Impact of the Taxpayer Relief Act of 1997: The New Market for IRAs MacroMonitor Marketing Report Vol. III, Nos. 7 & 8 January/February 1998

The Taxpayer Relief Act of 1997 changes existing incentives and creates new opportunities for investors interested in accumulating assets for funding retirement, purchasing a home for the first time, or financing children's education—all key components of the American Dream. This MacroMonitor report provides a unique consumer market perspective on the implications of the new law. How many households own IRAs? What are the attitudinal profiles of IRA owners, nonowners, and active participants? Which types of financial institutions are consumers using for their IRAs? After segmenting the IRA market by age cohort, socioeconomic stratum, and life stage, this study provides a bottom-line assessment of the market opportunities for financial providers seeking to capture future IRA assets resulting from the new law.

Among the many IRA-related changes, the Roth IRA has the most significant potential for increasing new IRA accounts. Extremely generous income qualification limits allow some 97% of U.S. households to make at least a partial contribution to a Roth IRA. This report highlights life-stage marketing strategies to help financial providers maximize the sales potential of Roth IRA and other IRA accounts. For example, for the "Getting Started" household, low incidence of home ownership makes the penalty-free withdrawal for first-time purchase of a home a powerful marketing feature. Meanwhile, for households with the oldest child under 12, marketers can focus on how they can get started on a retirement account that can serve at the same time as a tax-advantaged investment for their children's education.

Because a majority of households own more than one IRA account, high potential exists for many consumers to switch their accounts to new financial providers. By matching the marketing message to the needs and circumstances of the customer, financial institutions can fully exploit the opportunities provided by the new tax law and retain existing relationships as well as attract a significant portion of the new IRA market.