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Free Retirement Money: Robinhood Offers 1% Match on New IRA Contributions

Jakub Porzycki / NurPhoto
Jakub Porzycki / NurPhoto

One of the most important financial strategies you’ll ever undertake is saving for retirement, but too few people are saving enough to retire comfortably. Retail brokerage and stock-trading app Robinhood wants to help by giving you free money when you contribute to an individual retirement account.

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In a Dec. 6 announcement, Robinhood said it will pay a 1% match on contributions customers make to a Robinhood IRA. The program is available to anyone who opens an IRA on the app, though it is especially geared toward customers who don’t have a 401(k) plan through an employer. This primarily means gig workers and the self-employed.

“People are relying on themselves,” Robinhood said in the announcement. “They’re taking on gig work, side hustles and building their own companies. Tools that can make it easier to save for retirement — such as automatic transfers from a paycheck or contribution matching — are often not available to the gig economy.”

Here’s what Robinhood customers need to do to earn the match:

  • Select your IRA. You can choose to invest in stocks and ETFs through either a traditional IRA or Roth IRA.

  • Invest on your own terms. You can build a custom portfolio through Robinhood’s in-app recommendations, by choosing their own investments, or a mix of both. The signup and onboarding process only takes a few minutes.

  • IRA Instant Deposit: Once you make a contribution, you’ll have instant access to funds to start investing, up to $1,000.

Robinhood will then match 1% of new contributions in a pre-tax or Roth account, up to the annual IRA contribution limit, CNBC reported.

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The company began rolling out the new 401(k)-type program on Tuesday. It claims to be the only IRA provider to offer a match on investments — something that can fill a big need, considering that only 1 in 3 Americans have access to corporate retirement plans, according to Census data cited by CBS News.

“There is a growing disconnect with the way savings are set up with the way people live and work,” Steph Guild, Robinhood’s head of investment strategy, told CBS MoneyWatch.

But while some experts say Robinhood’s IRA match could encourage and boost savings, skeptics suggest it’s mainly way to draw attention — and customers — to the company.

“There is no free lunch, ever,” Philip Chao, principal and chief investment officer at Experiential Wealth in Maryland, told CNBC. “You always need to ask the motivation of the entity or the individual giving you a free lunch.”

Others wonder whether a 1% match will lead to a fundamental shift in financial behavior. That match is considerably less than the 3% to 6% match many employers offer on 401(k) plans — and employer matches are based on annual salaries rather than individual contributions.

As CBS News noted, Robinhood’s matching contribution means that someone who puts the yearly maximum into an IRA — $6,000 for 2022 — will receive a $60 match. That looks like a small number. But Robinhood officials argue that it still might convince folks to sign up for the program and begin saving.

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“There is interesting data on 401(k) matches that shows if a company offers a match, the rate of savings and participation goes way, way up, but there isn’t a correlation between the percentage match offered and the percentage of participation,” said Sam Nordstrom, lead product manager for Robinhood Retirement.

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This article originally appeared on GOBankingRates.com: Free Retirement Money: Robinhood Offers 1% Match on New IRA Contributions