AMERICAN CENTURY INVESTMENTS 1998 IRA TEST RESEARCH METHODOLOGY A total of 752 interviews were conducted with retirement savers. These are individuals who report having some type of savings or investments specifically for retirement. The objective of this research is to test the general public's knowledge of IRA regulations and awareness of the new Roth IRA through a ten question test. Respondents were also screened to ensure that they were at least 18 years of age and were the primary person in their household making investment decisions. Investors were interviewed over the telephone and selected through a random digit dial process. Elrick and Lavidge, a national marketing research firm, conducted interviews in January 1998. The following report presents the findings of this research, significant within ±3% at a 90% confidence level. SUMMARY OF KEY FINDINGS Only two of 752 investors answered all ten test questions correctly. On average, respondents answered four of the ten questions correctly. Across all ten questions, an average of 35% of those asked did not know or refused to answer each question. The number of "don't knows" ranged from 19% to 47%. Respondents who already invest in IRAs, who have a college education or who have higher incomes are better versed in the new IRA legislation. In particular, respondents seem to be confused about income limits for Roth eligibility. Few of those surveyed are aware of contribution limitations for married couples making more than $150,000. The people who answered were inclined to believe that there were no limits on income and that anyone can contribute. IRA TEST RESULTS KEY: Correct answers are noted in large, bold type 1. What is the total maximum annual contribution a person can make to an IRA? (n=752/534)1 1998 1997 $2,000 44% 44% $2,500 12% 11% $5,000 5% 6% No Maximum 12% 14% Don't Know/Refused 27% 25% 2. Thinking about the new Roth IRA, which one of the following is a true statement? (n=752) 1998 Contributions are tax deductible for some taxpayers 11% At age 59 1/2, account holders may withdraw funds without owing federal taxes 18% Both of the statements are true 32% Neither statement is true 9% Don't Know/Refused 30% 3. How many IRA accounts can an individual have? (n=752/534)1 1998 1997 1 23% 27% 2 5% 5% 3 2% 1% 4 N/A 1% Unlimited number 39% 43% Don't Know/Refused 31% 23% 4. What is the total allowable IRA contribution for a married couple? (n=752) 1998 $2,000 5% $2,250 2% $2,500 6% $4,000 54% Don't Know/Refused 33% 5. For which tax year will the Roth IRA first become available? (n=752) 1998 1997 tax year 12% 1998 tax year 36% 1999 tax year 3% 2000 tax year 7% Don't Know/Refused 42% 6. For those under 59 1/2, for what reasons can you take funds from an IRA without penalty? (n=752) 1998 To pay certain medical bills 11% To purchase a first home 5% To pay qualified college expenses 5% All of these 52% None of these reasons 8% Don't Know/Refused 19% 7. What is the adjusted gross income limit for a married couple to contribute to a Roth IRA? (n=752) 1998 $40,000 6% $100,000 7% $150,000 9% No limit/Anyone can open a Roth IRA regardless of income 35% Don't Know/Refused 43% 8. Is it possible to transfer money from an existing IRA to a new Roth IRA? (n=752) 1998 Yes 61% No 7% Don't Know/Refused 32% 9. Can a person contribute to both a Roth IRA and traditional IRA in the same tax year? (n=752) 1998 Yes 38% No 15% Don't Know/Refused 47% 10. Looking ahead to the 1998 tax year, can a married couple earning $49,000 a year and participating in employer-sponsored retirement plans, get a full tax deduction on their contributions to a traditional IRA? (n=752) 1998 Yes 44% No 16% Don't Know/Refused 40% 1 The first base is for the 1998 data and the second base is for the 1997 data. DETAILED FINDINGS AND CONCLUSIONS On average, investors only answered four of the ten questions correctly. Only two people answered all ten correctly, and only 1% (8) of investors answered nine correctly. There is a sizable group (9%) of participants who did not answer any of the questions correctly. Respondents who already invest in IRAs, who have a college education or who have higher incomes are better versed in the new IRA legislation. There are no significant differences, however, in the number of correct responses based on age, gender or investment attitude. AWARENESS OF IRA LEGISLATION Maximum Annual Individual IRA Contribution Many (44%) respondents are aware that an individual can contribute $2000 annually