Roth IRAs are all the rage with the young crowd
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.
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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 ashlea.ebeling@wsj.com
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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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