More savers are embracing the tax-advantaged accounts, and many will contribute leading up to tax day
Young savers are flocking to Roth IRAs.
They are taking the advice of parents, workplace financial coaches and tax advisers, who have long preached the gospel of these accounts to save for retirement and even big purchases.
By getting the money in early, the thinking goes, they are giving it time to grow tax-free. In the run-up to tax day, more savers are making last-minute contributions to max out their individual retirement accounts.
Savers such as Maria Kyriakopoulos are opening Roth IRAs in addition to saving in their workplace retirement plans. After the 23-year-old got her first full-time job as an analyst at J.P. Morgan Private Bank last July, she immediately started saving in her 401(k).
She also opened a Roth IRA. She just finished contributing to hit the $7,000 maximum allowed for 2024 and contributed $700 to get a start on saving for 2025.
“You have to save a little money on the side,” Kyriakopoulos said. She contributes anywhere from $250 to $800 a month, depending on how much she has left after paying rent, her student loan bills and other expenses.
5 STEPS TO HOME OWNERSHIP
Of those who contribute to an IRA or Roth IRA, 41% were under 40 in 2022, up from 28% in 2016, according to the latest data from the Center for Retirement Research at Boston College. And most young contributors choose the Roth option, according to the Investment Company Institute.
Many of those opening accounts are customers of financial technology firms, including those that promise money akin to 401(k) matches. Robinhood, for example, offers to match up to 3% of users’ IRA contributions.
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| HOOD | ROBINHOOD MARKETS INC. | 48.15 | -0.21 | -0.43% |
It is “the young, hip and cool with their cellphones,” said Alicia Munnell, a senior adviser at the Center for Retirement Research.
Kelli Send, the co-founder of Francis, which provides financial planning advice to employees at their workplaces, says to first contribute to a workplace plan to take advantage of any employer match, and then open a Roth IRA.
“It’s an escape valve, if you need it,” she said. Taxpayers can always access amounts up to their Roth IRA contributions with no tax hit or early-distribution penalties. Earnings generally can’t come out tax- and penalty-free until age 59½.
HOW A DOGE DIVIDEND WOULD WORK
You can make IRA contributions for a given year any time between Jan. 1 and tax day of the following year. So taxpayers can still contribute for the 2024 tax year through April 15.
Boris Wong, a 36-year-old researcher at Vanguard, says he makes the full contribution to his Roth IRA in January. “Why do I have this ritual? If you invest on Jan. 1, you have 15 months extra of compounding,” he said.
Taxpayers must have at least as much earned income as the amount of their IRA contributions, although there is an exception for spouses. With Roth IRAs, the ability to contribute directly depends on savers’ modified adjusted gross income. Those above the income limits can put money into a traditional IRA and move it into a Roth, though there are some pitfalls.
Contributions are in after-tax dollars, but withdrawals can be tax-free. As a result, Roth accounts can be a good choice for savers who expect their tax rate to be higher—or the same—at withdrawal versus at contribution.
RETIREMENT CONTRIBUTION LIMITS FOR 2025
With traditional IRAs, the opposite is the case: Contributions are often tax-deductible, and funds typically grow tax-deferred. So those accounts can make sense for savers who want to lower their taxable income now, and expect their tax bracket to be lower when they withdraw the money.
“I wish I had put more money into Roths. Early diversification is a good idea,” said Munnell. Still working in her early 80s, she has found that she has to take more withdrawals from her traditional IRA than she needs and pay taxes.
Traditional IRAs require annual payouts once you reach 73. Withdrawals are taxed as ordinary income. By contrast, you don’t have to take any distributions from a Roth during your lifetime.
At work, Kyriakopoulos noticed a trend among young rich clients. Many of them inherited money and even though they earn, say, $50,000 at an entry-level white-collar job, they have substantial taxable portfolios. So they move money religiously to Roth IRAs.
John Longoria II rolled leftover funds from a 529 college savings plan into his Roth IRA.
John Longoria II, 24, who is making just over $40,000 as a digital marketing intern in Chicago, is drawing partly from a taxable account his parents helped him set up as a child to fund his Roth IRA. He’s also rolling over leftover funds from a 529 college savings plan into the Roth IRA, and adding some money from his paycheck.
“I try to save money any which way I can,” Longoria said, noting that he has four roommates.
One drawback of Roth IRAs is that, unlike 401(k)s where many employers automatically enroll employees in the plan and deduct contributions from their paychecks, IRA savers have to set up the accounts, make contributions and be diligent about sticking with it. Most IRA custodians let customers set up direct deposits into their IRAs.
Still, you have to pick your investments and stay on top of changing contribution limits.
Mel Meagher, a 37-year-old human resources manager in Brownsville, Wis., opened a Roth IRA at Vanguard in 2023, when the contribution limit was $6,500. She didn’t increase her contributions when the limit went to $7,000 for 2024.
Now, she is having to make up the $500 difference for 2024, on top of starting her 2025 contributions. She also puts 5% of her pay into her 401(k), which has a 5% employer match.
Why a Roth?
“I don’t want to pull it out early, but I like that there is that flexibility if something happens down the road,” she said.
Write to Ashlea Ebeling at [email protected]
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Appeared in the March 24, 2025, print edition as ‘Roth IRAs Are In Vogue With the Young Crowd.’
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