Traditional IRAs the Destination for Rollover Dollars, Roth IRAs Capture Conversions and Contributions

Some 30.1% of U.S. households had savings in IRAs—including both traditional and Roth IRAs— in 2022, says the CRS in the publication, “Traditional, Roth, and Rollover Individual Retirement Account Ownership in 2022.” 

The review of IRA ownership is based on data from the 2022 Survey of Consumer Finances, a triennial survey conducted on behalf of the Board of Governors of the Federal Reserve that includes detailed information about household finances.  

The report, written by Elizabeth A. Myers, a CRS analyst in income security, stated that older households were more likely to own IRAs. Among households where the reference persons studied were younger than 35, about 21.8% owned IRAs; compared with 40.2% of households with reference persons aged 65 and older. Older households were also more likely to have changed jobs one or more times compared with younger households, giving them more opportunities to make rollovers into IRAs. 

Overall, the study found some 63% of households with annual income of $150,000 or more, owned IRAs. In households with incomes below $30,000, the figure was 8.8%. 

Citing data from the Investment Company Institute, the report said among households with traditional or Roth IRAs, “those with Roth IRAs were more likely to contribute.” Some 39% of Roth IRA owners made contributions to their accounts in tax year 2022 compared with 22% of traditional IRA owners. 

Additionally, the research found, in 2020, the most recent year for which this data was available, the vast majority of traditional IRA inflows—$594.8 billion or 96.4%— came from rollovers, while $22.1 billion, or 3.6%, came from contributions. Inflows to traditional IRAs totaled $616.9 billion. 

Inflows to Roth IRAs in 2020 were 13.7% of inflows to traditional IRAs. However, CRS reported, unlike traditional IRAs, the majority of money going into Roth IRAs comes from contributions and conversions (from traditional IRAs) 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. 

The researcher noted 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 cited as a driver of the increase was the suspension in 2020 of required minimum distributions. 

“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,” the author wrote. “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).”