Traditional and Roth Individual Retirement
Accounts (IRAs): A Primer
Updated February 3, 2021
Congressional Research Service
https://crsreports.congress.gov
RL34397

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

Summary
In response to concerns over the adequacy of retirement savings, Congress has created incentives
to encourage individuals to save 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 certain individuals—traditional and Roth IRAs. Although the accounts have many
features in common, they differ in some 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 general y included in taxable income, whereas certain 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
(e.g., distributions from IRAs after the individual is aged 59½ or older are not subject to the early
withdrawal penalty).
Individuals may roll over 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 al owing investment earnings on the funds in the retirement accounts to
accrue on a tax-deferred basis, 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
nonrefundable tax credit of up to $1,000 ($2,000 if married filing jointly). It was authorized in
2001 to encourage retirement savings among individuals with income under specified limits.
This report explains IRAs’ eligibility requirements, contribution limits, tax deductibility of
contributions, and withdrawal rules, and it provides data on the accounts’ holdings. It also
describes the Saver’s Credit and provisions enacted after the Gulf of Mexico hurricanes in 2005,
the Midwestern storms in 2008, the hurricanes in 2012 and 2017, the California wildfires in 2017,
certain other federal y declared disasters occurring on or after January 1, 2018, and the
Coronavirus Disease 2019 (COVID-19) pandemic to exempt distributions to those affected from
the 10% early withdrawal penalty.

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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 pretax 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). IRAs were original y limited to workers without pension coverage, but the
Economic Recovery Act of 1981 (P.L. 97-34) made al workers and spouses eligible for IRAs.
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)
al owed 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: it (1) increased the limits, (2) indexed
the limits to inflation, and (3) al owed for individuals aged 50 and older to make additional
“catch-up” contributions. Among other provisions, the Pension Protection Act of 2006 (PPA; P.L.
109-280) made permanent the indexing of contribution limits to inflation, al owed taxpayers to
direct the Internal Revenue Service (IRS) to deposit tax refunds directly into an IRA, and
temporarily al owed for certain tax-free distributions for charitable contributions (which was later
made permanent by P.L. 114-113).2
The Setting Every Community up for Retirement Enhancement Act of 2019 (SECURE Act),
enacted as Division O of the Further Consolidated Appropriations Act, 2020 (P.L. 116-94),
included multiple provisions related to IRAs. The SECURE Act
 repealed the maximum age at which individuals can contribute to traditional
IRAs;
 increased the age at which required minimum distributions (RMDs) from
traditional IRAs must begin;
 treated certain nontuition fel owship and stipend payments as compensation for
IRA contribution purposes;
 treated tax-exempt “difficulty of care” payments to home healthcare providers as
compensation for nondeductible IRA contribution limit purposes;
 al owed penalty-free early withdrawals for qualifying birth and adoption
purposes; and
 modified distribution rules for inherited IRAs.
This report describes the two types of IRAs that individual workers 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 describes the

1 For more information on the tax treatment of retirement savings, including Individual Retirement Account s (IRAs),
see U.S. Congress, Joint Committee on T axation, Present Law and Background Relating to the Tax Treatm ent of
Retirem ent Savings, prepared by Joint Committee on T axation, 112 th 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 T here are also two types of IRA-based retirement plans available to small employers: Simplified Employee Pensions
(SEP-IRA) and Savings Incentive Match Plans for Employees (SIMPLE-IRA). T hese are not discussed in this report.
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Traditional and Roth Individual Retirement Accounts (IRAs): A Primer

relief provided to those affected by the 2005 Gulf of Mexico hurricanes; the 2008 Midwestern
floods; Hurricane Sandy in 2012; Hurricanes Harvey, Irma, and Maria in 2017; the California
wildfires in 2017; certain other federal y declared disasters taking place on or after January 1,
2018; and the Coronavirus Disease 2019 (COVID-19) pandemic.
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 source of
income in retirement. Among the benefits of traditional IRAs, two are (1) pretax contributions,
which provide larger bases for accumulating investment earnings and, thus, may 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. Because 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 who receive taxable compensation can set up and contribute to IRAs.4 Examples of
compensation include wages, salaries, tips, commissions, self-employment income, nontaxable
combat pay, and alimony (which is treated as compensation for IRA purposes).5 Compensation
also includes nontuition fel owship and stipend payments (i.e., payments to individuals that are
used in the pursuit of graduate or postdoctoral study).6 Tax-exempt “difficulty of care” payments
to home healthcare workers (i.e., payments for the additional care needed for certain qualified
foster individuals) are treated as compensation for nondeductible IRA contribution limit
purposes.7 Individuals who receive income only from noncompensation sources cannot contribute
to IRAs.
Contributions
Individuals may contribute either their gross compensation or the contribution limit, whichever is
lower. In 2021, the annual contribution limit is $6,000. Since 2009, the contribution limit has
been subject to cost-of-living adjustments.8 Individuals aged 50 and older may make additional
annual $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 ($6,000 each, if younger than the age of 50, and $7,000
each, if aged 50 and older), whichever is lower. Contributions that exceed the contribution limit
and are not withdrawn by the due date for that year’s tax return are considered excess

4 T he SECURE Act (Division O of P.L. 116-94) repealed the maximum age at which individuals may contribute to
IRAs. Prior to the SECURE Act, individuals were not allowed to contribute to traditional IRAs after reaching age 70½.
5 See Internal Revenue Service (IRS), Tax Topic Number 451 - Individual Retirement Arrangements (IRAs), at
https://www.irs.gov/taxtopics/tc451.
6 Section 106 of the SECURE Act (Division O of P.L. 116-94) added this provision.
7 Section 116 of the SECURE Act (Division O of P.L. 116-94) added this provision. Individuals with “difficulty of
care” payments may increase their nondeductible IRA contribution limit (in 2020, this limit is the individual’s taxable
income, up to $6,000 [$7,000 for individuals aged 50 and older]) by some or all of the amount of these payments. See
IRS, Publication 590-A, at https://www.irs.gov/publications/p590a#en_US_2019_publink100031635 . T hese payments
do not affect deductibility.
8 26 U.S.C. §415 requires the adjustments be made with procedures used to adjust Social Security benefit amounts. For
more information on Social Security adjustments, see CRS Report 94-803, Social Security: Cost-of-Living Adjustm ents.
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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 noncompensation 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. These financial institutions offer an array of
investment choices. Individuals can transfer their accounts from one financial institution to
another at wil .
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; sel ing property to IRAs; and
investing in collectibles like artwork, antiques, metals, gems, stamps, alcoholic beverages, and
most coins.9
Deductibility of Contributions
IRA contributions may be non-tax-deductible, partial y tax-deductible, or fully tax-deductible,
depending on whether the individual or spouse is covered by a pension plan at work and their
level of adjusted gross income (AGI).10 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 not covered by a retirement plan at work, Table 1 outlines the
income levels at which they may deduct al , 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 retirement plan at work, Table 2 outlines
the income levels at which they may deduct al , some, or none of their IRA contributions,
depending on the individual’s or household’s AGI.

