Study Shows Lack of IRA and Financial Planning Knowledge
By Marvin Rotenberg, IRA Technical Expert
Financial Services Organization TIAA-CREF recently conducted a survey among Americans to gauge their understanding of IRAs. The less than stellar results are not surprising.
The survey indicates that less than one in four Americans are contributing to an individual retirement account and most of those individuals are not putting in the maximum amount allowed by law. (Only about 38% of the respondents with an IRA contribute the maximum annually.) Three out of four young adults (ages 18 to 30) didn’t even know there is a maximum contribution amount.
Additionally, more than half of these younger Americans did not know that IRA contributions grow on a tax-beneficial basis. These results indicate the need to educate more Americans, particularly younger ones, about the importance of contributing to an IRA to help insure their future financial well-being.
The survey further showed that more than 62% of the respondents said they didn’t know about IRA features, such as the guidelines for withdrawals from Roth IRAs. They also weren’t aware of the catch-up provision that allows individuals age 50 and over to contribute an additional $1,000 beyond the current $5,000 annual maximum. Additional details regarding the survey can be found here: TIAA-CREF IRA Survey.
There are a multitude of reasons why many Americans have little knowledge of IRAs and their benefits. One is the proliferation of 401(k) / 403(b) and 457(b) plans offered by many employers. Unfortunately, in these economic times many individuals who contribute to these company plans simply cannot afford to allocate additional dollars to an IRA.
Those who can afford to contribute to a traditional IRA or Roth IRA must have earned income at least equal to or greater than the amount of the contribution they wish to make. Contributions to a traditional IRA can be made up to the year in which the account owner attains age 70 ½. Once that year is reached, no further contributions can be made. No such age restriction applies to Roth IRAs.
Even if you are contributing to an employer-sponsored retirement plan you can still contribute to an IRA. However, income phase outs and limits may apply. Check our website for additional information on this topic at http://irahelp.com/2011/ (for the 2011 tax year) and http://irahelp.com/2012/ (for 2012.)
A financial advisor who is knowledgeable about IRAs and other retirement plans can help you determine the best way to save and invest for your retirement. You can search our website at http://irahelp.com/findAdvisor.php to find an advisor in your area who may be able to help you.
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