ICI RESEARCH PERSPECTIVE

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1 ICI RESEARCH PERSPECTIVE 40 H STREET, NW, SUITE 00 WASHINGTON, DC NOVEMBER 03 VOL. 9, NO. A WHAT S INSIDE Household Ownership of Growth in Number of IRA-Owning Households Incidence of IRA Ownership by Age 3 Incidence of IRA Ownership by Income 3 IRA Ownership by Generation 6 Households with Have More Savings Than Other Households 6 IRA Balances and Investments 0 Contributions to Traditional and Roth Demographic Characteristics of IRA-Owning Households 6 Traditional IRA Withdrawals Mostly Were Made by Older Owners 0 Notes References Sarah Holden, Senior Director of Retirement and Investor Research, and Daniel Schrass, Associate Economist, prepared this report. Suggested citation: Holden, Sarah, and Daniel Schrass. 03. Appendix: Additional Data on IRA Ownership in 03. ICI Research Perspective 9, no. A (November). Available at per9-a.pdf. Appendix: Additional Data on IRA Ownership in 03 The Role of in U.S. Households Saving for Retirement, 03 (ICI Research Perspective 9, no. ) reports on U.S. households individual retirement account (IRA) ownership in 03. The study highlights data collected by the Investment Company Institute in an annual survey of households owning. This appendix provides supplementary tables, which contain additional detail for the main report. Household Ownership of In 03, 46. million, or 37.6 percent of, U.S. households owned at least one type of IRA. Household ownership of has grown since 000. The number of households with increased by 8. million between 000 and 03, or at a compound average growth rate of.5 percent per year (Figure A). Growth in Number of IRA- Owning Households U.S. households most commonly owned traditional the first type of IRA that Congress created (Figure A). 3 Roth were the second most commonly held type of IRA, followed by employersponsored, which include SEP, SAR-SEP, and SIMPLE. Household ownership of Roth grew the fastest, with the number of households owning Roth increasing 5.3 percent on average each year between 000 and 03. The number of households that owned traditional rose.3 percent on average each year, while the number of households with employer-sponsored grew at an average rate of.9 percent each year during this period. Incidence of IRA Ownership by Age Households headed by older individuals were more likely to own traditional. In 03, 37 percent of households headed by individuals aged 55 to 64 owned traditional, compared with only 7 percent of households headed by individuals younger than 35 (Figure A). 4 Thirty-four percent of households headed by individuals aged 65 or older had traditional, while Roth were rarely held by older households. Twenty-one percent of households aged 35 to 64 had Roth.

2 FIGURE A U.S. Households Owning, Any type of IRA Number of U.S. households Millions Traditional Roth Employersponsored 3 Any type of IRA Share of U.S. households Percent Traditional Roth Employersponsored 3 Memo: total number of U.S. households Millions % 8.7% 9.% 6.8% The number of households is as of March of the year indicated. IRA ownership excludes ownership of Coverdell Education Savings Accounts, which were named education prior to July Employer-sponsored include SEP, SAR-SEP, and SIMPLE. 4 Lower IRA incidence in 03 likely results in part from a change in the survey question wording. See Burham, Bogdan, and Schrass 03. Sources: Investment Company Institute Annual Mutual Fund Shareholder Tracking Survey (000 03) and U.S. Census Bureau About the Annual Mutual Fund Shareholder Tracking Survey ICI conducts the Annual Mutual Fund Shareholder Tracking Survey each spring to gather information on the demographic and financial characteristics of U.S. households. The most recent survey was conducted in May 03 and was based on a sample of 4,00 U.S. households selected by random digit dialing, of which,504 households, or 37.6 percent, owned. All interviews were conducted over the telephone with the member of the household aged 8 or older who was the sole or co-decisionmaker most knowledgeable about the household s savings and investments. The standard error for the 03 sample of households is ±.6 percentage points at the 95 percent confidence level. About the IRA Owners Survey ICI conducts the IRA Owners Survey each spring to gather information on characteristics and activities of IRA-owning households in the United States. The most recent survey was conducted in May 03 and was based on a sample of 3,006 randomly selected, representative U.S. households owning traditional, Roth, and employer-sponsored (SEP, SAR-SEP, and SIMPLE ). All interviews were conducted over the telephone with the member of the household aged 8 or older who was the sole or co-decisionmaker most knowledgeable about the household s savings and investments. The standard error for the total sample is ±.8 percentage points at the 95 percent confidence level. IRA ownership does not include ownership of Coverdell Education Savings Accounts (formerly called education ). APPENDIX: ICI RESEARCH PERSPECTIVE, VOL. 9, NO. A NOVEMBER 03

