Young investors continue to turn to Roth IRAs for their savings, according to a new analysis published by Fidelity Investments.

The number of IRA accounts owned by Millennials in the second quarter increased by 23% compared with the second quarter of 2019. There was a 36% increase in the number of Roth IRA accounts held by Millennials, with contributions up a hefty 50%.

As to why IRAs and Roth IRAs are so appealing to Millennials, as well as members of Generation Z, Katie Taylor, vice president of thought leadership, Fidelity Investments, tells PLANSPONSOR that the accounts give them “an additional opportunity to save outside the 401(k) to secure their future.”

“Investing pre-tax dollars and then getting a tax break is not as important to younger people, because they are early in their career, typically making less money than later on, and, so, their taxes are lower,” Taylor says. “They are more willing to save using after-tax dollars because they expect their taxes will go up.”

In addition to this, there are income limits on Roth IRA investments that prevent older, high wage workers from investing in a Roth IRA, Taylor notes. She points out that, for 2020, those limits are $139,000 in annual earnings for single filers and $206,000 for married taxpayers filing jointly.

Taylor says there are a few advantages with Roth IRAs. “The one that is getting the most attention right now is the fact that when people want to access money quickly, with a Roth IRA, you can access your contributions at any time without taxes or penalties.”

Taylor says this can be particularly appealing right now for those who have been laid off or furloughed from their jobs due to the pandemic.

Another advantage with Roth IRAs, Taylor says, is that “if five years have passed since the first contribution was made, the account holder can withdraw their earnings without taxes or penalties if they are older than 59.5, are using the funds to buy a home or have become disabled. That might be attractive to people as well.”

In addition, Roth IRA owners “can withdraw earnings and pay taxes but no penalties if the money is being used either for education or medical expenses,” she says.

Because of the advantages of saving in after-tax accounts, Taylor says she thinks plan sponsors should offer more information about Roth 401(k)s, if they offer one, to plan participants.

Retirement Savings Accounts Rebound

Because retirement investors held steady and the markets rebounded strongly in the second quarter, retail retirement accounts enjoyed a record bounce.

Fidelity attributes strong inflows to the extended 2019 income tax season, which ended July 15. In total, Americans invested a record $82.1 billion into SEP [simplified employee pension], SIMPLE [savings incentive match plan for employees] and rollover individual retirement accounts (IRAs).

The average 401(k) balance increased 14% from the previous quarter, reaching $104,400. This is a remarkable comeback, Fidelity says, but the figure is still down 2% from the second quarter of 2019. The average IRA balance was $111,500, a 13% increase from the first quarter and up slightly from the average balance of $110,400 a year ago. The average 403(b) account balance increased to $91,100, an increase of 17% from the first quarter and up 3% from a year ago.

Fidelity’s data also shows that 76% of workers received a 401(k) match from their employer in the second quarter, with the average employer contribution reaching $1,080. Over the past four quarters, a record 88% of 401(k) savers received an employer contribution, with employers contributing an average of $4,030.

Taylor says Fidelity executives get asked about employers’ staying power with matches during recessions—and now a pandemic—quite a bit.

“It is encouraging that workers are continuing to receive the matches,” Taylor says. “Plan sponsors realize what a coveted benefit this is. Employers that offer a match are really proud of that benefit, because they know that helping employees save for their future is incredibly important and incredibly valued. That is one of the top benefits people are looking for. Eliminating a match is not a decision that employers view lightly. Even those who have removed the match want to reinstate it as soon as possible, which is consistent with what we saw in ’08 and ’09 with the Great Recession.”

As to why 88% of 401(k) participants continued to make contributions to their plan in the second quarter, Taylor says it seems that 401(k) participants have learned how important it is to stay the course. “Provided they are not retiring in the near future, staying the course is the better action,” Taylor says. “It is encouraging to see so many participants do that, particularly as you see their balances go up.”