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Roth IRAs: Who's Contributing and How Much?

With taxes and tax rates facing an uncertain future, interest in Roth IRAs is growing among both participants and plan sponsors. But who is contributing to these Roth IRAs, and how fast are they growing?

Roth IRAs grew at more than double the rate of traditional IRAs among a consistent set of IRA owners over the three-year period from 2010-2012, according to “Individual Retirement Account Balances, Contributions, and Rollovers, 2012; With Longitudinal Results 2010–2012: The EBRI IRA Database,” an analysis by the Employee Benefit Research Institute (EBRI). Based on the latest results from the EBRI IRA Database, the median increase for these consistent owners of Roth IRAs was 16.6% from 2010 to 2012, compared with 7.9% for consistent owners of traditional IRAs.

The EBRI analysis revealed that 44% of Roth IRAs which received a contribution and were owned by someone ages 25-29 received the maximum contribution allowed for those accounts (that is, $5,500 for those under age 50 at the end of 2014, although those age 50 or older can make an additional $1,000 “catch-up” contribution).

Younger Roth IRA owners were more likely to contribute to the Roth IRA than were older Roth IRA owners in the EBRI IRA database of some 25 million IRA accounts: 43% of Roth owners ages 25-29 contributed to their Roth in 2012, compared with 21% of Roth owners ages 60-64.
Just over a quarter (25.1%) of Roth IRA owners made a contribution to that account in 2012, compared with 6.6% of traditional IRA owners. Nearly half (49.0%) of Roth IRA owners contributed the maximum, compared with 57.9% of those contributing to a traditional IRA.

Other industry surveys have found that, while plans continue to add Roth 401(k) options, take-up rates by participants have been slow, but are picking up. IRAs now represent about a quarter of the nation’s retirement plan assets, much of which originated in employment-based retirement plans.