Social media

From Wikipedia, the free encyclopedia

https://en.wikipedia.org/wiki/Social_media 

 

Social media are interactive computer-mediated technologies that facilitate the creation or sharing of information, ideas, career interests and other forms of expression via virtual communities and networks. The variety of stand-alone and built-in social media services currently available introduces challenges of definition; however, there are some common features:

1. Social media are interactive Web 2.0 Internet-based applications.
2. User-generated content such as text posts or comments, digital photos or videos, and data generated through all online interactions, is the lifeblood of social media.
3. Users create service-specific profiles and identities for the website or app that are designed and maintained by the social media organization.
4. Social media facilitate the development of online social networks by connecting a user's profile with those of other individuals or groups.

Users usually access social media services via web-based apps on desktops and laptops, or download services that offer social media functionality to their mobile devices (e.g., smartphones and tablets). As users engage with these electronic services, they create highly interactive platforms through which individuals, communities, and organizations can share, co-create, discuss, participate and modify user-generated content or self-curated content posted online.

Networks formed through social media change the way groups of people interact and communicate or stand with the votes. They "introduce substantial and pervasive changes to communication between organizations, communities, and individuals." These changes are the focus of the emerging fields of technoself studies. Social media differ from paper-based media (e.g., magazines and newspapers) and traditional electronic media such as TV broadcasting, Radio broadcasting in many ways, including quality, reach, frequency, interactivity, usability, immediacy, and performance. Social media outlets operate in a dialogic transmission system (many sources to many receivers). This is in contrast to traditional media which operates under a mono-logic transmission model (one source to many receivers), such as a newspaper which is delivered to many subscribers, or a radio station which broadcasts the same programs to an entire city. Some of the most popular social media websites, with over 100 million registered users, include Facebook (and its associated Facebook Messenger), TikTok, WeChat, Instagram, QZone, Weibo, Twitter, Tumblr, Baidu Tieba, LinkedIn and VK. Other popular platforms that are sometimes referred to as social media services (differing on interpretation) include YouTube, QQ, Quora, Telegram, WhatsApp, LINE, Snapchat, Pinterest, Viber, Reddit, Discord and more.

Observers have noted a wide range of positive and negative impacts of social media use. Social media can help to improve an individual's sense of connectedness with real or online communities and can be an effective communication (or marketing) tool for corporations, entrepreneurs, non-profit organizations, advocacy groups, political parties, and governments.

History

Front panel of the 1969-era ARPANET Interface Message Processor.

 

IMP log for the first message sent over the Internet, using ARPANET.

 

Social media may have roots in the 1840s introduction of the telegraph, which connected the United States. The PLATO system launched in 1960, which was developed at the University of Illinois and subsequently commercially marketed by Control Data Corporation, offered early forms of social media features with 1973-era innovations such as Notes, PLATO's message-forum application; TERM-talk, its instant-messaging feature; Talkomatic, perhaps the first online chat room; News Report, a crowd-sourced online newspaper and blog; and Access Lists, enabling the owner of a note file or other application to limit access to a certain set of users, for example, only friends, classmates, or co-workers.

ARPANET, which first came online in 1967, had by the late 1970s developed a rich cultural exchange of non-government/business ideas and communication, as evidenced by the network etiquette (or "netiquette") described in a 1982 handbook on computing at MIT's Artificial Intelligence Laboratory. ARPANET evolved into the Internet following the publication of the first Transmission Control Protocol (TCP) specification, RFC 675 (Specification of Internet Transmission Control Program), written by Vint Cerf, Yogen Dalal and Carl Sunshine in 1974. This became the foundation of Usenet, conceived by Tom Truscott and Jim Ellis in 1979 at the University of North Carolina at Chapel Hill and Duke University, and established in 1980.

A precursor of the electronic bulletin board system (BBS), known as Community Memory, had already appeared by 1973. True electronic bulletin board systems arrived with the Computer Bulletin Board System in Chicago, which first came online on February 16, 1978. Before long, most major cities had more than one BBS running on TRS-80, Apple II, Atari, IBM PC, Commodore 64, Sinclair, and similar personal computers. The IBM PC was introduced in 1981, and subsequent models of both Mac computers and PCs were used throughout the 1980s. Multiple modems, followed by specialized telecommunication hardware, allowed many users to be online simultaneously. Compuserve, Prodigy and AOL were three of the largest BBS companies and were the first to migrate to the Internet in the 1990s. Between the mid-1980s and the mid-1990s, BBSes numbered in the tens of thousands in North America alone. Message forums (a specific structure of social media) arose with the BBS phenomenon throughout the 1980s and early 1990s. When the World Wide Web (WWW, or "the web") was added to the Internet in the mid-1990s, message forums migrated to the web, becoming Internet forums, primarily due to cheaper per-person access as well as the ability to handle far more people simultaneously than telco modem banks.

Digital imaging and semiconductor image sensor technology facilitated the development and rise of social media. Advances in metal-oxide-semiconductor (MOS) semiconductor device fabrication, reaching smaller micron and then sub-micron levels during the 1980s–1990s, led to the development of the NMOS (n-type MOS) active-pixel sensor (APS) at Olympus in 1985, and then the complementary MOS (CMOS) active-pixel sensor (CMOS sensor) at NASA's Jet Propulsion Laboratory (JPL) in 1993. CMOS sensors enabled the mass proliferation of digital cameras and camera phones, which bolstered the rise of social media.

An important feature of social media is digital media data compression, due to the impractically high memory and bandwidth requirements of uncompressed media. The most important compression algorithm is the discrete cosine transform (DCT), a lossy compression technique that was first proposed by Nasir Ahmed in 1972. DCT-based compression standards include the H.26x and MPEG video coding standards introduced from 1988 onwards, and the JPEG image compression standard introduced in 1992. JPEG was largely responsible for the proliferation of digital images and digital photos which lie at the heart of social media, and the MPEG standards did the same for digital video content on social media. The JPEG image format is used more than a billion times on social networks every day, as of 2014.

SixDegrees, launched in 1997, is often regarded as the first social media site.

GeoCities was one of the World Wide Web's earliest social networking websites, appearing in November 1994, followed by Classmates in December 1995 and SixDegrees in May 1997. According to CBS news, SixDegrees is "widely considered to be the very first social networking site", as it included "profiles, friends lists and school affiliations" that could be used by registered users. Open Diary was launched in October 1998; LiveJournal in April 1999; Ryze in October 2001; Friendster in March 2003; the corporate and job-oriented site LinkedIn in May 2003; hi5 in June 2003; MySpace in August 2003; Orkut in January 2004; Facebook in February 2004; YouTube in February 2005; Yahoo! 360° in March 2005; Bebo in July 2005; the text-based service Twitter, in which posts, called "tweets", were limited to 140 characters, in July 2006; Tumblr in February 2007; and Google+ in July 2011.

Definition and classification

The variety of evolving stand-alone and built-in social media services makes it challenging to define them. However, marketing and social media experts broadly agree that social media includes the following 13 types of social media:

• blogs,
• business networks,
• collaborative projects,
• enterprise social networks,
• forums,
• microblogs,
• photo sharing,
• products/services review,
• social bookmarking,
• social gaming,
• social networks,
• video sharing, and
• virtual worlds.

The idea that social media are defined simply by their ability to bring people together has been seen as too broad, as this would suggest that fundamentally different technologies like the telegraph and telephone are also social media. The terminology is unclear, with some early researchers referring to social media as social networks or social networking services in the mid 2000s. A more recent paper from 2015 reviewed the prominent literature in the area and identified four common features unique to then-current social media services:

1. Social media are Web 2.0 Internet-based applications.
2. User-generated content (UGC) is the lifeblood of the social media organism.
3. Users create service-specific profiles for the site or app that are designed and maintained by the social media organization.
4. Social media facilitate the development of online social networks by connecting a user's profile with those of other individuals or groups.

In 2019, Merriam-Webster defined "social media" as "forms of electronic communication (such as websites for social networking and microblogging) through which users create online communities to share information, ideas, personal messages, and other content (such as videos)"

Classification of social media and overview of how important different types of social media (e.g. blogs) are for each of a company's operational functions (e.g. marketing)

 

The development of social media started off with simple platforms such as sixdegrees.com. Unlike instant messaging clients, such as ICQ and AOL's AIM, or chat clients like IRC, iChat or Chat Television, sixdegrees.com was the first online business that was created for real people, using their real names. The first social networks were short-lived, however, because their users lost interest. The Social Network Revolution has led to the rise of networking sites. Research shows that the audience spends 22% of their time on social networks, thus proving how popular social media platforms have become. This increase is because of the widespread daily use of smartphones. Social media are used to document memories, learn about and explore things, advertise oneself and form friendships as well as the growth of ideas from the creation of blogs, podcasts, videos, and gaming sites. Networked individuals create, edit, and manage content in collaboration with other networked individuals. This way they contribute to expanding knowledge. Wikis are examples of collaborative content creation.

Mobile social media

The heavy usage of smartphones among young people relates to the significant percentage of social media users who are from this demographic.

Mobile social media refer to the use of social media on mobile devices such as smartphones and tablet computers. Mobile social media are a useful application of mobile marketing because the creation, exchange, and circulation of user-generated content can assist companies with marketing research, communication, and relationship development. Mobile social media differ from others because they incorporate the current location of the user (location-sensitivity) or the time delay between sending and receiving messages (time-sensitivity). According to Andreas Kaplan, mobile social media applications can be differentiated among four types:

1. Space-timers (location and time sensitive): Exchange of messages with relevance mostly for one specific location at one specific point in time (e.g. Facebook Places WhatsApp; Foursquare)
2. Space-locators (only location sensitive): Exchange of messages, with relevance for one specific location, which is tagged to a certain place and read later by others (e.g. Yelp; Qype, Tumblr, Fishbrain)
3. Quick-timers (only time sensitive): Transfer of traditional social media mobile apps to increase immediacy (e.g. posting Twitter messages or Facebook status updates)
4. Slow-timers (neither location nor time sensitive): Transfer of traditional social media applications to mobile devices (e.g. watching a YouTube video or reading/editing a Wikipedia article)

Elements and function

Viral content

Some social media sites have potential for content posted there to spread virally over social networks. The term is an analogy to the concept of viral infections, which can spread rapidly from person to person. In a social media context, content or websites that are "viral" (or which "go viral") are those with a greater likelihood that users will reshare content posted (by another user) to their social network, leading to further sharing. In some cases, posts containing popular content or fast-breaking news have been rapidly shared and reshared by a huge number of users. Many social media sites provide specific functionality to help users reshare content, such as Twitter's retweet button, Pinterest's pin function, Facebook's share option or Tumblr's reblog function. Businesses have a particular interest in viral marketing tactics because a viral campaign can achieve widespread advertising coverage (particularly if the viral reposting itself makes the news) for a fraction of the cost of a traditional marketing campaign, which typically uses printed materials, like newspapers, magazines, mailings, and billboards, and television and radio commercials. Nonprofit organizations and activists may have similar interests in posting content on social media sites with the aim of it going viral. A popular component and feature of Twitter is retweeting. Twitter allows other people to keep up with important events, stay connected with their peers, and can contribute in various ways throughout social media. When certain posts become popular, they start to get retweeted over and over again, becoming viral. Hashtags can be used in tweets, and can also be used to take count of how many people have used that hashtag.

Bots

Social media can enable companies to get in the form of greater market share and increased audiences. Internet bots have been developed which facilitate social media marketing. Bots are automated programs that run over the Internet. Chatbots and social bots are programmed to mimic natural human interactions such as liking, commenting, following, and unfollowing on social media platforms. A new industry of bot providers has been created. Social bots and chatbots have created an analytical crisis in the marketing industry as they make it difficult to differentiate between human interactions and automated bot interactions. Some bots are negatively affecting their marketing data causing a "digital cannibalism" in social media marketing. Additionally, some bots violate the terms of use on many social mediums such as Instagram, which can result in profiles being taken down and banned.

"Cyborgs", a combination of a human and a bot, are used to spread fake news or create a marketing "buzz". Cyborgs can be bot-assisted humans or human-assisted bots. An example is a human who registers an account for which they set automated programs to post, for instance, tweets, during their absence. From time to time, the human participates to tweet and interact with friends. Cyborgs make it easier to spread fake news, as it blends automated activity with human input. When the automated accounts are publicly identified, the human part of the cyborg is able to take over and could protest that the account has been used manually all along. Such accounts try to pose as real people; in particular, the number of their friends or followers should be resembling that of a real person.

Patents of social media technology

Number of U.S. social network patent applications published and patents issued per year since 2003. The chart shows that the number of software applications published (the green bars) increased steadily from 2003 to 2007, and then shot up from 2008 to 2010.

 

There has been rapid growth in the number of U.S. patent applications that cover new technologies related to social media, and the number of them that are published has been growing rapidly over the past five years. There are now over 2000 published patent applications. As many as 7000 applications may be currently on file including those that haven't been published yet. Only slightly over 100 of these applications have issued as patents, however, largely due to the multi-year backlog in examination of business method patents, patents which outline and claim new methods of doing business.

Statistics on usage and membership

Social media websites are popular on mobile devices such as smartphones.

According to Statista, in 2019, it is estimated that there will be around 2.77 billion social media users around the globe, up from 2.46 billion in 2017.

In 2020, there were 3.8 billion social media users.

