November 23, 2023

Robinhood IRA Review

Read more about Robinhood
Ad Disclosure: This article contains references to products from our partners. We may receive compensation if you apply or shop through links in our content. You help support CreditDonkey by using our links. (read more)

Robinhood offers some of the most unique IRAs on the market. But are they any good? Read on to find out.

Robinhood is the first platform to offer matching contributions for IRAs.

They're also some of the cheapest and easiest-to-use IRAs on the market. But how do they work? Are they safe?

Let's take a closer look and see if they're right for you.

What is a Robinhood IRA?

An individual retirement account (IRA) is a long-term savings account for retirement. You can invest, grow your money, and your earnings are tax-deferred or even tax-free.

What makes Robinhood's IRAs unique is a combination of tax advantages and matching contributions. This means that for every dollar you contribute, Robinhood matches a percentage of your contribution. Basically, this is free money to boost your retirement savings.

Robinhood offers both Traditional and Roth IRAs. You can even rollover an existing IRA into the platform.


Can I transfer my 401(k) to Robinhood?
Yes, a Robinhood Rollover IRA is a retirement account that allows you to transfer funds from an existing retirement account, such as a 401(k) or another IRA, into a new IRA with Robinhood.

Who is Robinhood IRA best for?

Robinhood IRA may be a good option if you're a:

  1. Self-employed and gig-economy worker
    Robinhood IRAs are great options for self-employed and gig-economy workers who want to save for retirement. They don't require traditional employer qualifications, so it's more accessible than a 401(k).

  2. Young or beginner investor
    Robinhood IRAs are great options for young investors who want to start saving for retirement. They're easy to use and have no account or trading fees. They also offer pre-built portfolios that can help you diversify your investments based on your risk tolerance and other factors.

  3. Self-directed investor
    Robinhood IRAs also suit investors who prefer to have control over their investment decisions. They offer a self-directed approach so you can choose your investments from a wide range of stocks, ETFs, options, and cryptocurrencies.

If you're not sure whether Robinhood IRAs are right for you, it could be a good idea to talk to a financial advisor. They can help you assess your needs and circumstances and recommend the best IRA option for you.

Eligibility

There are two main requirements for setting up an IRA at Robinhood:

  1. Earned Income
    You must have earned income to contribute to an IRA. This means income from work, such as a salary or wages. Passive income, such as investment earnings or rental income, does not count.

    Considered earned income for IRA contributions:[1]
    • Wages
    • Salaries
    • Commissions
    • Tips
    • Bonuses
    • Net income from self-employment

    Not considered earned income for IRA contributions:
    • Earnings and profits from property
    • Interest and dividend income
    • Pension or annuity income
    • Deferred compensation

  2. Robinhood brokerage account
    You also need to be eligible for a regular, taxable Robinhood brokerage account to sign up for a Robinhood IRA.

    That means you need to:[2]

    • Be at least 18 years old
    • Be a U.S. citizen, lawful resident, or visa holder
    • Have a valid Social Security number
    • Have a U.S. address

    There is currently no way to create an IRA account without opening a brokerage account. But you don't need to use the taxable account to open an IRA.

Pricing and Fees

When it comes to pricing and fees for Robinhood's IRAs, here's what you need to know:[3]

  • No management fees
    Robinhood doesn't charge you any account, maintenance, or service fees.

  • No trading fees
    Robinhood offers commission-free trading for individual stocks, ETFs, and options.

  • Early withdrawal penalties
    With Traditional IRAs, you may be subject to early withdrawal penalties if you withdraw funds before the age of 59 1/2. These penalties are usually 10% of the withdrawn amount and may incur taxes.[4]

    Roth IRAs have different rules. You can withdraw your contributions penalty-free at any time. Earnings can be withdrawn tax-free if certain conditions are met.[5]

  • IRA rollover fees
    There's a $25 returned check fee if you're rolling over your IRA.

