Finance
Younger Americans are loving ROTH IRAs
A new study reveals that Americans under the age of 40 are contributing more to Roth IRA accounts.
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.
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.
| Ticker | Security | Last | Change | Change % |
|---|---|---|---|---|
| HOOD | ROBINHOOD MARKETS INC. | 48.36 | +4.00 | +9.02% |
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.
Two Bay Area, California cities have the highest cost of living in the country according to a list published by GOBankingRates. (Matias Baglietto/NurPhoto via Getty Images / Getty Images)
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.
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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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Alliance Global Partners chief global strategist Mark Grant discusses his income tax strategy for retirees on ‘Varney & Co.’
For the generation that should be in its “peak savings years,” the prospect of retiring on time has shifted from a plan to a prayer.
A newly released Employee Financial Wellness Survey by PwC found that nearly 50% of Gen X employees are pushing back their retirement dates, citing stagnant wages, rising everyday costs, and a lack of liquid savings.
Additionally, only 38% of Gen Xers believe they can retire when they originally planned, and more than half of this demographic expect to withdraw funds from their retirement accounts early to cover short-term costs.
“For employers, this isn’t a future problem. Financial anxiety during peak career years can affect focus and engagement,” PwC researchers write. “If the risks are clear, the question is why more employees aren’t taking action. It’s not a lack of desire. Most employees want stability, confidence and to feel in control. But many don’t feel equipped to get there.”
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The primary driver of this retirement delay is the inability to save as inflation eats away at monthly expenses, the report notes. Twenty-five percent of the total workforce is living without a buffer, and nearly half cannot meet basic household expenses.
Nearly half of Gen X workers are delaying retirement, PwC reports. (Getty Images)
“[Forty-nine percent] say their compensation isn’t keeping up with costs. As expenses rise faster than income, day-to-day trade-offs are becoming routine. Employees aren’t just feeling squeezed. They’re making difficult financial decisions to stay afloat,” the PwC report continues..
As a result, when Gen Xers cannot afford to leave their current jobs, the entire corporate ladder stalls, creating business risks, with companies facing higher costs as older talent remains on payroll longer than expected.
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“When employees dip into retirement funds early or delay retirement altogether, it affects more than personal finances and retirement plan leakage,” the report says. “It may also influence workforce planning, healthcare costs, succession timing and overall organizational stability.”
The findings also show that a significant portion – 41% – of the workforce feel they were never given the tools to manage a crisis of this magnitude, leading to a sense of being “overwhelmed” by financial choices.
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PwC provided a call to action for employees and their employers, encouraging them to reduce the stigma around financial education, foster trust through human coaches, emphasize skill building and focus on day-to-day finances before long-term goals.
“Employees define financial wellness simply: less stress, fewer surprises and the freedom to make financial choices with confidence. For employers, that’s the opportunity.”
Cybersecurity and enterprise software stocks have been market dogs in 2026, with fears that AI will wipe out a wide range of companies in the enterprise space dominating the narrative. But they snapped a brutal losing streak this past week, joining in the broader market rally that saw all losses from the U.S.-Iran war regained by the Dow Jones Industrial Average and S&P 500.
Cybersecurity has been “a victim of some of the AI-related headlines,” Christian Magoon, Amplify ETFs CEO, said on this week’s “ETF Edge.”
It wasn’t just niche cybersecurity names. Take Microsoft, for example, which was recently down close to 20% for the year. Its shares surged last week by 13%.
A big driver of the pummeling in software stocks was a rotation within tech by investors to AI infrastructure and semiconductors and some other names in large-cap tech, Magoon said, and since cybersecurity stocks and ETFs are heavily weighted towards software companies, they were left behind even as those businesses continue to grow on a fundamental basis.
But Wall Street now has become more bullish with the stocks at lower levels. Brent Thill, Jefferies tech analyst, said last week that the worst may be over for software stocks. “I think that this concept that software is dead, and then Anthropic and OpenAI are going to kill the entire industry, is just over-exaggerated,” he said on CNBC’s “Money Movers” on Wednesday.
“Big Short” investor Michael Burry wrote in a Substack post on Wednesday that he is becoming bullish about software stocks after the recent selloff. “Software stocks remain interesting because of accelerated extreme declines last week arising from a reflexive positive feedback loop between falling software stocks and changes in the market for their bank debt,” he wrote.
The Global X Cybersecurity ETF (BUG), is down about 12% since the beginning of the year, with top holdings including Palo Alto Networks, Fortinet, Akamai Technologies and CrowdStrike. But BUG was up 12% last week. The First Trust NASDAQ Cybersecurity ETF (CIBR) is down 6% for the year, but up 9% in the past week.