Most popular social networks

The following list of the leading social networks shows the number of active users as of April 2020 (figures for Baidu Tieba, LinkedIn, Viber and Discord are from October 2019).

Usage

#	Network Name	Number of Users (in millions)	Country of Origin
1	Facebook	2,498	United States
2	YouTube	2,000	United States
3	WhatsApp	2,000	United States
4	Facebook Messenger	1,300	United States
5	WeChat	1,165	China
6	Instagram	1,000	United States
7	TikTok	800	China
8	QQ	731	China
9	Qzone	517	China
10	Sina Weibo	516	China
11	Reddit	430	United States
12	Kuaishou	400	China
13	Snapchat	398	United States
14	Twitter	386	United States
15	Pinterest	366	United States
16	Baidu Tieba	320	China
17	LinkedIn	310	United States
18	Viber	260	Israel
19	Discord	250	United States

According to a survey conducted by Pew Research in 2018, Facebook and YouTube dominate the social media landscape, as notable majorities of U.S. adults use each of these sites. At the same time, younger Americans (especially those ages 18 to 24) stand out for embracing a variety of platforms and using them frequently. Some 78% of 18 - 24-year-old youngsters use Snapchat, and a sizeable majority of these users (71%) visit the platform multiple times per day. Similarly, 71% of Americans in this age group now use Instagram and close to half (45%) are Twitter users. However, Facebook remains the primary platform for most Americans. Roughly two-thirds of U.S. adults (68%) now report that they are Facebook users, and roughly three-quarters of those users access Facebook on a daily basis. With the exception of those 65 and older, a majority of Americans across a wide range of demographic groups now use Facebook. After this rapid growth, the number of new U.S. Facebook accounts created has plateaued, with not much observable growth in the 2016-18 period.

Use by organizations

Use by governments

Governments may use social media to (for example):

• interact with citizens
• foster citizen participation
• further open government
• analyze/monitor public opinion and activities

Use by businesses

The high distribution of social media in the private environment drives companies to deal with the application possibilities of social media on

• customer-organizational level
• and on intra-organizational level.

Marketplace actors can use social-media tools for marketing research, communication, sales promotions/discounts, informal employee-learning/organizational development, relationship development/loyalty programs, and e-Commerce. Often social media can become a good source of information and/or explanation of industry trends for a business to embrace change. Trends in social-media technology and usage change rapidly, making it crucial for businesses to have a set of guidelines that can apply to many social media platforms.

Companies are increasingly using social-media monitoring tools to monitor, track, and analyze online conversations on the Web about their brand or products or about related topics of interest. This can prove useful in public relations management and advertising-campaign tracking, allowing analysts to measure return on investment for their social media ad spending, competitor-auditing, and for public engagement. Tools range from free, basic applications to subscription-based, more in-depth tools.

Financial industries utilize the power of social media as a tool for analysing sentiment of financial markets. These range from the marketing of financial products, gaining insights into market sentiment, future market predictions, and as a tool to identify insider trading.

Social media becomes effective through a process called "building social authority". One of the foundation concepts in social media has become that one cannot completely control one's message through social media but rather one can simply begin to participate in the "conversation" expecting that one can achieve a significant influence in that conversation.

Social media mining

Social media "mining" is a type of data mining, a technique of analyzing data to detect patterns. Social media mining is a process of representing, analyzing, and extracting actionable patterns from data collected from people's activities on social media. Google mines data in many ways including using an algorithm in Gmail to analyze information in emails. This use of the information will then affect the type of advertisements shown to the user when they use Gmail. Facebook has partnered with many data mining companies such as Datalogix and BlueKai to use customer information for targeted advertising. Ethical questions of the extent to which a company should be able to utilize a user's information have been called "big data". Users tend to click through Terms of Use agreements when signing up on social media platforms, and they do not know how their information will be used by companies. This leads to questions of privacy and surveillance when user data is recorded. Some social media outlets have added capture time and Geotagging that helps provide information about the context of the data as well as making their data more accurate.

In politics

Social media has a range of uses in political processes and activities. Social media have been championed as allowing anyone with an Internet connection to become a content creator and empowering their users. The role of social media in democratizing media participation, which proponents herald as ushering in a new era of participatory democracy, with all users able to contribute news and comments, may fall short of the ideals, given that many often follow like-minded individuals, as noted by Philip Pond and Jeff Lewis. Online media audience members are largely passive consumers, while content creation is dominated by a small number of users who post comments and write new content.

Younger generations are becoming more involved in politics due to the increase of political news posted on social media. Political campaigns are targeting Millennials online via social media posts in hope that they will increase their political engagement. Social media was influential in the widespread attention given to the revolutionary outbreaks in the Middle East and North Africa during 2011. During the Tunisian revolution in 2011, people used Facebook to organize meetings and protests. However, there is debate about the extent to which social media facilitated this kind of political change.

Social Media footprints of candidates have grown during the last decade and the 2016 United States Presidential election provides a good example. Dounoucos et al. noted that Twitter use by the candidates was unprecedented during that election cycle. Most candidates in the United States have a Twitter account. The public has also increased their reliance on social media sites for political information. In the European Union, social media has amplified political messages.

One challenge is that militant groups have begun to see social media as a major organizing and recruiting tool. The Islamic State of Iraq and the Levant, also known as ISIL, ISIS, and Daesh, has used social media to promote its cause. In 2014, #AllEyesonISIS went viral on Arabic Twitter. ISIS produces an online magazine named the Islamic State Report to recruit more fighters. Social media platforms have been weaponized by state-sponsored cyber groups to attack governments in the United States, European Union, and Middle East. Although phishing attacks via email are the most commonly used tactic to breach government networks, phishing attacks on social media rose 500% in 2016.

Use in hiring

Photos of college applicants engaging in activities contrary to a school's rules or values can adversely affect admission, as evident from this photo of a 40-year-old crack addict.

 

Some employers examine job applicants' social media profiles as part of the hiring assessment. This issue raises many ethical questions that some consider an employer's right and others consider discrimination. Many Western European countries have already implemented laws that restrict the regulation of social media in the workplace. States including Arkansas, California, Colorado, Illinois, Maryland, Michigan, Nevada, New Jersey, New Mexico, Utah, Washington, and Wisconsin have passed legislation that protects potential employees and current employees from employers that demand that they provide their usernames and/or passwords for any social media accounts. Use of social media by young people has caused significant problems for some applicants who are active on social media when they try to enter the job market. A survey of 17,000 young people in six countries in 2013 found that 1 in 10 people aged 16 to 34 have been rejected for a job because of online comments they made on social media websites.

Use in school admissions

It is not only an issue in the workplace but an issue in post-secondary school admissions as well. There have been situations where students have been forced to give up their social media passwords to school administrators. There are inadequate laws to protect a student's social media privacy, and organizations such as the ACLU are pushing for more privacy protection, as it is an invasion. They urge students who are pressured to give up their account information to tell the administrators to contact a parent or lawyer before they take the matter any further. Although they are students, they still have the right to keep their password-protected information private.

Before social media, admissions officials in the United States used SAT and other standardized test scores, extra-curricular activities, letters of recommendation, and high school report cards to determine whether to accept or deny an applicant. In the 2010s, while colleges and universities still use these traditional methods to evaluate applicants, these institutions are increasingly accessing applicants' social media profiles to learn about their character and activities. According to Kaplan, Inc, a corporation that provides higher education preparation, in 2012 27% of admissions officers used Google to learn more about an applicant, with 26% checking Facebook. Students whose social media pages include offensive jokes or photos, racist or homophobic comments, photos depicting the applicant engaging in illegal drug use or drunkenness, and so on, may be screened out from admission processes.

Use in law enforcement and investigations

Social media has been used extensively in civil and criminal investigations. It has also been used to assist in searches for missing persons. Police departments often make use of official social media accounts to engage with the public, publicize police activity, and burnish law enforcement's image; conversely, video footage of citizen-documented police brutality and other misconduct has sometimes been posted to social media.

In the United States U.S. Immigration and Customs Enforcement identifies and track individuals via social media, and also has apprehended some people via social media based sting operations. U.S. Customs and Border Protection (also known as CPB) and the United States Department of Homeland Security use social media data as influencing factors during the visa process, and continue to monitor individuals after they have entered the country. CPB officers have also been documented performing searches of electronics and social media behavior at the border, searching both citizens and non-citizens without first obtaining a warrant.

Use in court cases

Social media comments and images are being used in a range of court cases including employment law, child custody/child support and insurance disability claims. After an Apple employee criticized his employer on Facebook, he was fired. When the former employee sued Apple for unfair dismissal, the court, after seeing the man's Facebook posts, found in favor of Apple, as the man's social media comments breached Apple's policies. After a heterosexual couple broke up, the man posted "violent rap lyrics from a song that talked about fantasies of killing the rapper's ex-wife" and made threats against him. The court found him guilty and he was sentenced to jail. In a disability claims case, a woman who fell at work claimed that she was permanently injured; the employer used her social media posts of her travels and activities to counter her claims.

Courts do not always admit social media evidence, in part because screenshots can be faked or tampered with. Judges are taking emojis into account to assess statements made on social media; in one Michigan case where a person alleged that another person had defamed them in an online comment, the judge disagreed, noting that there was an emoji after the comment which indicated that it was a joke. In a 2014 case in Ontario against a police officer regarding alleged assault of a protester during the G20 summit, the court rejected the Crown's application to use a digital photo of the protest that was anonymously posted online, because there was no metadata proving when the photo was taken and it could have been digitally altered.

Social media marketing

Social media websites can also use "traditional" marketing approaches, as seen in these LinkedIn-branded chocolates.

Social media marketing has increased due to the growing active user rates on social media sites. For example, Facebook currently has 2.2 billion users, Twitter has 330 million active users and Instagram has 800 million users. One of the main uses is to interact with audiences to create awareness of their brand or service, with the main idea of creating a two-way communication system where the audience and/or customers can interact back; providing feedback as just one example. Social media can be used to advertise; placing an advert on Facebook's Newsfeed, for example, can allow a vast number of people to see it or targeting specific audiences from their usage to encourage awareness of the product or brand. Users of social media are then able to like, share and comment on the advert, becoming message senders as they can keep passing the advert's message on to their friends and onwards. The use of new media put consumers on the position of spreading opinions, sharing experience, and has shift power from organization to consumers for it allows transparency and different opinions to be heard. media marketing has to keep up with all the different platforms. They also have to keep up with the ongoing trends that are set by big influencers and draw many peoples attention. The type of audience a business is going for will determine the social media site they use.

Social media personalities have been employed by marketers to promote products online. Research shows that digital endorsements seem to be successfully targeting social media users, especially younger consumers who have grown up in the digital age. Celebrities with large social media followings, such as Kylie Jenner, regularly endorse products to their followers on their social media pages. In 2013, the United Kingdom Advertising Standards Authority (ASA) began to advise celebrities and sports stars to make it clear if they had been paid to tweet about a product or service by using the hashtag #spon or #ad within tweets containing endorsements. The practice of harnessing social media personalities to market or promote a product or service to their following is commonly referred to as Influencer Marketing. The Cambridge Dictionary defines an "influencer" as any person (personality, blogger, journalist, celebrity) who has the ability to affect the opinions, behaviors, or purchases of others through the use of social media.

Companies such as fast food franchise Wendy's have used humor to advertise their products by poking fun at competitors such as McDonald's and Burger King. Other companies such as Juul have used hashtags to promote themselves and their products.

On social media, consumers are exposed to the purchasing practices of peers through messages from a peer's account, which may be peer-written. Such messages may be part of an interactive marketing strategy involving modeling, reinforcement, and social interaction mechanisms. A 2011 study focusing on peer communication through social media described how communication between peers through social media can affect purchase intentions: a direct impact through conformity, and an indirect impact by stressing product engagement. The study indicated that social media communication between peers about a product had a positive relationship with product engagement.

Use in science

Signals from social media are used to assess academic publications, as well as for evaluation of the quality of the Wikipedia articles and their sources. Data from social media can be also used for different scientific approaches. One of the studies examined how millions of users interact with socially shared news and show that individuals’ choices played a stronger role in limiting exposure to cross-cutting content. Another study found that most of the health science students acquiring academic materials from others through social media. Massive amounts of data from social platforms allows scientists and machine learning researchers to extract insights and build product features. Using social media can help to shape patterns of deception in resumes.

Use by individuals

As a news source

In the United States, 81% of users look online for news of the weather, first and foremost, with the percentage seeking national news at 73%, 52% for sports news, and 41% for entertainment or celebrity news. According to CNN, in 2010 75% of people got their news forwarded through e-mail or social media posts, whereas 37% of people shared a news item via Facebook or Twitter. Facebook and Twitter make news a more participatory experience than before as people share news articles and comment on other people's posts. Rainie and Wellman have argued that media making now has become a participation work, which changes communication systems. However, 27% of respondents worry about the accuracy of a story on a blog. From a 2019 poll, Pew Research Center found that Americans are wary about the ways that social media sites share news and certain content. This wariness of accuracy is on the rise as social media sites are increasingly exploited by aggregated new sources which stitch together multiple feeds to develop plausible correlations. Hemsley, Jacobson et al. refer to this phenomenon as "pseudoknowledge" which develop false narratives and fake news that are supported through general analysis and ideology rather than facts. Social media as a news source is further questioned as spikes in evidence surround major news events such as was captured in the United States 2016 presidential election.

