Robinhood Offers An IRA With A 1% Match

Key Takeaways

• Robinhood’s new IRA match program is unique and could inspire new investors to save for retirement.
• The 1% match pales compared to 401(k) match programs and only adds up to a max of $60 to $70 per year in 2022.
• This new program comes on the heels of a series of layoffs at Robinhood and could be an attempt to attract new users who can eventually be monetized.

Robinhood is making headlines again, but now it’s for launching a new retirement product. The Robinhood IRA allows users to shelter their investments in tax-advantaged accounts and provides a 1% match.

This exciting news comes with some nuance. The total amount you can save in an IRA ultimately limits the match amount. Plus, the 1% match’s structure pales in comparison to 401(k) matches offered by employers.

Even with its shortcomings, this is a new type of program that provides incentivized retirement savings to a whole new kind of investor.

How does the Robinhood 1% match work?

When you contribute to your Robinhood IRA, the company will match one percent of your contribution. For example, if you put $500 in your IRA, Robinhood will contribute another $5 for a total of $505.

You can claim this match if you have a traditional or Roth IRA with Robinhood. Robinhood’s contributions to your IRA do not count towards your individual contribution limits.

You must keep your contributions in the account for five years to maintain the match contributions. This is particularly important to note if you open a Roth IRA since the IRS will allow you to withdraw your contributions without penalty.

Robinhood’s rules are different if you want to keep the match.

Maximum benefit per year

In 2022, the max you can contribute to an IRA if you’re under age 50 is $6,000, making the maximum Robinhood match $60. If you’re 50 or over, the max individual contribution is $7,000, making the Robinhood match max out at $70.

In 2023, those limits are going up. If you’re under 50, the maximum contribution will be $6,500 (Robinhood contribution of $65.) If you’re 50 or over, the max is $7,500 (Robinhood contribution of $75.)

These numbers aren’t huge, but the company points out that even these small amounts can add up over time.

Robinhood estimates that the 1% match could add up to a total of $26,000 extra in an investor’s account over 40 years, assuming a generous 10% annual return. That said, returns are not guaranteed.

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How is the Robinhood 1% IRA match different than a 401(K) match?

Robinhood launched this program as an alternative for workers who do not receive a 401(k) or contribution match from their employer. However, its match program isn’t exactly the same as an employer’s 401(k) match.

When an employer offers you a 401(k) match, they usually match a percentage of your salary. If you made $60,000 and wanted to take advantage of your company’s 2% match, you’d contribute at least $1,200 annually. Then your employer would contribute another $1,200.

Robinhood matches a portion of your contribution. This is inherently a much smaller amount and is made even smaller by the relatively low contribution caps on both traditional and Roth IRAs.

If you’re contributing to a 401(k), the annual contribution cap in 2023 will be $22,500. Your employer match doesn’t count toward this number.

But the $6,500 (or $7,500 if you’re age 50+) limit on IRA contributions for 2023 means that the maximum benefit you can receive is even lower.

Why is Robinhood launching the matching program?

The marketing angle for the new matching program is that it will encourage savings among a population who hasn’t had access to similar incentives before.

Gig workers, freelancers, and many part-time workers who don’t receive retirement accounts from their employers will now have access to an extra $65 to $75 match contribution they wouldn’t have gotten before.

A far larger swath of part-time workers will have access to 401(k) accounts starting in 2024 thanks to the SECURE Act. However, for those who want to save for retirement now, the SECURE Act isn’t an immediate solution.

A Robinhood IRA may currently be one of the only other places they can get a match of any kind. Even if the match isn’t the largest, a program like this could inspire more people to save for retirement, increasing their financial security over the long term.

This expands upon the company’s mission to democratize finance. Its first iteration gave retail investors a new way to break into the market.

Now that it offers tax-sheltered retirement accounts, the new matching program encourages retirement savings among a class of Americans who are typically overlooked by both institutional systems and marketing departments.

What does Robinhood get out of the new matching program?

Robinhood may have genuine intentions behind its new matching program. But there are also potential net benefits for the company.

Over the past year, retail investing has slowed after the early-pandemic surge brought on by meme investing. This slowdown has been so impactful that it inspired a few rounds of layoffs.

The new matching program is a relatively low-cost way for the company to get in the spotlight again, potentially attracting new retail investors. Over the long term, a larger user base could translate to more in-app sales.

For example, if you upgrade your account to Robinhood Gold, you’ll get extra perks. These include increased interest rates on uninvested cash, access to research from Morningstar analysts, and lower costs on margin investing. However, you’ll pay $5/month for this upgrade.

How do I get the Robinhood 1% match IRA?

Right now, there are only two ways to access the new Robinhood IRA with a 1% match. The first is to sign up for the waitlist. If you’re lucky, you’ll be given access to the program in the next couple of weeks.

Otherwise, everyone else should be able to sign up for the new matching IRA starting in January 2023.

If you want to bump up your place in line, you can also refer your friends to the waitlist. Once one friend joins the waitlist, you’ll have access to the new IRA.

Bottom Line

The Robinhood IRA matching program will only net a little money in the short term. Nevertheless, if it gets you saving for retirement for the first time, that’s a net win.

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