Retirement contributions hit record highs in the first three months of the year, and one unlikely generation fueled it.
Gen Z – those aged 14-29 – increased its IRA contributions 65 percent year-on-year, more than double millennials’ 31 percent, according to a new retirement analysis from financial services firm Fidelity.
“Retirement savers started the year strong with record-high savings rates and contributions, reflecting the long-term approach they’re taking with retirement preparedness,” said Sharon Brovelli, president of workplace investing at Fidelity Investments.
IRA balances averaged $131,380 through March, while 401(k) balances averaged $141,000. The average worker contributed a record $2,080 to their 401(k), while IRAs saw contributions hit record highs, too, the study found.
That Gen Z led the charge in boosting their retirement savings is no surprise, based on recent data.
Those aged 24 to 28 are the most on track for retirement, according to a July study from financial firm Vanguard.
Gen Z’s focus on saving for retirement indicates a generation that’s comfortable with long-term financial plans.
In fact, a study from financial services company Empower found that the youngest generation in the workforce thinks about money more than any other generation – 4.82 hours a day, compared to 2.4 hours a day for boomers.
IRA infatuation
Gen Z loves its IRAs. Empower found that Gen Z and millennials have 27.3 percent of their retirement savings in Roth IRAs.
One reason why IRAs are popular, in general, is because of their flexibility, said Adam Bergman, founder of retirement firm IRA Financial.
“In most cases, IRAs offer broader investment flexibility and more liberal distribution options than traditional 401(k) plans, making them an attractive long-term vehicle for many investors,” Bergman told The Independent in an email.
Decide: traditional vs Roth
There are two types of IRAs: traditional vs. Roth. The main difference between the two is their tax structure:
- Traditional IRA: Contributions are not taxed, withdrawals are taxed
- Roth IRA: Contributions are taxed, withdrawals are not taxed
Generally speaking, Roth IRAs are a good choice if the individual thinks they’ll be in a higher tax bracket in the future since withdrawals aren’t taxed, according to Vanguard. The opposite is true for traditional IRAs – they might be a good fit for those who think their tax bracket will be lower in retirement.
Open the IRA
Most financial services companies offer IRAs that individuals can open online or in person. Applicants will have to provide their bank account, routing number, name of the person or persons that will inherit the account if the applicant passes, according to Vanguard. Account holders will then need to transfer money into the account.
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