Many Lack Understanding of IRAs

April 1, 2013 (PLANSPONSOR.com) - Nearly half of respondents to a TIAA-CREF survey said they do not understand individual retirement accounts (IRAs).

Most of those surveyed (80%) said they are not contributing to an IRA, up 4% from last year. Close to half also lack basic understanding of what IRAs are and how they are used. This low awareness underscores the importance of financial education and advice, the company said.   

Among Gen X respondents (ages 35 to 44), 67% said they would consider opening an IRA. However, of those who are disregarding IRAs, nearly half said the reason is they do not know enough about them.   

The survey found nearly two-thirds of respondents are unaware of the maximum contribution amounts allowed for IRAs. More than half of those surveyed who own an IRA reported they are investing less than the annual limit.

“Many individuals are still missing out on the long-term savings benefits of IRAs, simply because they don’t understand what they are and how they work,” said Dan Keady, director of financial planning for TIAA-CREF. “By allowing savings to grow on a tax-deferred basis, an IRA can help give current retirement savings a boost no matter what stage of life you’re in.”   

Fifty-seven percent of survey respondents who did not have an IRA reported they would consider one, including three-quarters of Gen X respondents, two-thirds of Gen Y (ages 18 to 34) and half of late Baby Boomers (ages 45 to 54).   

The survey also found men are more likely to contribute to an IRA than women, and men who have an IRA are also more likely to contribute up to the maximum amount.   

The 2013 TIAA-CREF IRA survey polled 1,008 adults age 18 years and older by phone between February 21 and February 24.    

Jill Cornfield 

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