3 FIGURE A U.S. Households Owning Traditional, Roth, and Employer-Sponsored by Age Percentage of U.S. households within each age group, Any Traditional Roth Employer-sponsored Younger than to to to or older Age of head of household Age is based on the age of the sole or co-decisionmaker for household saving and investing. Employer-sponsored include SEP, SAR-SEP, and SIMPLE. Source: Investment Company Institute Annual Mutual Fund Shareholder Tracking Survey Incidence of IRA Ownership by Income Household ownership of all types of also tends to increase with household income (Figure A3). In 03, 4 percent of households with incomes of $50,000 or more owned traditional, compared with 7 percent of households with incomes of less than $50,000. Nearly one-quarter of households with incomes of $50,000 or more owned Roth, compared with 6 percent of households with incomes of less than $50,000. Eleven percent of households with incomes of $50,000 or more owned employer-sponsored, whereas only 4 percent of households with incomes of less than $50,000 owned employer-sponsored. IRA Ownership by Generation IRA ownership occurs across all generations, but the incidence of IRA ownership was greatest among households headed by members of the Baby Boom Generation. In 03, 43 percent of households headed Baby Boomers owned (Figure A4). As a result, 4 percent of IRA-owning households were headed by individuals who were members of the Baby Boom Generation (Figure A5). APPENDIX: ICI RESEARCH PERSPECTIVE, VOL. 9, NO. A NOVEMBER 03 3

4 FIGURE A3 U.S. Households Owning Traditional, Roth, and Employer-Sponsored by Household Income Percentage of U.S. households within each income group, 03 Traditional $00,000 or more 56 $00,000 to $99,999 $75,000 to $99, % $50,000 or more $50,000 to $74,999 3 $35,000 to $49,999 5 $5,000 to $34, % Less than $50,000 Less than $5,000 Roth $00,000 or more 36 $00,000 to $99,999 $75,000 to $99, % $50,000 or more $50,000 to $74,999 8 $35,000 to $49,999 0 $5,000 to $34, % Less than $50,000 Less than $5,000 4 Employer-sponsored $00,000 or more 7 $00,000 to $99,999 $75,000 to $99, % $50,000 or more $50,000 to $74,999 9 $35,000 to $49,999 5 $5,000 to $34, % Less than $50,000 Less than $5,000 Total reported is household income before taxes in 0. Employer-sponsored include SEP, SAR-SEP, and SIMPLE. Note: For incidence of any IRA ownership by household income, see Figure 5 in the main report. Source: Investment Company Institute Annual Mutual Fund Shareholder Tracking Survey 4 APPENDIX: ICI RESEARCH PERSPECTIVE, VOL. 9, NO. A NOVEMBER 03

5 FIGURE A4 Incidence of IRA Ownership Is Greatest Among the Baby Boom Generation Percentage of U.S. households within each generation group that own,, Generation Y (born between 977 and 00) Generation X (born between 965 and 976) Baby Boom Generation (born between 946 and 964) Silent and GI Generations (born between 904 and 945) Head of household generation Generation is based on the age of the sole or co-decisionmaker for household saving and investing. include traditional, Roth, and employer-sponsored (SEP, SAR-SEP, and SIMPLE ). Note: Survey participants must be 8 or older and be the most knowledgeable about the household s savings and investments; so although people born between 977 and 00 are members of Generation Y, only those born between 977 and 995 are included in this survey. Source: Investment Company Institute Annual Mutual Fund Shareholder Tracking Survey FIGURE A5 Baby Boomers Make Up 4 Percent of All IRA-Owning Households Percent distribution of households owning and all U.S. households by generation, 03 Silent and GI Generations (born between 904 and 945) Baby Boom Generation (born between 946 and 964) Generation X (born between 965 and 976) Generation Y (born between 977 and 00) Households owning 4 All U.S. households Generation is based on the age of the sole or co-decisionmaker for household saving and investing. include traditional, Roth, and employer-sponsored (SEP, SAR-SEP, and SIMPLE ). Note: Survey participants must be 8 or older and be the most knowledgeable about the household s savings and investments; so although people born between 977 and 00 are members of Generation Y, only those born between 977 and 995 are included in this survey. Sources: Investment Company Institute Annual Mutual Fund Shareholder Tracking Survey and U.S. Census Bureau APPENDIX: ICI RESEARCH PERSPECTIVE, VOL. 9, NO. A NOVEMBER 03 5

