Acorns lets you invest spare change. Can Acorns Later help you retire?

Acorns lets you invest spare change. Can Acorns Later help you retire?

Updated May 30, 2018: Acorns Later has amassed 100,000 accounts since launching in April, the company announced in tweet on Tuesday.

Prospective users can sign up for traditional, Roth and Simplified Employee Pension individual retirement accounts. The app suggests an IRA based on age, income and other factors. Users with up to $1 million in assets pay $2 a month for Acorns Later and other Acorns tools, including Round-Ups, divident reinvestment, automatic rebalancing, Found Money and Grow, the Acorns education platform.

Retirement is no longer a given for everyone. Some people don't plan to do it because they love their work so much, they can't imagine stopping. On the other hand, some people don't think they'll ever save enough.

That's why the forthcoming investment product from Acorns isn't called "Acorns Retirement." It's called Acorns Later.

Whether they retire or not, said Acorns CEO Noah Kerner, "Everyone wants to have a better life later."

What is Acorns Later?

Once it launches in April, users of Acorns Later will be able to open tax-advantaged retirement accounts and set up automatic contributions to them. The new accounts will be a core part of Acorns, a spare change investment company. Users will be able to set aside small amounts — as little as $5 to start their accounts.

"Our pitch is you should be contributing even small amounts to Later," Kerner said.

Acorns Later will have three types of individual retirement accounts: Roth, traditional and simplified employee pension (SEP). There are a number of differences between the three, but the simplest are:

  • Your contributions to Roth IRAs are taxable, but distributions are tax-free.
  • Your contributions to traditional IRAs are tax-free, but distributions are taxed.
  • SEP IRAs are for employers, mainly of small businesses, to set aside money for themselves and their employees, with higher contribution limits than the other IRA types.

How much will Acorns Later cost?

Acorns charges $1 a month for its investment accounts. Kerner hinted this model would change when Acorns Later launches, but wouldn't go into detail.

The wait list for Acorns Later, first announced in December, had reached 300,000 people by the end of January, Kerner said. While they wait, these future customers get emails breaking down the advantages and risks of retirement accounts, he said.

"We want our customers to be really informed about everything, even if it doesn't really benefit us," Kerner said.

Wait, what's Acorns again?

Getting into retirement accounts seems like a logical next step for Acorns, which was founded in 2014 with the aim of democratizing investing. Since then, the company has opened 2.9 million investment accounts. Aside from automatically investing spare change from transactions, Acorns has also partnered with 150 companies for its "Found Money" program. When you shop with these companies, they invest a small amount into your Acorns account. For example, every time an Acorns user rides with Uber, the ride-hailing company deposits 50 cents into the user's Acorns account.

Typical Acorns users make less than $100,000 a year and range from as young as 18 to as old as 98, Kerner said.

"Part of what we're trying to do is uplift our customers and help them believe anyone can grow wealth in America," Kerner said.

Kerner said the financial industry tends to serve customers with money better than those without. Acorns, he said, is aiming to handle the finances of those who think they're in the latter group.

"I think we'll be the place where everyday Americans get all their money needs met," he said.

Trying to bank more money in 2018? Here's how to invest in five minutes or less.

Image: aldomurillo