Millennials Likely to Use, Withdraw Early From IRAs

Millennials who self-direct their retirement savings are actively managing their own accounts, but a new survey from New York-based discount brokerage E*Trade hints that their attention might do them more harm than good.

According to StreetWise, E*Trade’s quarterly tracking study of experienced investors, millennials and Generation Xers are using tax-advantaged accounts as their primary tax strategy — but they also are taking early withdrawals from those accounts.

“Younger investors, who see retirement far in the distance, may be more inclined to trade actively in their retirement accounts to manage taxes,” said Lena Haas, senior vice president of retirement, investing and savings at E*TRADE Financial, in a statement.

Half of the survey’s millennial respondents say they prefer to trade more in their IRAs than in non-retirement accounts, and more than half reported that most of their trades took place in IRAs. Millennials are also more likely than older generations to have made and to regret early withdrawals from their accounts.

Fewer millennials, defined as those ages 25 to 34, and Gen Xers, defined as ages 35 to 54, are using tax-loss harvesting and holding their investments for at least one year to avoid paying higher taxes on their capital gains.

Baby boomers, on the other hand, were more likely to tell surveyors that they hold investments for more than one year and to use tax-loss harvesting strategies. They were also more likely to invest in tax-free bonds or to use funds with low turnover.

Fewer than one-in-five millennials and Gen Xers and less than one-in-four baby boomers report using tax-free municipal bonds in their portfolios.

Tax-advantaged deferred annuities were also unpopular among the respondents — while 12 percent of millennials and 14 percent of Gen Xers reported investing in them, just 9 percent of baby boomers said they used annuities for their retirement savings.

The survey was conducted January 6 through 11 among 919 self-directed, active investors who manage at least $10,000 in an online brokerage account.