BUCKS; Scant Use Of I.R.A.'s
By ANN CARRNS
Published: April 7, 2012
Updated 2:10 p.m. | To add more details
There is still time to make a contribution to an individual retirement account for 2011. But most Americans aren't contributing to an I.R.A. for their retirement, and those who do aren't maximizing their potential contributions, a recent survey finds.
Less than a quarter of Americans are contributing to an I.R.A. and, the survey found, more than half of those who do own an I.R.A. are investing less than the annual limit each year.
The survey by KRC Research on behalf of the financial services provider TIAA-CREF polled 1,007 adults by telephone in early February. The margin of sampling error is plus or minus 3 percentage points.
What's more, a majority of Americans said they were unaware of various options that an I.R.A. offers, including extra ''catch-up'' contributions allowed each year for those age 50 and older.
For both the 2011 and 2011 tax year, those eligible can contribute up to $5,000 to an I.R.A. -- or up to $6,000 for those over 50. In fact, there's still time to contribute for the 2011 tax year: You can add money up until the day your tax return is due, which falls on April 17, 2012. (April 15 is a Sunday, and Emancipation Day, a legal holiday in the District of Columbia, falls on Monday, April 16.)
There are two main types of I.R.A.'s -- the traditional and the Roth -- and they differ on one main point: Contributions to a traditional I.R.A. can be deducted from your taxes, but then the withdrawals made later on in life are taxed. For the Roth, there are no deductions upfront and no taxes later. While the maximum amount you can contribute is the same for both I.R.A. flavors, there are different rules on how much income you can earn to make the maximum contribution. (For those details, read page two of Internal Revenue Service Publication 590.)
The lack of awareness was especially noticeable for younger Americans. Nearly three-fourths of those ages 18 to 34 were unaware of the amount of money an individual can contribute to an I.R.A. each year, and more than half didn't know that I.R.A. contributions grow on a tax-deferred basis.
''There's a tremendous lack of financial literacy,'' said Dan Keady, director of financial planning at TIAA-CREF and a certified financial planner.
Of those who do contribute to an I.R.A., women are more likely to contribute the maximum amount, the survey found. Women live longer and statistically have less time in the work force due to child rearing, Mr. Keady noted, so they are ''taking more of an active role in planning for their future.''
Are you contributing to an I.R.A.? Why or why not?
This is a more complete version of the story than the one that appeared in print.