IRAs Are Growing More Popular Among Millennials and Gen Zers. Here Are 2 Great Reasons to Open One

It really pays to put your money into an IRA.

You'll often hear that it will take a lot more than Social Security benefits to allow you to live comfortably in retirement. Those benefits will only replace about 40% of your pre-retirement wages if you're an average earner, and most seniors need about twice that much income to manage their bills. And so if you don't want to hold down a part-time job as a retiree, that additional income will need to come from your savings.

That's where IRAs come in. The great thing about IRAs is that you don't need an employer to set one up -- whereas with a 401(k) plan, you need to be offered one by an employer unless you're self-employed and are managing your own plan. As long as you have earned income, you can contribute funds to an IRA.

Meanwhile, recent data from Fidelity shows that IRAs are growing more popular with younger generations. During the third quarter of 2022, the number of IRAs for Gen Zers increased by 83% compared to one year ago. And the number of IRAs opened by millennial savers increased by 25%.

If you're not sure whether to open an IRA, you should know that doing so could really work to your benefit. Here's why.

1. You'll enjoy tax savings

No matter how much you earn, the fact that the IRS gets to take a chunk of your paycheck is probably a source of aggravation. Well, the good news about funding an IRA is that you'll be able to protect some of your income from taxes.

Traditional IRA contributions go in tax-free, so if you put $2,000 into one of these accounts, that's $2,000 the IRS won't tax you on. Plus, as you invest money in your IRA, you won't have to pay taxes on your gains year after year. Rather, those taxes will be deferred until the time comes to start taking IRA withdrawals in retirement. When you have gains in a regular brokerage account, you're liable for taxes on them the year they're realized.

2. You'll get peace of mind knowing you're building retirement wealth

Many people worry about what their finances will look like in retirement -- especially given that Social Security may have to cut benefits if lawmakers don't find a way to shore up the program's finances. If you open an IRA and fund it consistently, you might sleep better at night knowing you're saving money for the future.

Opening an IRA and doing your best to save monthly in that account could improve your financial picture a lot. And best of all, many IRAs these days offer an automatic savings feature. That allows them to work similarly to 401(k)s, where contributions are deducted from workers' paychecks off the bat so they don't have to think about putting money aside for retirement savings. If you're going to get an IRA, it certainly pays to find one with this specific feature so you can stay on track and fund your account on autopilot.