000

$34,889

5.8%

$48,000

$96,636

$50,000 to $74,999

14.7%

$50,000

$114,994

9.8%

$19,500

$43,382

11.2%

$51,500

$142,397

$75,000 to $124,999

20.5%

$56,000

$164,530

16.9%

$21,000

$49,417

14.6%

$65,000

$209,887

$125,000 or more

37.8%

$122,500

$392,466

25.7%

$55,000

$578,798

25.0%

$252,000

$650,003

Household Marital Status:

Married

19.1%

$90,000

$321,030

13.3%

$35,000

$402,927

13.0%

$134,000

$499,037

Single

9.4%

$40,000

$140,040

6.8%

$20,000

$66,231

6.4%

$78,000

$211,516

Source: CRS analysis of the 2013 Survey of Consumer Finances.

Note: Median and average account balances are calculated among households that owned IRAs.

Appendix. Qualified Distributions Related to Natural Disasters

As part of the response to the 2005 hurricanes that affected the communities on and near the Gulf of Mexico, Congress approved provisions that exempted individuals affected by the storms from the 10% early withdrawal penalty for withdrawals from IRA. In 2008, Congress approved similar provisions in response to the storms and flooding in certain Midwestern states. Following Hurricane Sandy in October 2013, the Internal Revenue Service (IRS) eased certain requirements for hardship distributions from defined contribution plans. The IRS was unable to exempt distributions from retirement plans from the 10% early withdrawal penalty because such an exemption requires congressional authorization.

Qualified Distributions Related to Hurricanes Katrina, Rita, and Wilma

In response to Hurricanes Katrina, Rita, and Wilma, Congress approved the Gulf Opportunity Zone Act of 2005 (P.L. 109-135). The act amended the Internal Revenue Code to allow residents in areas affected by these storms who suffered economic losses to take penalty-free distributions up to $100,000 from their retirement plans, including traditional and Roth IRAs. The distributions must have been received after August 24, 2005 (Katrina), September 22, 2005 (Rita), or October 22, 2005 (Wilma), and before January 1, 2007. The distributions are taxable income and can be reported as income either in the year received or over three years (e.g., a $30,000 distribution made in May 2006, can be reported as $10,000 of income in 2006, 2007, and 2008). Alternatively, part or all of the distribution may be repaid to the retirement plan within three years of receiving the distribution without being considered taxable income.

Qualified Distributions Related to the Midwestern Disaster Relief Area

In response to severe storms, tornados, and flooding that occurred in certain Midwestern states, the Heartland Disaster Tax Relief Act of 2008 allows residents of specified Midwest areas to take penalty-free distributions up to $100,000 from their retirement plans, including traditional and Roth IRAs. This act was passed as Division C of P.L. 110-343, the Emergency Economic Stabilization Act of 2008. The bill amends 26 U.S.C. 1400Q, which was enacted as part of the Gulf Opportunity Zone Act of 2005 (P.L. 109-135). The distributions must be received after the date in which the President declared an area to be a major disaster area and before January 1, 2010.²⁰24 Apart from the dates and the areas affected, the provisions are identical to the provisions for individuals who were affected by Hurricanes Katrina, Rita, and Wilma.

Hurricane Sandy Relief

No legislation was passed that would have (1) exempted individuals in areas affected by Hurricane Sandy from the 10% penalty for early withdrawals from IRAs or defined contribution retirement plans or (2) eased requirements for loans from defined contribution pensions for individuals affected by Hurricane Sandy in 2012.²¹

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The IRS eased requirements for hardship distributions in areas affected by Hurricane Sandy. Among the relief offered by the IRS in Announcement 2012-44, "Plan administrators may rely upon representations from the employee or former employee as to the need for and amount of a hardship distribution" rather than require documentation from the employee of the need.²²26 The relief offered by the IRS did not include an exemption from the 10% penalty for distributions before the age of 59½. Exemptions from the 10% penalty require congressional authorization. In addition, in the announcement, the IRS suspended the provision that requires an individual to suspend contributions to a 401(K) and 403(b) plans for the six months following a hardship distribution.

Footnotes

24.

