In saving for retirement, Americans have access to IRAs, 401(k) plans, and other tax-advantaged savings vehicles. Yet shockingly, according to a recent study from the Employee Benefits Research Institute, those tax benefits might not actually have a huge impact on how people save.
In the following video, Dan Caplinger, The Motley Fool's director of investment planning, looks at the EBRI study, which found that 65% of those surveyed would keep saving for retirement the way they do now even if the tax breaks for traditional IRA and 401(k) contributions were taken away. Dan notes the irony of the finding, especially given how many people open IRAs specifically to get the last-minute tax deduction at tax time. But he also points out that many people would be better off using Roth IRAs that don't give current tax breaks to taxpayers, instead reaping the rewards of long-term tax-free treatment. Dan concludes that as policymakers realize that IRA and 401(k) deductions aren't critical to saving behavior, new laws reducing or eliminating those tax benefits might become more common.
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