Everyone should have access to a quality retirement plan. That should not be a radical statement. People deserve to age with dignity and not worry about outliving their savings or paying for necessities like shelter and food.
Yet tens of millions of American workers don’t have access to pensions or 401(k) plans through work. That means they are on their own when it comes to planning and saving for their retirement years. While many depend on Social Security, the average $2,000 monthly payment is rarely enough to support a good quality of life.
Traditionally, having to self-manage a retirement plan has meant opening an Individual Retirement Account with a brokerage firm, at least for savvier and more affluent workers. But lately, investing apps such as Robinhood Markets Inc. and Acorns are offering an option usually found only in employer-based plans: a match on retirement contributions, typically up to 3% of the account holder’s investment. Even robo-advisers like Bettermentand SoFi Technologies Inc. have gotten into the IRA match game.
As an advocate for seeking out the best return and not staying loyal to the old guard, Robinhood’s IRA match offer initially piqued my interest. While it isn’t ideal that products marketed by investing apps might be a saver’s best option, it also isn’t optimal that the responsibility for building a healthy retirement portfolio is put on the shoulders of the average person who might have little experience with investing.
Companies like Robinhood are clearly hoping to appeal to young workers who already are familiar with the platforms and enjoy the ease of buying stocks and cryptocurrency using an app on their phones. Unfortunately, even with a match offer, these IRAs generally are a mediocre alternative to employer-based 401(k) plans given the significantly lower contribution limits on IRAs.
A big downside of traditional and Roth IRAs is their low annual contribution cap of $7,000.1 That compares with $23,500 for 401(k)s (both limits are higher for investors over age 50).
Both Acorns and Robinhood take some of the sting out of an IRA’s constraints with the offer to match 3% of an investor’s contribution. That sounds good. But there are a couple of catches. For starters, the companies impose an all-or-nothing “cliff” vesting schedule to receive the modest match, meaning customers can’t walk away with their matching funds for four years at Acorns, or five at Robinhood.
For employers, vesting periods on the 401(k) match function as a talent retention strategy. Firms like Robinhood and Acorns are mimicking the language, but their goal is to retain paying customers, not employees.
Unlike 401(k) plans, the apps also charge a “membership” fee to be eligible for the match. The straightforward disclosure of membership costs will surely appeal to investors already familiar with the apps’ simplicity. And the fees themselves sound modest — $12 a month for Acorns and $5 for Robinhood — and unlock much more than just access to an IRA match.
But these fees eat away at the potential match returns. Acorns offers a 3% match, which translates to a maximum of $210 for those under age 50 maxing out an IRA with $7,000 in 2025.2 But after paying a $12 monthly fee, the participant is left with only $66 in profit from the match. (This excludes potential returns on investing the match itself.)
This calculation assumes the participant can max out the account. If the account holder can only contribute $3,500 to an IRA in 2025, then the 3% match would amount to $105, which is less than the cost of the Acorns membership. Plus, there’s no guarantee that the membership fee will remain this modest during the yearslong vesting period, nor that the match will continue to be offered.
On top of the monthly fee, there is a transfer fee should a participant want to move their IRA to another brokerage. Transfer fees aren’t uncommon, but Robinhood’s $100 charge is on the high side.
Of course, maxing out even one of these accounts is a challenge for many workers, and impossible for some. The real US median household income in 2023 was $80,610, according to the Census Bureau. It’s hard to imagine that many families could comfortably put away more than 25% of their income toward retirement.
Options for retirement saving are set to improve somewhat, especially for low-income workers, thanks to the SECURE Act 2.0, which then-President Joe Biden signed into law in late 2022. As part of the legislation, the federal government will offer a 50% match on qualifying retirement contributions to an eligible account, including IRAs, beginning in 2027, up to $2,000, for those eligible.3
But that’s still two years away, assuming the current administration won’t attempt to reverse the initiative.
There are instances where an app-based match IRA makes sense. For people whose workplace 401(k) plans don’t offer a match and whose income isn’t high enough to take advantage of 401(k) plans’ much greater contribution limits, a match IRA could be a good option.
A modest match, even with a cliff vesting schedule, is better than nothing. But it’s frustrating that for so many Americans, this is as good as it gets. People shouldn’t work for decades and still feel uncertain about their ability to retire, especially if they were never guided on how to save and invest in the first place.
1 Betterment’s offer appears to have expired at the end of last year.
2 Those age 50 and older can contribute $8,000 to an IRA in 2025.
3 Certain IRAs, including SEP plans for self-employed individuals and SIMPLE IRAs used by small businesses, have higher contribution limits.
4 One thing to note: The match cannot be deposited into a Roth account.
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