They say it’s your birthday.
The Investment Company Institute helpfully marked the 45th birthday of the individual retirement account, which actually occurred (not coincidentally) on Labor Day.
“Signed into law on September 2, 1974, the Employee Retirement Income Security Act (ERISA) introduced bold steps to safeguard Americans’ employer-sponsored pensions (both defined contribution and defined benefit plans) and created the IRA,” ICI’s Sarah Holden and Elena Barone Chism note. “Forty-five years later, IRAs have become a significant component of US households’ retirement assets, holding $9.4 trillion in assets, or about one-third of the total US retirement market, at the end of March 2019.”
Referencing the addition of SIMPLE, SEPs and other updates to the IRA framework, Holden and Chism specifically point to the inception of the Roth as part of the Taxpayer Relief Act of 1997, which “provides a contributory retirement savings vehicle on an after-tax (nondeductible) basis with qualified withdrawals distributed tax-free.”
But …
Unfortunately, despite its four-plus decades of existence, LIMRA SRI recently found that two out of three Americans admit they don’t know much about the savings vehicle, and this lack of knowledge is the biggest obstacle preventing Americans from investing.
The study claims only 34 percent of all Americans believe they are knowledgeable about IRAs, with men being far more likely to say they are knowledgeable about IRAs than women. Forty-two percent of men consider themselves knowledgeable about IRAs, compared with just 27 percent of women.
Of those who don’t own an IRA, nearly half (46 percent) felt they did not understand enough about IRAs to contribute to them.
According to LIMRA SRI, 41 percent of Americans own a traditional or Roth IRA, 32 percent own a traditional IRA, 19 percent own a Roth, and 9 percent own both. The research did not include similar questions about 401ks.
With more than 20 years serving financial markets, John Sullivan is the former editor-in-chief of Investment Advisor magazine and retirement editor of ThinkAdvisor.com. Sullivan is also the former editor of Boomer Market Advisor and Bank Advisor magazines, and has a background in the insurance and investment industries in addition to his journalism roots.
