When it comes to maximizing retirement balances, conventional wisdom says to save early and often — and some younger Americans are taking this advice to heart, choosing a savings option that can give their money decades to grow potentially tax-free.

According to the latest data from the Center for Retirement Research, 41% of people contributing to an IRA or Roth IRA are under age 40, compared with 29% in 2019 — and many of them are choosing Roths.¹ About 1 in 5 (19.2%) heads of household in their 20s have Roth IRAs — almost three times as many as in 2016.²

Read more: Roth vs. traditional IRAs: Which should I choose?

Roth IRAs for tax-free retirement growth

What makes Roth IRAs so eye-catching? A big upside is the tax benefit in retirement. Roth contributions are made with after-tax dollars, so the tax liability is up front, allowing the potential for investments to grow tax-free. This could be especially attractive to younger savers who have more years to maximize growth.

Traditional IRAs work in essentially the opposite way. Tax benefits, like the potential to deduct contributions or reduce tax liability for the current year, are on the front end and withdrawals in retirement are taxed — which means taxes are paid on the growth amount at the time of withdrawal, not the contribution dollars.

Whether one option is better than the other depends on individual circumstances, but a preference seems to be emerging: The Center for Retirement Research’s most recent data shows among households with either traditional or Roth IRAs, there’s a greater likelihood to contribute to a Roth than a traditional account, with 39% of Roth IRA owners making contributions compared with 22% of traditional IRA owners in tax year 2022.³

Consider this: If a person invests $3,000 annually in a Roth IRA beginning at age 20, based on compounding returns of 7% annually those contributions could grow to reach $850,000 by age 65 — and that’s tax-free with a qualified withdrawal.⁴ While the same dollars invested in another type of retirement vehicle at a similar rate of return may achieve the same growth, that money could be taxable upon distribution — and depending on tax bracket, the liability could add up.

Read more: Roth IRA investment returns: How to grow your wealth for retirement

Why Gen Z is choosing Roth IRAs for retirement goals

Given the retirement goals of some young Americans, it’s not surprising that Roth investing is so popular. Empower research shows Gen Zers aspire to retire at age 54, the earliest of all generations. With their target retirement savings at $1,118,280, there’s incentive to sock away money early — and the strategy could be paying off. Empower Personal Dashboard^TM data shows retirement balances for people in their 20s are already closing in on six figures at $97,837 on average as of May 2025.

Additionally, Roth IRA income limits may be further motivating younger Americans to contribute to them while they can, since they could still be years away from reaching their highest earning potential. But like traditional IRAs, Roths also have contribution limits, with a maximum of $7,000 for the 2025 tax year, or $8,000 for those 50 or older.

Read more: The magic number: Americans say they need $1.06 million to retire

Backdoor Roth IRAs can help late savers catch up for retirement

More than half of people (52%) wish they had saved more in their retirement accounts when they were younger, and while some higher earners may no longer meet eligibility requirements, Roths may not be entirely out of reach. “Rothification” is trending among older retirement savers, with backdoor Roth IRAs providing another chance to reap the Roth benefits. With this option, funds can be transferred from a regular IRA to a Roth IRA, regardless of income levels. Although there could be significant tax ramifications, depending on amounts and time until retirement, for some it could be a worthwhile strategy.

Read more: What a backdoor Roth IRA is and how to use it

Withdrawals from a Roth account will not be subject to federal taxation as long as the withdrawal is qualified as defined under IRS regulations. However, state and local taxes may still apply.