- Robinhood says it will match 1% of IRA contributions on its platform.
- Nearly half of American workers do not have access to a company-sponsored retirement savings plan.
- Robinhood says about half a million people are already on its waiting list to open an IRA account.
It’s no secret that Americans struggle to save for retirement, which is why online brokerage Robinhood is offering people an incentive to do so.
Robinhood launched a 1% match this week to users who save money in an Individual Retirement Account (IRA) on its platform.
So for every dollar users contribute from any external bank account linked to their retirement fund on Robinhood, they will instantly get 1% match from the platform. Customers can now join the waitlist to enroll in the program.
Typically, employers — not brokerages — match their employees’ contributions into a company-sponsored 401(k) retirement plan. Matches are often considered “free money” because people don’t have to do anything but save for themselves to get it. But nearly half of American workers aren’t even covered by a workplace pension plan, let alone have access to a company match, according to a study earlier this year by Wharton economist John Sabelhaus. School of the University of Pennsylvania.
“In today’s economy — the traditional components of retirement savings in the United States — a company pension, extra savings in a 401(k), and Social Security — don’t work for everyone, including understood by many in the next generation of (gig) workers,” said Robinhood Chief Brokerage Steve Quirk.
Who can benefit from this offer?
Everyone, but especially the growing market for freelancers, gig workers, temporary workers, or small businesses that typically don’t or can’t offer savings benefits.
About 57 million Americans took up self-employment in 2019, the US Chamber of Commerce said. During the COVID-19 pandemic and this year’s inflation spurt, even more workers joined the gig economy as those who lost their full-time jobs or needed extra cash started to work independently to make ends meet. Most of them have been granted flexible hours but are not eligible for benefits such as health insurance and pension plans.
“We provide a pathway to retirement savings for those who don’t have access to traditional retirement accounts or company matching programs or who are looking to increase their workplace retirement savings,” Quirk said. .
Nearly half a million people are already on the waiting list for an account the day after launch, says Robinhood.
What is an IRA?
It is a retirement plan opened by individuals through a bank or a brokerage house; while 401(k) retirement plans are offered by employers.
Robinhood users can choose a traditional IRA or a Roth IRA. Both offer tax benefits, the difference being when you pay taxes.
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If you’re using a traditional IRA, you’re using pre-tax money. This means you can now deduct eligible contributions from your taxes and pay taxes on the money when it’s withdrawn for retirement.
A Roth IRA lets you contribute after-tax money. This means you pay tax on your contributions now, but get tax-free withdrawals later in retirement.
Note: Early withdrawals are subject to IRS penalties and taxes. So check the IRS website for rules on retirement funds.
Separately, if retirement funds are withdrawn before five years from Robinhood IRAs, Robinhood may charge you an early match IRA withdrawal fee equal to the amount of the match won if your remaining IRA balance is less than the amount of your contribution that won the match. match.
Are there contribution limits?
Yes. Each year, the IRS sets a maximum amount you can contribute to all of your IRAs, including those held outside of Robinhood. Pairings do not count against your annual contribution limit.
For 2022, the contribution limit is $6,000 for those under age 50 and $7,000 for those age 50 and over.
In 2023, these limits will increase to $6,500 and $7,500 respectively.
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How much “free money” can I get from my contributions?
Robinhood will match 1% of your contributions up to the IRS limit.
If you contribute up to $6,000 for those under 50, you can earn up to an additional $60 from Robinhood. For people 50 and over, saving the full $7,000 means they can earn up to $70 more.
Although 1% may not seem like a lot, it can add up quickly over time due to compound growth. Compound growth means that you earn returns on both your initial investment and the returns you received previously.
Say you earn the extra $60 each year for your contributions and a 10% annualized rate of return for that matching money, you can earn an extra $26,000 over 40 years for that 1% match, according to Robinhood.
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What can I invest my retirement money in at Robinhood?
You can invest in stocks, exchange-traded funds (ETFs), and soon you’ll be able to trade options in your IRA, if you’re eligible.
Although most of Robinhood’s customer base is young (the average age of its 23 million users is 32) and self-directed investors, the brokerage firm can also recommend a portfolio or group of investments for you.
Each recommended portfolio includes 5-8 ETFs that are chosen based on your answers to questions that Robinhood enters into an algorithm that matches you with investments that make sense to you.
And in Robinhood style, all your investments are commission-free.
Medora Lee is a money, markets and personal finance reporter at USA TODAY. You can reach her at firstname.lastname@example.org and sign up for our free Daily Money newsletter for personal finance tips and business news Monday through Friday mornings.
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