There are several reasons why many Americans are not investing in individual retirement accounts (IRAs), TIAA found in its 2017 IRA Survey. First of all, 28% do not know enough about them, and 17% think they are too complicated. Additionally, 46% of Americans do not think they could possibly save any more than they currently are saving. In fact, nearly 20% of those who have an IRA contribute less than $250 a year, and only 5% contribute more than $5,000.
Forty-four percent of those surveyed did not know about the tax breaks that IRAs offer.
Those who own an IRA express far more confidence about retirement savings—94% of these folks have this perception, compared to 64% who are not contributing to an IRA.
“With so many competing financial priorities, it’s not surprising to find that Americans focus on their current needs,” says Kathie Andrade, chief executive officer of TIAA’s retail financial services business. “By learning about the tax benefits of contributing to an IRA, they may find they can take the sting out of saving for their long-term goals.”
Those who have an IRA say the three biggest factors that prompted them to open one were help from a financial adviser (40%), education about IRAs (25%), and a simple process to open one (10%).
However, some IRA owners are not using them efficiently, as 37% own more than one IRA and 53% hold IRAs at different financial institutions to balance risk.NEXT: Gen Y and IRAs
While only 27% of Gen X and 17% of Baby Boomers say they do not know enough about IRAs, this jumps to 37% for Gen Y. In addition, only 43% of Gen Y are aware of the tax benefits. However, once the tax benefits are explained to them, 50% of Gen Y say they are more likely to contribute to one. Nearly one-third of Gen Y say they would rely on the advice of friends and family when selecting an IRA provider, whereas this is the case for 24% of all Americans.
“Our younger customers have a long way until retirement, and that’s exactly why they may benefit the most from an IRA,” Andrade says. “However, we’ve heard that some of them are nervous about ‘locking up’ their money in retirement savings when other life milestones are on the horizon. That’s why we remind them that an IRA can actually provide more options, not less. It can help pay for things like a first-home purchase or higher education. That peace of mind often helps younger adults make the decision to contribute.”
Half of those who own an IRA are looking ahead to when they retire, and are planning to use that account once their taxable accounts are exhausted.
When it comes to rolling over money from a plan at a former employer, 33% have left the money behind. That rises to 43% of Gen X, 35% of Gen Y and 23% of Boomers.
Asked why they didn’t roll the money over to their new plan or an IRA, 17% said they didn’t know what to do, 17% didn’t know that this was permissible, 13% said they didn’t have the time, and 9% said it was too complicated.