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A new generation of investors has started saving for retirement — and they’re leading IRA contributions over older generations.

According to Fidelity data, so far this year, Gen Z has accounted for 34% of total contributions to IRA accounts. That’s more than any other generation so far; millennials had the second-highest participation at 20%.

While Gen Z is leading the trend, IRA contributions are also up overall, according to Fidelity. In 2025, fourth quarter IRA contributions increased by 25% over the year before. And contributions to both traditional and Roth IRAs are up 30% since the start of the year compared with the same period last year.

"We're seeing a clear increase in IRA participation," Rita Assaf, vice president of retirement products at Fidelity Investments, told Yahoo Finance’s Kerry Hannon. "What's notable is how much of this growth is being driven by younger investors, including Gen Z, who are engaging with retirement savings earlier and more intentionally."

If you’re early in your career, using an IRA for retirement savings can have major benefits as you age. Here’s what to know so you can best take advantage of investment growth and tax benefits in the decades ahead.

Read more: Trump accounts vs. IRAs and 529s: How do they stack up?

An IRA (individual retirement account) is a type of investment account with specific tax advantages for retirement. Unlike a 401(k) for retirement savings, an IRA isn’t tied to your employer.

There are different types of IRAs that you can open depending on your specific situation — like a SEP IRA if you’re self-employed or a custodial IRA for minors who earn an income. But most individuals will need to simply choose between a traditional IRA or a Roth IRA.

Traditional IRA: Contributions go into the account pretax and grow tax-deferred until you make withdrawals in retirement. You may be able to deduct contributions from your taxes. At retirement, distributions are taxed as regular income.

Roth IRA: Contributions are made after you’ve already paid tax on that income. Your money grows tax-deferred over time, and eligible distributions are tax-free at retirement. Roth IRAs have income limits. In 2026, phaseouts (reduced contributions) begin at $153,000 for single filers, up to $168,000, and at $242,000 for married couples filing jointly, up to $252,000.

All IRAs — traditional and Roth — have annual contribution limits. The contribution limit is $7,500 for 2026. Until April 15, you can also make contributions for 2025, up to the previous $7,000 limit.

Read more: These are the traditional IRA and Roth IRA limits in 2026

You can begin contributing to an IRA anytime after you turn 18 and earn a taxable income. Like most investments, the earlier you invest, the more you can maximize growth through compounding.

That’s why Gen Z investors getting a head start on retirement savings now is a major boost to their financial futures.

The earlier you invest, the longer your contributions will have to grow. As you make gains on your investment, those earnings are added to your account along with contributions. That higher amount continues to earn more, and your gains compound over time.

When you start investing early, you’re setting yourself up to maximize the benefits of compounding — and to weather any market downturns or periods of uncertainty.

Read more: How much money should I have saved by 30?

Here are some common mistakes to avoid as you use your IRA:

After you open your IRA and transfer money into the account, don’t forget to actually invest your money. You’ll need to log in to your account through your provider (usually a brokerage like Fidelity, Vanguard, Schwab, or even Robinhood) and choose your investments.

IRA providers have varying investment options, but you can typically choose from different mutual funds, exchange-traded funds (ETFs), stocks, bonds, and more. If you don’t elect your investments after funding, your money will just sit as cash in the account, earning no growth.

Withdrawing from your IRA too early could leave you without some of the account’s biggest benefits.

For traditional IRAs, you’ll pay a 10% tax penalty if you make a withdrawal before age 59 ½, in addition to the regular income tax rate you’ll pay for distributions. However, there are some exceptions, like withdrawing cash for a first-time home purchase (up to limits).

You can withdraw the contributions you make into a Roth IRA at any time without penalty, even if you haven’t yet reached retirement age. But earnings work differently. You could pay a penalty when you withdraw from earnings unless you’ve had the account for five years and you’re at least age 59 ½ — though there are exceptions for Roth IRAs too, including for first-time home buyers.

Anytime you contribute over the limit, excess IRA contributions will be taxed at 6% each year they remain in your IRA. You can avoid the tax by withdrawing the excess amount you contributed from your account by the date your income tax return for that year is due.

Remember, the annual contribution limit applies to all IRAs combined. So if you have both a traditional IRA and a Roth IRA, you can only contribute up to $7,500 in total to both accounts in 2026. You also cannot contribute more than you earn in taxable income throughout the year (if your earnings are less than the limit).

You can easily open a traditional or Roth IRA online. You don’t need to go through your employer to open an account; simply choose an account provider and visit its website.

You may want to choose a provider you already have an account with — somewhere you already have a brokerage account or where your 401(k) is through your employer. You can also choose by evaluating factors such as account fees, minimum deposit requirements, and investment options.

You’ll need to fund the account after setup by transferring cash. This is usually a bank transfer you can set up from your online account. Then, you can choose your investments. You may want to stick with a diversified mutual fund or ETF, choose a target-date fund for your retirement, or select another strategy.

Also consider setting up automatic transfers from your bank account or direct deposits from your paycheck to fund your IRA regularly until you meet the annual contribution limit. With a set-it-and-forget-it strategy, you can ensure you’re maximizing your contributions and growth each year.

Read more: How to start investing — a step-by-step guide

An IRA is a retirement account that you can open outside of your workplace. Learn about the rules, limits, and who’s eligible to contribute.

Learn how Roth IRA tax benefits can complement your overall retirement plan. We explain important contribution, distribution, and income rules for 2024.

Learn the key differences between traditional and Roth IRAs, plus the factors to consider when choosing between these tax-advantaged retirement accounts.

If you think a CD could help you meet your retirement savings goals, an IRA CD might be a good fit. Here’s a closer look at what an IRA CD is and how it works.

IRA withdrawals are allowed at any age, but you may have to pay income taxes and an early withdrawal penalty. Learn about the rules for IRA loans and withdrawals.

You may be able to deduct your IRA contributions if you have a traditional IRA, but Roth IRA contributions aren’t tax-deductible. Learn about the IRS rules.