As a ‘reward’ to its drivers, Uber recently began offering a discount on retirement programs offered through Betterment, a new online retirement savings management company. Like most offerings from Uber, drivers need to beware. Betterment works best for high earners, and fees for small accounts will cripple a typical driver’s savings growth.
Betterment offers account holders access to low-fee products (numerous stock and bond market exchange-traded funds). These make great retirement account offerings, because of the low management fees, but be careful of monthly fees for small accounts without recurring deposits.
Pros and Cons of the Betterment Program
- Can open account with zero balance
- Relatively low fees for account management
- Access to low-fee exchange traded funds (ETFs)
- Offers SEP IRAs (IRAs for Self-Employed People)
- $3/month charge if account is not $10,000 or auto-depositing $100/month.
- Poor security—Betterment doesn’t support two-factor security (where you need to enter a pin that was texted to you in order to access account)
Be Mindful of Monthly Fees
Under this plan, Uber gets you a year of Betterment fee-free. But after that year, if your account is not $10,000 and you do not have $100/month automatically deposited, Betterment will charge you $3/month.
You should open an account only if you can make either of those two minimums by the end of the first year.
That might not sound like a lot, but on an annual basis, that could be over 3%, which will cripple your account’s growth.
Beware of Fluctuating Income and Taxes
The greatest advantage of the Uber gig is setting your own hours (That might be the only advantage). But fluctuating hours raises risks when making regular deposits to retirement accounts.
Deposits to retirement accounts can’t exceed 20% of your net income. If your income declines (because you found stable, full-time employment and drive less), you could face penalties if your retirement deposits exceed that 20% figure.
What Uber Drivers Should Do Before Saving for Retirement
I recommend that Uber drivers have an emergency fund of $1500 saved up before they make sizable contributions to a retirement account.
Uber’s insurance deductible is $1000. If you get in an accident and don’t have an emergency fund, you might not be able to repair your car. No car, no driving, no income from Uber.
Uber Testing Retirement Program in Only Four Large Markets
Uber has released the program in Boston, Chicago, New Jersey and Seattle. It’s a rewards program, so it will not be available to all drivers, but only those who complete a certain number of rides in a month.
Uber Retirement Program Has Limited Benefits
The Betterment plan is a good idea; drivers should be saving for retirement. But the plan might not be the best for drivers. Under this deal, drivers that qualify and sign up for an account with Betterment receive a year fee free. Heck, I can get 6 months free just by listening to a podcast. They sponsored an episode of Slate’s “The Gist” hosted by Mike Pesca. Follow the link there and you will get six months free from Betterment.
Seek Professional Advice
I am not a financial planner. Before designing a retirement savings plan, it is best to speak to a professional.
You can read more about IRAs for independent contractors at the IRS website.
Do you plan on signing up for a retirement account? Let me know below.