You've probably heard by now that our country is deep in the throes of a retirement crisis. With more than 40% of baby boomers nearing retirement having no savings to show for whatsoever, it's clear that a frightening number of adults are banking -- erroneously -- on Social Security to pick up the slack.

But it's not just soon-to-be retirees who are in trouble. According to a newly released TIAA study, only 19% of Americans actively contribute to an IRA. But here's an equally troubling statistic: A whopping 95% of U.S. adults aren't taking advantage of their annual IRA contribution limits. TIAA reports that only 5% of workers save more than $5,000 a year in an IRA, despite the fact that workers under 50 can contribute up to $5,500 annually, while workers 50 and over can contribute up to $6,500. And while contributing some amount to an IRA is better than nothing, those who aren't hitting that max are missing out on a key savings opportunity.

Retirement savings jar next to smaller piles of coins and an alarm clock


Why save in an IRA?

Though more than 40% of today's workers don't have access to an employer-sponsored 401(k), anyone who earns money is eligible to open an IRA (though additional traditional IRA contributions are prohibited starting at age 70 1/2). Yet a surprisingly small number of Americans are utilizing this option. According to TIAA, only 31% of adults hold an IRA, and, as we just learned, most don't come close to maxing out their yearly contributions.

While some people don't fund an IRA because they're spending all of their income elsewhere, others don't like the idea of locking away their money for several decades. But there are plenty of good reasons to actively contribute to an IRA and max out those contributions whenever possible.

First of all, anytime you fund an IRA, you can deduct the amount you contribute on your taxes. Say you're under 50 and max out your contribution this year at $5,500. If your effective tax rate is 25%, you'll save $1,375 in taxes right off the bat.

Furthermore, once you invest the money in your IRA, it can grow on a tax-deferred basis. That's not how traditional brokerage accounts work. With a regular account, anytime your investments make money, you'll be required to pay taxes on your gains immediately. IRAs, however, get to grow tax-deferred until retirement, which means you won't get taxed on your earnings year after year. Rather, you'll get to reinvest those gains as you go, thus growing your nest egg even further.

Not only do IRAs offer a number of tax advantages, but they typically feature a wide range of investment choices -- more options, in fact, than the typical 401(k). This can help you not only keep your fees to a minimum, but increase your likelihood of finding investment choices that align with your comfort level and goals. There are a lot of good reasons to fund an IRA, and the more you contribute, the more you stand to benefit in the long run.

Maxing out really pays

While saving a small amount in your IRA is better than saving nothing at all, by not hitting that $5,500-a-year limit ($6,500 if you're 50 and older), you're losing out on a key opportunity to take advantage of compounding. The following table shows how much you can accumulate by maxing out your IRA at various ages:

If You Start Maxing Out Your IRA at Age...

Here's What You'll Have by Age 65*


$1.097 million










Not only will maxing out your IRA help you amass a sizable nest egg, but the earlier you start, the more money you'll end up with by the time you retire. Case in point: If you contribute just $458 and change each month to your IRA for 40 years, you'll wind up with well over $1 million, which can make for a very comfortable retirement. That impressive total, however, will only cost you $220,000 in lifetime contributions, as the rest will come from those tax-deferred investment gains we talked about earlier.

Another thing to keep in mind about this chart is that it assumes regular annual contributions of just $5,500, even though workers are allowed to put in an extra $1,000 once they turn 50. In other words, if you were to take the above calculations and add in another $1,000 per year starting at age 50, you'd have a considerably higher total in any of the above scenarios.

If you're among the overwhelming majority of Americans who aren't maxing out their IRAs, here's a chance to change your ways. Saving money is never easy, but if you commit to socking away more cash for the future, you'll be much happier for it once retirement rolls around.