The Roth IRA Still a Mystery for Some

Fear and lack of knowledge are holding some investors back.

According to a recent survey by TIAA-CREF, some investors are giving the Roth IRA the cold shoulder. Among a group of 1,008 adults, 80% of respondents say they are not contributing to an IRA, a 4% increase from last year. In addition, almost half say they lack a basic understanding of what IRAs are and how they work. Dan Keady, director of financial planning at TIAA-CREF shed some light on this issue.

BE: Why aren’t more people contributing to a Roth IRA?

Keady: Many people who already have a 401(k) or a 403(b) feel they have enough, and others feel they don’t have enough money to save more than they currently do. Then there are some who feel they don’t know enough about IRAs.

BE: How can you decide whether a Roth IRA is right for you?

Keady: The first thing you want is to make sure you’re contributing up to the match amount in your current plan, if you get an employer match. An IRA might be a good choice if you’re looking for some additional flexibility with your investments. Some people will invest in an IRA because they have different investment options than the 401(k).

BE: What are some solutions to the lack of understanding people have when it comes to retirement savings?

Keady: One of the best things people can do is seek the assistance of a financial planner. Workers should also take advantage of workplace financial-advice services that might be offered through their employer.

Keady says one reason investors may want to consider a Roth IRA is the tax-free withdrawals. This is especially helpful if you think you’ll be in a higher tax bracket during retirement. Regardless of whether you save in a 401(k) or Roth IRA, Keady says it is important to save for retirement. TIAA-CREF has a host of educational materials available for new investors looking to gain information about IRAs and how they work.

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