More Info Needed on IRAs

There are several reasons many Americans neglect to invest in individual retirement accounts (IRAs), TIAA found in its 2017 IRA Survey. First of all, 28% know too little about the accounts, and 17% think they are too complicated. Additionally, 46% of Americans doubt they could possibly save more than they currently do. 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 were unaware of the tax breaks that IRAs offer.

Respondents who own an IRA express far more confidence about their retirement savings—94% of these investors have this rosy perception, compared with 64% 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, CEO 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 fail to use them efficiently, as 37% own more than one, and 53% hold IRAs at different financial institutions to balance risk.

While only 27% of Generation X and 17% of the Baby Boomers say they are ill-informed about IRAs, this percentage jumps to 37% for Generation Y. In addition, only 43% of Gen Y are aware of the tax benefits. However, once these 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 fewer. It can help pay for things such as a first-home purchase or higher education. That peace of mind often helps younger adults make the decision to contribute.”