Factors Associated With the Ownership of Individual Retirement Accounts (IRAs): Applying the Theory of Planned Behavior

Despite the importance of retirement savings, many individuals retire with lack of adequate retirement savings. While calculating retirement savings needs was found to enhance retirement savings, little is known about what underlies this enhancement. Applying the theory of planned behavior (TPB), we developed a model in which psychological factors influence the calculation of retirement savings needs, which in turn influences the ownership of individual retirement accounts. Path analysis was used to test our model with data from the 2015 National Financial Capability Study. The results showed that favorable attitudes, strong social norms, and perceived behavioral control are associated with calculating retirement savings needs. Also, calculating retirement savings needs as well as perceived behavioral control and having an employer-based retirement plan, in turn, contributed to the prediction of individual retirement account ownership. Our results suggest it is important to understand he psychological factors behind calculating retirement savings needs and to make it easy for individuals to calculate those needs.

Individual Retirement Accounts in Portugal

In Portugal, Individual Retirement Accounts (IRAs) were created with significant tax incentives in 1989. To inform the debate with research findings, the purpose of this paper is to analyze the determinants of IRAs’ participation, both for retired and no-retired persons. The paper uses ASF (Portuguese Insurance and Pension Funds Supervisory Authority) Statistics and European Survey of Health, Ageing and Retirement in Europe (Share) database, Wave 4, and a probit model. The results show that the variables that have a positive and significant impact on the ownership of IRAs are age, years of education, income, and house ownership.

The Role and Importance of Individual Retirement Accounts

What are now called “traditional IRAs” (Individual Retirement Accounts) were created by the Employee Retirement Income Security Act of 1974. Roth IRAs were added in 1997. Employer-sponsored Simplified Employee Pensions–IRAs were added in 1978 and Savings Investment Match Plans for Employees–IRAs (and 401(k)s) in 1996. Together IRAs hold $8.8 trillion in assets, one third of the total $27.1 trillion in all retirement plans. This article examines the role and importance of IRAs in the U.S. retirement system and the development of the different types of IRAs and their interaction with each other.

How Will State-Run Auto-IRAs Affect Workers?

In order to encourage savings among workers without access to employer-sponsored retirement plans, several states have proposed defaulting workers into state-run individual retirement accounts known as Auto-IRAs. Plans such as OregonSaves automatically enroll workers and, by default, increase their contributions over time. Given low opt-out rates, these policies have the potential to increase retirement savings for workers without access to employer-sponsored plans. Using survey data, we find that over 24 million workers could automatically be enrolled in an Auto-IRA, if enacted on a national scale. Nonetheless, these policies have the potential to adversely affect individuals with debt and current financial difficulties who do not actively opt-out. One-third of potentially affected workers hold credit card debt with an average balance exceeding $5,000. Furthermore, approximately 15% of potentially affected workers have difficulty meeting basic needs.

Static and Dynamic Tax Diversification of Withdrawals from Multiple Individual Retirement Accounts

This article shows why diversified simultaneous retirement funding drawn from accounts with differing tax treatments will save more on taxes than sequential withdrawal. We utilize dynamic programming to quantify the optimal funding under the assumption that the goal is to maximize the total discounted after-tax consumption and bequest amounts. The dynamic programming setting uses the actual tax schedule, considers the required minimum distribution and life expectancy, and constrains consumption with upper and lower bounds. We also find the optimal funding through static diversification, a simple optimization schema. We compare the static and full dynamic programming solutions in two cases, one for a single filer and another for a married joint filer. The static and the full dynamic programming solution differ more in the single filer case than in the married joint filer case. The static optimal withdrawal is close to sequential withdrawal. The full dynamic programming’s optimal withdrawal is close the sequential withdrawal when both types of accounts have a substantial balance.