6 In 03, 35 percent of households headed by members of the Baby Boom Generation owned traditional ; 9 percent owned Roth ; and 9 percent owned employer-sponsored (Figure A6). In 03, households headed by Baby Boomers held a significant portion of total IRA assets. Fifty-one percent of all IRA assets were held by households headed by individuals who were members of this generation. 5 Households with Have More Savings Than Other Households Both and employer-sponsored retirement plans provide workers the opportunity to set aside assets for retirement on a tax-advantaged basis. Households with these formal retirement savings arrangements generally have accumulated greater household financial assets compared with households without these arrangements (Figure A7). IRA Balances and Investments Median household financial assets in all types of were $50,000 in 03 (Figure A8). Household financial assets in traditional tended to be greater than assets in Roth or employer-sponsored. Traditional have been available longer than the other types of, and many households traditional contain employer-sponsored retirement plan rollovers. Roth have been available since 998 and have had only very limited opportunity to receive rollovers from employer-sponsored retirement plans. 6 In 03, the median amount in Roth was $0,000, and the median amount in employer-sponsored was $30,000. The median household financial assets in traditional were $50,000. FIGURE A6 U.S. Households Owning Traditional, Roth, and Employer-Sponsored by Generation Percentage of U.S. households within each generation group, 03 Any Traditional Roth Employer-sponsored Generation Y (born between 977 and 00) Generation X (born between 965 and 976) Baby Boom Generation (born between 946 and 964) Silent and GI Generations (born between 904 and 945) Head of household generation Generation is based on the age of the sole or co-decisionmaker for household saving and investing. Employer-sponsored include SEP, SAR-SEP, and SIMPLE. Note: Survey participants must be 8 or older and be the most knowledgeable about the household s savings and investments; so although people born between 977 and 00 are members of Generation Y, only those born between 977 and 995 are included in this survey. Source: Investment Company Institute Annual Mutual Fund Shareholder Tracking Survey 6 APPENDIX: ICI RESEARCH PERSPECTIVE, VOL. 9, NO. A NOVEMBER 03

7 FIGURE A7 Households with Formal Retirement Savings Have Greater Total Financial Assets Median total household financial assets by age of head of household* and formal retirement savings coverage, 03 Have formal retirement savings Do not have formal retirement savings $50,000 $00,000 $5,000 $5,000 $5,000 Younger than 35 $5,000 $5, to to 64 Age of head of household* $5, or older Percentage with formal retirement savings * Age is based on the age of the sole or co-decisionmaker for household saving and investing. Note: Formal retirement savings include, employer-sponsored retirement plans (DB or DC plans), or both. Source: Investment Company Institute Annual Mutual Fund Shareholder Tracking Survey FIGURE A8 Household Financial Assets in by Type of IRA Percentage of households with IRA assets in specified ranges, 03 Assets in type of IRA Total household financial assets in Traditional Type of IRA owned Roth Employer-sponsored * Less than $0,000 8% 7% 30% 5% $0,000 to $4, $5,000 to $49, $50,000 to $99, $00,000 to $49, $50,000 or more Mean $35,000 $3,600 $58,400 $74,000 Median $50,000 $50,000 $0,000 $30,000 * Employer-sponsored include SEP, SAR-SEP, and SIMPLE. Source: Investment Company Institute IRA Owners Survey APPENDIX: ICI RESEARCH PERSPECTIVE, VOL. 9, NO. A NOVEMBER 03 7

8 help individuals and families accumulate savings over time. This is particularly evident when traditional IRA holdings are grouped by length of household ownership. For example, households owning traditional for less than 0 years had median traditional IRA holdings of $0,000, while households owning traditional for 0 years or more had median traditional IRA holdings of $00,000 (Figure A9). Mean traditional IRA holdings, while higher than the median values, exhibited a similar pattern. Mutual funds were the most common IRA investment (Figure A0). 7 In 03, 63 percent of IRA-owning households had IRA assets invested in mutual funds, usually equity funds. Forty percent held individual equities in their. Thirty-three percent of households owning held annuities, and 4 percent held bank deposits in their. On average, households with traditional, Roth, or employer-sponsored held three types of investments in those. FIGURE A9 Household Financial Assets in Traditional by Length of Ownership, 03 Median Mean $96,900 $08,600 $00,000 $0,000 $60,800 $4,000 Fewer than 0 years 0 to 9 years Length of traditional IRA ownership 0 years or more Source: Investment Company Institute IRA Owners Survey 8 APPENDIX: ICI RESEARCH PERSPECTIVE, VOL. 9, NO. A NOVEMBER 03

9 FIGURE A0 Types of Investments Held in Percentage of households with type of IRA indicated, 03 IRA investments Any type of IRA Traditional Type of IRA owned Roth Employersponsored Mutual funds (total) 63% 6% 6% 47% Equity funds Bond funds Balanced funds Money market funds Individual equities Annuities (total) Fixed annuities 4 4 Variable annuities 4 Bank savings accounts, money market deposit accounts, or certificates of deposit Individual bonds (not including U.S. savings bonds) U.S. savings bonds 7 4 ETFs Other Mean number of investment types held in IRA 3 types 3 types 3 types 3 types Multiple responses are included. Employer-sponsored include SEP, SAR-SEP, and SIMPLE. Source: Investment Company Institute IRA Owners Survey APPENDIX: ICI RESEARCH PERSPECTIVE, VOL. 9, NO. A NOVEMBER 03 9