Effects on individual and collective memory

News media and television journalism have been a key feature in the shaping of American collective memory for much of the twentieth century. Indeed, since the United States' colonial era, news media has influenced collective memory and discourse about national development and trauma. In many ways, mainstream journalists have maintained an authoritative voice as the storytellers of the American past. Their documentary style narratives, detailed exposes, and their positions in the present make them prime sources for public memory. Specifically, news media journalists have shaped collective memory on nearly every major national event – from the deaths of social and political figures to the progression of political hopefuls. Journalists provide elaborate descriptions of commemorative events in U.S. history and contemporary popular cultural sensations. Many Americans learn the significance of historical events and political issues through news media, as they are presented on popular news stations. However, journalistic influence is growing less important, whereas social networking sites such as Facebook, YouTube and Twitter, provide a constant supply of alternative news sources for users. 

As social networking becomes more popular among older and younger generations, sites such as Facebook and YouTube, gradually undermine the traditionally authoritative voices of news media. For example, American citizens contest media coverage of various social and political events as they see fit, inserting their voices into the narratives about America's past and present and shaping their own collective memories. An example of this is the public explosion of the Trayvon Martin shooting in Sanford, Florida. News media coverage of the incident was minimal until social media users made the story recognizable through their constant discussion of the case. Approximately one month after the fatal shooting of Trayvon Martin, its online coverage by everyday Americans garnered national attention from mainstream media journalists, in turn exemplifying media activism. In some ways, the spread of this tragic event through alternative news sources parallels that of Emmitt Till – whose murder by lynching in 1955 became a national story after it was circulated in African-American and Communist newspapers.

Interpersonal relationships

Modern day teenagers interacting

Social media is used to fulfill perceived social needs, but not all needs can be fulfilled by social media. For example, lonely individuals are more likely to use the Internet for emotional support than those who are not lonely. Sherry Turkle explores these issues in her book Alone Together as she discusses how people confuse social media usage with authentic communication. She posits that people tend to act differently online and are less afraid to hurt each other's feelings. Additionally, studies on who interacts on the internet have shown that extraversion and openness have a positive relationship with social media, while emotional stability has a negative sloping relationship with social media.

Some online behaviors can cause stress and anxiety, due to the permanence of online posts, the fear of being hacked, or of universities and employers exploring social media pages. Turkle also speculates that people are beginning to prefer texting to face-to-face communication, which can contribute to feelings of loneliness. Some researchers have also found that exchanges that involved direct communication and reciprocation of messages correlated with less feelings of loneliness. However, passively using social media without sending or receiving messages does not make people feel less lonely unless they were lonely to begin with.

Checking updates on friends' activities on social media is associated with the "fear of missing out" (FOMO), the "pervasive apprehension that others might be having rewarding experiences from which one is absent". FOMO is a social anxiety characterized by "a desire to stay continually connected with what others are doing". It has negative influences on people's psychological health and well-being because it could contribute to negative mood and depressed feelings.

Concerns have been raised about online "stalking" or "creeping" of people on social media, which means looking at the person's "timeline, status updates, tweets, and online bios" to find information about them and their activities. While social media creeping is common, it is considered to be poor form to admit to a new acquaintance or new date that you have looked through his or her social media posts, particularly older posts, as this will indicate that you were going through their old history. A sub-category of creeping is creeping ex-partners' social media posts after a breakup to investigate if there is a new partner or new dating; this can lead to preoccupation with the ex, rumination and negative feelings, all of which postpone recovery and increase feelings of loss. Catfishing has become more prevalent since the advent of social media. Relationships formed with catfish can lead to actions such as supporting them with money and catfish will typically make excuses as to why they cannot meet up or be viewed on camera.

According to research from UCLA, teenage brains' reward circuits were more active when teenager's photos were liked by more peers. This has both positive and negative features. Teenagers and young adults befriend people online whom they do not know well. This opens the possibility of a child being influenced by people who engage in risk-taking behavior. When children have several hundred online connections there is no way for parents to know who they are.

Self-presentation

The more time people spend on Facebook, the less satisfied they feel about their life. Self-presentational theory explains that people will consciously manage their self-image or identity related information in social contexts. When people are not accepted or are criticized online they feel emotional pain. This may lead to some form of online retaliation such as online bullying. Trudy Hui Hui Chua and Leanne Chang's article, "Follow Me and Like My Beautiful Selfies: Singapore Teenage Girls' Engagement in Self-Presentation and Peer Comparison on Social Media" states that teenage girls manipulate their self-presentation on social media to achieve a sense of beauty that is projected by their peers. These authors also discovered that teenage girls compare themselves to their peers on social media and present themselves in certain ways in effort to earn regard and acceptance, which can actually lead to problems with self-confidence and self-satisfaction.

Users also tend to segment their audiences based on the image they want to present, pseudonymity and use of multiple accounts across the same platform remain popular ways to negotiate platform expectations and segment audiences.

Health improvement and behavior reinforcement

Social media can also function as a supportive system for adolescents' health, because by using social media, adolescents are able to mobilize around health issues that they themselves deem relevant. For example, in a clinical study among adolescent patients undergoing treatment for obesity, the participants' expressed that through social media, they could find personalized weight-loss content as well as social support among other adolescents with obesity The same authors also found that as with other types of online information, the adolescents need to possess necessary skills to evaluate and identify reliable health information, competencies commonly known as health literacy.

Other social media, such as pro-anorexia sites, have been found in studies to cause significant risk of harm by reinforcing negative health-related behaviors through social networking, especially in adolescents.

Social impacts

Disparity

People who live in poverty, such as homeless people, have low levels of access to computers and Internet or a lack of familiarity with these technologies. This means that these marginalized people are not able to use social media tools to find information, jobs, housing, and other necessities.

The digital divide is a measure of disparity in the level of access to technology between households, socioeconomic levels or other demographic categories. People who are homeless, living in poverty, elderly people and those living in rural or remote communities may have little or no access to computers and the Internet; in contrast, middle class and upper-class people in urban areas have very high rates of computer and Internet access. Other models argue that within a modern information society, some individuals produce Internet content while others only consume it, which could be a result of disparities in the education system where only some teachers integrate technology into the classroom and teach critical thinking. While social media has differences among age groups, a 2010 study in the United States found no racial divide. Some zero-rating programs offer subsidized data access to certain websites on low-cost plans. Critics say that this is an anti-competitive program that undermines net neutrality and creates a "walled garden" for platforms like Facebook Zero. A 2015 study found that 65% of Nigerians, 61% of Indonesians, and 58% of Indians agree with the statement that "Facebook is the Internet" compared with only 5% in the US.

Eric Ehrmann contends that social media in the form of public diplomacy create a patina of inclusiveness that covers traditional economic interests that are structured to ensure that wealth is pumped up to the top of the economic pyramid, perpetuating the digital divide and post Marxian class conflict. He also voices concern over the trend that finds social utilities operating in a quasi-libertarian global environment of oligopoly that requires users in economically challenged nations to spend high percentages of annual income to pay for devices and services to participate in the social media lifestyle. Neil Postman also contends that social media will increase an information disparity between "winners" – who are able to use the social media actively – and "losers" – who are not familiar with modern technologies or who do not have access to them. People with high social media skills may have better access to information about job opportunities, potential new friends, and social activities in their area, which may enable them to improve their standard of living and their quality of life.

Political polarization

According to the Pew Research Center, a majority of Americans at least occasionally receive news from social media. Because of algorithms on social media which filter and display news content which are likely to match their users’ political preferences, a potential impact of receiving news from social media includes an increase in political polarization due to selective exposure. Political polarization refers to when an individual's stance on a topic is more likely to be strictly defined by their identification with a specific political party or ideology than on other factors. Selective exposure occurs when an individual favors information which supports their beliefs and avoids information which conflicts with their beliefs. A study by Hayat and Samuel-Azran conducted during the 2016 U.S. presidential election observed an “echo chamber” effect of selective exposure among 27,811 Twitter users following the content of cable news shows. The Twitter users observed in the study were found to have little interaction with users and content whose beliefs were different from their own, possibly heightening polarization effects.

Efforts to combat selective exposure in social media may also cause an increase in political polarization. A study examining Twitter activity conducted by Bail et al. paid Democrat and Republican participants to follow Twitter handles whose content was different from their political beliefs (Republicans received liberal content and Democrats received conservative content) over a six-week period. At the end of the study, both Democrat and Republican participants were found to have increased political polarization in favor of their own parties, though only Republican participants had an increase that was statistically significant.

Though research has shown evidence that social media plays a role in increasing political polarization, it has also shown evidence that social media use leads to a persuasion of political beliefs. An online survey consisting of 1,024 U.S. participants was conducted by Diehl, Weeks, and Gil de Zuñiga, which found that individuals who use social media were more likely to have their political beliefs persuaded than those who did not. In particular, those using social media as a means to receive their news were the most likely to have their political beliefs changed. Diehl et al. found that the persuasion reported by participants was influenced by the exposure to diverse viewpoints they experienced, both in the content they saw as well as the political discussions they participated in. Similarly, a study by Hardy and colleagues conducted with 189 students from a Midwestern state university examined the persuasive effect of watching a political comedy video on Facebook. Hardy et al. found that after watching a Facebook video of the comedian/political commentator John Oliver performing a segment on his show, participants were likely to be persuaded to change their viewpoint on the topic they watched (either payday lending or the Ferguson protests) to one that was closer to the opinion expressed by Oliver. Furthermore, the persuasion experienced by the participants was found to be reduced if they viewed comments by Facebook users which contradicted the arguments made by Oliver.

Research has also shown that social media use may not have an effect on polarization at all. A U.S. national survey of 1,032 participants conducted by Lee et al. found that participants who used social media were more likely to be exposed to a diverse number of people and amount of opinion than those who did not, although using social media was not correlated with a change in political polarization for these participants.

In a study examining the potential polarizing effects of social media on the political views of its users, Mihailidis and Viotty suggest that a new way of engaging with social media must occur to avoid polarization. The authors note that media literacies (described as methods which give people skills to critique and create media) are important to using social media in a responsible and productive way, and state that these literacies must be changed further in order to have the most effectiveness. In order to decrease polarization and encourage cooperation among social media users, Mihailidis and Viotty suggest that media literacies must focus on teaching individuals how to connect with other people in a caring way, embrace differences, and understand the ways in which social media has a realistic impact on the political, social, and cultural issues of the society they are a part of.

Stereotyping

Recent research has demonstrated that social media, and media in general, have the power to increase the scope of stereotypes not only in children but people all ages. Three researchers at Blanquerna University, Spain, examined how adolescents interact with social media and specifically Facebook. They suggest that interactions on the website encourage representing oneself in the traditional gender constructs, which helps maintain gender stereotypes. The authors noted that girls generally show more emotion in their posts and more frequently change their profile pictures, which according to some psychologists can lead to self-objectification. On the other hand, the researchers found that boys prefer to portray themselves as strong, independent, and powerful. For example, men often post pictures of objects and not themselves, and rarely change their profile pictures; using the pages more for entertainment and pragmatic reasons. In contrast girls generally post more images that include themselves, friends and things they have emotional ties to, which the researchers attributed that to the higher emotional intelligence of girls at a younger age. The authors sampled over 632 girls and boys from the ages of 12–16 from Spain in an effort to confirm their beliefs. The researchers concluded that masculinity is more commonly associated with a positive psychological well-being, while femininity displays less psychological well-being. Furthermore, the researchers discovered that people tend not to completely conform to either stereotype, and encompass desirable parts of both. Users of Facebook generally use their profile to reflect that they are a "normal" person. Social media was found to uphold gender stereotypes both feminine and masculine. The researchers also noted that the traditional stereotypes are often upheld by boys more so than girls. The authors described how neither stereotype was entirely positive, but most people viewed masculine values as more positive.

Cognition and memory

According to writer Christine Rosen in "Virtual Friendship, and the New Narcissism," many social media sites encourage status-seeking. According to Rosen, the practice and definition of "friendship" changes in virtuality. Friendship in these virtual spaces is thoroughly different from real-world friendship. In its traditional sense, friendship is a relationship which, broadly speaking, involves the sharing of mutual interests, reciprocity, trust, and the revelation of intimate details over time and within specific social (and cultural) contexts. Because friendship depends on mutual revelations that are concealed from the rest of the world, it can only flourish within the boundaries of privacy; the idea of public friendship is an oxymoron." Rosen also cites Brigham Young University researchers who "recently surveyed 184 users of social networking sites and found that heavy users 'feel less socially involved with the community around them.'" Critic Nicholas G. Carr in "Is Google Making Us Stupid?" questions how technology affects cognition and memory. "The kind of deep reading that a sequence of printed pages promotes is valuable not just for the knowledge we acquire from the author's words but for the intellectual vibrations those words set off within our own minds. In the quiet spaces opened up by the sustained, undistracted reading of a book, or by any other act of contemplation, for that matter, we make our own associations, draw our own inferences and analogies, foster our own ideas... If we lose those quiet spaces, or fill them up with "content," we will sacrifice something important not only in ourselves but in our culture."

