According to research from T. Rowe Price, 55% of young investors said they do not plan to fund an IRA or are unsure whether they will do so this tax filing season. By comparison, 71% of these investors made an IRA contribution for the 2010 tax year.
According to the survey, the decline in commitment to IRAs is being driven by several factors, including:
• A belief that current participation in a 401(k) plan is adequate for now (42%);
• A feeling that they can’t afford it (32%);
• Economic uncertainty (23%);
• Market volatility (14%); and
• Job uncertainty (12%).
When asked what they would do with an extra $5,000, most investors (56%) said they would pay off existing debt or add to a “rainy day” fund; only 16% said they would contribute to an IRA.
The study also found that only 22% of Generation X and Generation Y investors feel confident about the financial markets heading into 2012. And among investors who plan to fund an IRA this tax season, 28% said they will direct their contributions to relatively stable investments such as money market funds, despite the historically low current yields offered by these vehicles and their lack of suitability as long-term retirement investments.
T. Rowe Price’s research into IRAs and the investing practices of Generation X and Generation Y investors was conducted online from December 1 to 12, 2011, by Harris Interactive among a national sample of 860 adults aged 21-50 who currently have one or more investment accounts.