Piper Sandler analyst Rob Owens reiterated an “overweight” rating on Palo Alto Networks which helped the stock pop 7% — it is now down roughly 6% on the year. Its peers saw similar moves, including CrowdStrike.
Performance of Global X cybersecurity ETF versus S&P 500 over past one-year period.
Magoon said expectations may have become too high in cybersecurity, and with a crowding effect among investors, solid results were not enough to to push stocks higher. But the down-and-then-back-up 2026 for the sector is also a reminder that when stocks fall sharply in a short period of time, opportunity may knock.
“Once you’re down over 10% in some of these subsectors, you start to see the contrarians start to say, ‘well, maybe I’ll take a look at this,'” Magoon said.
He said AI does add both opportunity and uncertainty to the cybersecurity equation, increasing demand but also introducing new competition. But he added, “I think the dip is good to buy in an AI-driven world,” specifically because the risks to companies may lead to more M&A in cyber names that benefits the stocks.
For now, investors may look for opportunity on the margins rather than rush back into beaten-up tech names. “I think investors are still going to remain underweight software,” Thill said.
But Magoon advises investors to at least take the reminder to keep an eye on niches in the market during pronounced downturns. “The best-performing are often the least bought and do the best over the next 12 months versus late-in-the-game piling on,” he said.
While that may have been a mindset that worked against the last investors into cybersecurity and enterprise software in mid-2025 when the negative sentiment started building, at least for now, it’s started working for the stocks in the sector again.
Meanwhile, this year’s biggest winner is also a good example of what can be an extended trade in either a bullish or bearish direction. Last year, institutional ownership of energy was at multi-year lows, Magoon said, referencing Bank of America data. “Reverse sentiment can be a great indicator,” he said.
But he cautioned that any selective buying of stocks that have dipped does have to contend with the risk that there is a potentially bigger drawdown in the market yet to come in 2026. That is because midterm election years historically have been marked by large drawdowns. “If you think it is bad right now, it could get a lot worse,” Magoon said. But he added that there’s a silver-lining in that data, too, for the patient investor. The market has posted very strong 12-month returns after midterm election drawdowns end. So, for investors with a longer-term time horizon and no need for short-term liquidity, Magoon said, “stick in there.”
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New innovation in the exchange-traded fund industry could come at a cost to investors during extreme conditions.
According to MFS Investment Management’s Jamie Harrison, ETFs involved in increasingly complex derivatives and less transparent markets may be in uncharted territory when it comes to violent downturns.
“Those would be something that you’d want to keep an eye on as volatility ramps up,” the firm’s head of ETF capital markets told CNBC’s “ETF Edge” this week. “As innovation continues to increase at a rapid pace within the ETF wrapper, [it’s] definitely something that we advise our clients to be really front-footed about… Lack of transparency could absolutely be an issue if we’re going to start seeing some deep sell-offs.”
His firm has been around since 1924 and is known for inventing the open-end mutual fund. Last year, ETF.com named MFS Investment Management as the best new ETF issuer.
“It’s important to do due diligence on the portfolio,” he said. “Having a firm that has deep partnerships, deep bench of subject matter experts that plays with the A-team in terms of the Street and liquidity providers available [are] super important.”
Liquidity as the real issue?
Harrison suggested the real issue is liquidity, particularly during a steep sell-off.
“We’ve all seen the news and the headlines around potential private credit ETFs. That picture becomes much more murky,” he added. “It’s up to advisors, to investors [and] to clients to really dig in and look under the hood and engage with their issuers.”
He noted investors will have to ask some tough questions.
“What does this look like in a 20% drawdown? How does this liquidity facility work? Am I going to be able to get in? Am I going to be able to get out? And if I’m able to get out, am I able to get out at a price that’s tight to NAV [net asset value], and what’s the infrastructure at your shop in terms of managing that consideration for me,” said Harrison.
Amplify ETFs’ Christian Magoon is also concerned about these newer ETF strategies could weather a monster drawdown. He listed private credit as a red flag.
“If your ETF owns private credit, I think it’s worth taking a look at, kind of what the standards are around liquidity and how that ETF is trading, because that should be a bit of a mismatch between the trading pace of ETFs and the underlying asset,” the firm’s CEO said in the same interview.
Magoon also highlighted potential issues surrounding equity-linked notes. The notes provide fixed income security while offering potentially higher returns linked to stocks or equity indexes.
“Those could potentially be in stress due to redemptions and the underlying credit risk. That’s another kind of unique derivative,” Magoon said. “I would very closely look at any ETF that has equity-linked notes should we get into a major drawdown or there be a contagion in private credit or something related to the banking system.”
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