The Curious Math Behind Robinhood’s 3% IRA Match and the Backdoor Roth

Robinhood offers a 3% contribution match on all IRA contributions (Roth or traditional) for their Robinhood Gold members. They also often run a promo to give a 2% match for IRA account transfers from an outside institution into Robinhood. You need to pay for Robinhood Gold membership for one full year after making the transfer or contribution in order to be eligible for the full 3%/2% bonus. And you need to leave the funds there with Robinhood for five years.

Tax Treatment of the Bonus

In the financial enthusiast community, it’s been pointed out an interesting tax and retirement benefit to the Robinhood match bonus.

See, instead of running the match like a separate account bonus which goes to your Cash account, the Robinhood match bonus goes directly into your IRA and is treated like a gain from your IRA account. This gets us two distinct advantages:

• Tax treatment: the bonus gets the same tax advantage as the IRA itself. If it’s a Roth IRA, that means you’ll never pay taxes on the match bonus at all. That’s a significant boost to the bonus when comparing against regular bank/brokerage bonuses. If it’s a traditional IRA, you’ll pay taxes when you break the IRA in retirement, but you still get the benefit of the delayed taxation which lets the funds grow more. (That’s always the benefit of the traditional IRA.)
• Retirement limits: while we are limited to $7,000 in annual IRA contributions (for 2025), the match bonus goes on top of that number since it’s treated like a subsequent gain in your retirement account, not an initial contribution.

WeBull

WeBull appears to treat IRA match bonus and transfer bonus similar to Robinhood with the bonus acting like a gain of the IRA account and thus conferring the tax benefits of the account.

There are likely other brokerages offering this as well – Robinhood and WeBull have been running the most competitive offers for IRA contributions and transfers. Feel free to comment below if you verified how it works for an IRA bonus with another brokerage. (Update: Judging from the comments below, it appears this is how it usually works for bonuses attached to IRA accounts with other brokerages as well.)

Update: An interesting twist regarding WeBull: apparently, there’s a setting you can modify on the ‘My Rewards’ page settings and prioritize the Roth account so that all bonuses land there.

Backdoor Roth Twist

For those who contribute to a backdoor Roth (those with higher incomes who are excluded from contributing directly to a Roth IRA), it gets more interesting: If you contribute directly to a Roth IRA at Robinhood, the 3% match also goes directly into the Roth. But if you’re using the backdoor Roth strategy, the Robinhood bonus goes to the traditional IRA account since the initial contribution to Robinhood went there. Let’s assume a $7,000 (2025) contribution into the traditional IRA and a bonus match of $210. Now there’s $7,210 in your Robinhood traditional IRA. 

Now, you’ll convert the funds into a Roth IRA. The cleanest way to do so is to transfer the entire $7,210 into the Roth. Since this is a conversion (remember, the $210 is treated like gains from the traditional IRA), you’ll pay regular income taxes on the $210. And so you won’t get the same tax-free benefit that you would get with a direct Roth contribution. But you’ll still get the other above-mentioned benefit of stuffing “higher than the annual limit” into your IRA. 

There does not seem to be any problem, from a bonus perspective, with doing the backdoor Roth – though you converted the funds from tradition to Roth, Robinhood seems to be good with your “keeping the funds for 5 years” clause, so long as you leave it with them for 5 years.

Contribution 3% vs Transfer 2%

An interesting math problem is someone who is considering doing an IRA transfer bonus and subsequent contribution. Are they better off doing the contribution to their old brokerage and then transferring into Robinhood with a 2% transfer bonus? Or should they transfer the existing IRA funds, then do their backdoor Roth contribution into Robinhood to get the higher 3% bonus? 

Simply speaking it would depend if your marginal tax bracket is higher than 33%. It’s slightly more complex, but this should be an easy rule of thumb: assuming you pay less than 33% taxes, it’s technically better to do the contribution after doing the transfer and getting the higher 3% bonus. 

Note: many states allow the same benefits for IRAs that the federal taxation law allows. And so, when evaluating your marginal tax bracket, you can add together your federal and state tax brackets to see if it adds up to 33%. (In states which do not allow IRA deductions the math will be different.)

Suggestion to Robinhood

In case the folks at Robinhood are DoC readers 😉 , kindly tweak the system so that – for backdoor Roths – we can choose which account gets the bonus. That way we can sidestep the whole issue and have the match bonus go directly into the Roth IRA. 

5-Year Lock Rule

On a related note, here’s something I’ve verified with Robinhood support. When doing your annual IRA contribution for the 3% contribution match, the 5-year lock has a rolling timeframe. And so let’s say you make a $7,000 IRA contribution each year for the next 10 years (2025-2034) and your account now has exactly $70,000 (for simplicity, let’s assume no growth). In 2035, you transfer $35,000 out of Robinhood to another brokerage. Robinhood will look at the $35,000 transfer as if the earlier contributions were transferred (2025-2029). Thus, you will not lose your bonus so long as you always leave the most recent five years of contributions in the account.