Fewer Americans Are Contributing to IRAs

The number of Americans who are contributing to Individual Retirement Accounts (IRAs) dropped in the last year, according to new survey results.

The survey – from retirement plan adviser TIAA-CREF – polled 1,008 adults 18 and older last month. Only 17% of respondents said that they currently contribute to an IRA, which TIAA-CREF said is down from 22% in 2012.

TIAA-CREF also found that among those not contributing to an IRA, only 47% would consider one. This is also down from 2012, when 57% said they would consider an IRA.

Around 35% of the survey respondents didn’t fully understand the difference between an IRA and an employer-sponsored plan (such as a 401(k).

Of course, there are different kinds of IRAs: with traditional IRAs, contributions are deposited before taxes are paid, whereas with Roth IRAs contributions are made with after-tax assets. It’s no wonder there is some confusion about IRAs.

Financial advisors recommend that people use IRAs as a supplement to employer-provided plans, since they can offer some attractive tax benefits. But IRAs did fall from favor somewhat after the financial crash of 2008, when many people lost a big percentage of their savings due to falling stock prices.

People do have options in terms of how their savings in an IRA are invested, but having to wade through various choices is something that also adds to confusion about IRAs.

It’s important that people understand both the benefits- — and the risks – of each saving and investment option available. It’s also important that people take advantage of options that allow them to save for retirement while avoiding certain tax penalties while doing so. IRAs can be a viable option for many people.