IRA Alert

How to help millennials avoid big mistakes with their IRAs

Steer young investors away from these common moves that can have a significant negative impact in retirement

Feb 14, 2017 @ 2:47 pm

By Ed Slott

Millennials need retirement help. They're making critical IRA mistakes that will cost them exponentially over time. They need human advisers, not just robo-advisers who offer no guidance. Advisers can tap into the millennial IRA market through existing clients who will want their children and grandchildren building their own retirement savings with an adviser they already trust.

It's true that these are generally not big ticket clients, but they can be with your help and they can refer others to you, not to mention the goodwill and deeper connection you'll build with your clients (their parents and grandparents). Don't ignore this opportunity to plant seeds for their future and yours. Advisers can get millennial clients on the right savings track early and help them avoid common millennial IRA mistakes that can have a significant negative impact in retirement.

It's likely that younger individuals will not have a pension when they retire. They'll need to save as much as possible in retirement plans, both employer plans and IRAs, to fund a comfortable retirement.

Open a Roth IRA for them. Younger workers often make the mistake of not knowing how important it is to have their own retirement savings account. Having a 401(k), for example, at a job should not be the only receptacle for retirement funds. Advisers should encourage millennial clients to open a Roth IRA just to have it open and begin funding it as soon as they get their first job, starting good savings habits early.

Roth IRAs grow tax free. They are not only a source of retirement savings but can be tapped if needed earlier. The original Roth IRA contributions can always be withdrawn tax and penalty free at any time for any reason. That's not true for a 401(k) or a traditional IRA.

Younger people tend to change jobs more often and that usually means a 401(k) at the former company needs a place to go. An IRA is that place. The funds can be rolled over (or converted to a Roth IRA) at that time. Employees with lower 401(k) balances tend to cash them out rather than roll them over. That's a mistake. That causes an extra tax and a 10% early distribution penalty and they are left with no retirement account from that job. Even a smaller amount should be retained in an IRA (or Roth IRA) so it can keep growing for retirement. As advisers know, it really does add up if given time to grow, and millennials have the time to capitalize on this. But they need guidance and direction from advisers to stay on course.

Another common millennial IRA mistake is contributing to a traditional IRA instead of a Roth IRA just to get the tax deduction. It's not worth it. It will cost them later, as those funds build tax-deferred, as opposed to tax-free in a Roth IRA. Giving up the early tax deduction is an insignificant price to pay to have a tax-free retirement account.

Probably the biggest mistake young people make is being too eager to use their IRA funds well before retirement. Advisers need to remind these clients that retirement funds are sacred. They should be a last resort when money is needed. I see young couples all the time, especially when trying to buy a home or invest in a business, or even buying a car or furniture, eyeing their retirement savings as a source of money. That's a mistake and makes for a bad habit. Once people start raiding their retirement savings for non-retirement expenses, it begins a cycle of draining the most important money they have. Yes, retirement funds can double as an emergency fund. But if you go to that well too often, you'll need an emergency fund for your emergency fund.

Millennial IRA clients need you now, and they are clients with whom you can grow your business. Start now by opening IRAs for them by April 15 for last year, and then add to it for this year.

Ed Slott, a certified public accountant, created the IRA Leadership Program and Ed Slott's Elite IRA Advisor Group. He can be reached at


What do you think?

View comments

Recommended for you

Upcoming Event

Nov 13


Best Practices Workshop

For the sixth year, InvestmentNews will host the Best Practices Workshop & Awards, bringing together the industry’s top-performing and most influential firms in one room for a full-day. This exclusive workshop and awards program for the... Learn more

Featured video


The bizarro world of DOL and SEC rule supporters

Managing editor Christina Nelson talks with senior reporter Mark Schoeff Jr. about why groups that supported the Labor Department's fiduciary rule oppose much of the SEC advice package, and vice versa.

Latest news & opinion

10 most affordable U.S. cities for renters

Here are the U.S. cities that are most affordable for renters, according to Business, which compared the cost of rent to average salaries.

9 best - new - financial adviser jokes

Scroll through for nine new financial adviser laughs.

Captrust, prominent 401(k) advice firm, ramps up its wealth management business

Captrust wants to grow annual revenue from wealth management to 50% from 30% over the next five years.

Fidelity CEO says zero-fee funds aimed at expanding its universe

Johnson says way to prosper in financial services is 'by building relationships.'

SEC advice rule contains a huge hole

Jay Clayton aims to clear up investor confusion by drawing a distinction between brokers and advisers in the agency's proposed package of revised standards. But where do dual registrants fit?


Hi! Glad you're here and we hope you like all the great work we do here at InvestmentNews. But what we do is expensive and is funded in part by our sponsors. So won't you show our sponsors a little love by whitelisting It'll help us continue to serve you.

Yes, show me how to whitelist

Ad blocker detected. Please whitelist us or give premium a try.


Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print