How does Robinhood make money?
Robinhood generates revenue in these ways:
  • From their paid Robinhood Gold account, which is their margin trading service. This starts at $5 a month.
  • From interest earned on your cash balances.
  • Rebates from market makers and trading venues

Pros & Cons

Robinhood IRAs are new and they continue to gain popularity. That said, there are a few things to keep in mind before opening an account. Here's a list of their pros and cons:

Pros:

  • Commission-free
  • Easy-to-use interface
  • Offers matching contribution
  • SIPC-protected
  • Pre-built portfolios or choose your own investments

Cons:

  • Limited IRA options
  • Limited research tools
  • No mutual funds or bonds are offered

While IRAs are designed for long-term investment, it's important to note that Robinhood does not support mutual funds.[6] Typically, mutual funds are an investment choice available to individuals who have retirement accounts.

What feature matters most to you when choosing an IRA provider?

Robinhood IRA Account Options

Robinhood offers two types of IRA accounts:

  1. Traditional IRA
    With a Traditional IRA, you can save money on your taxes now by putting money into your IRA. You don't have to pay taxes on that money until you withdraw it in retirement.

    For example, if you make $50,000 and contribute $6,000 to a Traditional IRA, you'll pay taxes on $44,000. This could save you a lot of money now. You'll pay taxes on your IRA withdrawals in retirement, but you may be in a lower tax bracket by then.

  2. Roth IRA
    With a Roth IRA, you put in money that's already been taxed, but you can withdraw it tax-free in retirement.

    Let's say you contribute $6,000 to your Roth IRA. Since this is made with your after-tax dollars, when you withdraw that money in retirement, you won't have to pay taxes on it again.

Remember to consider the contribution limits and withdrawal rules for each type when deciding which option is best for you.

Contribution limits and withdrawal
There are limits on how much you can contribute to your IRA each year. And you may have to pay a penalty tax if you withdraw money before you're 59 ½ years old. See the IRS website for more information.

Investment Options

Robinhood IRAs offer two ways to build your investments: prebuilt portfolios and self-directed investing.

  1. Prebuilt portfolios
    Robinhood offers recommended portfolios consisting of ETFs. These are made up of 5-8 ETFs. They're also tailored to your risk tolerance, investment goals, and time horizon. It's a great option for a diversified portfolio without having to pick individual stocks.

  2. Self-directed investing
    Robinhood also lets you invest in individual stocks, options, and ETFs to build your own portfolio. This is a great option if you want to customize your investments based on your own preferences and investment strategy.

    However, Robinhood doesn't offer mutual funds or bonds, so your options are more limited.

What happens to my IRA if Robinhood shuts down?

If Robinhood shuts down, your IRA assets are insured by the Securities Investor Protection Corporation (SIPC) up to $500,000 per account, including $250,000 in cash.[7]

SIPC is a government-backed organization that safeguards securities customers of its member brokerage firms. But their coverage doesn't protect against losses in the value of your investments. So, it's important to diversify your portfolio and invest wisely.

How to Open Robinhood IRA Account

Follow these three simple steps to set up an IRA account on Robinhood:

  1. Create or log in to your Robinhood account
    If you don't have an account yet, be sure to create a Robinhood brokerage account. You'll need it to open and set up your IRA. Once you're logged in, head to the "Retirement" section.

  2. Choose an IRA type and investment option
    Choose what type of IRA you want (Traditional or Roth) and what you want to invest in (pre-built portfolios or choose your own investments).

  3. Deposit your contribution
    Once you're notified via email, your IRA has been successfully set up. You can now deposit contributions into your account.

When opening and setting up your IRA, remember to read all the forms and agreements carefully. Make sure that they align with your financial and investment goals.

Have you considered opening an IRA with Robinhood?

How to Deposit in Robinhood IRA

Here's how you can fund your Robinhood IRA:

  • Link a new bank account
  • Transfer between your existing Robinhood account
  • Initiate a rollover from an existing IRA or 401(k)

Robinhood IRA Alternatives

If you're still not convinced about Robinhood's IRAs, you can explore these alternatives for your retirement savings:

  1. SoFi
    SoFi IRAs offer various fee-free investment options, including Traditional IRAs, Roth IRAs, and SEP IRAs. These are available on their app.

    One standout feature of SoFi is the "Stock Bits" function, which lets you invest in fractional shares. Also, their automated investing and portfolio rebalancing can help you manage your investments further.

  2. Fidelity
    If you want to invest in mutual funds, Fidelity offers over 10,000 mutual funds, including over 3,000 that have no transaction fees.

