Two new reports published by the Investment Company Institute (ICI) demonstrate that withdrawal activity is lower, equity holdings are higher, and investors tend to be younger in Roth Individual Retirement Accounts (IRAs) than in traditional IRAs.

Sarah Holden, ICI’s senior director of retirement and investor research, observes there are significant differences between traditional and Roth IRA investors, “yet both vehicles provide savers with important flexibility in their retirement savings options.”

“Traditional IRAs can be a convenient option for savers looking to roll over a workplace retirement plan,” she explains, while “Roth IRAs are typically created with contributions, and have only recently allowed for rollovers.” The differences appeal to workers at various stages in their life savings cycles, “making traditional and Roth IRAs an effective means for helping Americans prepare for retirement.”

According to ICI data, at year-end 2014, 31% of Roth IRA investors were younger than 40, compared with just 15% of traditional IRA investors. “Only 24% of Roth IRA investors were 60 or older, compared with 39% of traditional IRA investors,” ICI explains. “This younger age distribution reflects in part the rules governing access to Roth IRAs, including income limits on contributions and (until 2010) on conversions, as well as prior limitations on rollovers into Roth IRAs, which have been eased recently.”

Other findings show the vast majority (85%) new traditional IRAs in 2014 were opened only with rollovers and nearly half of traditional IRA investors with an account balance at year-end 2014 had rollovers in their traditional IRAs.

“By contrast, rollovers play a less important role in Roth IRAs—only about one in 15 Roth IRA investors at year-end 2014 had rollovers in their Roth IRAs,” ICI finds. “Rather, contribution activity plays a more important role in Roth IRAs, with nearly three-quarters (74%) of new Roth IRAs opened only through contributions in tax year 2014.”

ICI urges advisers and other industry service providers to consider these facts as they adjust their approaches to servicing different types of IRAs and making rollover recommendations under the new fiduciary standards taking effect in 2017 and 2018.

NEXT: IRA investors are an interesting group 

The ICI reports show Roth IRA investors tend to have higher equity holdings than traditional IRA investors. At year-end 2014, nearly 80% of Roth IRA assets were invested in equity holdings of some type, compared with less than two-thirds of traditional IRA assets.

Digging a little deeper, ICI finds the majority of equity holdings are accessed through mutual funds, exchange-traded funds (ETFs), and closed-end funds. Equity holdings in IRAs “also occur through target-date funds and non-target date balanced funds.”

“Some of the difference in allocation to equity holdings reflects the different age distributions, as Roth IRA investors are younger, and younger investors typically weight their portfolios more heavily toward equity investments than older savers,” ICI speculates.  

In terms of spending out of IRAs, ICI finds withdrawal activity is much lower among Roth IRA investors than traditional IRA investors. This is influenced by the fact that, in contrast to traditional IRAs, which require investors aged 70½ or older to take required minimum distributions (RMDs), Roth IRAs are generally only subject to RMDs if the account was inherited.

In 2014, 4% of Roth IRA investors made withdrawals, compared with 23% of traditional IRA investors.

“Early withdrawal penalties can apply to both Roth and traditional IRA investors aged 59½ or younger, and withdrawal activity is lower among investors younger than 60 compared with investors aged 60 or older,” ICI warns.

Additional findings on traditional IRA investors are here, while the Roth-focused research is here. Readers can also review the ICI IRA database here.