Young Savers Flock to Roth IRAs Ahead of Tax Day

An increasing number of savers are turning to tax-advantaged accounts, particularly with tax day approaching, prompting many to make last-minute contributions.

Roth IRAs are becoming particularly popular among younger savers.

Younger investors are proactively seeking advice from parents, financial coaches at their workplaces, and tax professionals who advocate for these accounts as effective means to save for retirement and significant purchases.

The strategy of investing early, allowing funds to grow tax-free, is an attractive proposition. As the tax deadline nears, many savers are rushing to maximize their contributions to individual retirement accounts.

Among these savers is Maria Kyriakopoulos, a 23-year-old analyst at J.P. Morgan Private Bank. After starting her first full-time job last July, she promptly began contributing to her 401(k).

In addition, she opened a Roth IRA and successfully reached the $7,000 contribution limit for 2024 while also setting aside $700 for her 2025 savings.

“It’s essential to save a little on the side,” Kyriakopoulos commented, indicating she contributes anywhere between $250 to $800 each month, adjusting based on her remaining finances after covering rent and student loan payments.

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Recent data from the Center for Retirement Research at Boston College reveals that 41% of individuals contributing to an IRA or Roth IRA were under the age of 40 in 2022, an increase from 28% in 2016. The Investment Company Institute reports that most of these young contributors prefer the Roth option.

Many of the new account holders are clients of financial technology companies that offer incentives like matching contributions akin to a 401(k). For instance, Robinhood matches up to 3% of its users’ IRA contributions.

“It’s the young, hip, and tech-savvy crowd leveraging their smartphones,” noted Alicia Munnell, a senior adviser at the Center for Retirement Research.

Kelli Send, co-founder of Francis, which provides financial planning guidance to employees, advises individuals to prioritize contributions to their workplace plans to take advantage of employer matches before establishing a Roth IRA.

“It serves as an escape valve, if needed,” she explained, highlighting that individuals can access their Roth IRA contributions without tax consequences or penalties. However, earnings typically cannot be withdrawn tax-free until the account holder turns 59½.

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Taxpayers can contribute to an IRA for any year between January 1 and tax day of the following year. This means contributions for the 2024 tax year can still be made until April 15.

Boris Wong, a 36-year-old researcher at Vanguard, shares that he makes his full Roth IRA contribution in January every year. “This is my ritual; investing on January 1 gives you an additional 15 months of compounding,” he stated.

To fund their IRA contributions, taxpayers must earn at least as much as the amount they wish to contribute, except in the case of spousal exceptions. Eligibility for direct contributions to Roth IRAs hinges on modified adjusted gross income. Those exceeding the income limits must contribute to a traditional IRA and then convert it to a Roth, a process that carries potential complexity.

Roth contributions involve after-tax dollars, allowing for tax-free withdrawals. This structure makes Roth accounts particularly appealing for savers anticipating higher tax rates when they withdraw funds compared to their contribution rates.

RETIREMENT CONTRIBUTION LIMITS FOR 2025

Conversely, traditional IRAs often offer tax-deductible contributions, enabling funds to grow tax-deferred. For many savers, this option is beneficial for lowering current taxable income and anticipating a lower tax bracket upon withdrawal.

“Looking back, I wish I had invested more in Roths. Diversifying early is a wise strategy,” Munnell reflected. Despite still working in her 80s, she finds herself taking more withdrawals from her traditional IRA than necessary, incurring taxes as a consequence.

Once individuals reach 73, traditional IRAs mandate annual withdrawals, taxed as ordinary income. In contrast, Roth IRAs do not require account holders to take distributions during their lifetime.

At her workplace, Kyriakopoulos has noticed that many wealthy young clients often inherited assets and, despite earning around $50,000 at entry-level positions, maintain significant taxable portfolios, prompting them to consistently transfer funds into Roth IRAs.

John Longoria II, age 24, is utilizing a combination of funds to bolster his Roth IRA. Earning just over $40,000 as a digital marketing intern in Chicago, he draws from a taxable account his parents established during his childhood, in addition to rolling over unused money from a 529 college savings plan.

“I find every avenue to save money,” Longoria stated, mentioning that he shares a residence with four roommates to cut expenses.

However, Roth IRAs require proactive management, as savers must establish accounts, make contributions, and remain attentive to investment choices and evolving contribution limits. Many custodians allow for direct deposit setup to facilitate contributions.

Mel Meagher, a 37-year-old human resources manager from Brownsville, Wisconsin, opened a Roth IRA with Vanguard in 2023 when the contribution limit was $6,500. She didn’t adjust her contributions following the increase to $7,000 for 2024, resulting in a need to make up the $500 difference while simultaneously starting her contributions for 2025. She contributes 5% of her salary to her 401(k), which includes a 5% employer match.

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When asked about her Roth IRA, Meagher replied, “I prefer not to withdraw early, but I appreciate having that flexibility if unexpected situations arise.”

Write to Ashlea Ebeling at ashlea.ebeling@wsj.com

Appeared in the March 24, 2025, print edition as ‘Roth IRAs Are In Vogue With the Young Crowd.’

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