Summary
State auto-IRA initiatives present protection to employees with out an employer-sponsored retirement plan. These employees are likely to have decrease incomes and sometimes have restricted financial savings to deal with emergency bills. Therefore, the auto-IRAs additionally serve a secondary goal – precautionary financial savings that may assist employees keep away from bank cards, payday loans, or different high-cost types of borrowing. Nonetheless, quite a lot of elements could forestall households from tapping auto-IRAs throughout an emergency – a need to go away retirement financial savings intact, worries about taxes and penalties, and administrative hassles related to withdrawals.
Utilizing a randomized survey experiment, this paper examines employees’ willingness to make use of auto-IRAs as precautionary financial savings, in addition to potential deterrents. The outcomes present that solely round 10 p.c of households would faucet a (hypothetical) auto-IRA account to cowl a $400 emergency expense. A need to protect retirement financial savings and issues in regards to the monetary prices of withdrawals are the 2 most cited causes for not planning to faucet the accounts. Framing the accounts as simply accessible alleviates some issues about taxes and improves respondents’ subjective monetary well-being; nonetheless, many are nonetheless nervous in regards to the tax implications of withdrawing funds. These outcomes recommend that uncovered employees could also be extra prone to take part in auto-IRAs in the event that they higher understood this system’s Roth design.