Have you been meaning to save and invest for retirement but haven't been sure where to
start?
Well in this video, we’re going to be taking a look at the new Robinhood Retirement platform
which aims to help with that.
Hey everyone, this is Kyle from Money @30 and on this channel we look at personal finance
from a Millenial perspective, including app and tool reviews like this one.
Last fall, the popular albeit controversial investment app Robinhood announced that it
planned to introduce a retirement account platform.
Now, only a few months later, Robinhood Retirement is available to all eligible users.
So, what does this new feature have to offer?
Let’s take a look at the Robinhood Retirement platform and what you need to know about it.
The first thing to know about Robinhood Retirement is that you can open a traditional IRA, a
Roth IRA, or both.
In case you don’t know, there are two main types of IRAs: traditional and Roth.
With a traditional IRA, you’ll be able to deduct your contributions from your taxable
income of the tax year in which you make them but will need to pay taxes when you make withdrawals
in retirement.
Meanwhile, although contributions to your Roth IRA are mostly not tax deductible, you’ll
be able to take distributions in retirement tax free - including on any gains.
Regardless of which option is right for you, you can open that type of account in Robinhood.
In fact, as I discovered, you can open one of each if you wanted.
Although keep in mind that the annual contribution limit is per person, not per account.
Speaking of which…
Next, as you make your contributions, Robinhood will show you how close you are to hitting
the annual limit
Each year, there’s a cap on how much individuals can deposit in an IRA.
For example, for the 2023 tax year, the limit is set at $6,500 for those under 50 years
old.
To help you keep track, Robinhood Retirement will display how much you’ve contributed
for the tax year.
Of course, this figure won’t factor in any other IRAs you may have with other brokerages.
While we’re talking contributions, I should also mention that you can select what tax
year you want your deposit to apply to.
Contributions for the previous tax year can be made up until the tax filing deadline in
April of the following year.
So, if you are looking for a tax deduction as April approaches, then this may be an easy
way to do that while also saving for your future.
Once you’ve made contributions to your account, you’ll be able to either select what stocks
or ETFs to invest in or you can explore Robinhood-recommended portfolios
In many ways, your Robinhood Retirement account functions a lot like your normal Robinhood
account, allowing you to buy and sell various stocks and ETFs.
This includes fractional shares where you dictate the dollar amount instead of the number
of shares.
In this case, you can first select your picks to make a basket and then distribute your
available funds.
However, you can also view recommended portfolio options that will give you greater diversification
in your retirement account.
To get started, the app with ask you a few questions that will help determine your risk
tolerance and time horizon.
Using this info, it will show you a mix of ETFs and allow you to purchase all of these
shares with the tap of a button.
Then, when you make new contributions, you can pull up your past recommendations and
distribute your funds in the same proportions across your portfolio.
By the way, there is apparently there is a $20 minimum required for this option.
While I admittedly don't know enough about the assets Robinhood is suggesting to know
how good they are, I do personally think this is a better option than buying individual
stocks.
But, I do like that users can decide for themselves.
One of the key features of Robinhood Retirement is the IRA Match it offers, although there
are a few things to note about this bonus
With Robinhood Retirement, you can earn 1% on your contributions thanks to the platform’s
IRA Match feature.
Doing some quick math, this means that you could earn up to $65 per year with this bonus
if you max out your account - and, Robinhood says these funds count as earned interest
and do not impact your annual contribution limit.
However, there are a couple of catches here.
First, in order to earn an IRA Match, your contribution must be made using “fresh funds,”
meaning you move them over from an external account instead of a Robinhood brokerage or
cash account.
Luckily, the app will show you what’s eligible when you’re setting up a transfer.
Second, in order to retain your bonus, you’ll need to keep your initial funds in your account
for at least five years.
If you don’t, then a portion of or all of your IRA Match funds will be forfeited.
For example, if you deposit $6,000, earning a $60 bonus, and remove $1,000 from your account
valued at $6,000 a year later, you’ll be hit with a fee that corresponds to that percentage
of your bonus so, in this case, $10.
FYI, if your account had gained value, this might offset the total fee some.
Of course, it’s probably best to keep your retirement savings in your account anyway,
so this hopefully won’t be an issue.
Finally, something I noticed when exploring my account is that you may want to check in
settings for options such as dividend reinvestment
Since your Robinhood Retirement account is separate from your main brokerage account,
it also has its own settings.
This is important to note because some users like myself may wish to go in and toggle on
the dividend reinvestment option.
Similarly, you can also choose to enroll your retirement holding in the Stock Lending program.
Both of these options can be found by tapping the gear icon in the upper left, selecting
Investing, and then scrolling down.
Overall, I think Robinhood Retirement is a pretty good addition to the app.
However, it might not be the very best place to start with retirement savings depending
on your situation
Although Robinhood Retirement may have been the fastest product rollout the app has ever
seen, it was also a longtime coming.
This is to say that the feature is a perfect fit for the platform and I’m glad to see
the service encouraging young investors to save for retirement.
With that said, it might not make sense for everyone to start their journey with an IRA.
For example, if your employer offers a 401(k), it probably makes sense to max out any matching
fund offer they have since this will likely amount to much more than 1%.
401ks also have far higher annual contribution limits if you’re able to do more.
Still, if you want to do more on top of maxing out your employer matching funds and want
to have greater control over what you’re invested in, then opening a Robinhood Retirement
account may be a good option — just as long as you’re investing responsibly.
Hopefully this gives you a better idea about what Robinhood Retirement is all about, but
for more on the platform, I’ll have a link to my full written review in the description
box down below.
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