Archives for July 20, 2016

US Stock Ownership in Taxable vs. Tax-Deferred Retirement Accounts

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If I was going for a clickbait title, I’d say “No one invests in taxable accounts anymore”. The Tax Policy Center has a new report by Rosenthal and Austin about how the share of U.S. stocks held by taxable accounts has dropped significantly over the last 50 years:


Here’s another view of how the share held by retirement plans has increased:


The current numbers:

  • ~25% of US corporate stock is held in taxable accounts.
  • ~37% of US corporate stock is held in IRAs, defined contribution (401k) plans, defined benefit (pension) plans.
  • ~38% of US corporate stock is held by foreigners, non-profits, insurance companies, and other plans (governmental, 529 plans).

Between 1965-2015, the percentage held by taxable accounts dropped from ~85% to ~25%. The inverse finding is that the percentage held by tax-deferred retirement accounts and foreigners went from 15% to 75%.

That means that today, 75% of US stock owners may not care about the federal tax rates on dividend and capital gains, because it doesn’t affect them. Either they aren’t fully exposed to those taxes, or the taxes are deferred and withdrawals are tax at ordinary income rates. This trend could affect future tax policy.

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