1.	For more information on the tax treatment of retirement savings, including IRAsIndividual Retirement Accounts (IRAs), see U.S. Congress, Joint Committee on Taxation, Present Law And Background Relating To The Tax Treatment Of Retirement Savings, prepared by Joint Committee on Taxation, 112th Cong., 2nd sess., April 13, 2012, JCX-32-12.
2.	See also 26 U.S.C. §408 for traditional IRAs and 26 U.S.C. §408A for Roth IRAs.
3.	For additional information, see CRS Report RL30255, Individual Retirement Accounts (IRAs): Issues and Proposed Expansion, by [author name scrubbed] and [author name scrubbed], and CRS Report RS22019, IRAs and Other Savings Incentives: A Brief Overview, by [author name scrubbed]. There are also two kinds of IRAs established by employers for employees in small businesses: Simplified Employee Pensions (SEP-IRA) and Savings Incentive Match Plans for Employees (SIMPLE-IRA).
4.	Generally, rollovers are tax-free distributions of assets from one retirement plan that are contributed to a second retirement plan. Regular contributions are contributions to IRAs that are made from individuals' pre- or post-tax income (subject to the rules of the particular type of IRA).
5.	See the Investment Company Institute, The U.S. Retirement Market, Third Quarter 2014, Table 9, available at http://www.ici.org/info/ret_14_q3_data.xls.
6There are also two kinds of IRAs established by employers for employees in small businesses: Simplified Employee Pensions (SEP-IRA) and Savings Incentive Match Plans for Employees (SIMPLE-IRA). These are not discussed in this report. 4.	Gold, silver, and platinum coins issued by the U.S. Treasury, and gold, silver, palladium, and platinum bullion are permissible.
75.	The publication is available on the IRSInternal Revenue Service (IRS) website at http://www.irs.gov/pub/irs-pdf/p590.pdfpublications/p590a.
86.	For a detailed explanation of withdrawals from IRAs, see CRS Report R40192, Early Withdrawals and Required Minimum Distributions in Retirement Accounts: Issues for Congress, by [author name scrubbed].
97.	Life expectancy is calculated differently depending on whether the account holder (1) is single and an IRA beneficiary, (2) has a spouse who is more than 10 years younger, (3) has a spouse who is not more than 10 years younger, (4) whose spouse is not the sole beneficiary, or (5) is unmarried.
108.	The Supreme Court ruled in Arizona Governing Comm. vs. Norris, 463 U.S. 1073 (1983), that employer-provided pension plans must use unisex tables in calculating monthly annuity benefits. Citing this ruling, the IRS constructs its own unisex life expectancy tables. See 26 U.S.C. §417(e)(3)(A)(ii).
119.	Although proposals Congress did not enact any of the proposals that were introduced to suspend the RMD in years after 2009, Congress did not enact any. See CRS Report R40192, Early Withdrawals and Required Minimum Distributions in Retirement Accounts: Issues for Congress, by [author name scrubbed].
1210.	See CRS Report RS22766, Qualified Charitable Distributions from Individual Retirement Accounts: Features and Legislative History, by [author name scrubbed] and [author name scrubbed].
1311.	See 26 U.S.C. §72(t).
1412.	A trustee-to-trustee transfer is a transfer of funds made directly between two financial institutions. The individual does not take possession of the funds at any point.
1513.	See Bobrow vs. Commissioner - U.S. Tax Court, available at http://www.ustaxcourt.gov/InOpHistoric/bobrowmemo.nega.TCM.WPD.pdf. Prior to this decision, the IRS applied the one-rollover-per-year on an IRA-by-IRA basis.
1614.	Roth IRAs are named for former Senator William Roth (DE).
1715.	Prior to January 1, 2010, only individuals with income under specified thresholds were eligible to make conversions from traditional to Roth IRAs. The Tax Increase Prevention and Reconciliation Act of 2005 (TIPRA; P.L. 109-222) eliminated the income thresholds.
1816.	The five-year period is not necessarily five calendar years. Contributions made from January 1 to April 15 could be considered made in the previous tax year.
1917.	See also CRS Report RS21795, The Retirement Savings Tax Credit: A Fact Sheet, by [author name scrubbed].
2018.	Generally, rollovers are tax-free distributions of assets from one retirement plan that are contributed to a second retirement plan. Regular contributions are contributions to IRAs that are made from individuals' pre- or post-tax income (subject to the rules of the particular type of IRA).
19.	See the Investment Company Institute, The U.S. Retirement Market, Third Quarter 2015, Table 9, available at http://www.ici.org/info/ret_15_q3_data.xls.
20.	See the Investment Company Institute, The U.S. Retirement Market, Third Quarter 2015, Table 10, available at http://www.ici.org/info/ret_15_q3_data.xls.
21.	More information on the SCF is available at http://www.federalreserve.gov/econresdata/scf/scfindex.htm.
22.	In defined benefit (DB) pension plans, participants receive a monthly payment in retirement that is based on a formula that typically uses a combination of length of service, accrual rate, and average of final years' salary. For example, a plan might specify that retirees receive an amount equal to 1.5% of their pay for each year of service, where the pay is the average of a worker's highest five pay years. Over the past 30 years, the number of employers offering DB pension plans has declined, though many older workers were more likely to have a DB than a 401(k) plan. See Figure 3. Percentage of Households in 2010 with an IRA Balance, DC Account Balance, or a Defined Benefit Pension, in CRS Report R43057, U.S. Household Savings for Retirement in 2010.
23.	See CRS Report R43439, Worker Participation in Employer-Sponsored Pensions: A Fact Sheet.
The disaster areas are limited to Arkansas, Illinois, Indiana, Iowa, Kansas, Michigan, Minnesota, Missouri, Nebraska, and Wisconsin.
2125.	H.R. 2137, the Hurricane Sandy Tax Relief Act of 2013, introduced by Representative Bill Pascrell on May 23, 2013, would have provided an exemption to the 10% early withdrawal penalty for retirement account distributions for those affected by Hurricane Sandy.
2226.	See 26 CFR 1.401(k)-1.