10 Contributions to Traditional and Roth Twenty-six percent of traditional IRA owning households an estimated 9.4 million contributed to their traditional in tax year 0, with a median contribution of $4,000 per household (Figure A). Those who contributed to their traditional typically were younger and had higher household incomes than noncontributors (Figure A). Thirty-eight percent of households owning Roth an estimated 7.3 million contributed to their Roth in tax year 0, with a median contribution of $4,000 per household. Since tax year 00, individuals aged 50 or older are eligible to make catch-up contributions to their. 8 In tax year 0, 9 percent of traditional IRA owning households with individuals aged 50 to 70 contributed to their ; 45 percent of these contributing households made catch-up contributions (Figure A). Thirty-four percent of Roth IRA owning households with individuals aged 50 to 70 contributed to their in tax year 0; 47 percent of these contributing households made catch-up contributions. FIGURE A Characteristics of Households Owning Traditional or Roth in 03 by Contribution Status in Tax Year 0 Traditional IRA owning households Contributed to traditional IRA in tax year 0 Did not contribute to traditional IRA in tax year 0 Roth IRA owning households Contributed to Roth IRA in tax year 0 3 Did not contribute to Roth IRA in tax year 0 4 Median per household Age of household sole or co-decisionmaker for saving and investing 48 years 57 years 43 years 50 years Household income 5 $87,500 $75,000 $00,000 $87,500 Household financial assets 6 $50,000 $50,000 $00,000 $300,000 Household financial assets in all types of $55,000 $65,000 $50,000 $64,50 Amount contributed per household to each type of IRA in tax year 0 $4,000 N/A $4,000 N/A Percentage of households Household sole or co-decisionmaker for saving and investing Married or living with a partner 78% 68% 79% 75% College or postgraduate degree Employed full- or part-time Household has DC retirement plan account Twenty-six percent of households owning traditional contributed to them in tax year 0. Includes all households owning traditional that did not contribute to them in tax year 0. Some of these households may have been ineligible to make deductible contributions. 3 Thirty-eight percent of households owning Roth contributed to them in tax year 0. 4 Includes all households owning Roth that did not contribute to them in tax year 0. Some of these households may have been ineligible to contribute to Roth in tax year 0. 5 Total reported is household income before taxes in 0. 6 Household financial assets include assets in employer-sponsored retirement plans but exclude the household s primary residence. N/A = not applicable Source: Investment Company Institute IRA Owners Survey 0 APPENDIX: ICI RESEARCH PERSPECTIVE, VOL. 9, NO. A NOVEMBER 03

11 FIGURE A Catch-Up Contributions Among IRA Owners Tax year Catch-up contributions to traditional Percentage of households owning traditional that qualified to make catch-up contributions Made a catch-up contribution 9% 3% 6% % 5% 3% % 4% 4% 3% Contributed, but did not make a catch-up contribution Did not contribute Catch-up contributions to Roth 3 Percentage of households owning Roth that qualified to make catch-up contributions Made a catch-up contribution 5% 8% 33% % 7% 3% 5% 9% 9% 6% Contributed, but did not make a catch-up contribution Did not contribute Households may make catch-up contributions to traditional if a household member is at least 50 years old but younger than 70½ years old. This group may include households ineligible to make deductible contributions to traditional. 3 Households may make catch-up contributions to Roth if their incomes are within the limits to contribute to a Roth IRA and if a household member is aged 50 or older. Note: Data are not available for tax year 005. Source: Investment Company Institute IRA Owners Survey APPENDIX: ICI RESEARCH PERSPECTIVE, VOL. 9, NO. A NOVEMBER 03

12 Demographic Characteristics of IRA-Owning Households Saving activity tends to increase with age, educational attainment, and household income; in addition, married people tend to save more than single persons. 9 Households that owned typically had greater financial assets and higher incomes than households without (Figure A3). In addition, the financial decisionmakers in households with generally were older and more likely to be married, employed, and have college or postgraduate degrees, compared with households not owning. Traditional. In 03, 36.0 million, or 9.4 percent of, U.S. households owned traditional (Figure A). The financial decisionmakers of households with traditional tended to be older 34 percent were retired from their lifetime occupations (Figure A3). Seventy-three percent of households with traditional also had defined contribution (DC) plan accounts. Thirty-four percent of households with traditional also owned Roth, and 4 percent also owned employer-sponsored. FIGURE A3 Characteristics of U.S. Households Owning, 03 Type of IRA owned Households owning Traditional Roth Employersponsored Households not owning Median per household Age of household sole or co-decisionmaker for saving and investing 5 years 54 years 47 years 5 years 50 years Household income $80,000 $80,000 $90,000 $80,000 $37,300 Household financial assets 3 $00,000 $00,000 $50,000 $00,000 $5,000 Household financial assets in all types of $50,000 $6,500 $60,000 $75,000 N/A Share of household financial assets in type of IRA indicated 3% 30% % 7% N/A Percentage of households Household sole or co-decisionmaker for saving and investing Married or living with a partner 7% 70% 76% 80% 55% College or postgraduate degree Employed full- or part-time Retired from lifetime occupation Household has DC account or DB plan coverage (total) DC retirement plan account DB plan coverage Types of owned 4 Traditional IRA N/A Roth IRA N/A Employer-sponsored IRA N/A Employer-sponsored include SEP, SAR-SEP, and SIMPLE. Total reported is household income before taxes in 0. 3 Household financial assets include assets in employer-sponsored retirement plans but exclude the household s primary residence. 4 Multiple responses are included. N/A = not applicable Sources: Investment Company Institute Annual Mutual Fund Shareholder Tracking Survey and Investment Company Institute IRA Owners Survey APPENDIX: ICI RESEARCH PERSPECTIVE, VOL. 9, NO. A NOVEMBER 03

