Gen Z Can’t Get Enough of Roth IRAs

Money in the bank. You pay taxes first when you're young and can take the money out latter tax free. With a conventional IRA, you pay no tax going in but get hit on the way out. Claude explains below.

The math behind this question is actually pretty clean — let me build a chart that shows it.

The decision comes down to one core question: will your tax rate be higher now or in retirement? Here's the math made visual — assuming $7,000 of pre-tax money, 30 years of growth at 7%, and a current marginal tax rate of 32%:

How to read it

The two lines cross exactly at your current tax rate (32% in this example). That's not a coincidence — it's the whole insight:

• Retirement tax rate lower than today → Traditional wins. You deducted at a high rate, you're paying back at a low rate.

• Retirement tax rate higher than today → Roth wins. You paid tax at today's rate and now withdraw forever tax-free, including all the growth.

• Same rate → mathematically a tie (this is the magic of commutative multiplication: order of taxation doesn't matter when rates are equal).

When each one tends to make sense

Roth is usually better when:

• You're early in your career and expect higher earnings later

• You expect tax rates broadly to rise (a reasonable bet given federal deficits)

• You have a long horizon — more years of tax-free compounding amplifies the win

• You want to leave money to heirs (no RMDs during your lifetime; heirs inherit tax-free under the 10-year rule)

• You want flexibility — Roth contributions (not earnings) can be withdrawn anytime, penalty-free

Traditional is usually better when:

• You're in your peak earning years and will drop to a lower bracket in retirement

• You live in a high-tax state now but plan to retire to a no-income-tax state (FL, TX, NV, WA, TN, SD, WY, AK, NH)

• You expect to itemize charitable giving from the IRA via QCDs after 70½

• You need the current deduction to lower this year's AGI for other purposes (ACA subsidies, IRMAA thresholds, etc.)

Gen Z Can’t Get Enough of Roth IRAs

A younger generation embraces the benefits of tax-free investment growth

By Anne Tergesen, WSJ

May 28, 2026 11:00 am ET

Gen Z investors are increasingly choosing Roth IRAs, with their total IRA contributions growing 65% in the first quarter of 2026.

Gen Z is the Roth generation.

The youngest savers are flocking to Roth individual retirement accounts, taking advice from their parents and social-media influencers touting the tax-free growth the accounts offer.

Among Gen Z investors, total IRA contributions grew 65% year-to-year in the first quarter of 2026, compared with a 31% increase for millennials. Three-quarters of people age 35 and under chose Roths, compared with less than half in that age group a decade ago, according to Fidelity Investments.

Overall, IRA contributions for people of all ages hit record highs in the first quarter of this year, with nearly 30% more dollars flowing into these accounts than in the same period last year. The number of IRA owners making contributions also rose nearly 30%, according to data published Thursday by Fidelity, based on an analysis of 19.6 million IRA accounts.

Nearly seven out of every 10 dollars that went into a Fidelity IRA in the first three months of this year ended up in a Roth account. With these, owners contribute after-tax dollars that grow and can be withdrawn tax-free. In contrast, traditional retirement accounts often allow tax-deductible contributions, but withdrawals are taxed as ordinary income.

“There is definitely a Roth effect happening,” with the youngest investors leading the charge, said Rita Assaf, vice president of retirement offerings at Fidelity.

The government permits IRA contributions of as much as $7,500 this year, with people 50 and older able to kick in an extra $1,100.

The context

The advantages of Roths for the youngest investors are clear. They pay taxes on their retirement savings today, when many are in low tax brackets.

The Roth also can do double-duty as an emergency account because investors can withdraw contributions without tax consequences or early-distribution penalties. (Earnings, on the other hand, generally can’t come out tax- and penalty-free until age 59½.)

Younger investors are also more likely to qualify to make direct Roth contributions because only single filers with modified adjusted gross income below $153,000 and married couples earning less than $242,000 are eligible to make a full Roth IRA contribution this year.

Gen Z is also starting both IRAs and 401(k)s at younger ages than older generations did, putting them on track to surpass their elders in retirement savings.

Although many older Americans earn too much to contribute directly to a Roth IRA, they are finding ways to get money into these accounts.

Dollars converted from traditional accounts to Roth IRAs rose 41% in the first three months of this year, compared with the same period of 2025, driven mainly by older investors, said Assaf.

For many, the goal is to shift money into Roths to be able to take tax-free withdrawals in retirement to supplement taxable income without moving into a higher tax bracket or triggering costly Medicare premium surcharges.

Fidelity on Thursday also released data showing that total 401(k) savings rates—which include both employer and employee contributions—hit a record 14.4% in the first quarter. That is close to the 15% annual savings rate most financial advisers recommend.

The average 401(k) account balance was $141,000 as of March 31, versus $131,380 for IRAs.