Robinhood Introduces IRAs. Is Its 1% Match Worth It?

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  • Robinhood has opened the waitlist to its IRA offering.
  • Robinhood offers customers a 1% match on investments.
  • Freelancers and beginner investors should consider investing through the platform.

Long-term investors can earn free money on their retirement accounts.

The popular brokerage Robinhood has added another arrow to its quiver. As of December 2022, Robinhood users can sign up for a waitlist for a much-requested feature: an IRA account.

The tax-advantaged account offers several perks, including a 1% match on investments. But do these features make investing in an IRA account through Robinhood worth it?

Traditional IRAs

Traditional IRAs do not offer price matches. Robinhood claims to be "the only IRA with a 1% match." Typically, employers shoulder the burden of matching employee deposits -- not brokerages.

Robinhood's IRA price match will be added to any company 401(k) contributions, potentially compounding gains. The Robinhood IRA match does not impact your standard annual contribution limit.

How much could you save with that 1%?

The IRS limits how much you can invest in an IRA account. You can contribute up to $6,000 ($7,000 if you're 50 or older) in 2022. The limit will increase to $6,500 ($7,500 if you're 50 or older) in 2023, according to Robinhood.

Say you contribute $6,000 next year. A 1% price match totals an extra $60. It doesn't sound like a lot, but factor in a 7% compounding rate, and $60/year (or $5/month) adds up.

In 20 years, you would earn $2,459.73 via the price match alone. The longer you invest, the more you earn. In 40 years, you would earn $11,978.11. This calculation only includes the money you'd make from a 1% match.

There's a catch

You need to hold your investments in the IRA for five years before Robinhood will let you withdraw the matching funds. That means the 1% match only benefits long-term investors.

It's generally wise to hold IRA investments for the long term. Customers who withdraw money before retirement should expect their brokerages to slap them with hefty fees.

Is it worth it?

IRA accounts influence how much the account will grow over time. The best IRA accounts offer excellent customer service, helpful research, and low fees. Some also offer other little-known perks.

For the record, I've signed up for the Robinhood IRA waitlist. I'm already a brokerage customer; I use the platform to invest in stocks and cryptocurrency. My favorite perks include the following:

  • Beautiful interface
  • Robinhood Gold membership research
  • 24/7 customer service

As a freelance worker, I don't get an employer match when contributing to retirement accounts. A 1% match is smaller than some employer 401(k) contributions, but it's exactly 1% better than nothing.

Robinhood is one of the best investment apps for beginners, but experienced investors may want to explore other options. Regardless, adding a 1% match fires an arrow into the heart of brokerage offerings. I'd keep an eye out for similar offerings by rivals in 2023.

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