9 Gold, silver, and platinum coins issued by the U.S. T reasury, and gold, silver, palladium, and platinum bullion are
permissible.
10 IRS, “Definition of Adjusted Gross Income,” at https://www.irs.gov/e-file-providers/definition-of-adjusted-gross-
income.
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Traditional and Roth Individual Retirement Accounts (IRAs): A Primer

Individuals may stil contribute to IRAs up to the contribution limit even if the contribution is
nondeductible. Nondeductible contributions come from post-tax income, not pretax income.11
Only contributions greater than the contribution limits are considered excess contributions.
Worksheets for computing partial deductions are included in “IRS Publication 590-A,
Contributions to Individual Retirement Arrangements (IRAs).”12
Table 1. Deductibility of IRA Contributions for Individuals
Not Covered by a Retirement Plan at Work for 2020 and 2021
2020 Adjusted
2021 Adjusted
Deduction
Filing Status
Gross Income
Gross Income
Allowed
Single, head of household, qualifying widow(er), or
Any amount
Any amount
Ful
married filing jointly or separately with a spouse
deduction
who is not covered by a plan at work
Married filing jointly with a spouse who is covered
$196,000 or less
$198,000 or less
ful deduction
by a plan at work
More than
More than
Partial
$196,000 but less
$198,000 but less
deduction
than $206,000
than $208,000
$206,000 or more
$208,000 or more
No
deduction
Married filing separately with a spouse who is
Less than $10,000
Less than $10,000
Partial
covered by a plan at work
deduction
$10,000 or more
$10,000 or more
No
deduction
Sources: IRS Publication 590-A, at http://www.irs.gov/publications/p590a/ and 2021 Limitations Adjusted as
Provided in Section 415(d), etc., Notice 2020-79, at https://www.irs.gov/pub/irs-drop/n-20-79.pdf.
Table 2. Deductibility of IRA Contributions for Individuals
Covered by a Retirement Plan at Work for 2020 and 2021
2020 Adjusted
2021 Adjusted
Deduction
Filing Status
Gross Income
Gross Income
Allowed
Single or head of household $65,000 or less
$66,000 or less
Ful deduction
More than $65,000 but less
More than $66,000 but less
Partial deduction
than $75,000
than $76,000
$75,000 or more
$76,000 or more
No deduction
Married filing jointly or
$104,000 or less
$105,000 or less
Ful deduction
qualifying widow(er)
More than $104,000 but less
More than $105,000 but less
Partial deduction
than $124,000
than $125,000
$124,000 or more
$125,000 or more
No deduction
Married filing separately
Less than $10,000
Less than $10,000
Partial deduction
$10,000 or more
$10,000 or more
No deduction

11 One advantage to placing post -tax income in traditional IRAs is that investment earnings on nondeductible
contributions are not taxed until distributed.
12 T he publication is available on the IRS website at http://www.irs.gov/publications/p590a.
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Sources: IRS Publication 590-A, at http://www.irs.gov/publications/p590a/ and 2021 Limitations Adjusted as
Provided in Section 415(d), etc., Notice 2020-79, at https://www.irs.gov/pub/irs-drop/n-20-79.pdf.
Withdrawals
Withdrawals from IRAs are subject to income tax in the year that they are received. 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 72 (i.e., the required
beginning date).13 The minimum amount that must be withdrawn (i.e., the required minimum
distribution, or RMD) for each year 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.14 Although females live longer on average than males, the IRS does not
separate life expectancy tables for males and females for this purpose.15 RMDs must be received
by December 31 of each year. Failure to take the RMD results in a 50% excise tax on the amount
that was required to have been distributed. Congress suspended the RMD for 2009 and 2020.16
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 was made permanent in P.L. 114-113.17
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 preretirement uses, most early distributions are subject to a 10% tax penalty.18 The
early withdrawal penalty does not apply if the IRA owner is younger than age 59½ and the
distributions
 occur if the individual is a beneficiary of a deceased IRA owner;
 occur if the individual is disabled;
 are in substantial y equal payments over the account holder’s life expectancy;

13 Section 114 of the SECURE Act (Division O of P.L. 116-94) modified the age at which individuals must begin
taking RMDs from 70½ to 72. T he provision applies to account owners who turn age 70½ on or after January 1, 2020.
14 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.
15 See, for example, the Social Security Actuarial Life T able, at https://www.ssa.gov/oact/ST AT S/table4c6.html. T he
Supreme Court ruled in Arizona Governing Com m . 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).
16 For more information on the 2009 RMD suspension, see CRS Report R40192, Early Withdrawals and Required
Minim um Distributions in Retirem ent Accounts: Issues for Congress. For more information on the 2020 RMD
suspension, see CRS In Focus IF11482, Retirem ent and Pension Provisions in the Coronavirus Aid, Relief, and
Econom ic Security Act (CARES Act) and CRS Insight IN11441, Internal Revenue Service (IRS) Guidance for
Coronavirus-Related Distributions, Plan Loans, and Required Minim um Distribution (RMD) Rollovers.
17 See CRS In Focus IF11377, Qualified Charitable Distributions from Individual Retirement Accounts. T he SECURE
Act did not modify the age at which qualified charitable distributions can be made.
18 See 26 U.S.C. §72(t).
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 are received after separation from employment after the age of 55;
 are for unreimbursed medical expenses in excess of 7.5% of AGI (10% if under
age 65);
 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;
 are used for expenses related to the qualified birth or adoption of a child (up to a
$5,000 withdrawal limit taken within one year following the event);19 or
 occur if the individual is a reservist cal ed to active duty after September 11,
2001.
In response to various disasters and the COVID-19 pandemic, Congress has temporarily
exempted distributions to those affected from the 10% early withdrawal penalty. For example, in
response to the pandemic, Congress permitted qualified individuals to take penalty-free
distributions of up to $100,000 from retirement accounts from January 1, 2020, and before
December 31, 2020 (P.L. 116-136). Details of these various relief provisions—including
definitions of qualifying events and individuals, deadlines, and income inclusion and
recontribution rules—are detailed in the Appendix.
Although early withdrawals from IRAs are permitted without reason, individuals wil 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 transfers or issued directly to individuals who
then deposit the rollovers into traditional IRAs.20 Individuals have 60 days from the date of the
distribution 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 w ithheld 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.

