Two reports that were recently released by the Investment Company Institute revealed a material difference in the way that traditional IRA holders used their accounts versus Roth IRA owners. The reports are based on data culled from several million traditional and Roth IRAs from the end of 2007 through 2014. (For more, see: Converting Traditional IRA Savings to a Roth IRA.)

Key Findings

  • Roth IRA investors are often younger than traditional IRA investors. As of the end of 2014, nearly a third of Roth owners were under age 40, whereas only 15% of traditional IRA holders fell into this category. Only a quarter of Roth owners were over age 60, compared to nearly 40% of traditional IRA owners.
  • Traditional IRAs are opened more often with rollovers, while Roth IRAs tend to be funded with annual contributions, which is a factor in why more young people use Roth accounts.
  • Roth IRA owners tend to hold more stock in their accounts than traditional IRA holders. Almost 80% of Roth accounts were invested in stocks or stock mutual funds as of the end of 2014, compared to less than two-thirds of the balances of traditional IRAs. This may be partly due to the fact that since Roth owners tend to be younger, they can invest more aggressively than their traditional IRA owning counterparts.
  • Roth account owners take fewer distributions from their accounts overall than traditional IRA owners. Only 4% of Roth owners took distributions from their account in 2014 compared to 23% of traditional account holders. This is of course at least partly due to the fact that traditional IRAs have mandatory required minimum distributions (RMDs) that must be taken when the account owner reaches age 70½. Roth IRAs have no RMDs (unless they have been inherited), so account owners can leave the money in for life if they choose to. (For more, see: Roth vs. Traditional IRA: Which is Right for You?)

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