Roughly half of all workers participate in an employer-sponsored retirement or pension plan. Private sector pension plans are classified either as defined benefit (DB) or as defined contribution (DC) plans. DB plans promise to provide, generally, a fixed level of monthly retirement income that is based on salary, years of service, and age at retirement, regardless of how the plan investments perform. In contrast, benefits from DC plans are based on the contributions to and the performance of the investments in individual accounts, which may fluctuate in value. Examples of DC plans include 401(k) plans, employee stock ownership plans, and profit-sharing plans. The most dominant and fastest growing DC plans are 401(k) plans, which allow workers to choose to contribute a portion of their pretax compensation to the plan under section 401(k) of the Internal Revenue Code. IRAs were established under the Internal Revenue Code provisions of the Employee Retirement Income Security Act of 1974 (ERISA). ERISA was generally enacted to protect the interests of employee benefit plan participants and their beneficiaries by requiring the disclosure to them of financial and other information concerning the plan; by establishing standards of conduct for plan fiduciaries; and by providing for appropriate remedies and access to the federal courts. To give IRAs flexibility in accumulating assets for retirement, Congress designed a dual role for these accounts. The first role is to provide individuals not covered by employer-sponsored retirement plans an opportunity to save for retirement on their own in tax-deferred accounts. The second role was to give retiring workers or individuals changing jobs a way to preserve assets in employer-sponsored retirement plans by allowing them to roll over or transfer plan balances into IRAs. Over the past 30 years, Congress has created several types of IRAs designed with different features for individuals and small businesses. The types of IRAs geared toward individuals are: Traditional IRAs: Traditional IRAs allow individuals to defer taxes on investment earnings accumulated in these accounts until distribution at retirement. Eligible individuals may make tax-deductible contributions of earned income to these accounts. Other individuals may make nondeductible contributions to receive the tax deferral on earnings. Yearly contribution amounts are subject to limits based on income, pension coverage, and filing status. Taxpayers over age 70½ cannot contribute and must begin required minimum distributions from these accounts. Withdrawals are generally taxable; and early distributions made before age 59½, other than for specific exceptions, are subject to a 10 percent additional income tax. Roth IRAs: In the Taxpayer Relief Act of 1997, Congress created the Roth IRA, which allows eligible individuals to make after-tax contributions to these accounts. After age 59½, enrollees may take tax-free distributions of their investment earnings. Withdrawals of investment earnings before age 59½ are subject to a 10 percent additional income tax and other taxes. Yearly contribution amounts are subject to limits based on income and filing status. There are no age limits on contributing, and no distributions are required during the Roth IRA owner’s lifetime. Withdrawals are generally tax-free after age 59½, as long as the taxpayer held the account for 5 years; early distributions other than for specific exceptions are subject to an additional 10-percent income tax. Traditional and Roth IRAs can also be established as payroll-deduction IRAs, which requires employer involvement. Payroll-deduction IRA Programs (also called payroll-deduction IRAs): Through payroll-deduction IRAs, employees may establish either traditional or Roth IRAs, and employees may contribute to these accounts through voluntary deductions from their pay, which are forwarded by the employer to the employee’s IRA. As long as employers follow guidelines set by Labor for managing the payroll-deduction IRA, employers are not subject to the fiduciary requirements in ERISA Title I that apply to employer-sponsored retirement plans, like 401(k) plans. Other types of IRAs that are intended to encourage savings through employers include: SEP IRAs: In the Revenue Act of 1978, Congress established SEP IRAs, which were designed with fewer regulatory requirements than traditional employer pension plans to encourage small employers to offer retirement plans to their workers. SEP IRAs allow employers to make tax deductible contributions to their own and each eligible employee’s account. SEP IRAs have higher contribution limits than other IRAs, but they do not permit employee contributions. Yearly contributions are not mandatory, but as with pension plans, they must be based on a written allocation formula and cannot discriminate in favor of highly-compensated employees. SIMPLE IRAs: In the Small Business Job Protection Act of 1996, Congress created SIMPLE IRAs to help employers with 100 or fewer employees more easily provide a retirement savings plan to their employees. In this plan, eligible employees can direct