E*TRADE Study Reveals the Varying Tax Strategies of Millennial, Gen X, and Baby Boomer Investors
Boomers employ a wider range of tax strategies
2. Selling positions that have lost value in order to offset capital gains.
3. Holding investments for at least one year in an effort to lower taxes on gains.
The order of strategies differs for Boomers (age 55+), who are more likely than Millennial and Gen X investors to hold investments for at least one year, and sell positions that have lost value. Boomers are also more likely to invest in municipal bonds or funds with low turnover.
"Younger investors, who see retirement far in the distance, may be more inclined to trade actively in their retirement accounts to manage taxes," said
- Many Millennials place a majority of their trades in their IRAs...
One out of two prefer to trade more in their IRAs and less in non-retirement accounts, and over half reported at least 50 percent of all their trades in the last 12 months took place in IRAs.
- …But are often stung by early withdrawal fees.
Ironically, while they strive to save on taxes by trading in retirement accounts, they are more likely than Boomers to have made, and regret, early withdrawals. Early withdrawals by Millennials, which are often accompanied by penalties and fees, are particularly troubling when considering the significant advantages of compounding returns for those who invest diligently while young.
- Many investors overlook tax-wise investments.
The survey results reflect that tax-efficient vehicles, such as tax-free municipal bonds, are used by less than one in five Millennial and Gen X investors, and less than one in four Boomers.
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About the Survey
This wave of the survey was conducted from
|Tax season is right around the corner. Which of the following strategies are most effective for you in limiting the amount of taxes you pay on your investments each year? (Select all that apply)|
|Investing in tax-advantaged accounts, such as 401(k)s, 403(b)s, IRAs, and health savings accounts (HSAs)||55%||61%||59%||48%|
|Holding investments for at least one year to lower taxes on gains||37%||23%||31%||50%|
|Selling positions that have lost value in order to offset capital gains||34%||29%||30%||42%|
|Investing in tax-free municipal bonds||21%||17%||18%||24%|
|Investing in funds with low turnover||15%||13%||14%||18%|
|Investing in tax-advantaged deferred annuities||12%||12%||14%||9%|
|I do not use any strategies to limit the amount of taxes I pay on my investments||15%||13%||14%||17%|
|I prefer to trade more through my individual retirement account (IRA), and trade less through my regular non-retirement account.|
|% Strongly/Somewhat Agree||43%||51%||42%||39%|
|In the past 12 months, what percentage of all your trading activity have you made specifically through your Individual Retirement Accounts (IRAs)?|
|% of trading through IRAs||AGE|
|Have you ever taken out money from an IRA or 401(k) before the age of 59.5 and, if so, for what?|
|No, I have never taken out money from an IRA or 401(k) before the age of 59.5||74%||68%||70%||83%|
|Have you ever regretted your decision to take money from an IRA or 401(k) before the age of 59.5?|
|% Very much/Somewhat Regretted||45%||51%||47%||34%|
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