For Millennial’s Roth IRA’s have just always been around – it’s not a new concept for them. Whereas, the Baby Boomer’s were introduced to this new option years after they were already well established in their ways of contributing to their 401k. So, why are millennials really choosing Roth over Traditional IRA’s?
Even though the Millennial generation has just always had this option, there are quite a few other reasons that they are choosing the Roth (pay taxes now) over the Traditional 401k (tax deferred) option.
Their Income Level is Lower. If you make less today than you think you will in the next 25 years, it makes sense to pay taxes on the contribution at your lower tax rate. Many millennials are banking on their income levels to rise as their experience leads them to bigger opportunities. Maybe, when these millennials start aging, or reach into their 50’s, the Roth option will might be less attractive.
They Don’t Value or Have a Need for a Tax Deduction. Roth IRAs are more popular with young people because, generally speaking, they don’t have a need for tax deductions. One of the perks of a Traditional 401k is the tax deduction an individual can take advantage of.
It Seems Unlikely That Taxes Will Actually Go Down. The Roth comes with a ‘certainty’ – you know exactly what you’ll pay now, and you won’t risk being slapped with some ridiculous fees later. And again, they are most likely currently in a lower tax bracket now than they will be in in 25 more years.
Baby Boomers should know that it’s not too late to utilize the benefits of a Roth contribution, and Millennials should still consider the perks of utilizing a Traditional 401k.
Contact us to talk about finding the right retirement plan contribution option for you!
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