Caroline Bruckner, American University Kogod School of Business Tax Professor & Kogod Tax Policy Center Managing Director joins the Yahoo Finance Live panel to discuss the how Pres. Biden tax plan may lead to a boost in Roth IRAs.

Video Transcript

ZACK GUZMAN: Welcome back to Yahoo Finance Live. In this week's Tax Time, we're chatting IRAs, particularly at a time when maybe wealthy Americans out there are a little bit worried about what could happen in the event that we do see income taxes increased here. And retirement, obviously, always top of mind. I want to break down the things to know about IRAs and Roth IRAs in our discussion this week with Caroline Bruckner, American University Kogod School of Business tax professor and Kogod Tax Policy managing director. And Caroline, it's good to be chatting with you again here.

When you look at the issue, I mean, even we can start with wealthier Americans, but I feel like IRAs, Roth IRAs, are things that most Americans don't necessarily utilize in the way that they should. But what are you seeing play out right now as we discuss potential tax changes that might make these even more important?

CAROLINE BRUCKNER: It's interesting that you ask that because we are seeing media reports that people are scrambling to roll over traditional IRAs into a Roth IRAs. And part of that is driven by fear that individual tax rates might change in the coming years. And there's just not really a lot to substantiate that. The Biden administration just put out their Made in America tax plan this week that didn't include any individual tax changes and instead, was focused on changing the corporate tax rate.

ZACK GUZMAN: At the same time, though, wealthier Americans obviously have to go that route because there are restrictions, right, in terms of how much you make versus contributing to IRAs. But I feel like stepping back to the average viewer watching this, whether or not, you know, taxes are going up or not, generally it's good to access IRAs or Roth IRAs and kind of surprising to see how few Americans, only 11% in 2017, contributed to IRA accounts. So talk to me about that and maybe what people overlook in terms of it being a key piece of retirement portfolios.

CAROLINE BRUCKNER: So there are essentially three things you've got to do to prepare for retirement. Number one, you got to save in preferably a retirement-- a tax advantage retirement savings plan. Number two, you have to have your individual savings outside of that. And then number three, people tend to rely on Social Security.

However, the data routinely suggests that people absolutely do not save enough for retirement. And when it comes to retirement time, disproportionately, older Americans become disproportionately reliant on Social Security. And that's particularly true for women who tend to live longer, have higher healthcare costs, and take time off during their work lives, and don't necessarily have enough credits builds up in their Social Security altogether. So these kinds of traditional retirement savings plans can really help substantiate an overall retirement saving strategy.

AKIKO FUJITA: To Zack's point, though, Caroline, I mean, how should our viewers be thinking about their contributions when it comes to Roth IRAs, and more importantly, that the timeline of it?

CAROLINE BRUCKNER: Well, I think when it comes to retirement, you want to save as much as you can as soon as you can, right? Because the magic in the mixture is putting away money sooner rather than later. It's something I tell my students who are 20 years old to save and put in their max contributions that they can. Because the earlier you can start savings, the faster that money will grow and help substantiate your retirement.

Now for older Americans, it can be that if you're over the age of 50, the Roth contribution limits are slightly increased by $1,000. But still, retirement savings is a habit you need to be building early on. And that's particularly true for women because research shows women disproportionately have lower retirement savings overall. They call it the gender retirement wealth gap.

ZACK GUZMAN: And also, I mean, just in general, it seems like a good idea to be copying. We hear so much about kind of the angst from people maybe lower down on the income bracket to be saying, oh, if only I had the tax loopholes that the rich Americans had, I'd be better off. Kind of funny if they're using these loopholes to kind of backdoor into an IRA, something that most people can access. So maybe just the one thing that people overlook there is that these are tax deferred accounts to be earning on, right? I mean, I guess, what's the one thing that maybe you're surprised to know people out there watching just don't know about the way IRAs help you?

CAROLINE BRUCKNER: How easy it is to set them up. You can just google this. You can go online and set them up. And to the extent that you qualify within the income eligibility rules, which are fairly generous for most low and moderate income Americans, particularly those that don't otherwise have access to a retirement plan, it's really easy to set them up. And it's one thing that a really thoughtful taxpayer who gets a tax refund can just throw that money into an IRA if they don't have an otherwise access to a retirement plan, and forget about it and just let it grow.

AKIKO FUJITA: Caroline Bruckner, American University Kogod School of Business professor, as well as Kogod Tax Policy Center managing director, good to get your advice there. Thanks so much for your time.