19 Section 113 of the SECURE Act (Division O of P.L. 116-94) added this provision. T his provision is effective for
distributions made after December 31, 2019.
20 A trustee-to-trustee transfer is a transfer of funds made directly between two financial institutions. T he individual
does not take possession of the funds at any point.
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Rollovers Limited to One per Year
A January 2014 U.S. Tax Court decision required that, in certain circumstances, individuals are
limited to a total of one rollover per year for their IRAs.21 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 (i.e., a conversion). The limitation does not apply to trustee-to-trustee transfers (directly from
one financial institution to another) or rollovers from qualified pension plans (such as from
401(k) plans).
Distributions After Traditional IRA Owner’s Death
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 spouse beneficiary,
 designated nonspouse beneficiary,
 eligible designated beneficiary, or
 nondesignated or estate beneficiary.22
Some distribution rules depend on whether the IRA owner died prior to the required beginning
date, the date on which distributions from the account must begin. This is April 1 of the year
following the year in which the IRA owner reaches the age of 72.
Designated Spouse Beneficiaries
A designated spouse beneficiary is al owed to (1) become the new account owner; (2) roll over
the account to the spouse’s own traditional or Roth IRA or qualified employer plan, such as a
401(k), 403(a), 403(b), or 457(b) plan; or (3) be treated as a beneficiary rather than account
owner (in this case, see the rules for eligible designated beneficiaries below). A nonspouse
beneficiary cannot take ownership of an inherited account. Instead, the account becomes an
inherited IRA designated for the nonspouse beneficiary in the name of the deceased account
owner.
A spouse who takes ownership of an inherited traditional IRA must determine the RMD using his
or her own life expectancy. A spouse who takes ownership of an inherited Roth IRA (rather than
becoming a beneficiary) does not have to take an RMD. A spouse who is the sole beneficiary and
chooses to be treated as beneficiary (rather than as owner) may postpone distributions until the
original owner would have reached age 72. This rule applies to both traditional and Roth IRAs.

21 See Bobrow v. Commissioner, T .C. Memo. 2014-21 (United States T ax Court 2014), at https://www.ustaxcourt.gov/
UstcInOp/OpinionViewer.aspx?ID=377. T he court case addressed a situation in which an individual and his spouse
used the 60-day rollover period to continuously move amounts from one IRA to another, thereby gainin g access to
funds for an extended period of time. Prior to this decision, the IRS applied the one-rollover-per-year on an IRA-by-
IRA basis.
22 Section 401 of SECURE Act (Division O of P.L. 116-94) modified distribution rules for designated beneficiaries of
account owners who die after December 31, 2019.
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Designated Nonspouse Beneficiaries
Under the SECURE Act, a designated nonspouse beneficiary of an account owner who dies after
December 31, 2019, must distribute the entire account balance by the end of the 10th calendar
year following the account owner’s year of death (the “10-year rule”), regardless of whether the
original account owner dies before or after the required beginning date. Beneficiaries may choose
the frequency and timing of distributions so long as the account is depleted within the 10-year
period.
Eligible Designated Beneficiaries
The SECURE Act al ows for exceptions to the 10-year rule for an eligible designated beneficiary,
which include (1) a surviving spouse, (2) the account owner’s child who has not reached the age
of majority, (3) an individual who is disabled, (4) a chronical y il individual, and (5) an
individual who is not more than 10 years younger than the account owner. These eligible
designated beneficiaries may general y take distributions over their remaining life expectancy
rather than adhere to the 10-year rule. A minor child of an account owner who is a beneficiary
may calculate distributions based on his or her remaining life expectancy until reaching the age of
majority (age 18 in most states), at which point the remaining account balance must be distributed
within 10 years.
Nondesignated or Estate Beneficiaries
If the account owner dies before the required beginning date and (1) does not designate a
beneficiary or (2) designates a trust as beneficiary, the account balance must be distributed within
five years (“the 5-year rule”). Nondesignated and estate beneficiaries of a Roth IRA must take
distributions as if the account owner died before the required beginning date (i.e., within five
years). If the account owner dies after the required beginning date, the account balance must be
distributed at the same rate or faster than the original account owner was taking distributions (i.e.,
the distribution period is based on the deceased account owner’s life expectancy as of the year of
death; life expectancy is reduced by one year for each subsequent RMD). The SECURE Act did
not change distribution rules for nondesignated beneficiaries.
The distribution rules are summarized in Table 3. Distributions from inherited traditional IRAs
are included in taxable income but are not subject to the 10% early withdrawal penalty. An
individual who fails to take an RMD wil general y incur a 50% excise tax of the amount that was
required to have been withdrawn.
In some cases, IRAs have beneficiaries’ distributions requirements that are more stringent than
those summarized in Table 3. For example, an IRA’s plan documents could require that a
designated spouse or designated nonspouse beneficiary distribute al 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’s
plan documents specify otherwise, it is possible to take distributions faster than required in Table
3. For example, a beneficiary may elect to distribute al assets in a single year (i.e., a lump sum
distribution). In such a case, the entire amount distributed is included in taxable income for that
year.
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Table 3. Inherited IRA Distribution Rules

