The Role of IRAs in US Households’ Saving for Retirement, 2021

This paper presents survey results on the incidence of individual retirement account (IRA) ownership in the United States and the contribution, rollover, and withdrawal activity of IRA-owning households. In mid-2021, 37 percent of US households owned IRAs. More than eight in 10 IRA-owning households also had employer-sponsored retirement plan accumulations or had defined benefit plan coverage. Traditional IRAs were the most common type of IRA owned, followed by Roth IRAs and employer-sponsored IRAs. Rollovers from employer-sponsored retirement plans have fueled the growth in IRAs. In mid-2021, 57 percent of traditional IRA - owning households indicated that their IRAs contained rollovers from employer-sponsored retirement plans. Among households with rollovers in their traditional IRAs, 85 percent indicated that they had rolled over the entire retirement account balance in their most recent rollover; 44 percent had also made contributions to their traditional IRAs at some point. Traditional IRA - owning households with rollovers cite multiple reasons for rolling over their retirement plan assets into traditional IRAs. The three most common primary reasons for rolling over were not wanting to leave assets behind at the former employer, wanting to consolidate assets, and wanting more investment options (25 percent, 22 percent, and 13 percent of traditional IRA - owning households with rollovers, respectively). Although most US households were eligible to make IRA contributions, few did so. Only 13 percent of US households contributed to traditional or Roth IRAs in tax year 2020. Thirty-seven percent of households owning traditional or Roth IRAs in mid-2021 made contributions in tax year 2020. Other research finds that confusion over rules or satisfying savings needs at work may explain lack of contributions. In addition, traditional IRA - owning households without contributions tended to have rollovers (60 percent) or have defined contribution (DC) plan accounts (73 percent). Forty-four percent of traditional IRA - owning households without contributions were retired. IRA withdrawals were infrequent and mostly retirement related. Twenty-three percent of traditional IRA– owning households in mid-2021 took withdrawals in tax year 2020 compared with 27 percent in tax year 2019, in part reflecting the Coronavirus Aid, Relief, and Economic Security (CARES) Act (enacted March 27, 2020) suspension of required minimum distributions (RMDs) for tax year 2020. Sixty-one percent of traditional IRA – owning households with withdrawals calculated the withdrawal using the RMD rule - this was the most common amount withdrawn. Most traditional IRA - owning households have a planned retirement strategy