Physical and mental health

There are several negative effects to social media which receive criticism, for example regarding privacy issues, information overload and Internet fraud. Social media can also have negative social effects on users. Angry or emotional conversations can lead to real-world interactions outside of the Internet, which can get users into dangerous situations. Some users have experienced threats of violence online and have feared these threats manifesting themselves offline. At the same time, concerns have been raised about possible links between heavy social media use and depression, and even the issues of cyberbullying, online harassment and "trolling". According to cyber bullying statistics from the i-Safe Foundation, over half of adolescents and teens have been bullied online, and about the same number have engaged in cyber bullying. Both the bully and the victim are negatively affected, and the intensity, duration, and frequency of bullying are the three aspects that increase the negative effects on both of them. Studies also show that social media have negative effects on peoples' self-esteem and self-worth. The authors of "Who Compares and Despairs? The Effect of Social Comparison Orientation on Social Media Use and its Outcomes" found that people with a higher social comparison orientation appear to use social media more heavily than people with low social comparison orientation. This finding was consistent with other studies that found people with high social comparison orientation make more social comparisons once on social media.

People compare their own lives to the lives of their friends through their friends' posts. People are motivated to portray themselves in a way that is appropriate to the situation and serves their best interest. Often the things posted online are the positive aspects of people's lives, making other people question why their own lives are not as exciting or fulfilling. This can lead to depression and other self-esteem issues as well as decrease their satisfaction of life as they feel if their life is not exciting enough to put online it is not as good as their friends or family.

Studies have shown that self comparison on social media can have dire effects on physical and mental health because they give us the ability to seek approval and compare ourselves. Social media has both a practical usage- to connect us with others, but also can lead to fulfillment of gratification. In fact, one study suggests that because a critical aspect of social networking sites involve spending hours, if not months customizing a personal profile, and encourage a sort of social currency based on likes, followers and comments- they provide a forum for persistent "appearance conversations". These appearance centered conversations that forums like Facebook, Instagram among others provide can lead to feelings of disappointment in looks and personality when not enough likes or comments are achieved. In addition, social media use can lead to detrimental physical health effects. A large body of literature associates body image and disordered eating with social networking platforms. Specifically, literature suggests that social media can breed a negative feedback loop of viewing and uploading photos, self comparison, feelings of disappointment when perceived social success is not achieved, and disordered body perception. In fact, one study shows that the microblogging platform, Pinterest is directly associated with disordered dieting behavior, indicating that for those who frequently look at exercise or dieting "pins" there is a greater chance that they will engage in extreme weight-loss and dieting behavior.

Bo Han, a social media researcher at Texas A&M University-Commerce, finds that users are likely to experience the "social media burnout" issue. Ambivalence, emotional exhaustion, and depersonalization are usually the main symptoms if a user experiences social media burnout. Ambivalence refers to a user's confusion about the benefits she can get from using a social media site. Emotional exhaustion refers to the stress a user has when using a social media site. Depersonalization refers to the emotional detachment from a social media site a user experiences. The three burnout factors can all negatively influence the user's social media continuance. This study provides an instrument to measure the burnout a user can experience, when his or her social media "friends" are generating an overwhelming amount of useless information (e.g., "what I had for dinner", "where I am now").

Adolescents

Excessive use of digital technology, like social media, by adolescents can cause disruptions in their physical and mental health, in sleeping patterns, their weight and levels of exercise and notably in their academic performance. Research has continued to demonstrate that long hours spent on mobile devices have shown a positive relationship with an increase in teenagers' BMI and a lack of physical activity. Moreover, excessive internet usage has been linked to lower grades compared to users who do not spend an excessive amount of time online, even with a control over age, gender, race, parent education and personal contentment factors that may affect the study. In a recent study, it was found that time spent on Facebook has a strong negative relationship with overall GPA. The use of multiple social media platforms is more strongly associated with depression and anxiety among young adults than time spent online. The analysis showed that people who reported using the most platforms (7 to 11) had more than three times the risk of depression and anxiety than people who used the fewest (0 to 2). Social media addiction and its sub-dimensions have a high positive correlation. The more the participants are addicted to social media, the less satisfied they are with life. Some parents restrict their children's access to social media for these reasons. There are many ways to combat the negative effects of social media, one being increasing the education teachers and parents of the real harms of social media, as most grew up without the access to social media that adolescents have in 2020.

Sleep disturbances

According to a study released in 2017 by researchers from the University of Pittsburgh, the link between sleep disturbance and the use of social media was clear. It concluded that blue light had a part to play—and how often they logged on, rather than time spent on social media sites, was a higher predictor of disturbed sleep, suggesting "an obsessive 'checking'". The strong relationship of social media use and sleep disturbance has significant clinical ramifications for a young adults health and well-being. In a recent study, we have learned that people in the highest quartile for social media use per week report the most sleep disturbance. The median number of minutes of social media use per day is 61 minutes. Lastly, we have learned that females are more inclined to experience high levels of sleep disturbance than males.

Changes in mood

Many teenagers suffer from sleep deprivation as they spend long hours at night on their phones, and this, in turn, could affect grades as they will be tired and unfocused in school. Social media has generated a phenomenon known as " Facebook depression", which is a type of depression that affects adolescents who spend too much of their free time engaging with social media sites. "Facebook depression" leads to problems such as reclusiveness which can negatively damage ones health by creating feelings of loneliness and low self-esteem among young people. At the same time, a 2017 shown that there is a link between social media addiction and negative mental health effects. In this study, almost 6,000 adolescent students were examined using the Bergen Social Media Addiction Scale. 4.5% of these students were found to be "at risk" of social media addiction. Furthermore, this same 4.5% reported low self-esteem and high levels of depressive symptoms.

UK researchers used a data set of more than 800 million Twitter messages to evaluate how collective mood changes over the course of 24 hours and across the seasons. The research team collected 800 million anonymous Tweets from 33,576 time points over four years, to examine anger and sadness and compare them with fatigue. The "research revealed strong circadian patterns for both positive and negative moods. The profiles of anger and fatigue were found remarkably stable across the seasons or between the weekdays/weekend." The "positive emotions and sadness showed more variability in response to these changing conditions and higher levels of interaction with the onset of sunlight exposure."

Effects on youth communication

Social media has allowed for mass cultural exchange and intercultural communication. As different cultures have different value systems, cultural themes, grammar, and world views, they also communicate differently. The emergence of social media platforms fused together different cultures and their communication methods, blending together various cultural thinking patterns and expression styles.

Social media has affected the way youth communicate, by introducing new forms of language. Abbreviations have been introduced to cut down on the time it takes to respond online. The commonly known "LOL" has become globally recognized as the abbreviation for "laugh out loud" thanks to social media.

Another trend that influences the way youth communicates is (through) the use of hashtags. With the introduction of social media platforms such as Twitter, Facebook and Instagram, the hashtag was created to easily organize and search for information. Hashtags can be used when people want to advocate for a movement, store content or tweets from a movement for future use, and allow other social media users to contribute to a discussion about a certain movement by using existing hashtags. Using hashtags as a way to advocate for something online makes it easier and more accessible for more people to acknowledge it around the world. As hashtags such as #tbt ("throwback Thursday") become a part of online communication, it influenced the way in which youth share and communicate in their daily lives. Because of these changes in linguistics and communication etiquette, researchers of media semiotics have found that this has altered youth's communications habits and more.^[vague] 

Social media has offered a new platform for peer pressure with both positive and negative communication. From Facebook comments to likes on Instagram, how the youth communicate and what is socially acceptable is now heavily based on social media. Social media does make kids and young adults more susceptible to peer pressure. The American Academy of Pediatrics has also shown that bullying, the making of non-inclusive friend groups, and sexual experimentation have increased situations related to cyberbullying, issues with privacy, and the act of sending sexual images or messages to someone's mobile device. On the other hand, social media also benefits the youth and how they communicate. Adolescents can learn basic social and technical skills that are essential in society. Through the use of social media, kids and young adults are able to strengthen relationships by keeping in touch with friends and family, make more friends, and participate in community engagement activities and services.

Criticism, debate and controversy

Criticisms of social media range from criticisms of the ease of use of specific platforms and their capabilities, disparity of information available, issues with trustworthiness and reliability of information presented, the impact of social media use on an individual's concentration, ownership of media content, and the meaning of interactions created by social media. Although some social media platforms offer users the opportunity to cross-post simultaneously, some social network platforms have been criticized for poor interoperability between platforms, which leads to the creation of information silos, viz. isolated pockets of data contained in one social media platform. However, it is also argued that social media has positive effects, such as allowing the democratization of the Internet while also allowing individuals to advertise themselves and form friendships. Others have noted that the term "social" cannot account for technological features of a platform alone, hence the level of sociability should be determined by the actual performances of its users. There has been a dramatic decrease in face-to-face interactions as more and more social media platforms have been introduced with the threat of cyber-bullying and online sexual predators being more prevalent. Social media may expose children to images of alcohol, tobacco, and sexual behaviors. In regards to cyber-bullying, it has been proven that individuals who have no experience with cyber-bullying often have a better well-being than individuals who have been bullied online.

Twitter is increasingly a target of heavy activity of marketers. Their actions, focused on gaining massive numbers of followers, include use of advanced scripts and manipulation techniques that distort the prime idea of social media by abusing human trustfulness. British-American entrepreneur and author Andrew Keen criticizes social media in his book The Cult of the Amateur, writing, "Out of this anarchy, it suddenly became clear that what was governing the infinite monkeys now inputting away on the Internet was the law of digital Darwinism, the survival of the loudest and most opinionated. Under these rules, the only way to intellectually prevail is by infinite filibustering." This is also relative to the issue "justice" in the social network. For example, the phenomenon "Human flesh search engine" in Asia raised the discussion of "private-law" brought by social network platform. Comparative media professor José van Dijck contends in her book "The Culture of Connectivity" (2013) that to understand the full weight of social media, their technological dimensions should be connected to the social and the cultural. She critically describes six social media platforms. One of her findings is the way Facebook had been successful in framing the term 'sharing' in such a way that third party use of user data is neglected in favor of intra-user connectedness. 

Essena O'Neill attracted international coverage when she explicitly left social media.

Trustworthiness and reliability

There has been speculation that social media has become perceived as a trustworthy source of information by a large number of people. The continuous interpersonal connectivity on social media, for example, may lead to people regarding peer recommendations as indicators of the reliability of information sources. This trust can be exploited by marketers, who can utilize consumer-created content about brands and products to influence public perceptions.

Trustworthiness of information can be improved by fact-checking. Some social media has started to employ this.

Evgeny Morozov, a 2009–2010 Yahoo fellow at Georgetown University, contended that information uploaded to Twitter may have little relevance to the masses of people who do not use Twitter. In an article for the magazine Dissent titled "Iran: Downside to the 'Twitter Revolution'", Morozov wrote:

[B]y its very design Twitter only adds to the noise: it's simply impossible to pack much context into its 140 characters. All other biases are present as well: in a country like Iran it's mostly pro-Western, technology-friendly and iPod-carrying young people who are the natural and most frequent users of Twitter. They are a tiny and, most important, extremely untypical segment of the Iranian population (the number of Twitter users in Iran — a country of more than seventy million people — was estimated at less than twenty thousand before the protests).

In contrast, in the United States (where Twitter originated), the social network had 306 million accounts as of 2012. The number of accounts, though sizable in proportion to the U.S. population of 314.7 million in 2012, may not be fairly comparable, since an undisclosed number of Twitter users operate multiple accounts.

Professor Matthew Auer of Bates College casts doubt on the conventional wisdom that social media are open and participatory. He also speculates on the emergence of "anti-social media" used as "instruments of pure control."

Criticism of data harvesting on Facebook

On April 10, 2018, in a hearing held in response to revelations of data harvesting by Cambridge Analytica, Mark Zuckerberg, the Facebook chief executive, faced questions from senators on a variety of issues, from privacy to the company's business model and the company's mishandling of data. This was Mr. Zuckerberg's first appearance before Congress, prompted by the revelation that Cambridge Analytica, a political consulting firm linked to the Trump campaign, harvested the data of an estimated 87 million Facebook users to psychologically profile voters during the 2016 election. Zuckerburg was pressed to account for how third-party partners could take data without users’ knowledge. Lawmakers grilled the 33-year-old executive on the proliferation of so-called fake news on Facebook, Russian interference during the 2016 presidential election and censorship of conservative media.

Critique of activism

For Malcolm Gladwell, the role of social media, such as Twitter and Facebook, in revolutions and protests is overstated. On one hand, social media make it easier for individuals, and in this case activists, to express themselves. On the other hand, it is harder for that expression to have an impact. Gladwell distinguishes between social media activism and high risk activism, which brings real changes. Activism and especially high-risk activism involves strong-tie relationships, hierarchies, coordination, motivation, exposing oneself to high risks, making sacrifices. Gladwell discusses that social media are built around weak ties and he argues that "social networks are effective at increasing participation — by lessening the level of motivation that participation requires". According to him "Facebook activism succeeds not by motivating people to make a real sacrifice, but by motivating them to do the things that people do when they are not motivated enough to make a real sacrifice".

Disputing Gladwell's theory, in the study "Perceptions of Social Media for Politics: Testing the Slacktivism Hypothesis," Kwak and colleagues conducted a survey which found that people who are politically expressive on social media are also more likely to participate in offline political activity.

Ownership of content

Social media content is generated through social media interactions done by the users through the site. There has always been a huge debate on the ownership of the content on social media platforms because it is generated by the users and hosted by the company. Added to this is the danger to security of information, which can be leaked to third parties with economic interests in the platform, or parasites who comb the data for their own databases.

