Background

Individuals can save for retirement in two types of tax-advantaged accounts: defined contribution (DC) accounts and individual retirement accounts (IRAs).¹ A DC plan is an employer-sponsored retirement plan in which contributions from a worker, the employer, or both are placed in an individual account. Individuals with wage income can also contribute to IRAs, which are privately held retirement savings accounts. Contributions—and any investment earnings—in DC accounts and IRAs can be used as a source of income in retirement. Both DC accounts and IRAs may accept rollovers. Rollovers—transfers of funds from one retirement account to another—preserve the tax advantages of retirement savings.² This report provides Internal Revenue Service (IRS) data on contributions to IRAs in 2020. Congress has an interest in contribution data because tax expenditures for retirement plans (estimated to be $25.0 billion for IRAs and $117.8 billion for DC plans in FY2024) are one of the largest categories of revenue losses attributable to provisions in the tax code.³

The tax benefits of IRAs depend on whether the account is a traditional or a Roth account.⁴ Contributions to a traditional IRA may be tax deductible in the year in which they are made based on income limits and depending on whether the account holder or spouse has a pension plan at his or her work.⁵ Investment earnings in traditional IRAs accumulate on a tax-deferred basis. Withdrawals from traditional IRAs (except for amounts attributed to non-deductible contributions) are included in taxable income when received. Contributions to Roth IRAs are not tax deductible in the year in which they are made. Investment earnings accumulate on a tax-free basis. Qualified distributions from a Roth account (those taken by an individual who has held the account for five years and made after death, on account of disability, or on or after attainment of age 59½) are not included in taxable income.⁶

Individuals' contributions to IRAs are subject to annual contribution limits. In 2020 (the most recent year for which contribution data from the IRS is available), an individual could contribute to his or her IRA up to the lesser of (1) his or her wage income for the year or (2) $6,000.⁷ Individuals age 50 and older could make additional $1,000 catch-up contributions to their IRAs. The IRA contribution limit is adjusted annually for inflation. Beginning in tax year 2024, the $1,000 IRA catch-up contribution is adjusted for inflation.⁸

Contributions to IRAs

Table 1 provides data on contributions to traditional IRAs in 2020. Nearly 5 million taxpayers contributed to traditional IRAs, with an average contribution of $4,461. About half of individuals under age 50 (51.4%) and those age 50 to under 70½ (50.7%) who made contributions to their traditional IRAs contributed the maximum amount ($6,000 for those under 50; $7,000 for those 50 and older in 2020).⁹ Nearly 5% of taxpayers age 50 to under 70½ made catch-up contributions of less than the maximum $1,000 amount (not shown in Table 1).

Table 2 provides data on contributions to Roth IRAs in 2020. Over 9 million taxpayers contributed to Roth IRAs, with an average contribution of $3,581. Over one-third of taxpayers under 50 (34.9%) and over 40% of taxpayers age 50 and older (41.4%) who contributed to Roth IRAs in 2020 contributed the maximum amount ($6,000 for those under 50; $7,000 for those 50 and older in 2020).¹⁰ Between 5% and 6% of taxpayers age 50 and older made catch-up contributions of less than the maximum $1,000 amount (not shown in Table 2).