13 Households owning traditional had median assets of $50,000 in their traditional, typically held in one account (Figure A4). Households with traditional that included rollover assets typically had greater IRA assets, including traditional IRA assets, than households whose traditional did not include rollovers (Figure A5). 0 Forty-nine percent of traditional IRA owning households opened their first traditional IRA in 996 or earlier (Figure A4). Households with traditional held them through a wide array of financial institutions. In 03, 76 percent of traditional IRA owning households held traditional through investment professionals, and 9 percent held traditional directly at mutual fund companies or discount brokers (Figure A4). FIGURE A4 Characteristics of U.S. Households Owning Traditional, 03 Median per household owning traditional Amount in traditional $50,000 Amount contributed to traditional in tax year 0 $4,000 Number of traditional owned Percentage of households owning traditional Traditional IRA includes rollover from an employer-sponsored retirement plan 49% Contributed to a traditional IRA in tax year 0 6 Deducted a traditional IRA contribution in tax year 0 4 Made a withdrawal from a traditional IRA in tax year 0 Own traditional IRA 3 Respondent 86 Spouse 4 Dependent children 3 Number of traditional owned One 53 Two 33 Three or more 4 Year first traditional IRA was opened 974 through through through through through through through through May 03 7 Continued on the next page APPENDIX: ICI RESEARCH PERSPECTIVE, VOL. 9, NO. A NOVEMBER 03 3

14 FIGURE A4 CONTINUED Characteristics of U.S. Households Owning Traditional, 03 Where traditional are held 3 Investment professional (total) 76% Full-service brokerage 33 Independent financial planning firm 6 Bank or savings institution 8 Insurance company 9 Direct sources (total) 9 Mutual fund company Discount brokerage (total) 0 Discount brokerage firm with walk-in offices 7 Discount brokerage firm that is only available online 4 Figure reports median among households that contributed to traditional in tax year 0. Figure reports percentage among households that contributed to traditional in tax year 0. 3 Multiple responses are included. Source: Investment Company Institute IRA Owners Survey Households with multiple traditional tended to hold them at different financial services firms. In 03, 47 percent of households with multiple traditional held each IRA at a different type of financial services firm (Figure A6). Fourteen percent of households with multiple traditional reported that some of their were at the same type of financial services firm. The remaining 39 percent indicated that all of their were at the same type of financial services firm, but this does not necessarily mean that they held their multiple at the same firm (merely the same type of firm). Roth. In 03, 9. million, or 5.6 percent of, U.S. households owned Roth (Figure A). The financial decisionmakers of Roth IRA households had a median age of 47 years and were the most likely of all IRA household decisionmakers to have college or postgraduate degrees (Figure A3). Sixty-four percent of Roth IRA owning households also owned traditional, and 8 percent had DC plan accounts. 4 APPENDIX: ICI RESEARCH PERSPECTIVE, VOL. 9, NO. A NOVEMBER 03

15 FIGURE A5 Characteristics of Households Owning Traditional With and Without Rollovers from Employer-Sponsored Retirement Plans, 03 Traditional IRA includes rollover from employer-sponsored retirement plan Traditional IRA does not include rollover from employer-sponsored retirement plan Median per household Age of household sole or co-decisionmaker for saving and investing 53 years 54 years Household income 3 $90,000 $70,000 Household financial assets 4 $75,000 $00,000 Household financial assets in all types of $87,500 $40,000 Amount in traditional $70,000 $30,000 Number of traditional owned Percentage of households Household sole or co-decisionmaker for saving and investing: Married or living with a partner 76% 65% Widowed 7 College or postgraduate degree Employed full- or part-time Retired from lifetime occupation Where traditional are held 5 Investment professional (total) Full-service brokerage 38 9 Independent financial planning firm 7 5 Bank or savings institution 5 30 Insurance company 9 9 Direct market (total) 3 6 Mutual fund company 5 0 Discount brokerage (total) 0 0 Discount brokerage with walk-in offices 8 6 Discount brokerage firm that is only available online 3 4 Forty-nine percent of households owning traditional have traditional that include rollovers from employer-sponsored retirement plans. Fifty-one percent of households owning traditional have traditional that do not include rollovers from employer-sponsored retirement plans. 3 Total reported is household income before taxes in 0. 4 Household financial assets include assets in employer-sponsored retirement plans but exclude the household s primary residence. 5 Multiple responses are included. Source: Investment Company Institute IRA Owners Survey APPENDIX: ICI RESEARCH PERSPECTIVE, VOL. 9, NO. A NOVEMBER 03 5