Privacy

Privacy rights advocates warn users on social media about the collection of their personal data. Some information is captured without the user's knowledge or consent through electronic tracking and third party applications. Data may also be collected for law enforcement and governmental purposes, by social media intelligence using data mining techniques. Data and information may also be collected for third party use. When information is shared on social media, that information is no longer private. There have been many cases in which young persons especially, share personal information, which can attract predators. It is very important to monitor what you share, and to be aware of who you could potentially be sharing that information with. Teens especially share significantly more information on the internet now than they have in the past. Teens are much more likely to share their personal information, such as email address, phone number, and school names. Studies suggest that teens are not aware of what they are posting and how much of that information can be accessed by third parties. 

There are arguments that "privacy is dead" and that with social media growing more and more, some heavy social media users appear to have become quite unconcerned with privacy. Others argue, however, that people are still very concerned about their privacy, but are being ignored by the companies running these social networks, who can sometimes make a profit off of sharing someone's personal information. There is also a disconnect between social media user's words and their actions. Studies suggest that surveys show that people want to keep their lives private, but their actions on social media suggest otherwise. Another factor is ignorance of how accessible social media posts are. Some social media users who have been criticized for inappropriate comments stated that they did not realize that anyone outside their circle of friends would read their post; in fact, on some social media sites, unless a user selects higher privacy settings, their content is shared with a wide audience.

According to a 2016 article diving into the topic of sharing privately and the effect social media has on expectations of privacy, "1.18 billion people will log into their Facebook accounts, 500 million tweets will be sent, and there will be 95 million photos and videos posted on Instagram" in a day. Much of the privacy concerns individuals face stem from their own posts on a form of social network. Users have the choice to share voluntarily, and has been ingrained into society as routine and normative. Social media is a snapshot of our lives; a community we have created on the behaviors of sharing, posting, liking, and communicating. Sharing has become a phenomenon which social media and networks have uprooted and introduced to the world. The idea of privacy is redundant; once something is posted, its accessibility remains constant even if we select who is potentially able to view it. People desire privacy in some shape or form, yet also contribute to social media, which makes it difficult to maintain privacy. Mills offers options for reform which include copyright and the application of the law of confidence; more radically, a change to the concept of privacy itself.

A 2014 Pew Research Center survey found that 91% of Americans "agree" or "strongly agree" that people have lost control over how personal information is collected and used by all kinds of entities. Some 80% of social media users said they were concerned about advertisers and businesses accessing the data they share on social media platforms, and 64% said the government should do more to regulate advertisers.

According to the wall street journal published on February 17, 2019 According to the UK law, Facebook did not protect certain aspects of the user data.

Criticism of commercialization

The commercial development of social media has been criticized as the actions of consumers in these settings has become increasingly value-creating, for example when consumers contribute to the marketing and branding of specific products by posting positive reviews. As such, value-creating activities also increase the value of a specific product, which could, according to the marketing professors Bernad Cova and Daniele Dalli, lead to what they refer to as "double exploitation". Companies are getting consumers to create content for the companies' websites for which the consumers are not paid.

As social media usage has become increasingly widespread, social media has to a large extent come to be subjected to commercialization by marketing companies and advertising agencies. Christofer Laurell, a digital marketing researcher, suggested that the social media landscape currently consists of three types of places because of this development: consumer-dominated places, professionally dominated places and places undergoing commercialization. As social media becomes commercialized, this process have been shown to create novel forms of value networks stretching between consumer and producer in which a combination of personal, private and commercial contents are created.

Debate over addiction

As one of the biggest preoccupations among adolescents is social media usage, researchers have begun using the term "F.A.D.," or "Facebook addiction disorder," a form of internet addiction disorder. FAD is characterized by a compulsive use of the social networking site Facebook, which generally results in physical or psychological complications. The disorder, although not classified in the latest Diagnostic and Statistical Manual of Mental Disorders (DSM-5) or by the World Health Organization, has been the subject of several studies focusing on the negative effects on the psyche. One German study, published in 2017, investigated a correlation between extensive use of the social networking site and narcissism; the results were published in the journal PLoS One. According to the findings: "FAD was significantly positively related to the personality trait narcissism and to negative mental health variables (depression, anxiety, and stress symptoms)." While these issues regarding social media addiction are continuous and increasing, there are ways to help reduce and curb one's social media obsessions. Turning off notifications (temporary or long-term) is one solution that is deemed beneficial in attempts to lessen social media addiction by resolving issues of distraction, for those who struggle with the habit of constantly refreshing social media platforms and checking for new notifications.

Debate over use in academic settings

Having social media in the classroom was a controversial topic in the 2010s. Many parents and educators have been fearful of the repercussions of having social media in the classroom. There are concerns that social media tools can be misused for cyberbullying or sharing inappropriate content. As result, cell phones have been banned from some classrooms, and some schools have blocked many popular social media websites. Many schools have realized that they need to loosen restrictions, teach digital citizenship skills, and even incorporate these tools into classrooms. Some schools permit students to use smartphones or tablet computers in class, as long as the students are using these devices for academic purposes, such as doing research. Using Facebook in class allows for integration of multimodal content such as student-created photographs and video and URLs to other texts, in a platform that many students are already familiar with. Twitter can be used to enhance communication building and critical thinking and it provides students with an informal "back channel"), and extend discussion outside of class time.

Censorship by governments

Banner in Bangkok, observed on June 30, 2014, informing the Thai public that 'like' or 'share' activity on social media may land them in jail

 

Social media often features in political struggles to control public perception and online activity. In some countries, Internet police or secret police monitor or control citizens' use of social media. For example, in 2013 some social media was banned in Turkey after the Taksim Gezi Park protests. Both Twitter and YouTube were temporarily suspended in the country by a court's decision. A new law, passed by Turkish Parliament, has granted immunity to Telecommunications Directorate (TİB) personnel. The TİB was also given the authority to block access to specific websites without the need for a court order. Yet TİB's 2014 blocking of Twitter was ruled by the constitutional court to violate free speech. More recently, in the 2014 Thai coup d'état, the public was explicitly instructed not to 'share' or 'like' dissenting views on social media or face prison. In July of that same year, in response to WikiLeaks' release of a secret suppression order made by the Victorian Supreme Court, media lawyers were quoted in the Australian media to the effect that "anyone who tweets a link to the WikiLeaks report, posts it on Facebook, or shares it in any way online could also face charges".

Decentralization and open standards

Mastodon, GNU social, Diaspora, Friendica and other compatible software packages operate as a loose federation of mostly volunteer-operated servers, called the Fediverse, which connect with each other through the open source protocol ActivityPub. In early 2019, Mastodon successfully blocked the spread of violent right-wing extremism when the Twitter alternative Gab tried to associate with Mastodon, and their independent servers quickly contained its dissemination.

In December 2019, Twitter CEO Jack Dorsey made a similar suggestion, stating that efforts would be taken to achieve an "open and decentralized standard for social media". Rather than "deplatforming", such standards would allow a more scalable, and customizable approach to content moderation and censorship, and involve a number of companies, in the way that e-mail servers work.

Self-censorship by social media platforms

Deplatforming is a form of Internet censorship in which controversial speakers or speech are suspended, banned, or otherwise shut down by social media platforms and other service providers that normally provide a venue for free expression. As early as 2015, platforms such as Reddit began to enforce selective bans based, for example, on terms of service that prohibit "hate speech". According to technology journalist Declan McCullagh, "Silicon Valley's efforts to pull the plug on dissenting opinions" have included, as of 2018, Twitter, Facebook, and YouTube "devising excuses to suspend ideologically disfavored accounts."

Law professor Glenn Reynolds dubbed 2018 the "Year of Deplatforming", in an August 2018 article in The Wall Street Journal. According to Reynolds, in 2018 "the internet giants decided to slam the gates on a number of people and ideas they don't like. If you rely on someone else's platform to express unpopular ideas, especially ideas on the right, you're now at risk." Reynolds cited Alex Jones, Gavin McInnes and Dennis Prager as prominent 2018 victims of deplatforming based on their political views, noting, "Extremists and controversialists on the left have been relatively safe from deplatforming."

Reproduction of Class Distinctions

According to Danah Boyd’s, “White Flight in Networked Publics? How Race and Class Shaped American Teen Engagement with MySpace and Facebook,” the media plays a large role in shaping people's perceptions of specific social networking sites. When looking at the site MySpace, after adults started to realize how popular the sight was becoming with teens, news media became heavily concerned with teen participation and the potential dangers they faced using the site. As a result, teens avoided joining the site because of the associated risks (e.g. child predators and lack of control) and parents began to publicly denounce the site. Ultimately, the site was labeled as dangerous, and many were detracted from interacting with the site. As boyd also describes, when Facebook initially launched in 2004, it solely targeted college students and access was intentionally limited. Facebook started as a Harvard-only social networking site before expanding to all other Ivy League schools. It then made its way to other top universities and ultimately to a wider range of schools. Because of its origins, some saw Facebook as an “elite” social networking site. While it was very open and accepting to some, it seemed to outlaw and shun out most others who didn't fit that “elite” categorization. These narratives propagated by the media influenced the large movement of teenage users from one social networking site to another.

401(k)

From Wikipedia, the free encyclopedia

https://en.wikipedia.org/wiki/401(k) 

 

In the United States, a 401(k) plan is the tax-qualified, defined-contribution pension account defined in subsection 401(k) of the Internal Revenue Code. Under the plan, retirement saving contributions are provided (and sometimes proportionately matched) by an employer, deducted from the employee's paycheck before taxation (therefore tax-deferred until withdrawn after retirement or as otherwise permitted by applicable law), and limited to a maximum pre-tax annual contribution of $19,500 (as of 2020).

Other employer-provided defined-contribution plans include 403(b) plans for nonprofit institutions, 457(b) plans for governmental employers, and 401(a) plans. These plans may provide total annual addition of $57,000 (as of 2020) per plan participant, including both employee and employer contributions.

History

In the early 1970s, a group of high-earning individuals from Kodak approached Congress to allow a part of their salary to be invested in the stock market and thus be exempt from income taxes. This resulted in section 401(k) being inserted in the then-current taxation regulations that allowed this to be done. The section of the Internal Revenue Code that made such 401(k) plans possible was enacted into law in 1978. It was intended to allow taxpayers a break on taxes on deferred income. In 1980, a benefits consultant and attorney named Ted Benna took note of the previously obscure provision and figured out that it could be used to create a simple, tax-advantaged way to save for retirement. The client for whom he was working at the time chose not to create a 401(k) plan. He later went on to install the first 401(k) plan at his own employer, the Johnson Companies (today doing business as Johnson Kendall & Johnson). At the time, employees could contribute 25% of their salary, up to $30,000 per year, to their employer's 401(k) plan.

Taxation

Income taxes on pre-tax contributions and investment earnings in the form of interest and dividends are tax deferred. The ability to defer income taxes to a period where one's tax rates may be lower is a potential benefit of the 401(k) plan. The ability to defer income taxes has no benefit when the participant is subject to the same tax rates in retirement as when the original contributions were made or interest and dividends earned. Earnings from investments in a 401(k) account in the form of capital gains are not subject to capital gains taxes. This ability to avoid this second level of tax is a primary benefit of the 401(k) plan. Relative to investing outside of 401(k) plans, more income tax is paid but less taxes are paid overall with the 401(k) due to the ability to avoid taxes on capital gains.

For pre-tax contributions, the employee does not pay federal income tax on the amount of current income he or she defers to a 401(k) account, but does still pay the total 7.65% payroll taxes (social security and medicare). For example, a worker who otherwise earns $50,000 in a particular year and defers $3,000 into a 401(k) account that year only reports $47,000 in income on that year's tax return. Currently this would represent a near-term $660 saving in taxes for a single worker, assuming the worker remained in the 22% marginal tax bracket and there were no other adjustments (like deductions). The employee ultimately pays taxes on the money as he or she withdraws the funds, generally during retirement. The character of any gains (including tax-favored capital gains) is transformed into "ordinary income" at the time the money is withdrawn.

Beginning in the 2006 tax year, employees have been allowed to designate contributions as a Roth 401(k) deferral. Similar to the provisions of a Roth IRA, these contributions are made on an after-tax basis.

If the employee made after-tax contributions to the non-Roth 401(k) account, these amounts are commingled with the pre-tax funds and simply add to the non-Roth 401(k) basis. When distributions are made the taxable portion of the distribution will be calculated as the ratio of the non-Roth contributions to the total 401(k) basis. The remainder of the distribution is tax-free and not included in gross income for the year.

For accumulated after-tax contributions and earnings in a designated Roth account (Roth 401(k)), "qualified distributions" can be made tax-free. To qualify, distributions must be made more than 5 years after the first designated Roth contributions and not before the year in which the account owner turns age 59, unless an exception applies as detailed in IRS code section 72(t). In the case of designated Roth contributions, the contributions being made on an after-tax basis means that the taxable income in the year of contribution is not decreased as it is with pre-tax contributions. Roth contributions are irrevocable and cannot be converted to pre-tax contributions at a later date. (In contrast to Roth individual retirement accounts (IRAs), where Roth contributions may be re characterized as pre-tax contributions.) Administratively, Roth contributions must be made to a separate account, and records must be kept that distinguish the amount of contribution and the corresponding earnings that are to receive Roth treatment.

