A lack of understanding about the benefits of having both an individual retirement account and a 401(k) or 403(b) may help explain why some Americans are not contributing or considering an IRA as part of their retirement strategy.

While some Americans are more likely to prioritize saving for a trip or a new refrigerator over setting money aside in an IRA, others say their employer-sponsored retirement plan is the first item of priority when deciding how to allocate their savings. 

Many Americans don’t realize they could benefit from investing in both an employer-sponsored 401(k) or 403(b) plan and an IRA, finds a new survey from TIAA-CREF.  Of the people who said they would not consider contributing to an IRA, 28% said it was because they already have a defined contribution plan through their job so they don’t need an IRA, the survey found. This highlights the need for plan sponsors to explain the potential benefits of having both types of plans, says TIAA-CREF.

Also see: Exploring the SIMPLE IRA option with small employers

One-third of respondents who contribute to an IRA are receiving the maximum employer match on their DC plan before they contribute to their IRA. Twelve percent said they are maximizing contributions to their 401(k) plan before they put money in their IRA, up from 9% in 2014.

Overall, 44% of those who are currently contributing to an IRA in addition to a 401(k) or 403(b) say they are contributing to their IRA regularly. "That's good news only if those individuals are first maximizing contributions to their employer plan and receiving the employer match," notes the report. 

Of the people who have an IRA, 53% said they do not have a workplace retirement plan, up from 38% in 2014, according to TIAA-CREF.

“This increase suggests that more Americans are on their own as they plan for retirement,” the report said.

Also see: Coming soon to a workplace near you: A mandated automatic IRA

Forty percent of workers who have and IRA but no 401(k) say they will use their IRA as their primary source of income in retirement, yet only 33% are making the maximum contribution to their IRA, the survey found.

Thirty-four percent of respondents, meanwhile, said they would prioritize saving for a house or their child’s college educations, while 25% said saving in their employer’s 401(k) or 403(b) plan is their top savings priority.

Twenty-four percent of Americans said their first priority was short-term savings, compared to 8% who said their IRA was their top priority.

Also see: Is this investment snafu hurting your IRA?

According to TIAA-CREF, 18% of Americans currently contribute to an IRA and another 14% say they have one but they don’t contribute to it.

The good news is that the number of people who said they would consider saving in an IRA jumped to 56% from 47% in 2014, which opens up an opportunity for additional education around IRAs, the report said.

Younger earners are much less likely to contribute to an IRA, but 60% of them said they would consider one as part of their overall retirement strategy, compared to 56% of respondents overall, according to TIAA-CREF.

Also see: Hunting for a restaurant takes up more time than IRA planning

The survey was conducted by KRC Research by phone of a national random sampling of more than 1,000 adults over the age of 18.

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