Personal Finance News

Ameritrade Survey Finds Many Investors Lack Knowledge of Retirement Accounts

How much do you know about your retirement accounts? Even if you contribute to an employer-sponsored 401(k) or even a traditional IRA, chances are you still might not be familiar with all of the rules, requirements, or fees that come with them. To prove this point, recently Ameritrade interviewed 1,006 U.S. adults over the age of 22 with more than $10,000 in investable assets and tested their knowledge about various 401(k) and IRA topics.

Asked what the current annual 401(k) contribution limit was, only 19% of respondents selected the correct answer, $19,000. To be fair this figure does tend to change from year to year so the 12% that said $18,500 were just a year behind. However the top answer — “it depends on your income” — is decidedly incorrect. Interestingly nearly double the number of those surveyed (35%) identified $6,000 as the current annual contribution limit for traditional IRAs. But, once again, a quarter of people believed the limit was dependent on your income.

Elsewhere just over half (52%) of those surveyed knew that they could contribute to both a 401(k) and an IRA. However only 26% were aware that non-working spouses could also contribute to IRAs and 60% mistakenly thought that only those of a certain tax bracket could have a traditional IRA. It is possible that those who thought there were income limits for traditional IRAs were thinking of the income caps placed on tax-deductible IRA contributions or the similar restrictions for Roth IRAs.

Beyond these “pop quiz” type questions, the survey also discovered that the majority of those of with 401(k)s were unaware what they paid in fees. In fact two-thirds of respondents told Ameritrade that they were unable to say what fees their accounts incurred. Another intriguing question asked investors if they considered employer matching funds to be “free money.” What makes it interesting is that 43% disagreed with that interpretation.

To a certain degree, those who failed to correctly answer all Ameritrade’s quiz questions can be forgiven as what was being asked may not apply to their particular situation. That said, it’s always good for retirement savers to know about account contribution limits so they can strive to reach these caps when possible. Similarly, while they may not necessarily be able to control the fees assessed to their 401(k), having knowledge of these fees can help individuals decide the best course of action for the account after they leave their current employer. For these reasons, if you didn’t know some of these basics, it may be worth reading up about your various retirement accounts.