A Primer on IRAs

Alicia H. Munnell

JTF#7

Introduction

Individual Retirement Accounts (IRAs) now hold more assets than either defined benefit or defined contribution pension plans, but many people do not understand how they work. This Just the Facts reminds readers of the differences between Roth and conventional IRAs and describes their role to date as saving vehicles. This piece concludes that although households hold a lot of money in IRAs, these accounts do not appear to have been major vehicles for new saving. Despite the valuable tax benefits associated with both the conventional and Roth IRAs, people tend to use these accounts mainly as depositories for rollovers from their employer-sponsored plans rather than for new saving…