Fortune Recommends™ is editorially independent. We may earn affiliate revenue from links in this content.

Robinhood launches retirement waitlist for first-ever IRA with a 1% match

December 6, 2022, 1:30 PM UTC
Photo of 3 iPhone screens showing the Robinhood app and explaining Roth IRA contributions.
Robinhood's IRA accounts offer users a 1% match on every eligible dollar.
Courtesy of Robinhood

This morning, the investing app Robinhood announced the launch of its latest product: Robinhood Retirement. Starting today, users will be able to join the waitlist for Robinhood Retirement, which will allow them to open an individual retirement account (IRA) and choose between a traditional or Roth IRA to begin saving for retirement.

Robinhood’s IRA product offers a 1% match from Robinhood on every eligible dollar contributed to the account, meaning that for the first time, savers who aren’t currently benefiting from an employer match (like gig workers) can grow their retirement savings. 

Those who join the waitlist now can expect to receive access to the product on a rolling basis, until the product becomes fully available for all users in January 2023. 

Why is it so important to save now?

Saving for retirement may not feel like the most pressing financial goal, especially if you’re decades away from reaching that point. But the key to building a savings you can live off of in your later years is to start early. Still, some savers need an extra push. 

Pew Charitable Trust recently found that a lack of access to a workplace plan is the most common challenge among savers and nontraditional workers, with 77% saying they would participate in a defined contribution savings plan if they were eligible for it. 

To add insult to injury, the economic fallout brought on by the pandemic has made future retirees less likely to prioritize saving for retirement. A 2022 Bankrate survey found that 55% of Americans say their retirement savings are not where they need to be, with nearly 35% saying they’re “significantly behind” and another 20% saying they’re “somewhat behind” their goals. The biggest reason savers are pumping the brakes on saving for their retirement years: inflation. 

Experts say this is a major misstep. 

“You should be thinking about saving for retirement and the longer term,” says Stephanie Guild, Robinhood’s head of investment strategy. “There’s inflation, government debt is at the highest levels we’ve seen, almost in its history. And that means that things like Social Security and stuff that was there for people in previous generations are probably not guaranteed. Now is the time to say ‘I’m gonna do this for future me so that I can rely on myself.’” 

What is an IRA and how does it work?

An IRA is a type of account that allows consumers to save for retirement in a tax-advantaged way. Robinhood’s new product is allowing users to open one of each type of IRA: 

  1. Traditional IRA: With a traditional IRA, anyone with earned income is eligible to make before-tax contributions and allow their savings to grow over time (tax-deferred) until they’re withdrawn in retirement. Plus, eligible contributions may be tax-deductible, helping savers reduce their taxable income.  
  2. Roth IRA: A Roth IRA is a bit different in that savers pay taxes on contributions now so that they can make tax-free withdrawals during retirement. To qualify for a Roth IRA, savers must earn a modified adjusted gross income (MAGI) of less than $144,000 as a single filer or $214,000 for those filing jointly. 

Once users have chosen an IRA, they’ll need to fund their account using an external bank account (this is required to earn the 1% match) and can choose their investments. Robinhood gives users the option to select their own mix of stocks and ETFs or build a portfolio through in-app recommendations based on the user’s time horizon, income, and risk tolerance. Once a customer contributes, they will have instant access to their funds to start investing (while their deposits settle), up to $1,000. 

The IRS does have limits in place for how much you can contribute to your IRA, with the limit for 2023 being $6,500, or $7,500 if you’re age 50 or older. 

What if I’m already saving for retirement through my employer?

Even if you’re already saving money for retirement through an employer-sponsored plan like a 401(k), you can still contribute to a traditional or Roth IRA. Just keep in mind that you may not be able to deduct all of your traditional IRA contributions if you or your spouse participates in another retirement plan at work, and your Roth IRA contributions might be limited if your income exceeds a certain level.

It’s important that contributing to an IRA comes with its own set of benefits. 

“It’s a super tax-efficient way to save money over time,” says Guild. “And instead of you just growing your savings on your own, Robinhood is helping you grow it. Even when money is tight, we don’t have a minimum. You could just put $1 in and that’s the minimum to invest in a stock or an ETF with us too. So even though it may not be a lot, it can really add up over time.” 

How can I boost my retirement savings? 

While most workers might have the common goal of leaving the workforce at some point, each saver’s game plan for getting there probably looks a little different. A few ways you might boost your savings strategy and potentially shorten that timeline: 

  1. Don’t leave any free money on the table. Aim to contribute the maximum amount necessary to receive 100% of any match being offered to you. “If you save for retirement with Robinhood versus any other IRA out there, you’re gonna get an extra 1%,” says Sam Nordstrom, manager and product lead for retirement investing at Robinhood. “So if you put $100 into a Robinhood IRA, you’re gonna get $101 and that is completely unique and novel to the industry. We’re really excited to be able to offer this to folks because it gives them more money toward retirement. But it also incentivizes saving for retirement.” 
  2. Aim to increase your contributions as your income increases. As your paycheck grows over time, you might be tempted to fall into the trap of lifestyle inflation by splurging on a more luxurious home or car, taking more frequent vacations, or making impulse purchases. While it’s important to treat yourself now and then, maintaining your cost of living at a reasonable level can ensure that when it’s time to retire, you have enough saved to comfortably live off. 
  3. The time to start is yesterday—don’t hold off on saving for retirement. When it comes to building your nest egg, the key is to get started early even if you can’t afford to contribute a hefty amount. Why? Because it allows you to reap the benefits of compound interest. “If we think just about the deposit match—the 1% that you’re getting on your contributions—and assume you’re getting the full $60 every year, not assuming any IRS increases going forward, over a 40-year period of time, that itself can add up to a significant number,” says Nordstrom. “If you factor in a pretty typical 10% yearly growth rate, it can actually add up to a lot, lot more. So $26,000, which is really meaningful for folks and allows them to save more for retirement or retire sooner.” 

Follow Fortune Recommends on Facebook and Twitter.

EDITORIAL DISCLOSURE: The advice, opinions, or rankings contained in this article are solely those of the Fortune Recommends editorial team. This content has not been reviewed or endorsed by any of our affiliate partners or other third parties.