    Fidelity provides different IRA account options, including Traditional, Roth, Rollover, Inherited, and even Roth for kids. Investing is made easier with their personalized advice through their digital advisory service, Fidelity Go.

  3. Webull
    Webull provides Traditional IRA, Roth IRA, and Rollover Accounts without any annual fees. Additionally, they offer commission-free trading for stocks, ETFs, and options. Its advanced trading tools and real-time market data can also help you make smart investments.

    Its paper trading feature and extended trading hours have also been really helpful for many investors.

  4. Betterment
    What sets Betterment apart is its automated investing, making investing easy for beginners. Their advanced features help you invest your money smartly and save on taxes. But remember, there's an annual fee based on your account balance and how much help you want.

    Betterment has lots of IRA choices for you, like Traditional IRAs, Roth IRAs, SEP IRAs, and Roth conversions.

It's important to thoroughly research and compare each provider's specific features, fees, and services to determine the best fit for individual investment needs and goals.

Bottom line

Overall, Robinhood offers great IRA options if you're looking to save up for retirement. With no trading or account fees, anyone can easily get started.

They even give your savings a boost with their matching contributions. This unique program addresses many challenges for people who don't have access to a 401(k).

References

  1. ^ IRS. Individual Retirement Arrangements (IRAs), Retrieved 09/08/2023
  2. ^ Robinhood. What you need to get started, Retrieved 11/04/2023
  3. ^ Robinhood. Fees, Retrieved 11/04/2023
  4. ^ Internal Revenue Service. Traditional and Roth IRAs, Retrieved 11/04/2023
  5. ^ IRS. Additional Tax on Early Distributions From Traditional and Roth IRAs, Retrieved 09/14/2023
  6. ^ Robinhood. Investments you can make on Robinhood, Retrieved 11/04/2023
  7. ^ SIPC. What SIPC Protects, Retrieved 09/14/2023
Acorns

$20 Investment Bonus

  • Open an Acorns account (new users only)
  • Set up the Recurring Investments feature
  • Have your first investment be made successfully via the Recurring Investments feature
Stash

Sign Up and Get $5

  • Sign up, add at least $5 to your account and get a $5 bonus.
  • Invest with fractional shares
  • Get portfolio recommendations
Goldco

Free Gold IRA Kit

  • Up to $10,000 in free silver for eligible customers
  • Highest buyback price, guaranteed
  • Endorsed by Sean Hannity and Chuck Norris

Write to Miel Ysabel at feedback@creditdonkey.com. Follow us on Twitter and Facebook for our latest posts.

Note: This website is made possible through financial relationships with some of the products and services mentioned on this site. We may receive compensation if you shop through links in our content. You do not have to use our links, but you help support CreditDonkey if you do.

TrendingA visitor from Pennsylvania read How Does Robinhood Make Money
TrendingA visitor from Nebraska read Fidelity Review
FeaturedA visitor from Colorado read Betterment Review

Compare:

Invest money and build wealth. Sign up to get our free email newsletter.

Next Page:

About CreditDonkey
CreditDonkey is a personal finance comparison website. We publish data-driven analysis to help you save money & make savvy decisions.

Editorial Note: Any opinions, analyses, reviews or recommendations expressed on this page are those of the author's alone, and have not been reviewed, approved or otherwise endorsed by any card issuer.

†Advertiser Disclosure: Many of the offers that appear on this site are from companies from which CreditDonkey receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). CreditDonkey does not include all companies or all offers that may be available in the marketplace.

*See the card issuer's online application for details about terms and conditions. Reasonable efforts are made to maintain accurate information. However, all information is presented without warranty. When you click on the "Apply Now" button you can review the terms and conditions on the card issuer's website.

CreditDonkey does not know your individual circumstances and provides information for general educational purposes only. CreditDonkey is not a substitute for, and should not be used as, professional legal, credit or financial advice. You should consult your own professional advisors for such advice.

About Us | Reviews | Deals | Tips | Privacy | Do Not Sell My Info | Terms | Contact Us
(888) 483-4925 | 680 East Colorado Blvd, 2nd Floor | Pasadena, CA 91101
© 2024 CreditDonkey Inc. All Rights Reserved.