a portion of their salary, within limits, to a SIMPLE IRA and employers may either match the employees’ contribution up to 3 percent or make nonelective, 2 percent contributions of each employee’s salary for all employees making at least $5,000 for the year. This IRA replaced the Salary Reduction Simplified Employee Pension IRA (SAR-SEP IRA)—-a tax-deferred retirement plan provided by sole proprietors or small businesses with fewer than 25 employees. New SAR-SEP IRAs could not be established after December 31, 1996, but plans in operation at that time were allowed to continue. Each of these IRAs have their own eligibility requirements, as shown in table 1. Labor’s Employee Benefits Security Administration (EBSA) shares responsibility for overseeing the IRA component of ERISA with IRS. EBSA enforces Title I of ERISA, which specifies, among other standards, certain fiduciary and reporting and disclosure requirements and seeks to ensure that fiduciaries operate their plans in the best interest of plan participants. IRS enforces Title II of ERISA, which provides, among other standards, tax benefits for plan sponsors and participants, including participant eligibility, vesting, and funding requirements. IRA assets have surpassed DC plan assets and DB plan assets, but the majority of assets that flow into IRAs come from assets being rolled over from other accounts, not from contributions. We also found that IRA ownership is associated with higher education and higher income levels. The percentage of households that own IRAs is similar to those that participate in 401(k) plans, and total contributions to IRAs are lower than contributions to 401(k) accounts. In addition, there are key differences between the structure of employer-sponsored IRAs and that of 401(k)s. Since 1998, IRA assets have comprised the largest portion of the retirement market. As shown in figure 1, in 2004, IRA assets totaled about $3.5 trillion compared to DC assets of $2.6 trillion and DB assets of $1.9 trillion. Most assets flowing into IRAs come from the transfer of retirement assets between IRAs or from other retirement plans, including 401(k) plans, not from contributions. These “rollovers” allow individuals to preserve their retirement savings when they change jobs or retire. As shown in figure 2, from 1998 to 2004, over 80 percent of funds flowing into IRAs came from rollovers, demonstrating that IRAs play a smaller role in building retirement savings than they play in preserving retirement savings. IRA accounts that contain rollover assets also exceeded those without rollover assets. For example, in 2007, the median amount in a traditional IRA with rollover assets was $61,000, while the median amount in a traditional IRA without rollover assets was $30,000. Traditional and Roth IRA ownership is associated with higher education and income levels. In 2004, 59 percent of IRA households were headed by an individual with a college degree, and only about 3 percent were headed by an individual with no high school diploma. Over one-third of these IRA households earned $100,000 or more, and less than 2 percent earned less than $10,000. Households with IRAs also tend to own their homes. Research shows that higher levels of education and household income correlate with a greater propensity to save. Therefore, it is not surprising that IRA ownership increases as education and income levels increase. Lastly, IRA ownership is highest among households headed by individuals aged 45 to 54. More households own traditional IRAs, which were the first IRAs established, than Roth IRAs or employer-sponsored IRAs. In 2007, nearly 33 percent of all households owned traditional IRAs, and about 15 percent owned Roth IRAs. In contrast, about 8 percent of households participated in employer-sponsored IRAs. The percentage of households that own IRAs is similar to the percentage that own 401(k)s, but IRA contributions are less than 401(k) contributions. In 2004, 29 percent of households owned individually arranged IRAs, and 26 percent participated in 401(k) plans (see fig. 3). Ten percent of households own a traditional or Roth IRA and participate in 401(k) plans. Although contributions to both 401(k) plans and IRAs increased from 2002 to 2004, 401(k) contributions were almost four times greater than those made to IRAs. Few studies have been done that have compared contributions by IRA owners and 401(k) participants. However, one study assessed the consistency of taxpayer annual contributions to traditional IRAs and to 401(k) plans from tax years 1999 to 2002. As shown in figure 4, the study found that only 1.4 million taxpayers contributed to their traditional IRAs in all 4 years, while nearly 16 million taxpayers contributed to their 401(k) accounts in the same time period. The study found that the persistency in making IRA contributions may partially be attributed to limits in the tax deductions some owners could take for their contributions. Certain criteria, including age, income, tax filing status, and coverage in a work-based retirement plan, affect the tax deduction taxpayers could take for contributing to an IRA.