By Ian Salisbury
Robinhood Markets' 401(k) match is a hit with investors. But is it a good deal?
Upstart brokerage firm Robinhood is no stranger to making waves in the investing world. It pioneered commission-free trading, gaining a cult following among young investors. More recently, it has moved into the retirement space, aiming to win older, wealthier fans with a new kind of eye-catching offer.
Move your 401(k) or IRA to Robinhood, and the firm will match 1% of your balance. You will also be able to earn up to 3% on new annual IRA contributions.
"As soon as people understand it, they realize it's an amazing offer," Robinhood Chief Brokerage Officer Steve Quirk tells Barron's.
For investors with hefty retirement savings -- there are nearly 500,000 401$(K)$ millionaires, according to Fidelity -- the cash injection can certainly seem tempting. Last month, Robinhood said its third-quarter retirement assets surged to $9.9 billion, up ninefold year over year. The company also said it has handed out more than $200 million in matches since the program began in January 2023
But is a Robinhood IRA a good deal for you? Here are some pros and cons.
Robinhood IRA match
It isn't hard to see the appeal of Robinhood's matching offer. Roll over a 401(k) or transfer an IRA to Robinhood, and you will earn a 1% match of your balance with no size limit. (Earlier, Robinhood promised rollover matches of 3%, although that promotion has ended.)
"If you transfer or roll over $1,000,000, we'll give you $10,000 on top, " notes Robinhood's website.
Robinhood declined to tell Barron's how big the average rollover it receives actually is. But on the company's third-quarter conference call, executives noted a recent retirement promotion brought in accounts with balances that averaged $130,000 -- suggesting the typical customer match may be something like $1,300.
There's also the annual contribution match. This amounts to 3% on contributions for members of the premium Robinhood Gold plan, and 1% for other investors. Robinhood Gold comes with some additional perks, like access to a high-yield savings account and cash-back credit card, but also costs $5 a month, or $60 a year.
The upshot is that the annual contribution match is worth $150 a year, net of fees to anyone who contributes the $7,000 Internal Revenue Service maximum to their IRA, and doesn't plan on using the Gold plan's other perks.
It is worth noting, while Robinhood hands out matching funds right away, you need to hold your money with Robinhood for at least five years or could face a withdrawal penalty.
Pros and Cons of a Robinhood IRA
While no one wants to turn up their nose at free money, if you aren't a Robinhood fan or don't want a DIY-brokerage experience, switching to Robinhood might not be worth it.
Robinhood cut its teeth during the meme stock craze. The retirement match deal is part of an effort to cultivate older investors with bigger balances and longer time horizons. All the same, Robinhood still largely caters to rapid-fire traders -- with after-hours trading on 900 tickers and heavily promoted futures and options capabilities -- in contrast to relatively scant offerings to investors looking for help.
Investors who move money to Robinhood can sign-up for a commission-free, one-time portfolio recommendation consisting of low-cost exchange-traded funds, but Robinhood doesn't offer a robo-advisor, like larger competitors such as Charles Schwab and Fidelity. (Robinhood has said it plans to launch a robo offering next year.)
Retirement investors could also see their investment choices limited. Robinhood IRA investors can buy individual stocks and exchange-traded funds -- giving them access to a broad range of index funds. But they cannot currently own traditional mutual funds, a mainstay for many 401(k) and IRA investors. "It's on the road map," says Quirk, adding most investors prefer ETFs anyway.
In J.D. Power's most recent online brokerage survey, traditional players like Fidelity, Schwab, TD Ameritrade and Vanguard took the top spots. Robinhood scored "just below average," according to J.D. Power Executive Managing Director Craig Martin.
That said, in a narrower J.D. Power survey, which focused specifically on self-directed brokerage firms' technology, Robinhood scored much better -- ranking third behind J.P. Morgan Wealth Management and Stash.
"They're good at digital," says Martin. "So they tend to drive people toward self-service. But if someone has a question or needs help, it's not part of the process and doesn't work as well."
In other words, a Robinhood IRA is a great deal for many investors, but it's not for everyone.
This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
November 22, 2024 02:00 ET (07:00 GMT)
Copyright (c) 2024 Dow Jones & Company, Inc.
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