Traditional, Roth, and Rollover Individual Retirement Account (IRA) Ownership in 2022

Contents

• Introduction
• Traditional and Roth IRAs
• Inflows to Traditional and Roth IRAs
• Assets in IRAs
• Household Ownership of Individual Retirement Accounts in 2022

Introduction

Households rely on a variety of sources for income in retirement. These include, for example, payments from Social Security, a federal social insurance program that provides monthly benefits to insured retired or disabled workers and their eligible family members,¹ and payments from employer-sponsored defined benefit (DB) pension plans, which typically provide monthly benefits throughout retirement. Other sources of income in retirement include savings in employer-sponsored defined contribution (DC) retirement accounts,² in which employees accrue funds in individual retirement savings accounts, and Individual Retirement Accounts (IRAs), which are tax-advantaged savings accounts that individuals can establish outside of the workplace.³ This report focuses on IRA ownership (see Figure 1). For information about ownership of retirement assets, which includes savings in IRAs and employer-sponsored DC plans, see CRS Report R47213, Ownership of Retirement Assets: Data in Brief.

Figure 1. U.S. Retirement Income Sources

Source: CRS.

In 2022, about one-third (30.1%) of U.S. households had savings in IRAs. The two types of IRAs in the Internal Revenue Code (IRC) are traditional IRAs and Roth IRAs. 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. In addition, workers can roll over savings from employer-sponsored retirement plans into IRAs to preserve their savings' tax advantages.

Traditional and Roth IRAs

Traditional IRAs were authorized by the Employee Retirement Income Security Act of 1974 (P.L. 93-406). Contributions to traditional IRAs may be tax deductible depending on the IRA owner's household income and workplace pension coverage.⁴ The contributions may accrue investment earnings in an account, and contributions and any earnings can be used as a source of income in retirement. Taxes are paid on both contributions and any investment earnings when funds are distributed.

Roth IRAs were authorized by the Taxpayer Relief Act of 1997 (P.L. 105-34). In contrast to traditional IRAs, Roth IRAs have income limits for eligibility.⁵ Contributions to Roth IRAs do not receive a tax deduction (i.e., they are made with after-tax funds). Qualified distributions are not included in taxable income; investment earnings accrue free of taxes. Qualified distributions, which include earnings on contributions, must satisfy both of the following criteria:

• They are made after the five-year period beginning with the first taxable year for which a Roth IRA contribution was made; 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.

Employer-sponsored IRAs are IRA-based retirement plans targeted toward (and in some cases, available only to) small employers: Salary Reduction Simplified Employee Pension Plan (SARSEP IRAs),⁶ Simplified Employee Pensions (SEP-IRAs),⁷ and Savings Incentive Match Plans for Employees (SIMPLE IRAs).⁸ Historically, all three types of these employer-sponsored IRAs were required to be traditional IRAs. However, starting in 2023, an employee who participates in a SEP-IRA or a SIMPLE IRA is permitted to designate a Roth IRA as the IRA to which contributions are made under the plan.⁹ Though employer-sponsored IRAs are structured as traditional or Roth IRAs, some data sources (such as the Survey of Consumer Finances, discussed later in this report) consider them to be employer-sponsored plans and do not include them as part of IRA data.

Though individuals may contribute directly to IRAs, they may also make rollovers, which are transfers of savings from one retirement account, such as a 401(k) account, to another retirement account, such as an IRA. Many workers with DC plans roll over their savings to IRAs at job change or retirement. In addition, some DB plans allow participants to take their benefits in lump sum payments, which can be rolled over into IRAs. In addition, individuals may convert amounts from traditional IRAs (including employer-sponsored IRAs) to Roth IRAs. 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 for the year in which the conversion takes place.

Required minimum distributions, or RMDs, are annual withdrawals that individuals are required to make after (1) reaching a specified age (in the case of traditional IRAs) or (2) inheriting retirement accounts (either traditional or Roth IRAs). RMDs are intended to prevent tax-advantaged retirement accounts—established to provide income during retirement—from being used as permanent tax shelters or as vehicles for transmitting wealth to beneficiaries. Unlike original owners of Roth IRAs (who do not have to take RMDs), individuals who inherit IRAs may also be subject to RMDs, depending on their beneficiary statuses.

Inflows to Traditional and Roth IRAs

Inflows to IRAs can come from contributions, rollovers, and—for Roth IRAs—conversions. The majority of inflows to traditional IRAs are from rollovers. In 2020 (the most recent data available), of the $616.9 billion in inflows to traditional IRAs, $594.8 billion (96.4%) came from rollovers (primarily from employer-sponsored retirement plans) while $22.1 billion (3.6%) came from contributions (see Figure 2).¹⁰ The Investment Company Institute (ICI) found that in mid-2023, 62% of traditional IRA-owning households said that their traditional IRAs contained rollover assets.¹¹

Figure 2. Inflows to Traditional IRAs, 2011-2020 In Billions of Dollars

Source: CRS representation of Investment Company Institute, "Report: The US Retirement Market, Third Quarter 2024," Table 11, https://www.ici.org/system/files/2024-12/ret_24_q3_data.xls. Notes: The most recent year for which data are available is 2020. Estimates are not adjusted for inflation. Components may not sum to totals due to rounding.