Unlike the Roth IRA, there is no upper income limit capping eligibility for Roth 401(k) contributions. Individuals who find themselves disqualified from a Roth IRA may contribute to their Roth 401(k). Individuals who qualify for both can contribute the maximum statutory amounts into either or a combination of the two plans (including both catch-up contributions if applicable). Aggregate statutory annual limits set by the IRS will apply.

Withdrawal of funds

Generally, a 401k participant may begin to withdraw money from his or her plan after reaching the age of 59 without penalty. The Internal Revenue Code imposes severe restrictions on withdrawals of tax-deferred or Roth contributions while a person remains in service with the company and is under the age of 59. Any withdrawal that is permitted before the age of 59 is subject to an excise tax equal to ten percent of the amount distributed (on top of the ordinary income tax that has to be paid), including withdrawals to pay expenses due to a hardship, except to the extent the distribution does not exceed the amount allowable as a deduction under Internal Revenue Code section 213 to the employee for amounts paid during the taxable year for medical care (determined without regard to whether the employee itemizes deductions for such taxable year). Amounts withdrawn are subject to ordinary income taxes to the participant. 

The Internal Revenue Code generally defines a hardship as any of the following.

• Unreimbursed medical expenses for the participant, the participant's spouse, or the participant's dependent.
• Purchase of principal residence for the participant.
• Payment of college tuition and related educational costs such as room and board for the next 12 months for the participant, the participant's spouse or dependents, or children who are no longer dependents.
• Payments necessary to prevent foreclosure or eviction from the participant's principal residence.
• Funeral and burial expenses.
• Repairs to damage of participant's principal residence.

Some employers may disallow one, several, or all of the previous hardship causes. To maintain the tax advantage for income deferred into a 401(k), the law stipulates the restriction that unless an exception applies, money must be kept in the plan or an equivalent tax deferred plan until the employee reaches 59 years of age. Money that is withdrawn prior to the age of 59 typically incurs a 10% penalty tax unless a further exception applies. This penalty is on top of the "ordinary income" tax that has to be paid on such a withdrawal. The exceptions to the 10% penalty include: the employee's death, the employee's total and permanent disability, separation from service in or after the year the employee reached age 55, substantially equal periodic payments under section 72(t), a qualified domestic relations order, and for deductible medical expenses (exceeding the 7.5% floor). This does not apply to the similar 457 plan.

Loans

Many plans also allow participants to take loans from their 401(k) to be repaid with after-tax funds at predefined interest rates. The interest proceeds then become part of the 401(k) balance. The loan itself is not taxable income nor subject to the 10% penalty as long as it is paid back in accordance with section 72(p) of the Internal Revenue Code. This section requires, among other things, that the loan be for a term no longer than 5 years (except for the purchase of a primary residence), that a "reasonable" rate of interest be charged, and that substantially equal payments (with payments made at least every calendar quarter) be made over the life of the loan. Employers, of course, have the option to make their plan's loan provisions more restrictive. When an employee does not make payments in accordance with the plan or IRS regulations, the outstanding loan balance will be declared in "default". A defaulted loan, and possibly accrued interest on the loan balance, becomes a taxable distribution to the employee in the year of default with all the same tax penalties and implications of a withdrawal. 

These loans have been described as tax-disadvantaged, on the theory that the 401(k) contains before-tax dollars, but the loan is repaid with after-tax dollars. While this is precisely correct, the analysis is fundamentally flawed with regard to the loan principal amounts. From your perspective as the borrower, this is identical to a standard loan where you are not taxed when you get the loan, but you have to pay it back with taxed dollars. However, the interest portion of the loan repayments, which are essentially additional contributions to the 401(k), are made with after-tax funds but they do not increase the after-tax basis in the 401(k). Therefore, upon distribution/conversion of those funds the owner will have to pay taxes on those funds a second time.

Required minimum distributions (RMD)

Account owners must begin making distributions from their accounts by April 1 of the calendar year after turning age 70 1/2 or April 1 of the calendar year after retiring, whichever is later. The amount of distributions is based on life expectancy according to the relevant factors from the appropriate IRS tables. For individuals who attain age 70 1/2 after December 31, 2019, distributions are required by April 1 of the calendar year after turning age 72 or April 1 of the calendar year after retiring, whichever is later.

The required minimum distribution is not required for a particular calendar year if the account owner is employed by the employer during the entire calendar year and the account owner does not own more than 5% of the employer's business at any point during the calendar year. Required minimum distributions apply to both traditional contributions and Roth contributions to a 401(k) plan.

A person who is required to make a required minimum distribution, but does not do so, is subject to a penalty of 50% of the amount that should have been distributed.

In response to the United States economic crisis of 2007–2009, Congress suspended the RMD requirement for 2009.

Required distributions for some former employees

A 401(k) plan may have a provision in its plan documents to close the account of former employees who have low account balances. Almost 90% of 401(k) plans have such a provision. As of March 2005, a 401(k) plan may require the closing of a former employee's account if and only if the former employee's account has less than $1,000 of vested assets.

When a former employee's account is closed, the former employee can either roll over the funds to an individual retirement account, roll over the funds to another 401(k) plan, or receive a cash distribution, less required income taxes and possibly a penalty for a cash withdrawal before the age of 59.

Rollovers

Rollovers between eligible retirement plans are accomplished in one of two ways: by a distribution to the participant and a subsequent rollover to another plan or by a direct rollover from plan to plan. Rollovers after a distribution to the participant must generally be accomplished within 60 days of the distribution. If the 60-day limit is not met, the rollover will be disallowed and the distribution will be taxed as ordinary income and the 10% penalty will apply, if applicable. The same rules and restrictions apply to rollovers from plans to IRAs.

Direct rollovers

A direct rollover from an eligible retirement plan to another eligible retirement plan is not taxable, regardless of the age of the participant.

Traditional to Roth conversions

In 2013, the IRS began allowing conversions of existing Traditional 401(k) contributions to Roth 401(k). In order to do so, an employee's company plan must offer both a Traditional and Roth option and explicitly permit such a conversion.

Technical details

Contribution deferral limits

There is a maximum limit on the total yearly employee pre-tax or Roth salary deferral into the plan. This limit, known as the "402(g) limit", was $19,000 for 2019, and is $19,500 for 2020. For future years, the limit may be indexed for inflation, increasing in increments of $500. Employees who are at least 50 years old at any time during the year are now allowed additional pre-tax "catch up" contributions of up to $6,000 for 2015–2019, and $6,500 for 2020. The limit for future "catch up" contributions may also be adjusted for inflation in increments of $500. In eligible plans, employees can elect to contribute on a pre-tax basis or as a Roth 401(k) contribution, or a combination of the two, but the total of those two contributions amounts must not exceed the contribution limit in a single calendar year. This limit does not apply to post-tax non-Roth elections.

If the employee contributes more than the maximum pre-tax/Roth limit to 401(k) accounts in a given year, the excess as well as the deemed earnings for those contributions must be withdrawn or corrected by April 15 of the following year. This violation most commonly occurs when a person switches employers mid-year and the latest employer does not know to enforce the contribution limits on behalf of their employee. If this violation is noticed too late, the employee will not only be required to pay tax on the excess contribution amount the year was earned, the tax will effectively be doubled as the late corrective distribution is required to be reported again as income along with the earnings on such excess in the year the late correction is made.

Plans which are set up under section 401(k) can also have employer contributions that cannot exceed other regulatory limits. Employer matching contributions can be made on behalf of designated Roth contributions, but the employer match must be made on a pre-tax basis.

Some plans also have a profit-sharing provision where employers make additional contributions to the account and may or may not require matching contributions by the employee. These additional contributions may or may not require a matching employee contribution to earn them. As with the matching funds, these contributions are also made on a pre-tax basis.

There is also a maximum 401(k) contribution limit that applies to all employee and employer 401(k) contributions in a calendar year. This limit is the section 415 limit, which is the lesser of 100% of the employee's total pre-tax compensation or $56,000 for 2019, or $57,000 in 2020. For employees over 50, the catch-up contribution limit is also added to the section 415 limit.

Governmental employers in the United States (that is, federal, state, county, and city governments) are currently barred from offering 401(k) retirement plans unless the retirement plan was established before May 1986. Governmental organizations may set up a section 457(b) retirement plan instead.

Contribution deadline

For a corporation, or LLC taxed as a corporation, contributions must be made by the end of a calendar year. For a sole proprietorship, partnership, or an LLC taxed as a sole proprietorship, the deadline for depositing contributions is generally the personal tax filing deadline (April 15, or September 15 if an extension was filed).

Highly compensated employees (HCE)

To help ensure that companies extend their 401(k) plans to low-paid employees, an IRS rule limits the maximum deferral by the company's highly compensated employees (HCEs) based on the average deferral by the company's non-highly compensated employees (NHCEs). If the less compensated employees save more for retirement, then the HCEs are allowed to save more for retirement. This provision is enforced via "non-discrimination testing". Non-discrimination testing takes the deferral rates of HCEs and compares them to NHCEs. In 2008, an HCE was defined as an employee with compensation greater than $100,000 in 2007, or as an employee that owned more than 5% of the business at any time during the year or the preceding year. In addition to the $100,000 limit for determining HCEs, employers can elect to limit the top-paid group of employees to the top 20% of employees ranked by compensation. That is, for plans with the first day of the plan-year in the 2007 calendar year, HCEs are employees who earned more than $100,000 in gross compensation (also known as 'Medicare wages') in the prior year. For example, most testing done in 2009 was for the 2008 plan-year, which compared 2007 plan-year gross compensation to the $100,000 threshold in order to determine who was an HCE and who was an NHCE. The threshold was $125,000 for 2019, and is $130,000 for 2020.

The actual deferral percentage (ADP) of all HCEs as a group cannot exceed 2 percentage points greater than all NHCEs as a group. This is known as the ADP test. When a plan fails the ADP test, it essentially has two options to come into compliance. A return of excess can be given to the HCEs to lower the HCE ADP to a passing level, or it can process a "qualified non-elective contribution" (QNEC) to some or all of the NHCEs in order to raise the NHCE ADP to a passing level. A return of excess requires the plan to send a taxable distribution to the HCEs (or reclassify regular contributions as catch-up contributions subject to the annual catch-up limit for those HCEs over 50) by March 15 of the year following the failed test. A QNEC must be vested immediately. 

The annual contribution percentage (ACP) test is similarly performed but also includes employer matching and employee after-tax contributions. ACPs do not use the simple 2% threshold, and include other provisions which can allow the plan to "shift" excess passing rates from the ADP over to the ACP. A failed ACP test is likewise addressed through return of excess, or a QNEC or qualified match (QMAC).

There are a number of "safe harbor" provisions that can allow a company to be exempted from the ADP test. This includes making a "safe harbor" employer contribution to employees' accounts. Safe harbor contributions can take the form of a match (generally totaling 4% of pay) or a non-elective profit sharing (totaling 3% of pay). Safe harbor 401(k) contributions must be 100% vested at all times with immediate eligibility for employees. There are other administrative requirements within the safe harbor, such as requiring the employer to notify all eligible employees of the opportunity to participate in the plan, and restricting the employer from suspending participants for any reason other than due to a hardship withdrawal.

Automatic enrollment

Employers are allowed to automatically enroll their employees in 401(k) plans, requiring employees to actively opt out if they do not want to participate (traditionally, 401(k)s required employees to opt in). Companies offering such automatic 401(k)s must choose a default investment fund and saving rate. Employees who are enrolled automatically will become investors in the default fund at the default rate, although they may select different funds and rates if they choose, or even opt out completely.

Automatic 401(k)s are designed to encourage high participation rates among employees. Therefore, employers can attempt to enroll non-participants as often as once per year, requiring those non-participants to opt out each time if they do not want to participate. Employers can also choose to escalate participants' default contribution rate, encouraging them to save more.

The Pension Protection Act of 2006 made automatic enrollment a safer option for employers. Prior to the Pension Protection Act, employers were held responsible for investment losses as a result of such automatic enrollments. The Pension Protection Act established a safe harbor for employers in the form of a "Qualified Default Investment Alternative", an investment plan that, if chosen by the employer as the default plan for automatically enrolled participants, relieves the employer of financial liability. Under Department of Labor regulations, three main types of investments qualify as QDIAs: lifecycle funds, balanced funds, and managed accounts. QDIAs provide sponsors with fiduciary relief similar to the relief that applies when participants affirmatively elect their investments.

Fees

401(k) plans charge fees for administrative services, investment management services, and sometimes outside consulting services. They can be charged to the employer, the plan participants or to the plan itself and the fees can be allocated on a per participant basis, per plan, or as a percentage of the plan's assets. For 2011, the average total administrative and management fees on a 401(k) plan was 0.78 percent or approximately $250 per participant. The United States Supreme Court ruled, in 2015, that plan administrators could be sued for excessive plan fees and expenses, in Tibble v. Edison International. In the Tibble case, the Supreme Court took strong issue with a large company placing plan investments in "retail" mutual fund shares as opposed to "institutional" class shares.

Top-heavy provisions

The IRS monitors defined contribution plans such as 401(k)s to determine if they are top-heavy, or weighted too heavily in providing benefits to key employees. If the plans are too top-heavy, the company must remedy this by allocating funds to the other employees' (known as non-key employees) benefit plans.

Plans for certain small businesses or sole proprietorships

The Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) made 401(k) plans more beneficial to the self-employed. The two key changes enacted related to the allowable "Employer" deductible contribution, and the "Individual" IRC-415 contribution limit. 

