How the Robinhood Retirement Plan Locks You In

A Robinhood retirement savings. It feels weird when it rolls off your tongue, but that doesn’t mean it’s not real. The retail brokerage firm is offering retirement accounts to its clients as the trading euphoria that helped it survive the pandemic fades.

The company has promised customers that will match your contribution with 1% of the amount you invest your traditional or Roth IRAs, until you reach your annual limit. These matches are typically only offered by established companies that match a worker’s 401(k) contributions up to a limit, typically between 3% and 6% of their annual salary.

retirement savings account
Robinhood’s retirement plan has a five-year lock-in period. (A person fills out a retirement planning form; Image Credit: Shutterstock)

Robinhood’s Retirement Dream

Robinhood’s retirement plan is a genius move by the financial services company that is reportedly bleeding customers dry. It had just 12 million active users in the third quarter of 2021, an all-time low for the brokerage firm.

The company hopes to attract young professionals and break into an established market by offering guaranteed returns of 1%. The scheme is available only to those who open a Robinhood retirement account.

Robinhood Inc. primarily targets the growing ranks of temporary workers, contractors and part-time workers, said Steph Guild, Robinhood’s head of investment strategy. cbs money watch.

Guild admitted that the company is targeting these workers as the US economy is changing. Many people have two or more jobs at the same time. He goes on to say: “That means there is a growing disconnect between the way savings are set up and the way people live and work.”

For 2022, the IRS has set a $6,000 cap on individual retirement contributions, meaning the company could end up paying a maximum of $60 per account.

The offer has a trick: you must set up your retirement account with Robinhood for at least five years. In case you decide to withdraw before your term, you will have to forfeit your winnings. The company is clearly looking to attract long-term customers and provide them with savings benefits as the company grows.

According to census data, employer-matched retirement accounts are only available to one in three Americans.

“There is interesting data on 401(k) matches showing that if a company offers a match, the savings and participation rate goes up a lot, but there is no correlation between the match percentage offered and the participation percentage. revealed Sam Nordstrom, Robinhood Retirement Senior Product Manager.

Traditional IRA and Roth IRA
Withdrawals from Roth IRAs are tax free. (An elderly couple check their bank statement; Image Credit – Freepik)

Retirement Account Benefits

Traditionally, retirement accounts have different types of tax benefits. Employee retirement plans may differ from employer retirement plans. With the Robinhood retirement account, both traditional and Roth IRAs are accessible to clients.

  • You can contribute to a traditional retirement account before or after taxes. For the Roth IRA, you contribute your money after taxes.
  • Traditional IRAs are not taxed until you withdraw some amounts from your account. Tax and penalty-free Roth IRA contributions and earnings after you cross age 59.5.
  • Traditional IRAs are great for people with average incomes and if you expect to earn less in the future. With a traditional IRA, your money can grow tax-deferred, but you must pay income taxes on your withdrawals and you must receive distributions after age 72.
  • On the other hand, Roth IRAs are a much more attractive savings vehicle since contributions made into the account are generally made on an after-tax basis. Roth IRAs allow you to pay taxes on the money you put into the account, making withdrawals tax-free.

The Robinhood Retirement Account hopes to attract fickle customers and give them the tools to save for their future.

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