The Unintended Consequences of Roth IRAs

We provide the first academic study on the performance of IRA pension plans from 2004 through 2018. At the aggregate level, the risk-adjusted performances of IRA plans are comparable to that of the aggregate equity market. However, high-income individuals substantially outperform low-income ones, and this return differential is almost three times as large in "tax-free" Roth IRAs, suggesting that their introduction, intended to help hard-working, middle-class Americans, greatly benefited high-income individuals and amplified wealth inequality