16 FIGURE A6 Households Hold Traditional at Different Types of Financial Services Firms Percentage of traditional IRA owning households with multiple traditional, 03 39% All at same type of financial services firm 47% Each IRA at a different type of financial services firm 4% Some at same type of financial services firm Number of respondents: 993 Source: Investment Company Institute IRA Owners Survey Households owning Roth typically owned one Roth IRA account, with a median balance of $0,000 (Figure A7). Households with Roth that were funded by conversions from traditional typically had greater IRA assets, including Roth IRA assets, than households whose Roth were not funded by conversions from traditional (Figure A8). Twenty-two percent of Roth IRA owning households initially opened their Roth in 998, the first year they were offered and the only year in which taxes on conversions could be spread over four years (Figure A7). Another 0 percent opened their Roth between 999 and 00, and the remaining 58 percent opened their first Roth in 00 or later. Forty percent of households owning Roth opened a Roth IRA as their first IRA. Roth IRA owning households mostly held Roth at mutual fund companies, full-service brokerages, or independent financial planning firms. Traditional IRA Withdrawals Mostly Were Made by Older Owners Households making traditional IRA withdrawals tend to be older and retired. In tax year 0, the median age of the household decisionmaker surveyed among households that took traditional IRA withdrawals was 7, compared with a median age of 5 among households not taking distributions (Figure A9). Seventy-two percent of households that took withdrawals were headed by retired individuals in tax year 0. Typically, withdrawals from traditional were taken to fulfill required minimum distributions (RMDs). Sixty-six percent of households owning traditional in 03 and making withdrawals in tax year 0 calculated their withdrawal amount based on the RMD. 3 Twentythree percent of traditional IRA owning households taking withdrawals reported they withdrew lump sums based on needs in tax year 0. Households that were retired and took traditional IRA withdrawals usually took withdrawals to pay for living expenses or to reinvest or save the withdrawal amount in another account. In tax year 0, 38 percent reported using traditional IRA withdrawals to pay for living expenses (Figure A9). Thirty-one percent of households making withdrawals in tax year 0 reinvested or saved the withdrawal amount in another account. 6 APPENDIX: ICI RESEARCH PERSPECTIVE, VOL. 9, NO. A NOVEMBER 03

17 FIGURE A7 Characteristics of U.S. Households Owning Roth, 03 Median per household owning Roth Amount in Roth $0,000 Amount contributed to Roth in tax year 0 $4,000 Number of Roth owned Percentage of households owning Roth Roth IRA was first IRA owned 40% Roth IRA was funded by a conversion from a traditional IRA 9 Contributed to a Roth IRA in tax year 0 38 Roth IRA assets include assets initially from an employer-sponsored retirement plan 7 Made a withdrawal from a Roth IRA in tax year 0 3 Own Roth IRA Respondent 87 Spouse 4 Dependent children 3 Number of Roth owned One 59 Two 33 Three or more 8 Year first Roth IRA was opened through through through through through May 03 0 Where Roth are held Investment professional (total) 75 Full-service brokerage 35 Independent financial planning firm 5 Bank or savings institution Insurance company 6 Direct sources (total) 30 Mutual fund company Discount brokerage (total) 0 Discount brokerage firm with walk-in offices 7 Discount brokerage firm that is only available online 3 Figure reports median among households that contributed to Roth in tax year 0. Multiple responses are included. Source: Investment Company Institute IRA Owners Survey APPENDIX: ICI RESEARCH PERSPECTIVE, VOL. 9, NO. A NOVEMBER 03 7

18 FIGURE A8 Characteristics of Households Owning Roth With and Without Conversions, 03 Roth IRA was funded by a conversion from a traditional IRA Roth IRA was not funded by a conversion from a traditional IRA Median per household Age of household sole or co-decisionmaker for saving and investing 5 years 45 years Household income 3 $00,000 $90,000 Household financial assets 4 $300,000 $0,000 Household financial assets in all types of $90,000 $50,000 Amount in Roth $4,500 $0,000 Number of Roth owned Percentage of households Household sole or co-decisionmaker for saving and investing: Married or living with a partner 78% 76% Widowed 4 4 College or postgraduate degree Employed full- or part-time Retired from lifetime occupation 3 8 Year first Roth IRA was opened through through through through through May 03 7 Nineteen percent of households owning Roth have Roth funded by conversions from traditional. Eighty-one percent of households owning Roth have Roth that are not funded by conversions from traditional. 3 Total reported is household income before taxes in 0. 4 Household financial assets include assets in employer-sponsored retirement plans but exclude the household s primary residence. Source: Investment Company Institute IRA Owners Survey 8 APPENDIX: ICI RESEARCH PERSPECTIVE, VOL. 9, NO. A NOVEMBER 03

