Fidelity reveals massive shift in 401(k), IRA move to Roth accounts

A new analysis of retirement savings trends from Fidelity Investments reveals a surprising generational shift toward Roth accounts, alongside record-high individual savings rates.

Younger workers are increasingly driving growth in after-tax retirement vehicles, heavily leading a significant surge in Individual Retirement Account (IRA) adoption, Fidelity's Q1 2026 Retirement Analysis found.

The report includes findings on savings behaviors and account balances for more than 54 million of Fidelity's IRA, 401(k), and 403(b) retirement accounts.

Fidelity tracked an unprecedented level of momentum coming from its youngest demographic of investors.

"Gen Z is also leading IRA growth, with total IRA contributions increasing 65% year-over-year, followed by Millennials with a 31% increase," according to the report.

This momentum is heavily directed toward after-tax retirement savings vehicles rather than traditional choices.

"These record levels were driven by strong Roth demand, with 67% of contributions going to Roth IRAs and Roth conversion transactions increasing 41% year-over-year," Fidelity wrote.

The surprising velocity of the Roth account shift

The move toward Roth accounts among Gen Z is logical, as young people are likely in the lowest tax bracket of their career. But the velocity of the movement is surprising.

For decades, traditional pre-tax contributions were the unchallenged default standard. Gen Z seems to be breaking through that inertia.

This specific preference for after-tax vehicles is mirroring itself within workplace retirement benefits as well.

"Additionally, as of Q1 more than one in five Generation Z participants (21.4%) contributed to a Roth 401(k)," the report states.

Among Millennial savers within the Fidelity ecosystem, account activity remained largely steady despite macroeconomic shifts.

"Only 5% of Millennials adjusted their 401(k) asset allocation in Q1, and nearly one in five (18.4%) increased their s'savings rate," according to the report.

Four scenarios for long-term 401(k) account growth

Let's see if we can put ourselves in the shoes of some of these young 401(k) savers Fidelity is reporting on.

To illustrate potential long-term impacts of choosing between a Roth and a traditional 401(k), I put together some simple calculations involving a 22-year-old worker earning $60,000 who actively plays with their savings percentages.

In Scenario 1, the worker contributes 10% ($6,000) annually into a traditional 401(k). Assuming an 8% average annual return over 40 years, the account grows to $1,554,330.

However, assuming a modest 15% effective tax rate upon withdrawal in retirement, the actual net total drops by $233,150, leaving the worker with a true take-home total of $1,321,180.

Scenario 2 takes that exact same 10% savings rate ($6,000) but routes it entirely into a Roth 401(k). Because Roth accounts grow entirely tax-free, the compounding engine yields the same $1,554,330 ending balance, but the worker owes absolutely nothing to the IRS at retirement.

Even though the worker had to pay income taxes on that $6,000 upfront during their working years, locking in the tax-free status early generates an extra $233,150 in clean, spendable retirement wealth compared to the traditional path.

Scenario 3 tracks what happens if a traditional 401(k) saver tries to match the Roth investor's discipline. Because traditional contributions are pre-tax, a 10% contribution only reduces the worker's take-home pay by $5,280 (assuming a 12% current tax bracket).

If the worker is savvy and invests that extra $720 in annual tax savings into a standard taxable brokerage account returning a tax-dragged 6%, that side pot grows to $111,430. Combined with the net traditional 401(k), the total wealth reaches $1,432,610 - still leaving them $121,720 short of the pure Roth total.

Scenario 4 models aggressive optimization, where the young worker pushes their savings rate to the 14.4% Fidelity record average, putting $8,640 annually into a Roth 401(k). Over 40 years at an 8% return, this higher savings percentage compounds into a massive $2,238,235.

Because it is housed entirely within a Roth structure, the worker keeps every single penny, proving that marginal increases in workplace contribution percentages today can create exponentially larger, tax-sheltered wealth gaps over the long term.

Fidelity sees record 401(k) savings rates among all participants

Looking at the broader participant base, Fidelity found that total workplace retirement savings rates reached record levels in the first quarter.

"Both 401(k) and 403(b) total savings rates reached record levels in Q1 2026," Fidelity wrote.

This milestone comes on the back of historical highs for individual worker deferrals combined with matching employer contributions.

"The total savings rate reached 14.4% for 401(k) savers and 12% for 403(b) participants," the report states.

The firm noted that individual actions combined with company benefits are putting workers closer to major financial benchmarks.

"This is a result of an average employee savings rate of 9.6% - the highest on record – and average employer contribution rate of 4.8%," according to the report.

Fidelity further explained how these two dynamics interact to benefit savers.

"Together, these are moving closer to Fidelity's suggested combined savings rate of 15%," the report states.

The average cash injection coming from companies also hit a historical high mark during the period.

"The average quarterly employer contribution amount reached a record level of $2,080, surpassing the previous high of $2,020 a year ago," according to the report.

Fidelity reports gains in overall IRA activity

Overall IRA activity saw substantial gains, with a record number of individual accounts receiving money.

"IRAs saw strong results in Q1, including record-high contributions (up 29% year-over-year) and a record-high number of Fidelity IRA account holders contributing to accounts (up 28% year-over-year)," Fidelity wrote.

Despite economic uncertainty during the quarter, individual participants routinely boosted their deferrals, a movement the firm attributed to structured plan design.

"Despite economic uncertainty in Q1, nearly one in five (18%) 401(k) participants increased their savings rate – in large part due to auto increases – while only 5.7% made a change to their asset allocation (down from 6% a year ago)," the report notes.

Sharon Brovelli, president of workplace investing at Fidelity Investments, emphasized that these numbers reflect a highly disciplined approach by individual savers.

"Retirement savers started the year strong with record-high savings rates and contributions, reflecting the long-term approach they're taking with retirement preparedness," Brovelli stated.

"While it can be tempting to make changes to retirement savings during market volatility, it is positive to see participants stay the course with their contributions – an approach that will strengthen their outcomes as retirement nears," she added.

Note: This piece of financial journalism is for educational purposes only and not for formal tax or investment advice.

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