Prior to EGTRRA, the maximum tax-deductible contribution to a 401(k) plan was 15% of eligible pay (reduced by the amount of salary deferrals). Without EGTRRA, an incorporated business person taking $100,000 in salary would have been limited in Y2004 to a maximum contribution of $15,000. EGTRRA raised the deductible limit to 25% of eligible pay without reduction for salary deferrals. Therefore, that same businessperson in Y2008 can make an "elective deferral" of $15,500 plus a profit sharing contribution of $25,000 (i.e. 25%), and—if this person is over age 50—make a catch-up contribution of $5,000 for a total of $45,500. For those eligible to make "catch-up" contribution, and with salary of $122,000 or higher, the maximum possible total contribution in 2008 would be $51,000. To take advantage of these higher contributions, many vendors now offer Solo 401(k) plans or Individual(k) plans, which can be administered as a Self-Directed 401(k), permitting investment in real estate, mortgage notes, tax liens, private companies, and virtually any other investment. 

Note: an unincorporated business person is subject to slightly different calculation. The government mandates calculation of profit sharing contribution as 25% of net self-employment (Schedule C) income. Thus on $100,000 of self-employment income, the contribution would be 20% of the gross self-employment income, 25% of the net after the contribution of $20,000.

Rollovers as business start-ups (ROBS)

ROBS is an arrangement in which prospective business owners use their 401(k) retirement funds to pay for new business start-up costs. ROBS is an acronym from the United States Internal Revenue Service for the IRS ROBS Rollovers as Business Start-Ups Compliance Project.

ROBS plans, while not considered an abusive tax avoidance transaction, are questionable because they may solely benefit one individual – the individual who rolls over his or her existing retirement 401(k) withdrawal funds to the ROBS plan in a tax-free transaction. The ROBS plan then uses the rollover assets to purchase the stock of the new business. A C corporation must be set up in order to roll the 401(k) withdrawal.

Other countries

Even though the term "401(k)" is a reference to a specific provision of the U.S. Internal Revenue Code section 401, it has become so well known that it has been used elsewhere as a generic term to describe analogous legislation. For example, in October 2001, Japan adopted legislation allowing the creation of "Japan-version 401(k)" accounts even though no provision of the relevant Japanese codes is in fact called "section 401(k)".

Similar pension schemes exist in other nations as well. The term is not used in the UK, where analogous pension arrangements are known as personal pension schemes. In Australia, they are known as superannuation funds. 

Similarly, India has a scheme called PPF and EPF, that are loosely similar to 401(k) schemes, wherein the employee contributes 7.5% of his / her salary to the provident fund and this is matched by an equal contribution by the employer. The Employees' Provident Fund Organisation (EPFO) is a statutory body of the Government of India under the Ministry of Labour and Employment. It administers a compulsory contributory Provident Fund Scheme, Pension Scheme and an Insurance Scheme. The schemes covers both Indian and international workers (for countries with which bilateral agreements have been signed; 14 such social security agreements are active). It is one of the largest social security organisations in India in terms of the number of covered beneficiaries and the volume of financial transactions undertaken. The EPFO's apex decision making body is the Central Board of Trustees. 

Nepal and Sri Lanka have similar employees provident fund schemes. In Malaysia, The Employees Provident Fund (EPF) was established in 1951 upon the Employees Provident Fund Ordinance 1951. The EPF is intended to help employees from the private sector save a fraction of their salary in a lifetime banking scheme, to be used primarily as a retirement fund but also in the event that the employee is temporarily or no longer fit to work. As of March 31, 2014, the size of the EPF asset size stood at RM597 billion (US$184 billion), making it the fourth largest pension fund in Asia and seventh largest in the world.

Risk

Unlike defined benefit ERISA plans or banking institution saving accounts, there is no government insurance for assets held in 401(k) accounts. Plans of sponsors experiencing financial difficulties sometimes have funding problems. However, the bankruptcy laws give a high priority to sponsor funding liability. In moving between jobs, this should be a consideration by a plan participant in whether to leave assets in the old plan or roll over the assets to a new employer plan or to an individual retirement arrangement (an IRA). Fees charged by IRA providers can be substantially less than fees charged by employer plans and typically offer a far wider selection of investment vehicles than employer plans.

Individual retirement account

From Wikipedia, the free encyclopedia

https://en.wikipedia.org/wiki/Individual_retirement_account 

 

An individual retirement account (IRA) in the United States is a form of "individual retirement plan", provided by many financial institutions, that provides tax advantages for retirement savings. An individual retirement account is a type of "individual retirement arrangement" as described in IRS Publication 590, individual retirement arrangements (IRAs). The term IRA, used to describe both individual retirement accounts and the broader category of individual retirement arrangements, encompasses an individual retirement account; a trust or custodial account set up for the exclusive benefit of taxpayers or their beneficiaries; and an individual retirement annuity, by which the taxpayers purchase an annuity contract or an endowment contract from a life insurance company.

Types

There are several types of IRAs:

• Traditional IRA – contributions are often tax-deductible (often simplified as "money is deposited before tax" or "contributions are made with pre-tax assets"), all transactions and earnings within the IRA have no tax impact, and withdrawals at retirement are taxed as income (except for those portions of the withdrawal corresponding to contributions that were not deducted). Depending upon the nature of the contribution, a traditional IRA may be a "deductible IRA" or a "non-deductible IRA". Traditional IRAs were introduced with the Employee Retirement Income Security Act of 1974 (ERISA) and made popular with the Economic Recovery Tax Act of 1981.
• Roth IRA – contributions are made with after-tax assets, all transactions within the IRA have no tax impact, and withdrawals of contributed funds are tax-free. Named for Senator William V. Roth, Jr., the Roth IRA was introduced as part of the Taxpayer Relief Act of 1997.
  • myRA – a 2014 Obama administration initiative based on the Roth IRA
• SEP IRA – a provision that allows an employer (typically a small business or self-employed individual) to make retirement plan contributions into a Traditional IRA established in the employee's name, instead of to a pension fund in the company's name.
• SIMPLE IRA – a Savings Incentive Match Plan for Employees that requires employer matching contributions to the plan whenever an employee makes a contribution. The plan is similar to a 401(k) plan, but with lower contribution limits and simpler (and thus less costly) administration. Although it is termed an IRA, it is treated separately.
• Rollover IRA – no real difference in tax treatment from a traditional IRA, but the funds come from a qualified plan or 403(b) account and are "rolled over" into the rollover IRA instead of contributed as cash. No other assets are commingled with these rollover amounts.
• Conduit IRA – Tool to transfer qualified investments from one account to another. In order to retain certain special tax treatments, funds may not be commingled with other types of assets, including other IRAs.

The last two types, Rollover IRAs and Conduit IRAs, are viewed by some as obsolete under current tax law (their functions have been subsumed by the Traditional IRA), but this tax law is set to expire unless extended. However, some individuals still maintain these arrangements in order to keep track of the source of these assets. One key reason is that some qualified plans will accept rollovers from IRAs only if they are conduit/rollover IRAs.

A self-directed IRA is the considered the same by the tax code, but refers to IRAs where the custodian allows the investor wider flexibility in choosing investments, typically including alternative investments. Some examples of these alternative investments are: real estate, private mortgages, private company stock, oil and gas limited partnerships, precious metals, horses, and intellectual property. While the Internal Revenue Code (IRC) has placed a few restrictions on what can be invested in, the IRA custodian may impose additional restrictions on what assets they will custody. Self-directed IRA custodians, or IRA custodians who specialize in alternative investments, are better equipped to handle transactions involving alternative investments.

Some IRA custodians and some investment funds specialize in socially responsible investing, sometimes using public environmental, social and corporate governance ratings.

Starting with the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA), many of the restrictions of what type of funds could be rolled into an IRA and what type of plans IRA funds could be rolled into were significantly relaxed. Additional legislation since 2001 has further relaxed restrictions. Essentially, most retirement plans can be rolled into an IRA after meeting certain criteria, and most retirement plans can accept funds from an IRA. An example of an exception is a non-governmental 457 plan which cannot be rolled into anything but another non-governmental 457 plan.

The tax treatment of the above types of IRAs (except for Roth IRAs) are very similar, particularly for rules regarding distributions. SEP IRAs and SIMPLE IRAs also have additional rules similar to those for qualified plans governing how contributions can and must be made and what employees are qualified to participate.

Custodians

Custodians can include:

• Banks
• Mutual fund companies, sometimes for the purpose of offering their own mutual funds
• Brokerage firms, either independent or "captive" (affiliated with a specific mutual fund or insurance company)
• Robo-advisors, which are web sites that use algorithms to generate investment recommendations
• Life insurance companies

Funding

Individual retirement arrangements were introduced in 1974 with the enactment of the Employee Retirement Income Security Act (ERISA). Taxpayers could contribute up to fifteen percent of their annual income or $1,500, whichever is less, each year and reduce their taxable income by the amount of their contributions. The contributions could be invested in a special United States bond paying six percent interest, annuities that begin paying upon reaching age 59, or a trust maintained by a bank or an insurance company.

Initially, ERISA restricted IRAs to workers who were not covered by a qualified employment-based retirement plan. In 1981, the Economic Recovery Tax Act (ERTA) allowed all working taxpayers under the age of 70 to contribute to an IRA, regardless of their coverage under a qualified plan. It also raised the maximum annual contribution to $2,000 and allowed participants to contribute $250 on behalf of a nonworking spouse.

The Tax Reform Act of 1986 phased out the deduction for IRA contributions among workers covered by an employment-based retirement plan who earned more than $35,000 if single or over $50,000 if married filing jointly. Other taxpayers could still make nondeductible contributions to an IRA.

The maximum amount allowed as an IRA contribution was $1,500 from 1975 to 1981, $2,000 from 1982 to 2001, $3,000 from 2002 to 2004, $4,000 from 2005 to 2007, $5,000 from 2008 to 2012, and $5,500 from 2013 to 2018. The maximum for tax years 2019 and 2020 is $6,000. Beginning in 2002, those over 50 years old could make an additional contribution of up to $1,000 called a "catch-up contribution".

Current limitations:

• An IRA can be funded only with cash or cash equivalents. Attempting to transfer any other type of asset into the IRA is a prohibited transaction and disqualifies the fund from its beneficial tax treatment.
• Additionally, an IRA (or any other tax-advantaged retirement plan) can be funded only with what the IRS calls "taxable compensation". This in turn means that certain types of income cannot be used to contribute to an IRA; these include but are not limited to:
  • Any unearned taxable income.
  • Any tax-exempt income, apart from military combat pay.
    • Social Security payments, whether retirement pensions or disability payments, may or may not be taxable, but in either case are not eligible.
  • Child support payments received. (On the other hand, alimony and separate maintenance payments, if taxable, are eligible.)
  • Graduate school stipends, unless they are reported on a W-2 (indicating that they were compensation for services rendered, usually teaching).
• Rollovers, transfers, and conversions between IRAs and other retirement arrangements can include any asset.
• 2014 and 2015: the total contributions a person can make to all of their traditional and Roth IRAs cannot be more than the lesser amount of either: $5,500 ($6,500 if they are age 50 or older), or their earned income for the year.
• This limit applies to the total annual contributions to both Roth IRAs and traditional IRAs. For example, a person aged 45, who put $3,500 into a traditional IRA this year so far, can either put $2,000 more into this traditional IRA, or $2,000 in a Roth IRA, or some combination of those.
• The amount of the traditional IRA contributions that can be deducted is partially reduced for levels of income beyond a threshold, and eliminated entirely beyond another threshold, if the contributor or the contributor's spouse is covered by an employer-based retirement plan. The dollar amounts of the thresholds vary depending on tax filing status (single, married, etc.) and on which spouse is covered at work.

Restricted investments

Once money is inside an IRA, the IRA owner can direct the custodian to use the cash to purchase most types of publicly traded securities (traditional investments), and non-publicly traded securities (alternative investments). Specific assets such as collectibles (e.g., art, baseball cards, and rare coins) and life insurance cannot be held in an IRA. The U.S. Internal Revenue Code (IRC) only outlines what is not allowed in an IRA. Some assets are allowed according to the IRC, but the custodians may add additional restrictions for accounts held in their custody. For example, the IRC allows an IRA to own a piece of rental property, but certain custodians may not allow this to be held in their custody.

While there are only a few restrictions on what can be invested inside an IRA, some restrictions pertain to actions which would create a prohibited transaction with those investments. For example, an IRA can own a piece of rental real estate, but the IRA owner cannot receive or provide any immediate benefit from/to this real estate investment. An example of such benefit would be the use of the real estate as the owner's personal residence, allowing a parent to live in the property, or allowing the IRA account owner to fix a leaky toilet. The IRS specifically states that custodians may impose their own policies above the rules imposed by the IRS.Neither custodians nor administrators can provide advice. 

Many IRA custodians limit available investments to traditional brokerage accounts such as stocks, bonds, and mutual funds. Investments in an asset class such as real estate would only be permitted in an IRA if the real estate is held indirectly via a security such as a publicly traded or non-traded real estate investment trust (REIT). Self-directed IRA custodians/administrators can allow real estate and other non-traditional assets held in forms other than a REIT, such as a piece of rental property, raw land, or fishing rights. 

