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If you want a healthy financial life, it pays to follow a few basic rules. Build an emergency fund. Avoid high-interest debt. Pay off your credit cards. Invest for your financial goals. Save for retirement.
Of all of these rules, the last one—saving for retirement—is the one that often confuses people the most. The laws governing retirement accounts are so complicated and retirement is so far away anyway; it’s often just easier not to think about it.
But the truth is, the earlier you can start saving for your retirement, the better, because the more time your money is invested in the market, the more time it has to grow, and the surer you can be that you’ll be taken care of in your old age.
But where to begin?
Well, if you currently use the Stash investment app (or you’ve been thinking about signing up) there’s some good news: All it takes is five minutes and $5 to open an IRA through Stash Retire.
For information about the various types of retirement accounts—IRAs, 401Ks, 403Bs—check out the section on “Types of Investment Accounts” in our College Student’s Guide to Investment Terms.
What is Stash Retire and how does it work?
When Stash first launched, the app could only function as a regular brokerage account. While this is a great way to begin saving and investing, it does have some drawbacks, especially if you are investing for the very long-term (i.e., your retirement).
The biggest of these drawbacks is the fact that, when you open a regular investment account, you are doing so with after-tax money—money that you’ve already paid income taxes on. Then, when you you withdraw the money from your investment portfolio in the future, you pay taxes on the profit. This is called the “capital gains tax.”
Retirement accounts are different from brokerage accounts because they are taxed differently, and this difference can save you thousands of dollars in taxes.
That’s where Stash Retire comes into play. While Stash Invest allows users to open a regular brokerage account to invest for anything, Stash Retire allows users to open a tax-advantaged IRA (traditional or Roth) to invest for retirement.
Once you open your IRA through Stash Retire, you can make contributions by either making one-time deposits, or by setting up recurring investments.
(In addition to traditional brokerage accounts and retirement accounts, Stash also offers a banking option, Stash Banking, if you are looking for an alternative to traditional banks.)
How much can you invest in your Stash Retire IRA?
The amount of money that you can invest in an IRA is set by law. As of 2019, if you are younger than 50 years old, the absolute maximum amount that you can invest in an IRA each year is $6,000. If you are older than 50 years old, you are allowed to invest up to $7,000 each year.
If your Stash IRA is the only IRA that you have, that means you can invest up to $6,000 (or $7,000 if you are 50+) each year into your Stash Retire account. But if you have multiple IRAs, the maximum applies to all of your IRAs.
For example, if you already have one IRA which you invest $2,000 in each year and you then open a Stash Retire account, you can only invest up to $4,000 into your Stash Retire account (since $2,000 + $4,000 = $6,000).
The Stash app has a helpful progress bar that shows you how close you are to hitting this maximum annual contribution limit, but it is important to note that this only takes into account the funds that are in your Stash Retire account—not any other IRAs that you may have.
How much does it cost?
You don’t have to pay anything to open your Stash Retire account, but you will need to pay a monthly fee. This fee is on top of the fee you are paying for your regular Stash Invest account.
That being said, the fees are relatively cheap. If your Stash Retire IRA has less than $5,000 in it, you will pay $2 per month. Once your account reaches $5,000 in value, you’ll pay 0.25% of your account’s value each year.
As a point of comparison: Many investment advisers and funds charge upwards of 0.75%-1% or higher to manage accounts. 0.25% is a very low fee compared to these higher options.
Younger than 25? Because Stash wants to encourage young people to begin investing for retirement as early as possible, they won’t charge you any monthly fees until your 25 birthday. That means that you can potentially grow your money completely fee-free. You won’t find a deal like that in very many places!
Opening a Stash Retire account
If you already have a Stash Invest account, opening your IRA through Stash Retire will take you less than five minutes.
Just answer a few basic questions about your employment status and your income level, and Stash will recommend you open either a traditional or Roth IRA. (This recommendation is just that—a recommendation. You can choose whichever account you prefer, as long as you meet the legal requirements to do so).
Not sure what the difference is? Very simply, they work like this:
- With a traditional IRA, you contribute money to your retirement account with pre-tax money. This lowers your taxable income for the year. Then, when you withdraw the money in retirement, you pay income tax on it—but no capital gains tax.
- With a Roth IRA, you contribute after-tax money to your retirement account. This means that your taxable income for the year isn’t lowered like it is with a traditional retirement account. The trade-off for paying your taxes upfront? In retirement, when you withdraw money from your Roth account, you do so completely tax free. You don’t pay income tax or capital gains tax.
Then, you’ll choose an initial deposit amount (there’s a $5 minimum to open your account). This money will be deposited directly into a specific retirement portfolio that is designed to match your age. When you’re younger (and therefor further from retirement) this portfolio will be riskier; but as you get older and closer to retirement, it will become more conservative.
From there, you can set up a recurring investment of $5, $25, $50, or $100 to be made every week, every other week, or every month. Or, you can forgo the recurring investment and simply make one-time investments as you have the money.
Don’t want to just invest in the suggested mix? You can also invest in the same investment Themes and individual companies as you can with your regular Stash Invest account.
The Bottom Line
Whether you’re a college student, a recent graduate, or just someone looking to start investing for retirement, Stash Retire is a great tool that can help you reach your goals. Some of the reasons we like it:
- You can get started completely free, with as little as $5.
- You’ll only pay $2 per month on accounts up to $5,000 in value, or 0.25% of your account’s value once you hit $5,000.
- For users under 25 years old, it’s completely free: You won’t pay a monthly fee util you are 25 years old.
- You can choose from a traditional or Roth IRA: Whichever better fits your personal financial goals.
- Signing up is easy: It takes just 5 minutes to open your Stash Retire account.
New to Stash and want more information about the app? Check out our review for more information about the many ways that you can begin investing and make money with Stash.
