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Robinhood launches IRA for gig economy

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Brokerage platform Robinhood said Tuesday it launched an individual retirement account with a 1% match on every dollar contributed, targeting gig workers, people with side hustles and those building their own companies.

Robinhood
HOOD,
-3.20%
is offering traditional IRA or Roth IRA with a 1% match, with zero commissions or account minimums for those who lack an employer-sponsored retirement plan. For the first time, Robinhood customers can have multiple brokerage accounts, making it easier to save for the future, the company said. 

“We’re democratizing finance for all. This retirement product is next-generation. There’s not enough savings going on. We wanted to create something to reinforce good saving habits,” said Steph Guild, Robinhood’s head of investment strategy.

The company, which has been in the crosshairs of the meme-stocks frenzy and fallout, said that tools that can make it easier to save for retirement — such as automatic transfers from a paycheck or contribution matching — are often not available to gig economy workers. Gig workers, such as ride-share drivers, pet sitters, food delivery drivers or freelancers, make up as much as 40% of America’s total workforce. 

Read: ‘There’s no retirement in this job,’ gig workers say

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

Robinhood said the average age of its customer is 32, and 50% of its customer base are first-time investors. 

Last month, Robinhood said monthly active users for September came in at 12.2 million, a drop from the prior quarter and down from 18.9 million in the quarter last year, “as customers continued to navigate the volatile market environment.” That tally was the lowest active user count since 2020. Earlier this year, Robinhood faced a round of staff cuts amid a meltdown in crypto trading and broader market volatility. 

Read: Robinhood’s active users fall, approaching pre-meme-stock-craze numbers

While the Robinhood Retirement service is open to anyone, the company expects it to appeal to people who have part-time or gig jobs that lack retirement plans. 

“This product was developed with the gig economy in mind. But anyone can sign up,” Guild said. 

Read: Gig companies pledge to help end hunger in the U.S. Some of their workers can’t afford the food they deliver.

A little bit of savings can go a long way over time, Guild said, “1% may not seem like a massive amount, but it can add up to something very significant over time,” she said. “The time horizon is one of the biggest factors in success. It pays to get invested and stay invested.” 

Robinhood, which has been developing the retirement product for about a year, will pay out the 1% percent match. The company declined to comment on how much it invested to develop the product or how much it will spend going forward.

Read: Young investors can retire rich—or super rich—by following these steps

Customers can choose to invest in stocks and ETFs through either a traditional IRA or Roth IRA through the Robinhood app. The retirement account lets customers build a custom portfolio through tailored in-app recommendations, by choosing their own investments, or a mix of both. The app asks customers a series of questions about their risk tolerance and gives personalized recommendations.

Starting Dec. 6, anyone can sign up for the Robinhood Retirement wait list and get access to the service on rolling basis over the following weeks. It will be fully available in January. For customers who want access sooner, there’s a referral program. Customers have the ability to refer a friend to the retirement wait list and once their friend joins, they will receive access to a retirement account. 

Under the fine print, contributions must come from an external source and the match is capped at the annual IRS limits for contributions. (For 2023, the limit on annual contributions to an IRA will be $6,500. The IRA catch‑up contribution limit for individuals age 50 and over will be $1,000.) 

“For young people, they tend not to think about retirement. But the power of compounding, overcoming inertia and the start of healthy habits are all beneficial,” said Sam Nordstrom, Robinhood product manager.

Credit: marketwatch.com

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