Owner Dies Before Required
Owner Dies on or After Required Beginning

Beginning Date
Date
Treat as own, does not have to take
any distribution until the age of 72,
but is subject to the 59½ rule, or
Treat as own, does not have to take any
distribution until the age of 72, but is subject to the
Designated Spouse Keep in decedent’s name and take
59½ rule, or
Beneficiary
distributions based on own life
Keep in decedent’s name and take distributions
expectancy. Distributions do not have based on own life expectancy.
to begin until decedent would have
turned 72.
Designated
Nonspouse
Take distributions within 10 years.
Beneficiary
Eligible Designated
Beneficiariesa
Take distributions over the beneficiary’s remaining life expectancy.
Must distribute IRA assets at least as quickly as the
Nondesignated or
Must distribute al IRA assets by the
owner had been taking them (i.e., take a yearly
Estate Beneficiaries
end of the fifth year of the year
distribution based on the owner’s age as of
fol owing the IRA owner’s death.
birthday in the year of death, reduced by one for
each year after the year of death).
Sources: 26 U.S.C. § 401(a)(9) and P.L. 116-94.
Notes: The required beginning date is the date on which distributions from the account must begin. It is April 1
of the year fol owing the year in which the owner of an IRA reaches the age of 72.
a. An eligible designated beneficiary includes a surviving spouse of the account owner (options for a spouse
are described separately in the table); the account owner’s child who has not reached the age of majority
(minor child distributions are calculated based on the child’s remaining life expectancy through the year that
the child reaches the age of majority, after which the 10-year rule applies); an individual who is disabled, a
chronical y il individual, and an individual who is not more than 10 years younger than the account owner.
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; investment earnings accrue
free of taxes.23
Eligibility and Contribution Limits
In contrast to traditional IRAs, Roth IRAs have income limits for eligibility. Table 4 lists the
AGIs at which individuals may make the maximum contribution and the ranges in which this
contribution limit is reduced.24 For example, a 40-year-old single taxpayer with income of
$90,000 may contribute $6,000 in 2021. A similar taxpayer making $130,000 would be subject to

23 Roth IRAs are named for former Senator William Roth.
24 If warranted, the income limits are increased for cost -of-living adjustments. See 2020 Limitations Adjusted as
Provided in Section 415(d), etc., Notice 2019-59, at https://www.irs.gov/pub/irs-drop/n-19-59.pdf; and 2021
Lim itations Adjusted as Provided in Section 415(d), etc., Notice 2020-79, at https://www.irs.gov/pub/irs-drop/n-20-
79.pdf.
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a reduced contribution limit, whereas a taxpayer with income of $145,000 would be ineligible to
contribute to a Roth IRA.
Like traditional IRAs, Roth IRA contributions must come from earned income, excess
contributions are subject to the 6% tax, and contributions made between January 1 and April 15
may be designated for either the current year or the previous year.
Table 4. Roth IRA Eligibility and Annual Contribution Limits for 2020 and 2021
2020 Modified
2021 Modified
Adjusted Gross
2020 Contribution
Adjusted Gross
2021 Contribution
Filing Status
Income (AGI)
Limits
Income (AGI)
Limits
$6,000 ($7,000 if 50
$6,000 ($7,000 if 50
Less than
years or older) or
Less than
years or older) or AGI,
Single, head of
$124,000
AGI, whichever is
$125,000
whichever is smal er
household, married
smal er
filing separately (and
At least $124,000
At least $125,000
did not live with
Reduced contribution
Reduced contribution
but less than
but less than
spouse at any time
limit
limit
$139,000
$140,000
during the year)
$139,000 or
Ineligible to contribute
$140,000 or
Ineligible to contribute
more
more
Married filing
Reduced contribution
Less than
Reduced contribution
separately and lived
Less than $10,000
limit
$10,000
limit
with spouse at any
time during the year
$10,000 or more
Ineligible to contribute
$10,000 or more
Ineligible to contribute
$6,000 ($7,000 each if
$6,000 ($7,000 each if
Less than
50 and older) or AGI,
Less than
50 and older) or AGI,
$196,000
whichever is smal er
$198,000
whichever is smal er
Married filing jointly,
At least $196,000
Reduced contribution
At least $198,000
Reduced contribution
qualifying widow(er)
but less than
limit
but less than
limit
$206,000
$208,000
$206,000 or
$208,000 or
more
Ineligible to contribute
more
Ineligible to contribute
Sources: IRS Publication 590-A, available at http://www.irs.gov/publications/p590a/ and IRS, “Amount of Roth
IRA Contributions That You Can Make for 2021,” at https://www.irs.gov/retirement-plans/amount-of-roth-ira-
contributions-that-you-can-make-for-2021.
Notes: Individuals aged 50 and older can make additional $1,000 catch-up contributions. The adjusted gross
income (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.
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Conversions and Rollovers
Individuals may convert amounts from traditional IRAs, SEP-IRAs, or SIMPLE-IRAs to Roth
IRAs.25 Since 2008, individuals have been able to roll over distributions directly from qualified
retirement plans to Roth IRAs. The 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.
Contributions (not rollovers or conversions) made to a traditional or Roth IRA can be
recharacterized as having been made to the other type of IRA. However, conversions and
rollovers to a Roth IRA made during or after 2018 cannot be recharacterized to a traditional
IRA.26
Rollover rules that apply to traditional IRAs, including completing a rollover within 60 days, also
apply to Roth IRAs. In addition, withdrawals from a converted IRA prior to five years from the
beginning of the year of conversion are nonqualified distributions and are subject to a 10%
penalty (see the “Nonqualified Distributions” section of this report).
Tax-free withdrawals from one Roth IRA transferred to another Roth IRA are al owed if
completed within 60 days. Rollovers from Roth IRAs to other types of IRAs or to employer-
sponsored retirement plans are not al owed.
Withdrawals
The three types of Roth IRA distributions are (1) returns of regular contributions, (2) qualified
distributions, and (3) nonqualified distributions. Returns of regular contributions and qualified
distributions are not included as part of taxable income.
Return of Regular Contributions
Roth IRA distributions that are a return of regular contributions, which are withdrawals of
original contributions, are neither included in taxable income nor subject to the 10% penalty.
Qualified Distributions
Qualified distributions, which include earnings on contributions, 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, and

