It's worth it to learn all you can about IRA accounts

[roth401k]

It's worth it to learn all you can about IRA accounts

June 5, 2005

It's a sad fact of life that in any given year less than 3 percent of Americans contribute to an Individual Retirement Account.

Why are so many of us IRA no-shows? What discourages some investors is the effort it requires to figure out where to park an IRA. Brokerage firms, mutual fund companies, banks and credit unions are all clamoring for retirement cash. And once that's done, people must pick the investments to go inside the account.

When investors broach the subject of their IRA with me, I inevitably ask how they have invested their IRA. This isn't a trick question, but the response I get all too often is a blank stare.

Many investors believe that once they open their account, it's automatically tucked away in some sort of all-purpose IRA investment. Their mistake is assuming that the IRA itself is an investment when it's really just an empty glass. It's up to them to select the mutual funds, stocks or bonds to fill it.

Confusion of a different sort, however, is probably the biggest reason why people don't invest in IRAs. Despite people like me yammering on year after year about the virtues of IRAs, a lot of people remain puzzled about which one is best.

For the record, the Roth IRA is almost always the superior choice. It's the only IRA that lets you pull out cash tax-free during retirement, and it doesn't require you to make any withdrawals if you'd rather not. A Roth IRA is also arguably the best financial gift you can give your heirs when you die.

Considering the problems Americans face when investing in IRAs, a cynic might suggest that a new IRA hybrid, which will be launched in 2006, is only going to create even more confusion and apathy. I hope this doesn't happen because this latest model offers great promise and even addresses some of the issues that Americans find irritating about IRAs.

The nation's newest retirement plan has already got its name: the Roth 401(k). Congress authorized its creation in 2001 when it passed legislation that reduced income tax rates and bumped up the contribution ceilings for a variety of retirement plans. Since the Roth 401(k)'s gestation period was.....

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