Robinhood provides a 3% contribution match on all IRA contributions (Roth or conventional) for his or her Robinhood Gold members. In addition they usually run a promo to present a 2% match for IRA account transfers from an out of doors establishment into Robinhood. It’s essential pay for Robinhood Gold membership for one full 12 months after making the switch or contribution in an effort to be eligible for the total 3%/2% bonus. And that you must go away the funds there with Robinhood for 5 years.
Tax Therapy of the Bonus
Within the monetary fanatic group, it’s been identified an attention-grabbing tax and retirement profit to the Robinhood match bonus.
See, as an alternative of working the match like a separate account bonus which works to your Money account, the Robinhood match bonus goes immediately into your IRA and is handled like a acquire out of your IRA account. This will get us two distinct benefits:
- Tax remedy: the bonus will get the identical tax benefit because the IRA itself. If it’s a Roth IRA, meaning you’ll by no means pay taxes on the match bonus in any respect. That’s a big enhance to the bonus when evaluating towards common financial institution/brokerage bonuses. If it’s a conventional IRA, you’ll pay taxes once you break the IRA in retirement, however you continue to get the advantage of the delayed taxation which lets the funds develop extra. (That’s at all times the advantage of the normal IRA.)
- Retirement limits: whereas we’re restricted to $7,000 in annual IRA contributions (for 2025), the match bonus goes on high of that quantity because it’s handled like a subsequent acquire in your retirement account, not an preliminary contribution.
WeBull
WeBull seems to deal with IRA match bonus and switch bonus just like Robinhood with the bonus performing like a acquire of the IRA account and thus conferring the tax advantages of the account.
There are probably different brokerages providing this as properly – Robinhood and WeBull have been working probably the most aggressive provides for IRA contributions and transfers. Be at liberty to remark under if you happen to verified the way it works for an IRA bonus with one other brokerage.
Backdoor Roth Twist
For individuals who contribute to a backdoor Roth (these with larger incomes who’re excluded from getting a deduction when doing a direct Roth IRA contribution), it will get extra attention-grabbing: In case you contribute on to a Roth IRA at Robinhood, the three% match additionally goes immediately into the Roth. However if you happen to’re utilizing the backdoor Roth technique, the Robinhood bonus goes to the normal IRA account because the preliminary contribution to Robinhood went there. Let’s assume a $7,000 (2025) contribution into the normal IRA and a bonus match of $210. Now there’s $7,210 in your Robinhood conventional IRA.
Now, you’ll convert the funds right into a Roth IRA. The cleanest means to take action is to switch the whole $7,210 into the Roth. Since this can be a conversion (bear in mind, the $210 is handled like good points from the normal IRA), you’ll pay common earnings taxes on the $210. And so that you gained’t get the identical tax-free profit that you’d get with a direct Roth contribution. However you’ll nonetheless get the opposite above-mentioned advantage of stuffing “larger than the annual restrict” into your IRA.
There doesn’t appear to be any drawback, from a bonus perspective, with doing the backdoor Roth – although you transformed the funds from custom to Roth, Robinhood appears to be good along with your “retaining the funds for five years” clause, as long as you allow it with them for five years.
Contribution 3% vs Switch 2%
An attention-grabbing math drawback is somebody who’s contemplating doing an IRA switch bonus and subsequent contribution. Are they higher off doing the contribution to their outdated brokerage after which transferring into Robinhood with a 2% switch bonus? Or ought to they switch the prevailing IRA funds, then do their backdoor Roth contribution into Robinhood to get the upper 3% bonus?
Merely talking it could rely in case your marginal tax bracket is larger than 33%. It’s barely extra complicated, however this needs to be a simple rule of thumb: assuming you pay lower than 33% taxes, it’s technically higher to do the contribution after doing the switch and getting the upper 3% bonus.
Notice: many states enable the identical advantages for IRAs that the federal taxation legislation permits. And so, when evaluating your marginal tax bracket, you possibly can add collectively your federal and state tax brackets to see if it provides as much as 33%. (In states which don’t enable IRA deductions the maths might be totally different.)
Suggestion to Robinhood
In case the oldsters at Robinhood are DoC readers 😉 , kindly tweak the system in order that – for backdoor Roths – we will select which account will get the bonus. That means we will sidestep the entire problem and have the match bonus go immediately into the Roth IRA.
5-12 months Lock Rule
On a associated be aware, right here’s one thing I’ve verified with Robinhood assist. When doing all of your annual IRA contribution for the three% contribution match, the 5-year lock has a rolling timeframe. And so let’s say you make a $7,000 IRA contribution annually for the subsequent 10 years (2025-2034) and your account now has precisely $70,000 (for simplicity, let’s assume no progress). In 2035, you switch $35,000 out of Robinhood to a different brokerage. Robinhood will have a look at the $35,000 switch as if the sooner contributions had been transferred (2025-2029). Thus, you’ll not lose your bonus as long as you at all times go away the latest 5 years of contributions within the account.