25 Simplified Employee Pensions (SEP -IRA) and Savings Incentive Match Plans for Employees (SIMPLE-IRA) are
employer-sponsored IRAs available to small employers. SIMPLE-IRAs may be rolled over after two years. Prior to
January 1, 2010, only individuals with income under specified thresholds were eligible to make conversions from
traditional to Roth IRAs. T he T ax Increase Prevention and Reconciliation Act of 2005 (T IPRA; P.L. 109-222)
eliminated the income thresholds.
26 A provision in P.L. 115-97 (a budget reconciliation bill that was originally called the T ax Cuts and Jobs Act)
repealed a special rule that allowed conversions and rollovers to be recharacterized. Prior to the repeal of the special
rule, an individual could have rolled amounts from a traditional IRA to a Roth IRA and then, prior to the due date of
the individual’s tax return, could have transferred the assets back to a traditional IRA. In certain circumstances, this
could have a beneficial effect on an individual’s taxable income.
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 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.27
Nonqualified Distributions
Distributions that are neither returns of regular contributions nor qualified distributions are
considered nonqualified distributions. A 10% penalty applies to nonqualified distributions unless
one of the exceptions in 26 U.S.C. §72(t) applies. The exceptions are identical to those previously
listed for early distributions from traditional IRAs. Although individuals might have several Roth
IRAs from which withdrawals can be made, for tax purposes nonqualified 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.
The taxable portion of any nonqualified distribution (e.g., earnings on contributions) may be
included in taxable income. A worksheet is available in IRS Publication 590-B to determine the
taxable portion of nonqualified distributions.
Distributions After Roth IRA Owner’s Death
The Roth IRA’s original owner does not have to take an RMD (and therefore, has no required
beginning date). Following the initial account owner’s death, the Roth IRA beneficiary must take
an RMD using the same rules that apply to traditional IRAs as if the account owner had died
before the required beginning date.
Distributions from inherited Roth IRAs are general y free of income tax. The beneficiary may be
subject to taxes if the Roth IRA owner 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 “Nonqualified Distributions” section of this report.
Retirement Savings Contribution Credit
The Economic Growth and Tax Relief Reconciliation Act of 2001 (P.L. 107-16) authorized a
nonrefundable tax credit of up to $1,000, or $2,000 if filing a joint return, for eligible individuals
who contribute to IRAs or employer-sponsored retirement plans. The Retirement Savings
Contribution Credit, also referred to as the Saver’s Credit, is in addition to the tax deduction for
contributions to traditional IRAs or other employer-sponsored pension plans. To receive the
credit, a taxpayer must be at least 18 years old, not be a full-time student, not be a dependent on
someone else’s tax return, and have AGI less than certain limits. The limits are in Table 5. For
example, individuals who make a $2,000 IRA contribution in 2020, have income of $15,000, and
list their filing status as single would be able to reduce their 2020 tax liability by up to $1,000.28

27 T he 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.
28 For more information on the Saver’s Credit, see CRS In Focus IF11159, The Retirement Savings Contribution
Credit.
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Table 5. Retirement Saving Contribution Credit Income Limits
for 2020 and 2021
Filing Status
2020 Income Limits
2021 Income Limits
Percentage Credit
Single, Married Filing Separately,
$1 to $19,500
$1 to $19,750
50%
Qualifying Widow(er)
$19,501 to $21,250
$19,751 to $21,500
20%
$21,251 to $32,500
$21,501 to $33,000
10%
more than $32,500
more than $33,000
0%
Head of Household
$1 to $29,250
$1 to $29,625
50%
$29,251 to $31,875
$29,626 to $32,250
20%
$31,876 to $48,750
$32,251 to $49,500
10%
more than $48,750
more than $49,500
0%
Married Filing Jointly
$1 to $39,000
$1 to $39,500
50%
$39,001 to $42,500
$39,501 to $43,000
20%
$42,501 to $65,000
$43,001 to $66,000
10%
more than $65,000
more than $66,000
0%
Sources: IRS Publication 590-A, at http://www.irs.gov/publications/p590a/; 2020 Limitations Adjusted as Provided in
Section 415(d), etc., Notice 2019-59, at https://www.irs.gov/pub/irs-drop/n-19-59.pdf; and 2021 Limitations Adjusted
as Provided in Section 415(d), etc., Notice 2020-79, at https://www.irs.gov/pub/irs-drop/n-20-79.pdf.
Data on IRA Assets, Sources of Funds, Ownership,
and Contributions
Table 6 contains data on the end-of-year assets in traditional and Roth IRAs from 2008 to 2019.
According to the Investment Company Institute, traditional IRAs held much more in assets than
Roth IRAs. At the end of 2019, total traditional IRA balances were $9.4 tril ion and total Roth
IRA balances were $1.0 tril ion. Within traditional IRAs, more funds flowed from employer-
sponsored pension rollovers than from regular contributions.29 For example, in 2017 (the latest
year for which such data are available), within traditional IRAs, funds from rollovers were $463
bil ion, whereas funds from contributions were $18.8 bil ion.30 In contrast, within Roth IRAs in
2017, more funds flowed from contributions ($23.5 bil ion) than from rollovers ($9.9 bil ion).31

29 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 t hat are made from individuals’ pre- or post -tax
income (subject to the rules of the particular type of IRA).
30 See Investment Company Institute, “The U.S. Retirement Market ,” T able 11, at https://www.ici.org/research/stats/
retirement/.
31 Investment Company Institute, “The U.S. Retirement Market ,” T able 12.
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Table 6. Traditional and Roth IRAs: End of Year Assets
(in bil ions of dol ars)

200
201
201
201
201
201
201
2017
2018
2019
2008
9
0
1
2
3
4
5
2016
Traditional
3,94
4,34
4,45
4,96
5,82
6,22
6,38
IRAs
3,257
1
0
9
9
8
5
7 6,824 8,018 7,850 9,350
Roth IRAs
177
239
355
360
439
548
600
625
697
842
850 1,020
Source: Congressional Research Service (CRS) using data from the Investment Company Institute (ICI), The
U.S. Retirement Market, First Quarter 2020, Table 10, at https://www.ici.org/research/stats/retirement/. ICI
estimated 2018 and 2019 data. Data for 2020 were not available as of the date of this report.
Table 7 and Table 8 provide additional data on IRA ownership amounts among U.S. households.
The data are from CRS analysis of the 2019 Survey of Consumer Finances (SCF).32 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.33 The SCF is designed to be national y representative of U.S.
households, of which there were 128.6 mil ion in 2019.
Table 7 categorizes IRAs by the amount in the account. Among households that have IRAs,
56.4% have account balances of less than $100,000 and 6.0% have account balances of $1 mil ion
or more.34
Table 7. Distribution of Individual Retirement Account (IRA) Balances in 2019
Percentage of All U.S.
Percentage of U.S. Households

