&l;p&g;&l;img class=&q;dam-image getty size-large wp-image-1131650958&q; src=&q;https://specials-images.forbesimg.com/dam/imageserve/1131650958/960×0.jpg?fit=scale&q; data-height=&q;640&q; data-width=&q;960&q;&g; At Fidelity, Millennials Opened 56% of New Roth IRA Accounts In 2018
It&a;rsquo;s no secret that Millennials face an uphill battle when it comes to saving for retirement. After all, over the past 30 years, the cost of a college education has increased nearly &l;a href=&q;https://www.forbes.com/sites/camilomaldonado/2018/07/24/price-of-college-increasing-almost-8-times-faster-than-wages/&q;&g;eight times faster than wages&l;/a&g; have.
But at Fidelity, the investment juggernaut, Millennials are taking saving for retirement seriously. In fact, Fidelity says that &a;ldquo;Millennials opened 56% of new Roth IRA accounts in 2018 and 80% of their contribution dollars are going into Roths.&a;rdquo;
This trend isn&a;rsquo;t surprising given the &l;a href=&q;https://thefinancetwins.com/what-is-an-ira/&q; target=&q;_blank&q;&g;flexibility that Roth IRAs offer&l;/a&g; consumers. Specifically, unlike a Traditional IRA, a Roth IRA allows you to withdraw your contributions before you are of retirement age without an early withdrawal penalty.
However, you should note that this ONLY applies to contributions and not to any investment gains. In other words, if you deposited $4,000 into a new Roth IRA in 2017 and your balance is now $4,200 due to stock market gains, you can only withdraw your $4,000 contribution without a penalty.
&l;/p&g;&l;blockquote&g;Millennials demand flexibility and accessibility in retirement accounts: Retirement is far away, and many wonder if it really makes sense to lock up their money in a special retirement account when they&a;rsquo;re young. Millennials increasingly seek savings options that allow them access to their hard earned money, and the flexibility to withdraw their contributions at any time, so they have options if they need the funds to meet other short-term goals like &l;a href=&q;https://www.forbes.com/sites/camilomaldonado/2018/07/14/3-reasons-why-renting-a-home-may-beat-buying/&q;&g;buying a home&l;/a&g; or paying for qualified educational expenses. Flexibility to make withdrawals of their contributions without penalties or taxes are a unique benefit of Roths that have become increasingly attractive to Millennials, according to Fidelity.&l;/blockquote&g;
Another change that is likely to further fuel Millennials&a;rsquo; interest in Roth IRAs is the fact that the annual contribution limit for 2019 has increased to $6,000 from $5,500. Individuals that are at least 50 years old have the ability to contribute an additional $1,000 in catch-up contributions.
While there are many benefits offered by a Roth IRA, the reality is that not everyone can take advantage of them because there are income restrictions. Fortunately, the cut-offs are well above the average income.
The income cutoff to be eligible to invest in a Roth IRA, based on modified adjusted gross income, or MAGI, has increased for 2019 to $137,000 for single filers and $203,000 for joint filers (up from $135,000 for single filers and $199,000 for joint filers for tax year 2018).
If you were eligible but did not make any contributions in 2018, you still have time. The good news is that the contribution deadline for 2018 is not until April 15, 2019, which is tax day. If you haven&s;t set &l;a href=&q;http://www.forbes.com/sites/camilomaldonado/2019/02/05/marie-kondo-financial-goals/&q;&g;financial goals&l;/a&g; for the year yet, this could be a great start to the year.
It&a;rsquo;s important to remember that simply because you have the ability to withdraw your Roth IRA contributions early, it doesn&a;rsquo;t mean it makes sense financially. When it comes to &l;a href=&q;https://thefinancetwins.com/best-way-to-save-for-retirement/&q; target=&q;_blank&q;&g;investing for retirement&l;/a&g; or for an extended period of time, the amount of time your money is invested is one of the most important factors for your long-term investment performance. This means that withdrawing contributions early for things that are not important can be catastrophic for your retirement planning.
The fact that 56% of new Roth IRAs at Fidelity are opened by Millennials is wonderful, but the reality is that a large chunk of the remaining 44% of new accounts are likely being opened by Generation X members and Baby Boomers. And for some of them, it&a;rsquo;s their only retirement savings. A large number of Americans are not prepared for retirement, and the increasing cost of healthcare isn&a;rsquo;t moving in their favor.
If you are getting a late start in saving for retirement, learning &l;a href=&q;https://thefinancetwins.com/how-to-make-a-budget/&q; target=&q;_blank&q;&g;how to budget&l;/a&g; is your first line of defense. Additionally, a 401(k) is more powerful than a Roth IRA if your employer makes matching contributions. A 401(k) also has higher contribution limits making it easier to&a;nbsp;&l;a href=&q;https://yourmoneygeek.com/how-to-make-money-fast-easy/&q; target=&q;_blank&q;&g;make money for retirement more quickly&l;/a&g;. (&l;a href=&q;https://thefinancetwins.com/what-is-a-401k/&q; target=&q;_blank&q;&g;Here are more details about 401(k)s.&l;/a&g;)
Finally, when it comes to preparing for retirement, you have to remember three things. Save early. Save often. Save more than you think you&a;rsquo;ll need.