19 FIGURE A9 Most Traditional IRA Withdrawals Are Made to Meet Required Minimum Distributions Characteristics of U.S. households owning traditional by withdrawal status in tax year 0 Median per household Made a withdrawal from a traditional IRA in tax year 0 Did not make a withdrawal from a traditional IRA in tax year 0 Age of household sole or co-decisionmaker for saving and investing 7 years 5 years Household income 3 $55,000 $87,500 Household financial assets 4 $50,000 $00,000 Household financial assets in all types of $85,000 $60,000 Percentage of households Household sole or co-decisionmaker for saving and investing: Married or living with a partner 57% 74% Widowed 4 6 College or postgraduate degree 40 5 Employed full- or part-time 8 75 Retired from lifetime occupation 7 4 How withdrawal was determined Withdraw to meet the IRS s required minimum distribution 66 N/A Withdraw a lump sum based on needs 3 N/A Withdraw a regular dollar amount 5 N/A Withdraw a fixed percentage of the account balance N/A Withdraw an amount based on life expectancy N/A Some other way 3 N/A Purpose of traditional IRA withdrawal in retirement 5, 6 Took withdrawals to pay for living expenses 38 N/A Spent it on a car, boat, or big-ticket item other than a home 6 N/A Spent it on a healthcare expense N/A Used it for an emergency 9 N/A Used it for home purchase, repair, or remodeling 6 N/A Reinvested or saved it in another account 3 N/A Paid for education 3 N/A Some other purpose 4 N/A Twenty-one percent of households owning traditional withdrew money from them in tax year 0. Seventy-nine percent of households owning traditional did not withdraw money from them in tax year 0. 3 Total reported is household income before taxes in tax year 0. 4 Household financial assets include assets in employer-sponsored retirement plans but exclude the household s primary residence. 5 Figure reported for traditional IRA owning households that took a withdrawal and either the head of household or spouse is retired. 6 Multiple responses are included. N/A = not applicable Source: Investment Company Institute IRA Owners Survey APPENDIX: ICI RESEARCH PERSPECTIVE, VOL. 9, NO. A NOVEMBER 03 9

20 Notes Data in this appendix on the number and percentage of households owning are based on ICI s Annual Mutual Fund Shareholder Tracking Survey of 4,00 randomly selected, representative U.S. households conducted in May 03. The standard error for the total sample is ±.6 percentage points at the 95 percent confidence level. For further discussion and additional results from this survey, see Burham, Bogdan, and Schrass 03. The demographic and financial characteristics of IRA owners are derived from a separate May 03 IRA Owners Survey of 3,006 representative U.S. households owning traditional, Roth, and employer-sponsored (SEP, SAR-SEP, and SIMPLE ). The standard error for the total sample is ±.8 percentage points at the 95 percent confidence level. IRA ownership does not include ownership of Coverdell Education Savings Accounts (formerly called education ). The incidence of IRA ownership is calculated from the ICI Annual Mutual Fund Shareholder Tracking Survey, which collects information on retirement and other investment account ownership among U.S. households headed by individuals aged 8 or older. The survey questionnaire for 03 changed the order of the account type choices in the question regarding ownership of retirement and other savings accounts. This change was made primarily to avoid possible confusion between individual accounts in 40(k) and other employersponsored DC plan accounts versus. In 03, respondents were asked if they own a 40(k) and other employer-sponsored DC retirement plans, then if they own a traditional IRA or a Roth IRA, then if they own an employer-sponsored IRA, and finally, if they own a 59 plan or Coverdell Education Savings Account (ESA). In prior years, respondents were asked first if they own a traditional IRA or Roth IRA, then if they own a Coverdell ESA, then if they own an employer-sponsored IRA, and finally, if they own a 40(k) or other employer-sponsored plan account (59 plan ownership was a separate question). In previous years, respondents were asked separately if they have an employer-sponsored IRA and about the size of their employer. In 03, these questions were not asked separately. When asked what type of employer-sponsored IRA they own, respondents were told that a SIMPLE IRA has employer and employee contributions and is offered by businesses with fewer than 00 employees, a SAR-SEP includes only employee contributions, and a SEP IRA includes only employer contributions. Perhaps partly because of the reordering of the account types, incidence of IRA ownership in 03 is lower than in 0. See Figure A for the complete time series on IRA incidence. See Burham, Bogdan, and Schrass 03 for details on the changes to the ICI Annual Mutual Fund Shareholder Tracking Survey. For the rules governing, see Internal Revenue Service 03. For a brief history of and a discussion of the various features of the different types of, see Holden et al For definitions of key terms related to and retirement saving, see pages 3 33 of Holden and Schrass 03. See Holden et al. 005 for a discussion of the history of. For a discussion of the evolving role of in U.S. retirement planning, see Sabelhaus and Schrass 009. For analysis of traditional IRA investors activities during and in the wake of the financial crisis, see Holden and Bass 03. For a discussion of age and cohort effects on traditional IRA ownership, see Sabelhaus and Schrass 009. In 03, percent of all IRA assets were held by households headed by members of the Silent and GI Generations. Households headed by members of Generation X held 0 percent of IRA assets and households headed by members of Generation Y held 7 percent of all IRA assets. Survey participants must be 8 or older and be the most knowledgeable about the household s savings and investments; so although people born between 977 and 00 are members of Generation Y, only those born between 977 and 995 are included in this survey. 0 APPENDIX: ICI RESEARCH PERSPECTIVE, VOL. 9, NO. A NOVEMBER 03