Households
with IRAs
With an IRA
25.3%
-
Account balance

$1 to $24,999
7.2%
28.5%
$25,000 to $49,999
3.2%
12.8%
$50,000 to $99,999
3.8%
15.1%
$100,000 to $249,999
4.6%
18.4%
$250,000 to $999,999
4.9%
19.3%
$1,000,000 to $2,499,999
1.2%
4.9%
$2,500,000 or more
0.3%
1.1%
Source: CRS analysis of 2019 Survey of Consumer Finances.

32 More information on the Survey of Consumer Finances (SCF) is available at http://www.federalreserve.gov/
econresdata/scf/scfindex.htm.
33 T he SCF data and codebook are available at https://www.federalreserve.gov/econres/scfindex.htm. In the SCF, the
head of the household is the individual in a single household, the male in a mixed-sex couple, or the older individual in
the case of a same-sex couple. T he SCF codebook indicates that “ no judgment about the internal organization of the
households is implied by this organization of the data” and that the “term is euphemistic and merely reflects the
systematic way in which the data set has been organized.”
34 T he first figure is calculated by adding the percentages of U.S. households with IRAs with balances between $1 and
$99,999 (28.5% + 12.8% + 15.1% = 56.4%). T he second figure is calculated by adding the percentages with balances
of $1,000,000 or higher (4.9% + 1.1% = 6.0%).
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Notes: Analysis does not include households with Keogh accounts. Balances represent the aggregate value of al
IRAs within a household. Numbers may not sum to total due to rounding.
Table 8 provides data on IRA ownership and account balances among households that owned
IRAs in 2019.
The following are some key points from Table 8 regarding IRA ownership:
 In 2019, 25.3% of U.S. households had an IRA. Among households that owned
IRAs, the median account balance ($70,000) was smal er than the average
account balance ($253,799), which indicates that some households likely had
very large IRA account balances.
 Households were more likely to own IRAs as the age of head of household
increased. The median and average account balances also increased as the age of
the head of the household increased.
 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.35
 Married households were more likely to have an IRA than single households and
their median and average account balances were also larger. The explanations
could include the following: both spouses in a married household might have
work histories, enabling both to save for retirement or a married household might
need larger retirement savings because two people would be using the retirement
savings for living expenses in retirement.
Table 8. Ownership and Account Balances for IRAs in 2019
Percentage of U.S.
Households with
Median Account
Average Account

Account
Balance
Balance
Percentage of U.S.
Households with
Median Account

Account
Balance
Average Account Balance
Al Households
25.3%
$70,000
$253,799

Age of the Head of Household:

Younger than 35
12.0%
$7,000
$22,529
35 to 44
21.8%
$53,000
$99,142
45 to 54
28.0%
$62,000
$174,390
55 to 64
30.1%
$100,000
$316,139
65 and older
32.8%
$125,000
$387,790

35 See CRS Report R43439, Worker Participation in Employer-Sponsored Pensions: Data in Brief.
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Percentage of U.S.
Households with
Median Account
Average Account

Account
Balance
Balance
2018 Household Income (in 2019

dol ars) :
Less than $30,000
6.7%
$23,200
$95,306
$30,000 to $49,999
14.5%
$35,000
$88, 442
$50,000 to $74,999
21.8%
$36,000
$108,606
$75,000 to $124,999
32.1%
$54,000
$182,863
$125,000 or more
54.0%
$143,000
$406,569

Household Marital Status:

Married
32.3%
$84,000
$293,737
Single
16.4%
$47,000
$153,721
Single Female
16.5%
$44,300
$137,488
Single Male
16.3%
$50,000
$177,780

Race or Ethnicity of the Household
Respondenta:

White, non-Hispanic
31.8%
$74,000
$271,358
Otherb
27.5%
$100,000
$233,329
Black/African-American
8.7%
$40,000
$99,828
Hispanic
7.8%
$20,000
$90,227

Education Level of the Head of
Household:

Less than high school
6.1%
$25,000
$64,465
High school graduate
15.5%
$49,000
$128,207
Some col ege
16.7%
$50,000
$137,535
Associate’s degree
21.8%
$42,900
$138,279
Bachelor’s degree
37.6%
$84,000
$292,524
Advanced degree (master’s,
49.7%
$120,000
$374,562
professional, doctorate)
Source: CRS analysis of the 2019 Survey of Consumer Finances.
Notes: Median and average account balances are calculated using the aggregated value of al IRAs among IRA-
owning households in 2019. IRA-owning households is defined as households where the head or household or
spouse, if applicable, indicates owning an IRA. Any additional individual(s) in the household with an IRA is not
included in this analysis. Analysis does not include households with Keogh accounts or employer-sponsored
IRAs.
a. The SCF’s question about race or ethnicity is only asked of the designated respondent. In 79% of sampled
households, the designated respondent was the head of household.
b. “Other” includes respondents who indicated that they identified as Asian, American Indian/Alaska Native, or
Native Hawai an/Pacific Islander, or other. The SCF combined these categories in the public dataset. The
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SCF al ows respondents to indicate more than one race or ethnicity. CRS used the first response to analyze
data. Nearly 7% of households had a respondent who indicated more than one race or ethnicity.
Table 9 describes taxpayer contributions to traditional and Roth IRAs in 2017. As shown in the
tables, in 2017, over 2 mil ion more taxpayers contributed to Roth IRAs than traditional IRAs.
Among taxpayers who contributed to traditional IRAs in 2017:
 half made the maximum contribution for their age group, and
 the average contribution for those who did not contribute the maximum increased
by age group, ranging from about $1,460 for those under age 30 to $2,610 for
those 60 and older.36
More than five times the number of taxpayers under age 30 contributed to Roth IRAs than
traditional IRAs, though roughly the same percentage of each group contributed the maximum
amount permitted. Among taxpayers who contributed to a Roth IRA in 2017:
 over one-third contributed the maximum amount for their age group, and
 the average contribution for those who did not contribute the maximum increased
by age group, ranging from about $1,790 for those under age 30 to $2,720 for
those 60 and older.37

