EBRI Issue Brief

Withdrawal Activity of Individuals Owning Both Traditional and Roth Individual Retirement Accounts

Mar 26, 2020 25  pages


Traditional and Roth individual retirement accounts (IRAs) have different withdrawal and taxation rules. Traditional IRAs can receive deductible or nondeductible contributions, but any gains accrued in the account are taxable at withdrawal at the prevailing income tax rate. In addition, owners of Traditional IRAs are required to start making withdrawals once they reach age 70-½ (72 for those having their 70th birthday on July 1, 2019, or later). In contrast, Roth IRAs only allow nondeductible (after-tax) contributions, and withdrawals are generally not subject to taxation. Furthermore, owners of Roth IRAs are not required to make withdrawals. Consequently, those owning both IRA types could pursue withdrawal strategies that take advantage of the variations in tax rules — for example, withdrawing from one account type sooner than the other.

Using the EBRI IRA Database, this study seeks to determine if individuals who own both a Traditional and Roth IRA are taking withdrawals in a way that would reveal an awareness of the differences between the two. Key findings are:

  • Traditional IRAs are the favored source of withdrawals. This is true even for those in age cohorts that do not require minimum withdrawals. For example, while IRA owners ages 60–64 were more likely to use some combination of the IRAs for their withdrawals, they typically only took one withdrawal from their Roth IRA over time, with the remaining withdrawals coming from the Traditional IRAs.
  • Owners of IRAs with the largest balances who took withdrawals each year within the study were among those least likely to take their withdrawal from a Roth IRA, despite being the individuals likely to have the most to gain from taking withdrawals to minimize taxes.
  • There was also little evidence that owners deplete or close one account type before withdrawing from another. The account type most likely to be depleted or closed was the Traditional IRA.
  • Current retirees do not appear to be taking advantage of the different tax regimes of the two IRA types in their withdrawal strategies. Instead, they are for the most part preserving their Roth IRAs.

The source of an IRA withdrawal of those owning both IRA types can for the most part be assumed to be the Traditional IRA. In many cases, this is because of the Internal Revenue Service (IRS) rules requiring withdrawals from them. A more widespread understanding that the source of withdrawals taken from IRAs can have an impact on the dollars available for everyday uses could have beneficial effects for many retirees.