Traditional IRAs the Destination for Rollover Dollars, Roth IRAs Capture Conversions and Contributions

Thirty-one percent of households owned IRAs in 2022, according to a report from the Congressional Research Service. Among IRA-owning households, the median balance was $87,000, and the average balance was $309,130.

Rollovers from employer-sponsored retirement plans funded the vast majority of inflows to traditional individual retirement accounts, the Congressional Research Service has reported. 

Some 30.1% of U.S. households had savings in IRAs—including both traditional and Roth IRAs— in 2022, says the CRS in the publication, “Traditional, Roth, and Rollover Individual Retirement Account Ownership in 2022.” 

The review of IRA ownership is based on data from the 2022 Survey of Consumer Finances, a triennial survey conducted on behalf of the Board of Governors of the Federal Reserve that includes detailed information about household finances.  

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The report, written by Elizabeth A. Myers, a CRS analyst in income security, stated that older households were more likely to own IRAs. Among households where the reference persons studied were younger than 35, about 21.8% owned IRAs; compared with 40.2% of households with reference persons aged 65 and older. Older households were also more likely to have changed jobs one or more times compared with younger households, giving them more opportunities to make rollovers into IRAs. 

Overall, the study found some 63% of households with annual income of $150,000 or more, owned IRAs. In households with incomes below $30,000, the figure was 8.8%. 

Citing data from the Investment Company Institute, the report said among households with traditional or Roth IRAs, “those with Roth IRAs were more likely to contribute.” Some 39% of Roth IRA owners made contributions to their accounts in tax year 2022 compared with 22% of traditional IRA owners. 

Additionally, the research found, in 2020, the most recent year for which this data was available, the vast majority of traditional IRA inflows—$594.8 billion or 96.4%— came from rollovers, while $22.1 billion, or 3.6%, came from contributions. Inflows to traditional IRAs totaled $616.9 billion. 

Inflows to Roth IRAs in 2020 were 13.7% of inflows to traditional IRAs. However, CRS reported, unlike traditional IRAs, the majority of money going into Roth IRAs comes from contributions and conversions (from traditional IRAs) rather than rollovers. In 2020, of the $85 billion in inflows to Roth IRAs, $17.5 billion (20.6%), came from rollovers, while $33.0 billion (38.8%) came from contributions and $34.5 billion (40.6%) came from conversions. 

The researcher noted that inflows to Roth IRAs were larger in 2020 compared to previous years, largely due to an increase in the dollar amount of conversions. One reason cited as a driver of the increase was the suspension in 2020 of required minimum distributions. 

“Individuals who had been planning to take RMDs from their traditional IRAs, which would have been included in taxable income, could instead convert those amounts to Roth IRAs,” the author wrote. “While the amount of the conversion would have also been included in taxable income for the year, Roth IRA conversions allow individuals to keep their savings in tax-advantaged retirement accounts indefinitely (because Roth IRAs are not subject to RMDs).” 

JPMorgan Introduces 2025 College Planning Essentials Guide

The asset management firm found that financial aid has not kept pace with the rising cost of college tuition, with families now shouldering 48% of college expenses.

JPMorgan Asset Management launched the 12th edition of its annual College Planning Essentials, a guide to support financial advisers in their conversations with clients about planning for education expenses.

The asset manager, which manages nearly $11 billion in 529 plan assets for more than 346,000 families nationwide, offers insights and data about why college matters; college costs and expenses; financial aid; and 529 plans.

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College tuition has continued to rise in ways that outpace inflation and other household expenses. The costs have risen an average of 5.6% annually since 1983.

Financial aid has not kept pace with the rising cost of college tuition, the company found, with families now shouldering 48% of college expenses from their income and investments. This is an increase from 38% a decade ago. There is limited coverage for grants and scholarships, which often pay only a small portion of college costs.

“College planning is becoming increasingly complex, with trends showing a rise in tuition costs, evolving financial aid landscapes, and diverse saving strategies,” said Tricia Scarlata, Head of Education Savings for J.P. Morgan Asset Management, in a statement. “Understanding these trends is crucial for advisers to guide clients effectively, foster informed discussions, and build successful plans for college.”

529 Plans and Saving Opportunities

Nearly two-thirds (63%) of families are not using 529 plans to save for college expenses, which may mean they are missing out on the opportunity for tax-advantaged growth and withdrawals for qualified education expenses, the company said. 529 plans also have flexible ways for families to save, like the ability to make five years’ worth of tax-free gifts in a single year and tax-free rollovers to Roth IRAs.

The College Planning Essentials guide offers charts and data to help advisers “debunk myths about education costs and encourage informed financial decisions,” according to JPMorgan.

For example, it provides illustrations to show how small increases in investment returns can significantly impact education funds, to help advisers emphasize the importance of starting early and staying diversified.

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