36 Not all taxpayers are eligible to deduct part or all of their traditional IRA contribution s. Deductibility may factor into
a taxpayer’s choice to contribute the maximum amount. In 2017, taxpayers were not permitted to contribute to
traditional IRAs after reaching age 70½.
37 In 2017, the IRA contribution limit for individuals under 50 was $5,500. Individuals aged 50 and over could
contribute additional $1,000 “catch-up” contributions, or $6,500. T he maximum contribution for Roth IRAs is phased
out for taxpayers approaching the maximum income threshold, which may contribute to the lower percentage of those
contributing the maximum to Roth IRAs as compared to traditional IRAs. In addition, individuals who contribute the
maximum amount permitted but divide their contributions between traditional and Roth IRA s are not captured in the
data as having contributed to the maximum.
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Table 9. Contributions to Traditional and Roth IRAs in 2017

Traditional IRAs
Roth IRAs
Percentage of
Average
Percentage of
Average
Contributing
Contribution of
Contributing
Contribution of
Number of
Taxpayers
Taxpayers Who
Number of
Taxpayers
Taxpayers Who
Age Group
Contributing
Contributing the
Did Not
Contributing
Contributing the
Did Not
Taxpayers
Maximum
Contribute the
Taxpayers
Maximum
Contribute the
Amount ($5,500
Maximum
Amount ($5,500
Maximum
or $6,500)
Amount
or $6,500)
Amount
Under 30
233,115
35.4%
$1,456
1,175,163
34.0%
$1,792
30 under 40
668,913
46.7%
$1,883
1,620,759
31.4%
$1,888
40 under 50
867,146
51.3%
$2,066
1,394,130
26.6%
$2,000
50 under 60
1,399,744
48.8%
$2,499
1,417,525
37.4%
$2,473
60 under 70½
(traditional), 60
1,316,200
54.7%
$2,608
995,486
48.8%
$2,718
under 70 (Roth)
70 or older (Roth)
n/a
n/a
n/a
161,042
56.3%
$2,247
Al age groups
4,485,118
50.0%
$2,279
6,764,105
35.3%
$2,119
Source: CRS Analysis of Internal Revenue Service Statistics of Income 2017 Tax Stats—Accumulation and Distribution of Individual Retirement Arrangements (IRA),
Tables 5 and 6.
Notes: 2017 is the latest year for which data are available. In 2017, there were 145.8 mil ion taxpayers. In 2017, the IRA contribution limit for individuals under 50 was
$5,500. Individuals aged 50 and older could contribute an additional $1,000 “catch -up” contribution, or $6,500. Prior to 2020, individuals could not contribute to
traditional IRAs in or after the year in which they turned 70½. Maximum contributions refer only to taxpayers who contribute the exact amount of the limit. The
maximum contribution for taxpayers whose earned income fal s below the contribution limit is lower and is not capt ured in this table. In addition, the contribution limit
applies to al of an individual’s IRAs, so that individuals who contribute the maximum amount, but split contributions between a traditional and a Roth IRA, wil not be
recorded in the data as having contributed the maximum amount.
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Traditional and Roth Individual Retirement Accounts (IRAs): A Primer

Appendix. Qualified Distributions Related to
Natural Disasters and COVID-19
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% penalty for early IRA withdrawals. Congress approved similar provisions in response to
the storms and flooding in certain Midwestern states in 2008, the hurricanes in 2017, the
California wildfires in 2017, certain other federal y declared disasters occurring after January 1,
2018, and the Coronavirus Disease 2019 (COVID-19) pandemic. Following Hurricane Sandy in
October 2012, the Internal Revenue Service (IRS) eased certain requirements for hardship
distributions from defined contribution plans. However, the IRS was unable to exempt
distributions from retirement plans from the 10% early withdrawal penalty because such an
exemption requires congressional authorization.
Qualified retirement plans for the purposes of penalty-free withdrawal provisions described
below include traditional and Roth IRAs (along with employer-sponsored defined contribution
accounts, such as 401(k), 403(b), and 457(b) plans, among others).
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 al ow 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 were taxable income and could
be reported as income either in the year received or over three years (e.g., a $30,000 distribution
made in May 2006 could have been reported as $10,000 of income in 2006, 2007, and 2008).
Alternatively, part or al of the distribution could have been repaid to the retirement plan within
three years of receiving the distribution. Amounts that are repaid are treated as a trustee-to-trustee
rollover (as if they were made directly from one financial institution to another).
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 (P.L. 110-343) al owed 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 bil amended 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
have been received after the date on which the President declared an area to be a major disaster
area and before January 1, 2010.38 Apart from the dates and the areas affected, the provisions

38 T he disaster areas are limited to Arkansas, Illinois, Indiana, Iowa, Kansas, Michigan, Minnesota, Missouri, Nebraska,
and Wisconsin.
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were identical to the provisions for individuals who were affected by Hurricanes Katrina, Rita,
and Wilma.
Qualified Distributions Related to Hurricanes Harvey, Irma, and
Maria
In response to Hurricanes Harvey, Irma, and Maria, Congress approved the Disaster Tax Relief
and Airport and Airway Extension Act of 2017 (P.L. 115-63). The act amended the Internal
Revenue Code to al ow 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 made on or after August 23, 2017 (Harvey),
September 4, 2017 (Irma), or September 16, 2017 (Maria), and before January 1, 2019. The
distributions are included in taxable income and can be reported either in the year received or
over three years. Alternatively, part or al of the distribution may be repaid to the retirement plan
within three years of receiving the distribution. Amounts that are repaid are treated as a trustee-to-
trustee rollover (as if they were made directly from one financial institution to another).
Qualified Distributions Related to the California Wildfires
In response to the California wildfires in 2017, the Bipartisan Budget Act of 2018 (P.L. 115-123)
included a provision that amended the Internal Revenue Code to waive the 10% early penalty fee
for distributions up to $100,000 for individuals whose principal residence sustained damage from
the fires. The distributions must have been made on or after October 8, 2017, and before
December 31, 2017. The distributions are included in taxable income and can be reported either
in the year received or over three years, or be repaid through additional contributions to a
retirement account within three years. Amounts that are repaid are treated as a trustee-to-trustee
rollover (as if they were made directly from one financial institution to another).
Qualified Distributions Related to 2018 and Certain 2019 Disasters
A provision in Division Q of the Further Consolidated Appropriations Ac t, 2020 (P.L. 116-94),
al ows for penalty-free distributions up to $100,000 from retirement accounts for individuals who
live in an area that had a major federal y declared disaster from January 1, 2018, to 60 days after
the enactment of the legislation on December 20, 2019.39 The distributions are to be included in
taxable income and can be reported either in the year received or over three years, or be repaid
through additional contributions to a retirement account within three years. Amounts that are
repaid are treated as a trustee-to-trustee rollover (as if they were made directly from one financial
institution to another). Another provision al ows qualified individuals—those who took a
distribution for the purposes of constructing or purchasing a principal residence but who were
unable to do so due to a disaster—to recontribute the amount of the distribution to their IRA.
Hurricane Sandy Relief
In the case of Hurricane Sandy in 2012, no legislation was passed that would have (1) exempted
individuals in areas affected by this natural disaster from the 10% penalty for early withdrawals

