US Workers Are Turning Their Backs On Traditional IRAs

The IRA’s reputation as a “must-have safe haven” for the middle class continues its downward spiral, as the number of Americans contributing to IRAs has dropped to a record low 15 per cent, according to data gathered by Green IRA.

It’s not hard to guess why. With households in all income brackets feeling the pinch of a weakened economy, it’s all some can do just to keep up a rainy day fund, let alone worry about retirement.

This is the fourth year in a row that IRA contributions and ownership have declined even as the IRS upped the cap on income limits by $2,000 this year. Today, just 38 per cent of working Americans own IRAs versus 42 per cent in 2008.

But even those who own IRAs aren’t always funding them – 24 per cent said they won’t make a contribution to their accounts for the 2011 tax year, and only 9 per cent of workers are expected to contribute the maximum amount. Younger investors are only half as likely to contribute

The news isn’t all dire, however. About 70 per cent of all U.S. households have a tax-advantaged retirement plan of some kind, and plenty of households are finding other ways to build their nest eggs, including employer-provided plans and Roth IRAs. 

“On the surface, these statistics in themselves would not cause me to be worried,” says David Loeper, author of Stop The Retirement Rip-Off and CEO of Financeware Inc. “For example, consider the unemployment rate and how many formerly two income households are now one-earner households. In such times, it is understandable that IRA contributions may be compromised.” 

These charts show how households are saving:


Photo: Green IRA

Per the study: “More than half of households owning Roth IRAs or employer-sponsored IRAs contributed to these IRAs in tax year 2010 (Figure 8). In contrast, only 27 per cent of traditional IRA-owning households contributed to their traditional IRAs in tax-year 2010.”


Photo: Green IRA

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