IRAs Are Key In Retirement Strategies For Families That Own Them, According To The EBRI

Retirement continues to be a thorny issue for many Americans. But there are tools used to calm these concerns.

According to recent Employee Benefit Research Institute (EBRI) press release, Americans find that Individual Retirement Accounts (IRAs) play a key role in protecting and ensure the future of retirements for Americans of all income levels.

What Are IRAs?

IRAs are tax-preferential vehicles used for investment and retirement purposes. They provide a tax incentive to individuals who deposited money into the accounts.

A holder of an IRA account can only contribute up to $5,500 per year.

There are two types of IRAs and each have different tax benefits. A traditional IRA allows money grow tax free while inside the account and charges taxes when it's taken out. A Roth IRA takes out taxes at the deposit date and allows money grow tax free afterwards. Roth IRAs are better for individuals who plan on making more money in the future. The opposite is true for traditional IRAs.

IRA Usage Rises

According to the EBRI analysis of the Federal Reserve Bank’s Survey of Consumer Finances, the median amount of assets that families had in an IRA increased by roughly 50 percent over the past 24 years. In fact, they found IRA plans account for more than two-thirds of Americans' financial assets.

For people in median income brackets, the amount is even greater. People with incomes in the 25th to 90th percentile have more assets in IRAs than in any other asset class. The median net worth of people with IRAs was $249,950 and without IRAs was $19,200. Those with IRAs were also more likely to be homeowners.

IRAs help save money and work as a tool to build savings habits. Compound interest builds over time and dividends are constantly being reinvested. An individual can put retirement savings to work and net a considerable percentage of returns each year. Over time, these returns multiply.

In the 21st century, it may seem as if millions of Americans will never be able to retire. This is especially true when employer-provided retirement benefit packages have drastically shrunk over the past few decades. However, if used properly, IRAs help can fill the gap. But, the Americans in the bottom 25th percentile need better access to IRAs and savings opportunities in order to build wealth into retirement.