to an IRA. The following groups of people are more likely to have correctly responded to this question: College-educated retirement savers (49% to 35%) Higher income (annual incomes of at least $50,000) individuals (48% to 41 %) IRA investors (54% to 35%) Number of Allowable IRA Accounts Over a third (39%) of retirement savers are aware that there is no limit to the number of IRA accounts one can have. A correct response to this question is most likely to be found among: Younger (under age 50) individuals (42% to 30%) High risk takers when compared to moderate risk takers (45% to 36%) IRA investors (44% to 32%) Maximum Annual IRA Contribution for a Married Couple A majority (54%) of respondents are aware that a married couple can contribute $4,000 annually to an IRA. Respondents with the following characteristics are most likely to be aware of the correct answer to this question: Those with a college education (59% to 44%) Moderate risk takers when compared to the more risk averse investors(63% to 51%) Participants with a minimum household income of $50,000 (60% to 49%) IRA investors (59% to 49%) Tax Deduction Availability for Married Couples Many (44%) participants are aware that a married couple earning $49,000 a year and participating in employer-sponsored retirement plans can get a full tax deduction on their contributions to a traditional IRA. Participants under age 50 are more likely to correctly answer this question (48% to 35%) Instances when IRA Funds may be Withdrawn Without Penalty A majority (52%) of investors are aware that, even before the age of 59 1/2, IRA funds may be withdrawn without a penalty if the money will be used to pay certain medical bills, to purchase a first home, or to pay qualified college expenses. Certain groups of participants are more likely to know that any of the three reasons for withdrawal will not incur a penalty. These include: Younger (under 50) participants (57% to 45%) Those who have a college education (57% to 44%) Higher income retirement savers (58% to 48%) ROTH IRA First Year of Availability Although the largest number of (42%) retirement savers do not know when the new IRA becomes available, nearly as many (36%) are aware that it is available for the 1998 tax year. Knowledge of when the new Roth IRA first becomes a retirement savings option is most prevalent among: College-educated individuals (40% to 28%) Both high (44%) and moderate (39%) risk takers when compared to low risk takers (29%) Individuals with household incomes of at least $50,000 (42% to 32%) IRA investors (40% to 31%) Gross Income Limits for Contribution Few of those surveyed are aware of contribution limitations for married couples making more than $150,000. This issue generated more incorrect answers than any other question. Of those surveyed, only 9% were aware of the income limitation. Many (43%) did not know the answer to this question, and several (35%) thought that there were no limits on income and that anyone can contribute. A correct response to this question is more likely to be found among: College-educated savers (11% to 4%) Males (12% to 5%) Moderate risk takers when compared to low risk takers (11% to 5%) Higher income participants (11% to 5%) IRA investors (14% to 4%) Awareness of Roth IRA Tax Implications Only 18% of those surveyed responded correctly to this question. The only true statement is "At 591/2, account holders may withdraw funds without owing federal taxes." These groups of people are more likely to know that at age 591/2, account holders may withdraw funds under certain conditions without owing federal taxes. College-educated participants (21% to 13%) Higher income individuals (21% to 14%) IRA investors (23% to 13%) COMPARISON OF THE TRADITIONAL IRA AND THE NEW ROTH IRA Legislation Concerning Transfers A majority (61 %) of those surveyed are aware that it is possible to transfer money from an existing IRA to a new Roth IRA. Although awareness of the ability to transfer is high overall, it is more common among: Individuals with a college education (65% to 53%) Higher income savers (64% to 58%) IRA investors (64% to 57%) Contribution Behavior Most (47%) retirement savers do not know if they can contribute to both a traditional IRA and a Roth IRA in the same tax year. However, over a third (38%) are aware that they can. Knowledge of the contribution legislation is more prevalent among: Younger individuals (42% to 29%) College-educated participants (42% to 29%) Males (41 % to 34%)