A majority of younger investors are opting to forgo tax-deductible traditional individual retirement arrangements in favor of Roth IRAs, Financial Planning magazine reported.
Investors younger than 35 have eight times as much money invested in Roth IRAs than traditional IRAs, according to T. Rowe Price customer data as of year-end 2013. That's an even more dramatic shift than an Internal Revenue analysis released last year that showed that those younger than 35 had four times the amount of money in Roth IRAs as in traditional IRAs.
The trend reflects in part the reality of younger workers' lower paychecks and lower tax brackets, but also widespread interest in saving based on distrust of the financial industry and greater awareness of the Roth IRA strategy, Financial Planning said. The younger the investor, the greater the ratio of Roth assets to traditional IRA assets, according to the IRS data.
"The overall point is that Roth is the appropriate choice for more people," says Stuart Ritter, an in-house certified financial planner at T. Rowe Price. "This is one time when parents should be taking their cue from millennials."
Total retirement assets for investors age 15-35 were more than $5 billion in 2010, compared with $3.9 billion for investors 15-35 in 2004. Retirement savings have been rising overall; total U.S. retirement assets grew to a record-high $16.642 trillion in 2013, according to the Retirement Market Insight Report 2014 by Spectrum Group.