Robinhood introduces retirement accounts

Wednesday 7 December 2022 12:26 CET | News

Robinhood, a retail trading app, has introduced retirement accounts for users of its mobile app, offering customers a 1% match on its traditional or Roth IRAs.

The company claims that it is the first match paid to retail IRA customers – outside of a workplace retirement plan. Robinhood has more than 12 million active monthly users and 23 million funded accounts.

Prospective customers can apply to be waitlisted for Robinhood Retirement beginning Tuesday and can expect to receive access on a rolling basis in the coming weeks, but full availability is expected in January 2023.

The financial technology provider is making a significant wager that the regular 9-to-5 job is no longer the norm with this move. Gig workers and contractors, for instance, who previously found it difficult to prepare for retirement without the advantages of a full-time employment and access to an employer-sponsored plan, are the target audience for this initiative.

The launch brings Robinhood closer to directly competing with established brokerages like Fidelity, Charles Schwab, and Morgan Stanley's E*TRADE, which have been active in the online retirement account market for years.

What is happening with Robinhood?

While Robinhood has remained a popular app for traders who supported the early 2021 revolt of amateur investors against Wall Street elites, the company has faced disaster on numerous occasions.

The brokerage's revenue from digital asset transactions and competition fell as the value of the virtual assets fell, affecting the broader cryptocurrency market.

The summer was a challenging time for the company, scaling down by firing 713 employees just three months after it already reduced its headcount by 9%. Following this round of layoffs, the company was left with nearly 2,400 employees. According to Robinhood officials, the layoffs primarily affected the fintech’s operations, marketing, and programme management functions.

Moreover, the New York State Department of Financial Services (NYDFS) issued a fine of USD 30 million to the cryptocurrency trading division of Robinhood. The entity was fined for alleged violations of anti-money laundering (AML) and cybersecurity standards.

When disclosing its second quarter results, Robinhood reported net revenue of USD 318 million on a net loss of USD 295 million.

The necessity of retirement programs for gig workers

According to recent statistics, the US now has over 59 million gig workers, and more than 90% of Americans say they would consider freelance work or independent contracting. The main reasons are understandably freedom, flexibility, and control.

Anyone who earns an income of any kind is able to contribute to an IRA. Freelance workers can set up an IRA or Roth with different online companies.

However, both accounts have USD 6,000 annual contribution limits, and a Roth IRA even has income restrictions for who can contribute. Contract workers who make too much to contribute to a Roth or want to set aside more than USD 6,000 can look into Solo 401Ks or SEP-IRAs (simplified employee pension plan). These plans have higher contribution limits but are specifically for business owners.

Retirement savers can be less prone to move between different brokerages, and retirement savings offer a huge potential market.

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Keywords: banks, retail, trading platform, product launch, digital assets
Categories: Banking & Fintech
Companies: Robinhood
Countries: United States
This article is part of category

Banking & Fintech


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