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As part of their "Hood Week" promotion Robinhood is currently offering a 3% uncapped bonus on IRA transfers. If you transfer a Roth or traditional IRA from another institution, they will immediately pay 3% of the total value transferred into your account. The requirements are:

  • You must be a Robinhood Gold subscriber before the transfer and maintain your membership for one year ($50 annual or $5 monthly)
  • You must keep the transferred funds with Robinhood for five years

If you terminate the Gold subscription before one year or transfer/withdraw funds before five years, they claw back the bonus as a fee.

Instantly adding 3% to my IRA balance seems too good to be true. Are there additional costs or risks involved that are not obvious? How can they afford to do this?

Chris W. Rea
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Robert
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1 Answers1

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Are there additional costs or risks involved that are not obvious?

You have to factor in the balance to be transferred in, and where you are in your working life. If you will need to pull those retirement funds out within the next 5 years, then you have to decide is the gamble worth it.

A 70 year old could have a significant balance to transfer, but they are likely to have to make withdraws. A 22 will generally not need the funds in the next 5 years, but their balance will be lower.

If this is non-Roth, then RMD rules need to be considered. If this is money you were going to convert to Roth the bonus will also have to be reflected in your calculations.

Understand what withdraws you can make during the 5 years. What happens if the balance goes down next year. Some years the S&P is lower for the year.

All this is in the fine print.

How can they afford to do this?

Not everyone will stay the whole 5 years. They believe the extra income they will get if a significant amount of new money flows in will be greater than the interest they will be paying out.

Some will keep that money in those accounts for decades, thus generating income for the company.

mhoran_psprep
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