21 References Prior to 006, Roth could not directly accept rollovers from employer-sponsored retirement plans. Starting in 006, Roth accounts in 40(k) and 403(b) plans could be rolled over to Roth. The Pension Protection Act of 006 allows direct rollovers of non-roth amounts in qualified employersponsored retirement plans to Roth starting in 008. For a complete discussion of the specific rules, see Internal Revenue Service 03. Seventeen percent of Roth IRA owning households in 03 reported that their Roth contained assets that were initially from an employer-sponsored retirement plan (see Figure A7). In aggregate, 46 percent of the $5.7 trillion in at the end of the second quarter of 03 was invested in mutual funds (see Investment Company Institute 03). For more information on the asset allocation of individual traditional IRA investors, see Holden and Bass 0 and Holden and Bass 03. See discussion and Figures 0 and in Holden and Schrass 03. See Holden et al. 005 for a discussion of the relationship between demographic characteristics and the propensity to save. For how saving goals vary over the life cycle and with income, see Brady, Burham, and Holden 0. For additional discussion, see also Brady and Bogdan 03 and Sabelhaus, Bogdan, and Schrass 008. Analysis of 0. million traditional IRA investors aged 5 or older in 0 finds that recent rollovers provide a significant boost to traditional IRA balances. See Holden and Bass 03. For data on aggregate Roth IRA assets, contributions, and conversions, see Investment Company Institute 03. For reference on rules governing, see Internal Revenue Service 03. In 00, taxpayers who made conversions to Roth had the option of paying the taxes over two years (0 and 0). For additional detail, see Internal Revenue Service 03. This is similar to 65 percent in tax year 0 and 6 percent in tax year 00 (see Holden and Schrass 03). In 009, with the temporary suspension of RMDs, 48 percent of traditional IRA owning households with withdrawals took the RMD amount (see Figure 5 in Holden and Schrass 03). In addition, withdrawal activity was lower in 009 (see Figure in Holden and Schrass 03). Brady, Peter, and Michael Bogdan. 03. Who Gets Retirement Plans and Why, 0. ICI Research Perspective 9, no. 6 (October). Available at per9-06.pdf. Brady, Peter, Kimberly Burham, and Sarah Holden. 0. The Success of the U.S. Retirement System (December). Washington, DC: Investment Company Institute. Available at success_retirement.pdf. Burham, Kimberly, Michael Bogdan, and Daniel Schrass. 03. Ownership of Mutual Funds, Shareholder Sentiment, and Use of the Internet, 03. ICI Research Perspective 9, no. 9 (October). Available at Holden, Sarah, and Steven Bass. 0. The IRA Investor Profile: Traditional IRA Investors Asset Allocation, 007 and 008. ICI Research Report (September). Washington, DC. Investment Company Institute. Available at ira_asset.pdf. Holden, Sarah, and Steven Bass. 03. The IRA Investor Profile: Traditional IRA Investors Activity, ICI Research Report (October). Available at pdf/rpt_3_ira_investors.pdf. Holden, Sarah, Kathy Ireland, Vicky Leonard-Chambers, and Michael Bogdan The Individual Retirement Account at Age 30: A Retrospective. Investment Company Institute Perspective, no. (February). Available at pdf/per-0.pdf. Holden, Sarah, and Daniel Schrass. 03. The Role of in U.S. Households Saving for Retirement, 03. ICI Research Perspective 9, no. (November). Available at APPENDIX: ICI RESEARCH PERSPECTIVE, VOL. 9, NO. A NOVEMBER 03

22 Internal Revenue Service. 00. Publication 590, Individual Retirement Arrangements (): For Use in Preparing 009 Returns. Available at p pdf. Internal Revenue Service. 03. Publication 590, Individual Retirement Arrangements (): For Use in Preparing 0 Returns. Available at Investment Company Institute. 03. The U.S. Retirement Market, Second Quarter 03 (September). Available at Sabelhaus, John, Michael Bogdan, and Daniel Schrass Equity and Bond Ownership in America, 008. Washington, DC: Investment Company Institute and New York, NY: Securities Industry and Financial Markets Association. Available at Sabelhaus, John, and Daniel Schrass The Evolving Role of in U.S. Retirement Planning. Investment Company Institute Research Perspective 5, no. 3 (November). Available at U.S. Census Bureau. 03. Income, Poverty, and Health Insurance Coverage in the United States: 0. Current Population Reports, P60-45 (September). Washington, DC: U.S. Government Printing Office. Available at APPENDIX: ICI RESEARCH PERSPECTIVE, VOL. 9, NO. A NOVEMBER 03

23 40 H Street, NW Washington, DC Copyright 03 by the Investment Company Institute. All rights reserved. The Investment Company Institute (ICI) is the national association of U.S. investment companies. ICI seeks to encourage adherence to high ethical standards, promote public understanding, and otherwise advance the interests of funds, their shareholders, directors, and advisers.

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