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 arenâ€™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 donâ€™t have enough money to save more than they currently do. Then there are some who feel they donâ€™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 youâ€™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 youâ€™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 youâ€™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.