Roth IRAs Holdings Increases in Younger Households – Center for Retirement Research

Fintech seems to be working its magic.

Based on an inquiry from a reporter, my colleagues JP Aubry, Yimeng Yin, and Angie Chen are fooling around with data from the Federal Reserve on holdings of Roth IRAs. 2022 Survey of Consumer Finances.

Since assets in IRAs account for more than half of all assets in private-sector retirement plans – far more than in defined benefit or defined contribution (DC) plans – what’s happening in this space is important ( (see Figure 1).

Additionally, Roth IRAs are the vehicle used in auto-IRA programs, which have now expanded to 14 states. These programs require employers to automatically enroll their workers in a Roth IRA without a plan — the worker can opt out. So, are these state initiatives a source of growth or do they come from fintech firms like Robinhood, which have made it much easier to buy and sell financial assets and contribute to retirement accounts?

The adventure begins with JP and Yimeng determining that the percentage of young households with Roth IRAs has increased significantly since 2016 (see Table 1). Among households aged 20-29, the percentage has tripled from 6.6 percent in 2016 to 19.2 percent in 2022. Nothing seems to be happening in the case of older age groups or participation in the DC plan.

Table showing percentage of households with positive balance by age group and account type

Who are these people opening Roth IRAs? Angie did some crosstabs by income tercile, which you can see in Table 2. The increase in Roths is concentrated in the top tercile – the third of households with the highest income. The middle tercile also shows an increase – albeit from a really low level. It’s looking more like a fintech trend than the impact of state auto-IRA initiatives, which typically target low-wage workers.

The table shows the percentage of households with positive Roth IRA balances, ages 20-29, by year and income.

The question remains whether the increase in Roths reflects an increase in coverage or just households already adding another account. Table 3 shows that for the top tercile—the place with all operations—80 percent of households with a Roth IRA already have a positive balance in a DC plan.

Table showing percentage of households with Roth IRAs, ages 20-29, with positive DC balances by year and income

The bottom line seems to be that if technology makes it really easy to save in tax-advantaged accounts, the moneyed tech-savvy will jump at the chance.

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