Individual Retirement Accounts, or IRAs, are like the Rodney Dangerfield of retirement planning: They just don't get much respect.
TIAA-CREF, a financial services company specializing in providing retirement plans to nonprofits, conducted its annual IRA survey in February and concluded that only 17 percent of people older than 18 actually contributed to an IRA in 2013, down from 22 percent in 2012. Only 11 percent of people between the ages of 18 and 34 are saving in an IRA, even though Roth IRAs are particularly suitable for young workers.
Among those without an IRA, 29 percent told TIAA-CREF they don't know enough about this retirement account to know whether they want one or not. Thirty-five percent said they didn't understand the difference between a 401(k) or similar workplace retirement plan and an IRA.
TIAA-CREF also threw in a couple of trick questions. It asked respondents how much time they spent doing some pretty frivolous things, compared to how long they spent considering an IRA contribution. Twenty-five percent said they spent two or more hours picking a restaurant for a special occasion; 21 spent more than two hours choosing a flat-screen TV; and 16 percent said it took that long to select a tablet computer. Meanwhile, only 15 percent said they spent that much time on planning for an IRA investment. Among those who already have an IRA, 55 percent said they spent an hour or less planning for the investment.
One possible reason people don't consider these plans is that their rules are very complicated. Dan Keady, senior director of advice and planning for TIAA-CREF, says he carries a clipboard at all times with information relating to these plans because he can't keep it all in his head.
Keady says he thinks Roth IRAs are particularly good for young retirement savers. He advises them to first max out their 401(k)s or other workplace savings plans, and then then use a Roth IRA calculator to figure out how much more they can contribute. While Roth IRAs don't replace an emergency fund, they can be used as a backup fund. Since taxes have already been paid on the contributions, savers can pull their contributions out at anytime without penalty or further taxes. (The interest income is different. Taxes will be owed on that.)
This money can come in handy at any stage of life.