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Among the financial companies that offer individual retirement accounts, or IRAs, Robinhood is by no means the pioneer. However, it might be the first to provide match contributions for non-employer IRAs, which are normally only offered through employer-sponsored plans. Advertisement.
It’s possible that the new accounts will change the lives of tens of millions of Americans. The Bureau of Labor Statistics reports that as of March 2020, 22.88 percent of workers do not have access to an employer-sponsored retirement plan.
However, some investors may be curious about how matching contributions are offered by non-employer IRAs, how these accounts operate, and who qualifies for them.
Yes, you can open a Roth IRA with Robinhood. In fact, Robinhood offers both traditional and Roth IRA accounts, allowing you to choose the option that best suits your retirement savings goals.
This guide will delve into the details of opening a Roth IRA with Robinhood, including eligibility requirements, contribution limits, and the benefits of using Robinhood for your retirement savings.
Eligibility Requirements for a Robinhood Roth IRA
To open a Roth IRA with Robinhood, you must meet the following eligibility requirements:
- Earned income: You must have earned income to contribute to a Roth IRA. This means income from work, such as wages, salaries, or self-employment income. Passive income, such as investment earnings or rental income, does not qualify.
- U.S. citizen or resident: You must be a U.S. citizen, lawful permanent resident, or visa holder with a valid Social Security number.
- Age 18 or older: You must be at least 18 years old to open a Roth IRA.
- No B-Notice: If you have a B-Notice on your Robinhood account, you will not be able to open an IRA until your account restrictions are lifted.
Contribution Limits for a Robinhood Roth IRA
The IRS sets annual contribution limits for Roth IRAs. For 2023, the contribution limit is $6,500 for individuals under age 50 and $7,500 for individuals age 50 or older. For 2024, the contribution limit will increase to $7,000 for individuals under age 50 and $8,000 for individuals age 50 or older.
Benefits of Opening a Roth IRA with Robinhood
There are several benefits to opening a Roth IRA with Robinhood:
- Tax-free withdrawals in retirement: Unlike traditional IRAs, where contributions are tax-deductible but withdrawals are taxed, Roth IRA contributions are made with after-tax dollars. This means that when you withdraw your money in retirement, it is completely tax-free.
- Potential for tax-free growth: Any earnings on your Roth IRA contributions are also tax-free, allowing your money to grow faster than in a taxable account.
- No required minimum distributions (RMDs): Unlike traditional IRAs, where you must start taking withdrawals at age 72, there are no RMDs with Roth IRAs. This means you can keep your money invested and growing for as long as you want.
- No income limitations: Unlike traditional IRAs, there are no income limitations for contributing to a Roth IRA. This means that even if you have a high income, you can still contribute to a Roth IRA and enjoy the tax benefits.
- Robinhood’s user-friendly platform: Robinhood’s user-friendly platform makes it easy to open and manage your Roth IRA. You can easily track your investments, make contributions, and withdraw funds.
- Fractional shares: Robinhood allows you to buy fractional shares of stocks and ETFs, which can be helpful if you want to invest in expensive stocks or ETFs with a limited amount of money.
- No account minimums: Robinhood does not require a minimum balance to open a Roth IRA, making it accessible to everyone.
- Automatic contributions: You can set up automatic contributions to your Roth IRA, making it easy to save for retirement on a regular basis.
- IRA match: Robinhood offers a unique IRA match feature. With Robinhood Gold, you get a 3% match on your contributions, and without Robinhood Gold, you get a 1% match. This is a great way to boost your retirement savings.
How to Open a Roth IRA with Robinhood
Opening a Roth IRA with Robinhood is a simple process:
- Create a Robinhood account: If you don’t already have a Robinhood account, you can create one for free.
- Navigate to the Retirement section: Once you’re logged in, navigate to the Retirement section of the app or website.
- Choose “Get started”: Click on “Get started” to begin the IRA setup process.
- Select your IRA type: Choose whether you want to open a traditional IRA, a Roth IRA, or both.
- Follow the prompts: Robinhood will guide you through the rest of the process, including linking your bank account and making your first contribution.
Frequently Asked Questions (FAQs)
Q: What is the difference between a traditional IRA and a Roth IRA?
A: The main difference between a traditional IRA and a Roth IRA is the tax treatment of contributions and withdrawals. With a traditional IRA, contributions are tax-deductible, but withdrawals are taxed. With a Roth IRA, contributions are made with after-tax dollars, but withdrawals are tax-free.
Q: Which type of IRA is right for me?
A: The best type of IRA for you depends on your individual circumstances. If you expect to be in a lower tax bracket in retirement than you are now, a traditional IRA may be a better choice. If you expect to be in a higher tax bracket in retirement, a Roth IRA may be a better choice.
Q: Can I contribute to both a traditional IRA and a Roth IRA?
A: Yes, you can contribute to both a traditional IRA and a Roth IRA, but the total contributions to both accounts cannot exceed the annual contribution limit.
Q: How much should I contribute to my Roth IRA?
A: The amount you should contribute to your Roth IRA depends on your individual financial situation and retirement goals. However, it’s generally recommended to contribute as much as you can afford.
Q: What are the risks of investing in a Roth IRA?
A: Like any investment, there are risks involved in investing in a Roth IRA. The value of your investments can go down, and you could lose money. However, over the long term, the stock market has historically trended upwards, so investing in a Roth IRA can be a great way to grow your retirement savings.
Opening a Roth IRA with Robinhood is a great way to start saving for retirement. With its user-friendly platform, no account minimums, and unique IRA match feature, Robinhood makes it easy and affordable to invest in your future.
Additional Resources
- Robinhood IRA Overview: https://robinhood.com/us/en/support/articles/ira-overview/
- NerdWallet’s Guide to Robinhood IRAs: https://www.nerdwallet.com/article/investing/robinhood-ira-what-you-need-know
- IRS Contributions to IRAs: https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-ira-contribution-limits
What special features does the Robinhood IRA have?
Three features of the Robinhood IRA are not found in other non-employer IRAs: investment recommendations, matched contributions, and instant deposit.
Who can set up a Robinhood IRA?
The two primary prerequisites for opening an IRA at Robinhood are having a Robinhood account and having earned income.
The IRS prohibits individuals from contributing to IRAs unless they have earned income, which is income from employment as opposed to passive income from assets or real estate.
To open a Robinhood IRA, you must also be qualified for a standard, taxable Robinhood brokerage account. Therefore, you must be a U.S. citizen and at least 18 years old. S. holder of a visa, lawful permanent resident, or citizen with a current Social Security number and a U S. address.
Another prerequisite for the Robinhood IRA is the creation of a taxable brokerage account, which is presently the only way to create a Robinhood login. However, you can open an IRA without using the taxable account.
» Curious about Robinhood’s taxable accounts? Read our Robinhood review.