Publicly traded securities such as options, futures or other derivatives are allowed in IRAs, but certain custodians or brokers may restrict their use. For example, some options brokers allow their IRA accounts to hold stock options, but others do not. Using certain derivatives or investments that involve leverage may be allowed by the IRC, it may also cause the IRA to pay taxes under the rules of Unrelated Business Income Tax (UBIT). Self-directed IRAs which hold alternative investments such as real estate, horses, or intellectual property, can involve more complexity than IRAs which only hold stocks or mutual funds.

An IRA may borrow or loan money but any such loan must not be personally guaranteed by the owner of the IRA. Any loan on assets in the IRA would be required to be a non-recourse loan. The loan could not be personally secured by the IRA account owner, or the IRA itself. It can only be secured by the asset in question. The owner of the IRA may not pledge the IRA as security against an outside debt.

Distribution of funds

Although funds can be distributed from an IRA at any time, there are limited circumstances when money can be distributed or withdrawn from the account without penalties. Unless an exception applies, money can typically be withdrawn penalty free as taxable income from an IRA once the owner reaches age 59. Also, non-Roth owners must begin taking distributions of at least the calculated minimum amounts by April 1 of the year after reaching age 70. If the required minimum distribution (RMD) is not taken the penalty is 50% of the amount that should have been taken. The amount that must be taken is calculated based on a factor taken from the appropriate IRS table and is based on the life expectancy of the owner and possibly his or her spouse as beneficiary if applicable. Withdrawals are taxable unless paid to a charity after age 72; this cutoff has changed over time. Payments to charities are called Qualified Charitable Distributions (QCD). At the death of the owner, distributions must continue and if there is a designated beneficiary, distributions can be based on the life expectancy of the beneficiary.

There are several exceptions to the rule that penalties apply to distributions before age 59. Each exception has detailed rules that must be followed to be exempt from penalties.This group of penalty exemptions are popularly known as hardship withdrawals. The exceptions include:

• The portion of unreimbursed medical expenses that are more than 7.5% of adjusted gross income
• Distributions that are not more than the cost of medical insurance while unemployed
• Disability (defined as not being able to engage in any substantial gainful activity)
• Amounts distributed to beneficiaries of a deceased IRA owner
• Distributions in the form of an annuity (see substantially equal periodic payments)
• Distributions that are not more than the qualified higher education expenses of the owner or their children or grandchildren
• Distributions to buy, build, or rebuild a first home ($10,000 lifetime maximum)
• Distribution due to an IRS levy of the plan

There are a number of other important details that govern different situations. For Roth IRAs with only contributed funds the basis can be withdrawn before age 59 without penalty (or tax) on a first in first out basis, and a penalty would apply only on any growth (the taxable amount) that was taken out before 59 where an exception didn't apply. Amounts converted from a traditional to a Roth IRA must stay in the account for a minimum of 5 years to avoid having a penalty on withdrawal of basis unless one of the above exceptions applies.

If the contribution to the IRA was nondeductible or the IRA owner chose not to claim a deduction for the contribution, distributions of those nondeductible amounts are tax and penalty free.

Bankruptcy status

In the case of Rousey v. Jacoway, the United States Supreme Court ruled unanimously on April 4, 2005, that under section 522(d)(10)(E) of the United States Bankruptcy Code (11 U.S.C. § 522(d)(10)(E)), a debtor in bankruptcy can exempt his or her IRA, up to the amount necessary for retirement, from the bankruptcy estate. The Court indicated that because rights to withdrawals are based on age, IRAs should receive the same protection as other retirement plans. Thirty-four states already had laws effectively allowing an individual to exempt an IRA in bankruptcy, but the Supreme Court decision allows federal protection for IRAs.

The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 expanded the protection for IRAs. Certain IRAs (rollovers from SEP or Simple IRAs, Roth IRAs, individual IRAs) are exempt up to at least $1,000,000 (adjusted periodically for inflation) without having to show necessity for retirement. The law provides that "such amount may be increased if the interests of justice so require." Other IRAs (rollovers from most employer sponsored retirement plans (401(k)s, etc.) and non-rollover SEP and SIMPLE IRAs) are entirely exempt.

The 2005 BAPCPA also increased the Federal Deposit Insurance Corporation insurance limit for IRA deposits at banks.

The United States Court of Appeals for the Eleventh Circuit has ruled that if an IRA engages in a "prohibited transaction" under Internal Revenue Code sections 408(e)(2) and 4975(c)(1), the assets in the IRA will no longer qualify for bankruptcy protection.

With respect to inherited IRAs, the United States Supreme Court ruled, in the case of Clark v. Rameker in June 2014, that funds in an inherited IRA do not qualify as "retirement funds" within the meaning of the federal bankruptcy exemption statute, 11 U.S.C. section 522(b)(3)(C).

Protection from creditors

There are several options of protecting an IRA: (1) roll it over into a qualified plan like a 401(k), (2) take a distribution, pay the tax and protect the proceeds along with the other liquid assets, or (3) rely on the state law exemption for IRAs. For example, the California exemption statute provides that IRAs and self-employed plans' assets "are exempt only to the extent necessary to provide for the support of the judgment debtor when the judgment debtor retires and for the support of the spouse and dependents of the judgment debtor, taking into account all resources that are likely to be available for the support of the judgment debtor when the judgment debtor retires". What is reasonably necessary is determined on a case by case basis, and the courts will take into account other funds and income streams available to the beneficiary of the plan. Debtors who are skilled, well-educated, and have time left until retirement are usually afforded little protection under the California statute as the courts presume that such debtors will be able to provide for retirement.

Many states have laws that prohibit judgments from lawsuits to be satisfied by seizure of IRA assets. For example, IRAs are protected up to $500,000 in Nevada from Writs of Execution. However, this type of protection does not usually exist in the case of divorce, failure to pay taxes, deeds of trust, and fraud.

In accordance with the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, IRAs are protected from creditors during bankruptcy up to $1,000,000 (inflation-adjusted; $1,245,475 as of 2014). An exception is that inherited IRAs do not qualify for an exemption from the bankruptcy estate and thus federal law does not protect them from creditors in bankruptcy. Some state laws, however, may protect inherited IRAs from creditors in bankruptcy.

Borrowing

An IRA owner may not borrow money from the IRA except for a 2-month period in a calendar year. Such a transaction disqualifies the IRA from special tax treatment. An IRA may incur debt or borrow money secured by its assets but the IRA owner may not guarantee or secure the loan personally. An example of this is a real estate purchase within a self-directed IRA along with a non-recourse mortgage.

According to one commentator, some minor planning can turn the 2-month period previously mentioned into an indefinite loan. However, in Bobrow v. Commissioner, the US Tax Court has ruled that this approach is in violation of the US Tax Code.

Income from debt-financed property in an IRA may generate unrelated business taxable income in the IRA.

The rules regarding IRA rollovers and transfers allow the IRA owner to perform an "indirect rollover" to another IRA. An indirect rollover can be used to temporarily "borrow" money from the IRA, once in a twelve-month period. The money must be placed in an IRA arrangement within 60 days, or the transaction will be deemed an early withdrawal (subject to the appropriate withdrawal taxes and penalties) and may not be replaced.

Double taxation

Double taxation still occurs within these tax-sheltered investment arrangements. For example, foreign dividends may be taxed at their point of origin, and the IRS does not recognize this tax as a creditable deduction. There is some controversy over whether this violates tax treaties, such as the Convention Between Canada and the United States of America With Respect to Taxes on Income and on Capital.

Inheriting

If the IRA owner dies, different rules are applied depending on who inherits the IRA (spouse, other beneficiary, multiple beneficiaries, and so on).

In case of spouse inherited IRAs, the owner's spouse has the following options:

• treat the IRA account as his or her own, which means that he or she can name a beneficiary for the assets, continue to contribute to the IRA and avoid having to take distributions. This avoids paying the extra 10% tax on early distributions from an IRA.
• rollover the IRA funds into another plan and take distributions as a beneficiary. Distributions will be determined by the required minimum distribution rules based on the surviving spouse's life expectancy.
• disclaim up to 100% of the IRA assets, which, besides avoiding extra taxable income, enables their children to inherit the IRA assets
• take all of the IRA assets out in one lump-sum, which can subject the spouse to federal taxes if particular requirements are not met

In case of non-spouse inherited IRAs, the beneficiary cannot choose to treat the IRA as his or her own, but the following options are available:

• take out the assets in a lump-sum cash distribution, which may lead the beneficiary to be subject to federal taxes that could take away a significant portion of the assets.
• disclaim all or part of the assets in the IRA for up to 9 months after the IRA owner's death.
• if the beneficiary is older than the IRA owner, he or she can take distributions from the account based on the IRA owner's age.

In case of multiple beneficiaries the distribution amounts are based on the oldest beneficiary's age. Alternatively, multiple beneficiaries can split the inherited IRA into separate accounts, in which case the RMD rules will apply separately to each separate account.

Statistics

Detailed statistics on IRAs have been collected by the Employee Benefit Research Institute, in its EBRI IRA Database (Center for Research on IRAs), and various analyses performed. An overview is given in (Copeland 2010). Some highlights from the 2008 data follow:

• The average and median IRA account balance was $54,863 and $15,756, respectively, while the average and median IRA individual balance (all accounts from the same person combined) was $69,498 and $20,046. The average is significantly higher than the median (over three times higher), reflecting significant positive skew – very large balances increase the average.
  • Average and median balances increased with age, reaching a maximum in the 65–69 age group, before leveling off for 70 and over.
• Rollovers overwhelm contributions – the overwhelming majority of IRA contributions, in dollar terms, were from rollovers, rather than new contributions – over 10 times as much is added to IRAs from rollovers than new contributions.
  • While many rollovers were small (28.5% were less than $5,000, and 53.1% were less than $25,000), a significant number of rollovers were quite large, with 20.2% being more than $100,000.
• IRAs were divided by type as 33.6% traditional IRAs, 33.4% rollover IRAs (combined with the traditional IRAs, 67 percent), 23.4% Roth IRAs, and 9.6% SEPs and SIMPLEs.
• Excluding SEPs and SIMPLEs (i.e., concerning traditional, rollover, and Roth IRAs), 15.1% of individuals holding an IRA contributed to one. The percentage was much higher for Roth IRAs: 7.2% of owners of traditional or rollover IRAs (same for contribution purposes) contributed, while 29.5% of owners of Roth IRAs contributed.
• Contributions are concentrated at the maximum amount – of those contributing to an IRA, approximately 40% contributed the maximum (whether contributing to traditional or Roth), and 46.7% contributed close to the maximum (in the $5,000–$6,000 range).

The Government Accountability Office (GAO) issued a report on IRAs in November 2014. This report gives the GAO's estimate on the number of taxpayers with IRAs as well as the estimated account balances. Here are some highlights from the report:

• For tax year 2011 (the most recent year available), an estimated 43 million taxpayers had individual retirement accounts (IRAs) with a total reported fair market value (FMV) of $5.2 trillion.
• Few taxpayers had aggregated balances exceeding $5 million as of 2011. Generally, taxpayers with IRA balances greater than $5 million tend to have adjusted gross incomes greater than $200,000, be joint filers, and are age 65 or older.
• In 2014, the federal government will forgo an estimated $17.45 billion in tax revenue from IRAs, which Congress created to ensure equitable tax treatment for those not covered by employer-sponsored retirement plans.
• 98.5% of taxpayers have IRA account balances at $1,000,000 or less.
• 1.2% of tax payers have IRA account balances at $1,000,000 to $2,000,000.
• 0.2% (or 83,529) taxpayers have IRA account balances of $2,000,000 to $3,000,000
• 0.1% (or 36,171) taxpayers have IRA account balances of $3,000,000 to $5,000,000
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Retirement savings

While the average (mean) and median IRA individual balance in 2008 were approximately $70,000 and $20,000 respectively, higher balances are not rare. 6.3% of individuals had total balances of $250,000 or more (about 12.5 times the median), and in rare cases, individuals own IRAs with very substantial balances, in some cases $100 million or above (about 5,000 times the median individual balance). This can occur when IRA owners invest in shares of private companies, and the share value subsequently rises substantially.

 

In November 2014, the Government Accountability Office (GAO) released a report that stated there were an estimated 314 taxpayers with IRA account balances of greater than $25,000,000. Also that there are an estimate of 791 taxpayers with IRA account balances between $10,000,000 and $25,000,000. The purpose of this report was to study individual retirement accounts (IRAs) and the account valuations. There were concerns raised about whether the tax incentives encourage new or additional saving. Congress is reexamining retirement tax incentives as part of tax reform. GAO was asked to measure IRA balances and assess IRS enforcement of IRA laws.

According to a study done by the National Institute on Retirement Security, titled "The Continuing Retirement Savings Crisis", 45% of working Americans do not own any retirement account assets, whether in an employer-based 401(k) type plan or an IRA. Furthermore, the typical working household has virtually no retirement savings - the median retirement account balance is $2,500 for all working-age households and $14,500 for near-retirement households.

While inflation-adjusted stock market values generally rose from 1978 to 1997, in March 2013, they were lower than during the period 1998 through 2007. This has caused IRAs to perform substantially more poorly than expected when current retirees were investing the bulk of their savings in them. In 2010, Duncan Black wrote in an opinion column in USA Today that the median household retirement account balance for workers aged 55 to 64 was $120,000, which "will provide only a trivial supplement to Social Security", but a third of households had no retirement savings at all.