For the study, T. Rowe Price categorized those in the ages 35-50 as Generation X and ages 21-34 as Generation Y and the study involved s around 860 adults aged 21-50, having at least one investment account.
The report says while 70% of the respondents said that they are familiar or very familiar with their RIAs, 79% said they have personally contributed to an IRA, moreover investors generally believe that IRAs may come with tax advantages such as tax-deferred earnings, tax deductibility, or tax-free withdrawals.
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However, the research showed that some investors do not appear to fully understand the benefits that are associated with Traditional IRAs and those associated with Roth IRAs.
Forty-eight percent of the respondents correctly cited tax-deferred growth potential and the ability to reduce taxable income with tax-deductible contributions as features of Traditional IRAs and 51% correctly cited tax-free growth potential as a benefit of Roth IRAs.
At the same time, 21% incorrectly cited the ability to withdraw savings without paying taxes after age 59 1/2 if the account has been open for at least five years as a benefit of Traditional IRAs when it is actually a benefit of Roth IRAs and another 21% incorrectly believed that Roth IRAs allowed for tax-deductible contributions, the report states.
Christine Fahlund, CFP, senior financial planner with T. Rowe Price, remarked, "It’s encouraging that a majority of younger investors are familiar with IRAs, generally understand that the accounts offer tax advantages, and have used IRAs to save for retirement."
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By GlobalData"But it appears that there’s more that we can do to teach younger investors about the different types of IRAs so they can make more informed choices," she further added.
