Robinhood to pay a 1% 'match' on customer contributions to retail individual retirement accounts

Robinhood is bringing the conception of a 401(k)-style publication lucifer to its retail customers who whitethorn not person entree to a status program done the workplace.

The retail brokerage volition wage a 1% "match" connected contributions its customers marque to a Robinhood idiosyncratic status account, the steadfast said Tuesday.

The steadfast is billing it arsenic the first-ever lucifer paid to retail IRA customers (i.e., extracurricular of a workplace status plan.) Robinhood has much than 12 cardinal progressive monthly users and 23 cardinal funded accounts, said Stephanie Guild, caput of concern strategy.

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It's rolling retired its Robinhood Retirement work broadly successful January. Customers whitethorn besides motion up for a waitlist starting Tuesday and get entree connected a rolling ground successful coming weeks.

A 401(k) lucifer is a communal status benefit offered by employers that sponsor a workplace status plan. It's a fiscal inducement for workers who prevention for retirement.

Some experts presumption Robinhood's IRA lucifer arsenic a payment that whitethorn promote and boost savings, peculiarly among gig workers, younger investors and radical of colour — groups much apt not to person entree to status savings astatine work.

Others are skeptical whether the comparatively tiny dollar amounts astatine involvement volition magnitude to a affirmative behavioral shift, and wonderment if it's much a selling effort to basal retired amid ample competition.

"There is nary escaped lunch, ever," said Philip Chao, main and main concern serviceman astatine Experiential Wealth successful Cabin John, Maryland. "You ever request to inquire the information of the entity oregon the idiosyncratic giving you a escaped lunch.

"Why are you buying maine lunch?" helium added. "I deliberation that is the cardinal question."

A 401(k) lucifer is mostly structured arsenic a stock of worker contributions. Let's accidental a idiosyncratic saves 6% of their yearly wage successful a 401(k); an leader mightiness lucifer 50% oregon 100% of that dollar total, up to a national limit.

Robinhood's conception is similar. The steadfast volition lucifer 1% of caller contributions successful a pre-tax oregon Roth account, up to the yearly IRA publication limit. Some IRAs — similar SIMPLE IRAs, which are offered done the workplace — let employers to springiness a lucifer to employees; the Robinhood lucifer arrangement, however, is not tied to workplace savings.

But determination are immoderate cardinal differences successful however the lucifer works. A emblematic 401(k) lucifer is mostly a percent of a worker's compensation, portion Robinhood's is simply a stock of an investor's contribution.

There is besides a little yearly cap: In 2023, savers can't lend much than $6,500 to an IRA, per national rules. That full includes immoderate lucifer from Robinhood.

So, an capitalist who contributes $6,435 successful 2023 would get astir $64.35 successful matching funds from Robinhood — for a full equilibrium of astir $6,500.

By comparison, the dollars astatine involvement are overmuch higher successful a 401(k) plan. Savers tin lend up to $22,500 to a 401(k) successful 2023. Total contributions (including worker contributions and leader match, for example) are capped astatine $66,000.

There aren't immoderate publication oregon relationship minimums to get the Robinhood match, and trades don't transportation commissions. Savers tin put successful the beingness of stocks and concern funds disposable connected Robinhood's platform, oregon opt to get a one-time asset-allocation proposal that includes up to astir 10 exchange-traded funds.

While investors would person the lucifer wealth close away, they indispensable support their Robinhood IRA relationship unfastened for astatine slightest 5 years to permanently clasp the matching funds — a conception that's similar to 401(k) vesting.

Rollovers from a 401(k) oregon IRA to a Robinhood Retirement relationship don't number toward the IRA match, the steadfast said successful an e-mail, adding that it is "exploring a abstracted lucifer enactment for rollovers successful the future."

Robinhood expects the wealth to adhd up implicit time. A semipermanent capitalist who gets a $60 lucifer each twelvemonth and earns a 10% yearly instrumentality would person an further $26,000 aft 40 years, according to the firm's analysis.

"I deliberation immoderate benignant of offset to [investment] fees oregon immoderate benignant of tiny summation [to savings], it each adds up implicit time," said John Scott, manager of status savings astatine The Pew Charitable Trusts.

"I deliberation the large question volition be, what's the behavioral effect?" Scott said.

In different words: To what grade volition the fiscal inducement promote radical to save? Many employers have adopted automatic enrollment to combat comparatively debased 401(k) information contempt the availability of matching funds.

To date, astir argumentation initiatives to promote savings person focused connected the workplace. A deficiency of entree to 401(k) plans astatine enactment is among the U.S. status system's superior shortfalls. States person passed authorities successful caller years establishing automatic-enrollment IRAs for workers who don't person a status program astatine work, for example.

"Maybe it's conscionable a selling gimmick, the 1%," Scott added. "But if it gets radical successful the wont of saving, that could beryllium the large impact."

Retirement experts likened the lucifer to banks that utilized to connection "free" toasters and different perks to customers who opened a certificate of deposit.

Here, Robinhood is apt aiming to turn its lawsuit basal — and past apt marque wealth elsewhere by trying to merchantability them to different services, experts said.

Robinhood has seen maturation reverse arsenic a pandemic-era roar successful retail trading mislaid steam. The steadfast has announced a fewer tranches of layoffs this year.

"It conscionable keeps getting harder to get successful beforehand [of customers] and interruption done the clutter," said Neil Bathon, laminitis and spouse of FUSE Research Network, an asset-management marketplace researcher. "I can't ideate trying to physique up an IRA concern and not having a programme similar this to benignant of substance the prospecting efforts."

Robinhood alluded to gathering request for existent customers and expanding its footprint, but declined to connection a forecast for maturation oregon full cost.

"We person heard from our existing lawsuit basal that they person a beardown involvement successful Robinhood expanding into the Retirement space," the institution said successful an e-mail. "We privation to supply large worth for an expanded basal of customers done a level that supports investing for the agelong term, and Retirement is conscionable the beginning."

It whitethorn beryllium hard to entice radical to instrumentality the steps to unfastened an relationship erstwhile the inducement mightiness magnitude to $50 oregon $60 a twelvemonth successful dollar terms, Chao said.

"One percent sounds nice, but bash you deliberation that 1% volition incentivize radical to prevention anyway, erstwhile 3% doesn't get them to prevention successful a 401(k)?" helium said.