Gen Z investors are flocking to IRAs.

The youngest workers entering the workforce — Gen Z, who range in age from 10 to 25 — showed dramatic adoption of individual retirement accounts, according to second quarter data released by Fidelity Investments this week.

Fidelity IRAs owned by that generation increased 87% over the second quarter of 2021, according to the investment firm. Millennials, who range in age from 26 to 41, saw a 24% increase in the number of IRA accounts at Fidelity for the same time period.

IRA adoption was particularly strong among young female investors, with a 92% year-over-year increase among Gen Z and 24% among millennials.

That’s as the total number of IRAs at Fidelity climbed 10.6% in the second quarter over the previous year to reach 12.8 million.

Experts say that opening an IRA is smart, but the kind of IRA you pick matters as well.

Ed Slott, CPA and founder of Ed Slott & Co., said he always recommends Roth retirement accounts to young investors.

“For young people, it’s just a slam dunk,” Slott said.

Here’s why.

The growth in IRA adoption has been strong among young investors for several years, according to Rita Assaf, vice president of retirement products at Fidelity.

One key reason why is the democratization of access to investment resources, she said.

“It takes two minutes to open up the app and sign up for an account no matter where you have it,” Assaf said.

“Access to financial topics and savings has become so much easier for younger generations than it was with prior generations,” she said.

It’s not just young, full-time professionals who are opening these accounts.

Financial advisor Winnie Sun, managing director and founding partner of Sun Group Wealth Partners, said this week she helped a 16-year-old set up her first Roth IRA to invest her earnings from her after-school job in a coffee shop.

Sun’s advice to young investors starting out: Really learn about the pros and cons of these accounts before diving in.

“Don’t invest until you totally understand what you’re invested in,” Sun said.

There are two types of IRAs to choose from: traditional and Roth IRA accounts.

With traditional IRAs, you invest pretax money and typically get a deduction on those contributions, then pay taxes on withdrawals in retirement.

With Roth IRAs, you invest money you have already paid taxes on, in exchange for tax-free withdrawals in retirement. When it comes time to live on that money in retirement, whether or not you have a tax bill will likely make a big difference to your lifestyle.

“We are definitely seeing more enthusiasm around Roth than traditional,” Assaf said.

Fidelity’s data found the number of millennial Roth IRA accounts with contributions are up 7.8% so far this year.

One key reason for the interest is the tax benefits Roth IRAs provide.

Importantly, you’re able to withdraw your contributions at any time for any reason without penalty or taxes.

“You’re covered in the case of an emergency,” Assaf said.

Notably, there are income limits to be eligible to contribute to Roth IRAs, so it’s important to think about whether you will be making more now or in the future. Your total income in retirement — as well as whether you’re drawing from traditional or Roth accounts — will also determine how big your tax bills will be in those later years.

Because many young workers are in their lower earnings years, getting a tax deduction for traditional pre-tax retirement contributions is less valuable, Slott said. Plus, you will have to pay taxes on that money later when rates will likely be higher.

With a Roth, “you have the opportunity to build from dollar one as a young person, all tax free,” Slott said.

Investors may face penalties if they withdraw earnings on their investments if they do not meet the five-year mark since they first contributed to a Roth IRA account, as well as other requirements.

Sun said she uses simple numbers to explain the concept to new investors.

If they invest $1,000 in a Roth IRA, they will be able to withdraw those contributions. But any money accumulated on that investment cannot be withdrawn without penalty. So if the balance grows to $1,200, they may pay extra money for taking the additional $200 out.

“They’re learning the concept of liquidity and long-term investing all in a very short conversation,” Sun said.

Steve Kurashima, CPA and owner of Los Angeles tax and accounting firm Kurashima and Associates, said he encourages his business owner clients who employ their children to have them open IRA accounts.

“It allows an opportunity for the parents to instill in the kids an investment and retirement mentality,” Kurashima said.

Ideally, young investors should think of the funds as long-term investments.

“I tell them you want to pretend this money is just locked away until you’re 59½ and beyond,” Sun said.

Before investing in an IRA, take a look at your full financial picture, experts advise.

“If you have access to a 401(k) with a company match, try to save up to your company match” before investing in an IRA, Assaf said.

“If you don’t save up to that, you’re leaving free money on the table,” she said.

Fidelity generally recommends working professionals set aside 15% of their income, including a company match, toward retirement.

Admittedly, that may seem like a high goal if you’re just starting out or are feeling the pinch from rising prices, Assaf said. But if you can find extra money to invest now, you’ll likely be glad you did later.

If you do not have a sufficient emergency fund, you may want to prioritize that first, Assaf said, so you won’t be tempted to raid your retirement funds if unforeseen needs arise.