Inflows to Roth IRAs are a fraction of inflows to traditional IRAs each year. However, unlike traditional IRAs, the majority of inflows to Roth IRAs come from contributions and conversions rather than rollovers. In 2020, of the $85 billion in inflows to Roth IRAs, $17.5 billion (20.6%) came from rollovers, while $33.0 billion (38.8%) came from contributions and $34.5 billion (40.6%) came from conversions (see Figure 3).¹² Note that inflows to Roth IRAs were larger in 2020 compared to previous years, largely due to an increase in the dollar amount of conversions. One reason for this is because RMDs were suspended in 2020 (P.L. 116-136). Individuals who had been planning to take RMDs from their traditional IRAs, which would have been included in taxable income, could instead convert those amounts to Roth IRAs. While the amount of the conversion would have also been included in taxable income for the year, Roth IRA conversions allow individuals to keep their savings in tax-advantaged retirement accounts indefinitely (because Roth IRAs are not subject to RMDs).¹³

Among households with traditional or Roth IRAs, those with Roth IRAs were more likely to contribute. ICI found that 39% of Roth IRA owners made contributions in tax year 2022 compared to 22% of traditional IRA owners (not pictured in Figure 3).¹⁴

Figure 3. Inflows to Roth IRAs, 2011-2020 In Billions of Dollars

Source: CRS representation of Investment Company Institute, "Report: The US Retirement Market, Third Quarter 2024," Table 12, https://www.ici.org/system/files/2024-12/ret_24_q3_data.xls. Notes: The most recent year for which data are available is 2020. Estimates are not adjusted for inflation. Components may not sum to totals due to rounding.

Assets in IRAs

Total IRA assets include those in traditional, Roth, and employer-sponsored IRAs.

Table 1 shows that total IRA assets increased from $7.3 trillion in 2014 to an estimated $13.6 trillion in 2023.¹⁵ Most IRA assets are held in traditional IRAs: In 2023, an estimated 84.4% of IRA assets were held in traditional IRAs, compared to 10.4% in Roth IRAs and 5.2% in employer-sponsored IRAs.¹⁶

Household Ownership of Individual Retirement Accounts in 2022

Data in Table 2 and Table 3 are from the 2022 Survey of Consumer Finances (SCF). The SCF is a triennial survey conducted on behalf of the Board of Governors of the Federal Reserve that 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 reference person and, if applicable, his or her spouse.¹⁷ The SCF is designed to be nationally representative of the 131.3 million U.S. households in 2022.¹⁸ Household in the SCF is defined as "the primary economic unit, which consists of an economically dominant single individual or couple (married or living as partners) in a household and all other individuals in the household who are financially interdependent with that individual or couple."

Although the IRC provides for traditional and Roth IRAs, the SCF asks households about their holdings in three types of IRAs: traditional IRAs, Roth IRAs, and rollover IRAs.¹⁹ Rollover IRA refers to an account that was established when a household rolled savings over from a pension account (either savings from a DC plan or a lump sum payment from a DB plan). Rollover IRAs may be traditional or Roth IRAs, but the SCF does not provide additional details about the account type. Based on the ICI data included earlier in this report, it is likely that most rollover IRAs are traditional IRAs. Because the SCF treats employer-sponsored IRAs (including SEP-IRAs and SIMPLE IRAs) as job pensions rather than IRAs, these types of IRAs are not included in the data in Table 2 and Table 3.

Table 2 provides data on IRA ownership generally. Table 3 includes data specifically on rollover IRA, traditional IRA, and Roth IRA ownership and balances in 2022. Households can own multiple types of IRAs. In 2022, 8.5% of households indicated owning multiple types of IRAs.²⁰ Among IRA-owning households, 27.6% indicated owning more than one type.

Ownership and balances refer to household ownership and account balances (i.e., a household was counted as owning an IRA if the reference person, spouse/partner, or other individuals in the household who are financially interdependent with that individual or couple indicated having a positive balance in an IRA; account balances were aggregated across individuals within households).²¹ Because the analysis in this report calculates medians and averages for households that own these kinds of accounts, the actual median and average balance among all U.S. households (with or without IRAs) would be lower.

Table 2 illustrates the following regarding IRA ownership in 2022:

• Thirty-one percent of households owned IRAs.²² Among IRA-owning households, the median balance was $87,000, and the average balance was $309,130.
• Older households were more likely to own IRAs compared to younger households. Among households with reference persons younger than 35, about 21.8% owned IRAs compared to 40.2% of those age 65 and older. Older households are more likely to have changed jobs one or more times compared to younger households, giving them more opportunities to make rollovers into IRAs.
• About 63% of households with household income of $150,000 or greater owned IRAs, compared to 8.8% of households with income of less than $30,000.

Table 3 illustrates the following regarding ownership of the different types of IRAs in 2022—rollover IRAs, traditional IRAs, and Roth IRAs:

• About 16% of households had savings in Roth IRAs in 2022 (see column G). While this may appear like the largest category of IRAs based on ownership—13.3% of households indicated owning traditional IRAs (column D) and 11.3% indicated owning rollover IRAs (column A)—it is likely that many of the rollover IRAs are traditional IRAs, and thus, on a combined basis, traditional IRA ownership would be greater.
• The median and average account balance was highest for those with rollover IRAs—$120,000, and $384,239, respectively (columns B and C)—compared to balances for traditional and Roth IRAs. One reason for this is that individuals tend to accumulate higher balances in employer-sponsored pension plans (due to higher contribution limits, for example) that are then rolled over to IRAs at job change or retirement.

Footnotes