Roth Growth Far Outpaces Traditional IRAs

The analysis looks at the investment behaviors of Roth and traditional IRA owners, as tracked by the EBRI IRA Database, and finds the median asset increase for Roth owners was 16.6% between the start of 2010 and year-end 2012. Traditional IRA owners, on the other hand, saw assets grow just 7.9% during the same period.

A major factor in the different rates of increase, according to EBRI, was that new contributions made up a larger proportion of the Roth IRA balances due to the smaller average starting balances of Roth IRAs. Additionally, Roth owners were somewhat more consistent at making contributions each year, which had the impact of further magnifying Roth contributions over those made to traditional IRAs, EBRI explains.

Researchers found that Roth IRA balances grew faster than traditional IRAs across each age group and for each gender. Looking at individuals who maintained an IRA account in the database throughout the three-year period, the overall average balance increased each year—from $95,431 in 2010 to $95,547 in 2011 and to $106,205 in 2012.

Interestingly, IRA owners whose balances originated as a rollover from another tax-qualified retirement plan also showed consistent growth, EBRI says, challenging the common assumption that IRAs founded with a rollover often fail to receive regular ongoing contributions (see “For IRAs, It’s All About the Rollover”). Only IRA owners age 70 and older—i.e., those who are legally required to start making withdrawals—saw balances decline from 2010 to 2012, EBRI says.

Craig Copeland, a senior research associate at EBRI and an author of the analysis, says EBRI’s IRA Database offers important insights for retirement planning professionals because it tracks IRA contributions longitudinally—not just as a snapshot in time. This allows for deeper insights into the behaviors of individuals in the sample, Copeland says.

For example, among traditional IRA owners, a snapshot analysis shows approximately 6% of IRA owners contributed to their IRA each year, but EBRI’s longitudinal data shows that over the three-year period approximately 10% of traditional IRA owners contributed in at least one year. Among Roth IRA owners, approximately 25% contributed in any one year, compared with 35% who contributed at some point over the three-year period.

“An annual snapshot of those contributing to IRAs doesn’t allow you to assess whether the same individuals were contributing on a regular basis, or if different people contributed in different years, whereas a consistent longitudinal sample of IRA owners does allow for this examination,” Copeland explains.

Other major findings from the EBRI IRA study include the following:

• The overall average IRA account balance in 2012 was $81,660, while the average IRA individual balance (all accounts from the same person combined) was $105,001. Overall, the cumulative IRA average balance was 29% larger than the unique account balance, EBRI says.

• Rollovers overwhelmingly outweighed new contributions in dollar terms. While almost 2.4 million accounts received contributions, compared with the 1.3 million accounts that received rollovers in 2012, EBRI says about 10 times as much was added to IRAs through rollovers, compared with contributions.

• The average individual IRA balance increased with age for owners ages 25 or older, from $11,009 for those ages 25-29 to $192,961 for those ages 70 or older.

• IRA owners were more likely to be male. In particular, those with an IRA originally opened by a rollover, or a SEP/SIMPLE IRA were more likely to be men. EBRI says men also had higher individual average and median balances than women. However, the likelihood of contributing to an IRA did not significantly differ by gender within the database.

• Younger Roth IRA owners were much more likely to contribute to the Roth IRA than were older Roth IRA owners, with 43% of Roth owners ages 25 to 29 contributing to their Roth in 2012, compared with 21% of Roth owners ages 60 to 64.

The full report, “Individual Retirement Account Balances, Contributions, and Rollovers, 2012; With Longitudinal Results 2010–2012: The EBRI IRA Database,” is published in the May 2014 EBRI Issue Brief and is available online at www.ebri.org.