It’s been more than four decades since the traditional IRA was introduced, but investors are still largely in the dark about how they work, according to a new survey.
Only 34 percent of Americans are knowledgeable about IRAs, according to a new study by LIMRA Secure Retirement. The online survey fielded answers from 1,995 Americans age 18 and older.
The lack of knowledge, the study pointed out, is the biggest obstacle preventing more Americans from investing in an IRA.
Robert Fragrasso of Fragrasso Financial Advisors in Pittsburgh chalks this up to “a lack of proper financial education and unwillingness to face financial realities.”
Fragrasso added that Americans are not major savers. “We spend all or more than we make in many households," he said "So even with awareness, the lack of financial discipline and deficient self-reliance would loom larger for me than the lack of education alone.’’
Men are more likely to say they are knowledgeable about IRAs than women, the survey said. Forty-two percent of men consider themselves knowledgeable about IRAs, compared with 27 percent of women. Of those who don’t own an IRA, 46 percent felt they did not understand enough about IRAs to contribute to them.
Kathy Klein of Strategic Wealth Partners, with offices in Deerfield, Ill., and Milwaukee said there is confusion among investors about the traditional IRA, with its ability to grow pre-tax income, and the Roth IRA, which provides an opportunity to invest post-tax income.
“They don’t know how to use asset location planning to maximize their tax strategy,’’ she said.
Older Americans, the survey said, are more likely to own traditional IRAs than younger Americans. Almost half (48 percent) of the "silent generation" (those born between 1925 and 1945) own an IRA, compared with just 30 percent of boomers, Gen Xers and millennials, the report said.
The report explained that this is not surprising because older Americans are less likely to have had access to a defined contribution plan during their working years, or they have rolled over their defined plan assets into a traditional IRA after they retired.