39 Under this law, the California wildfires are excluded from the definition of a qualifying disaster.
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from IRAs or defined contribution retirement plans or (2) eased requirements for loans from
defined contribution pensions for individuals affected by this natural disaster.40
The IRS eased requirements for hardship distributions in areas affected by Hurricane Sandy in
2012. 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.41 The
IRS relief 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 401(k) and 403(b) plans for the six months following a hardship distribution.
Qualified Distributions Related to the COVID-19 Pandemic
In response to the COVID-19 pandemic, a provision in the Coronavirus Aid, Relief, and
Economic Security Act (CARES Act; P.L. 116-136) exempts qualified individuals from the 10%
early withdrawal penalty for distributions of up to $100,000 taken from retirement accounts from
January 1, 2020, and before December 31, 2020 (sometimes referred to as coronavirus-related
distributions). The distributions are to be included in taxable income and can be reported either in
the year received or over three years or be repaid through additional contributions to a retirement
account within three years. Amounts that are repaid are treated as a trustee-to-trustee rollover (as
if they were made directly from one financial institution to another).
The CARES Act defines qualified individuals as those (1) who tested positive for COVID-19 or
those with a spouse or dependent who tested positive for COVID-19; (2) facing financial
difficulties due to being quarantined, furloughed, laid off, or unable to work due to lack of child
care or reduced work hours as a result of COVID-19; (3) who own or operate a business that
closed or reduced hours as a result of COVID-19; or (4) facing other factors as determined by the
Secretary of the Treasury.
Under authority given in the CARES Act, the IRS outlined additional factors that make an
individual eligible for coronavirus-related distributions or plan loan relief. The additional
qualifying factors include
 the individual having a reduction in pay (or self-employment income), a job offer
rescinded, or start date for a job delayed due to COVID-19;
 the individual’s spouse or household member being quarantined, furloughed or
laid off, having work hours reduced due to COVID-19, being unable to work due
to lack of child care due to COVID-19, or having a reduction in pay (or self-
employment income), or a job offer rescinded, or start date for a job delayed due
to COVID-19; or
 the individual’s spouse or household member owning or operating a business that
closed or reduced hours due to COVID-19.
A member of an individual’s household is someone who shares the individual’s principal
residence. Plan administrators may rely on employees’ certifications as proof that they are
qualified individuals. For more information on coronavirus-related distributions, see CRS In

40 H.R. 2137, the Hurricane Sandy T ax Relief Act of 2013, introduced by Representative Bill Pascrell on May 23,
2013, would have both provided an exemption to the 10% early withdrawal penalty for retirement account distributions
and eased requirements for loans from defined contribution pensions for those affected by Hurricane Sandy in 2012.
41 See 26 C.F.R. §1.401(k)-1.
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Focus IF11482, Retirement and Pension Provisions in the Coronavirus Aid, Relief, and Economic
Security Act (CARES Act) and CRS Insight IN11441, Internal Revenue Service (IRS) Guidance
for Coronavirus-Related Distributions, Plan Loans, and Required Minimum Distribution (RMD)
Rollovers.
Qualified Disaster Distributions in 2020 and 2021
Section 302 of Title III of Division EE (the Taxpayer Certainty and Disaster Tax Relief Act of
2020) of the Consolidated Appropriations Act, 2021 (P.L. 116-260; December 27, 2020),
permitted penalty-free distributions up to $100,000 from retirement accounts for qualified
individuals following a major disaster that was declared from January 1, 2020, through 60 days
after the enactment of the act (with an incident period occurring on or after December 28, 2019,
and on or before December 27, 2020). The distributions must be made on or after the first day of
the incident period and before the date that is 180 days after enactment of the act. COVID-19 is
not included as a disaster for the purposes of this provision. This provision applies to qualified
individuals affected by various federal y declared major disasters, such as the California fires in
2020, multiple hurricanes, and other weather-related events.42
Distributions must occur on or after the first day of the incident period and before the date which
is 180 days after the enactment of the act. Qualified individuals must (1) live in an area that had a
major federal y declared disaster on or after the first day of the incident period and (2) experience
a disaster-related economic loss.
Distributions are to be included in taxable income and can be reported either in the year received
or over three years or be repaid through additional contributions to a retirement account within
three years. Amounts that are repaid are treated as a trustee-to-trustee rollover (as if they were
made directly from one financial institution to another). The provision also allows certain
qualified individuals—those who took distributions for the purposes of constructing or
purchasing a principal residence but who were unable to do so due to a disaster—to recontribute
the amount of the distribution to their IRAs.
Author Information

Elizabeth A. Myers

Analyst in Income Security

Acknowledgments
John Topoleski was the original author of this report. Emma Sifre provided research assistance.

42 T o obtain a list of federally declared major disasters, search for declaration type “major disaster declaration” at
https://www.fema.gov/disasters/disaster-declarations.
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Disclaimer
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under the direction of Congress. Information in a CRS Report should n ot be relied upon for purposes other
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Congressional Research Service
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