E*TRADE Study Reveals the Varying Tax Strategies of Millennial, Gen X, and Baby Boomer Investors

For Millennial and Gen X investors, account type trumps asset
allocation, while Boomers employ a wider range of tax strategies

NEW YORK–(BUSINESS WIRE)–E*TRADE Financial Corporation (NASDAQ: ETFC) today announced results
from the most recent wave of StreetWise, E*TRADE’s quarterly
tracking study of experienced investors.


The top three tax strategies for both Millennial (age 25 to 34) and Gen
X (age 35 to 54) investors, combined, are:

      1.   Investing in tax-advantaged accounts, such as 401(k)s, 403(b)s,
IRAs, and health savings accounts (HSAs).
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 Lena Haas, SVP of Retirement, Investing and Savings at
E*TRADE Financial. “While all investors are wise to be mindful of taxes,
when it comes to retirement investing, the most important factors for
success include creating a clearly defined plan, and establishing a
diversified portfolio mapped against one’s risk tolerance, aided by
disciplined contributions.”

Ms. Haas observed the following additional insights from the survey:

  • 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.

E*TRADE helps investors balance today’s needs with tomorrow’s goals,
through pioneering digital tools coupled with guidance online and from
financial consultants. To learn more about E*TRADE’s trading and
investing platforms and tools, visit etrade.com.

For useful insights from E*TRADE and third-party investment
professionals, follow the Company on Twitter, @ETRADE.

About the Survey

This wave of the survey was conducted from January 6 to 11, 2016, among
an online U.S. sample of 919 self-directed active investors who manage
at least $10,000 in an online brokerage account. The survey has a margin
of error of ±3.2 percent at the 95 percent confidence level. It was
fielded and administered by ResearchNow. The tracking study fields
quarterly at the beginning of each quarter and does not reflect data
from the complete quarter. The panel is broken into thirds of active
(trade more than once a week), swing (trade less than once a week but
more than once a month), and passive (trade less than once a month)
investors. The panel is 65 percent male and 35 percent female with an
even distribution across online brokerages, geographic regions, and age
bands.

Referenced Data

 
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)
            AGE
TOTAL 25-34       35-54       55+
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%
Other 1% 0% 2% 1%
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.
AGE
TOTAL 25-34 35-54 55+
% 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
TOTAL 25-34 35-54 55+
0-20 23% 15% 25% 26%
21-50 34% 34% 33% 34%
51-80 33% 41% 32% 30%
81-100       10%       10%       10%       10%
                                 
Have you ever taken out money from an IRA or 401(k) before the
age of 59.5 and, if so, for what?
AGE
TOTAL 25-34 35-54 55+
No, I have never taken out money from an IRA or 401(k) before the
age of 59.5
74% 68% 70% 83%
Yes (Net)       26%       32%       30%       17%
                                 
Have you ever regretted your decision to take money from an IRA
or 401(k) before the age of 59.5?
AGE
TOTAL 25-34 35-54 55+
% Very much/Somewhat Regretted       45%       51%       47%       34%

About E*TRADE Financial

E*TRADE Financial and its subsidiaries provide financial services
including online brokerage and banking products and services to retail
customers. Specific business segments include Trading and Investing and
Balance Sheet Management. Securities products and services, including
stocks, bonds, mutual funds, ETFs, retirement accounts, education, and
online tools are offered by E*TRADE Securities LLC (Member FINRA/SIPC).
Managed Account Solutions are offered through E*TRADE Capital
Management, LLC, an investment adviser registered with the Securities
and Exchange Commission. Bank products and services are offered by
E*TRADE Bank, a Federal savings bank, Member FDIC, or its subsidiaries
and affiliates. E*TRADE Financial Corporation and its affiliates do not
provide tax advice, and you always should consult your own tax advisor
regarding your personal circumstances before taking any action that may
have tax consequences. More information is available at www.etrade.com.
ETFC-G

About ResearchNow

ResearchNow, a leading digital data collection provider, powers market
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the world’s consumers and business professionals through online panels,
as well as mobile, digital, and social media technologies. Their team
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To find out more or begin a conversation, visit www.researchnow.com.

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Important Notices

E*TRADE Financial, E*TRADE, and the E*TRADE logo are trademarks or
registered trademarks of E*TRADE Financial Corporation.

© 2016 E*TRADE Financial Corporation. All rights reserved.

E*TRADE Financial Corporation and ResearchNow are separate companies
that are not affiliated. E*TRADE Financial Corporation engages
ResearchNow to program, field, and tabulate the study.

Contacts

E*TRADE Media Relations
Thayer
Fox, 646-521-4418
thayer.fox@etrade.com
or
E*TRADE
Investor Relations

Brett Goodman, 646-521-4406
brett.goodman@etrade.com