Bounded Rationality Strikes Again: The Impact of Cognitive Ability and Financial Planners on Roth IRA Adoption and Ownership

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Major Area of Focus

Secondary area of focus

Short Abstract

Roth IRAs were introduced in the late 1990s and provide another option for tax-sheltered retirement savings. Because determining the benefits of a Roth IRA is a complex decision, we hypothesize that cognitive ability and having a financial planner have significant impacts on the timing and likelihood of using a Roth IRA. Using data primarily from the 2004 and 2008 administrations of the National Longitudinal Survey of Youth (NLSY), we find that cognitive ability and having a financial planner are both positively related to Roth IRA ownership and early adoption. If individuals with higher cognitive ability and/or a financial planner are better able to recognize and implement beneficial tax strategies, then tax policy will yield unintended distributional consequences. A complex tax policy also limits the ability to modify individual behavior in the ways envisioned by policymakers.

Corresponding Author

Benjamin Cummings, Saint Joseph's University

Job Title

Instructor

City & State (or Province & Country)

Philadelphia, PA

Additional Authors

Michael Finke, Ph.D., Texas Tech University

Job Title

Professor

City & State (or Province & Country)

Lubbock, TX

2013 Conference

April 10–12, 2013

The Benson Hotel, Portland, Oregon

This section lists poster sessions as well as concurrent sessions by day, time, and room. Concurrent sessions have multiple presentations. You may search by title, author names, or keyword. A Schedule-at-a-Glance is posted on the Website and will provide the overview. This is the detail.