Brett Arends's ROI: How to shop your way to a $400,000 retirement

Sort of.

A new venture from a community bank and a Silicon Valley technology company will soon let you finance your individual retirement account with online shopping rebates from 13,000 retailers, including a lot of big names such as Walmart WMT, -0.91%, Nordstrom JWN, -2.12% and Macy’s M, -1.70%.

IRARewards.com is being launched by BPAS, the retirement plan administration arm of Community Bank System CBU, -0.76%, a regional bank valued at $3.2 billion and with $13 billion in assets, and EvoShare, a financial technology company.

Set up an IRA with BPAS, download a “browser extension” from EvoShare, connect your accounts, and off you go.

This isn’t chump change. You’ll get back somewhere between 1% and 15% of what you spend, depending on the company. The network of retailers includes the likes of Target TGT, -0.77%, Microsoft MSFT, +0.02% and Samsung, as well as lots of smaller, bricks-and-mortar stores and retail establishments that are desperate to boost their online sales. 

“Anything from yoga studios to restaurants—any brick and mortar store can opt in to this network,” says PBAS spokesman Brian Douglas. “When our customer utilizes this service, there will be a cash-back reward. A portion of their purchase will come back as a contribution to their IRA.”

He adds that these are merchant rebates, and are in addition to any cashback, frequent flier miles or other rewards you may get on your credit card.

What’s not to like?

I asked some financial advisers for their take.

“That sounds awesome, especially for people who are in their spending years, where the kids are at home or you are spending a lot on anything from diapers to college,” says Monica Dwyer at Harvest Financial Advisors in West Chester, Ohio. “The only issue I see with it is that the investor would need to know how much they “contributed” to their account so that they could make up the difference and max out their contribution if they wanted to.”

“I like it in theory,” says Leslie Beck, an adviser at Compass Wealth Management in Rutherford, N.J., but added that individuals still needed to do some financial planning around their IRAs. Among the issues is whether to go for a pretax, traditional IRA or contribute posttax money to a Roth IRA. “IRA contributions aren’t ‘cut and dry,’” she says.

“It’s a clever idea,” agrees Dennis Nolte, a financial adviser with Seacoast Investment Services in Winter Park, Florida. He, too, warned that individuals needed to think about some of the wrinkles involved in an IRA. So, he said, if you have no earned income you’re not eligible to contribute to an IRA unless you’re a nonworking spouse. And, he said, individuals need to make sure they don’t go over the IRA contribution limits, which are $6,000 a year at the moment (and $7,000 if you’re 50 or over).

The IRARewards venture may not sound like much, but it adds up. Contribute $6,000 a year to an IRA for 30 years, earn an average of 5% a year on your investments, and you’ll retire with $400,000 in your account.

The median for someone aged 55 to 64 right now? Just $47,000.

The churlish might point out that you can get 100% cashback on money you spend by…er…not spending it.

But if there are two financial challenges that have experts pounding their heads against brick walls in frustration, it’s how to get Americans to save more toward their retirement and how to get us to spend less money shopping. So we might consider this clever venture a win-win all round.

EvoShare already offers this cashback system for certain 401(k) plans, but the new venture will vastly broaden the market.

BPAS currently provides support, fund management and administration services for 3,800 retirement plans across the country, with up to $1.3 trillion in funds and 450,000 members.

Douglas says IRARewards is initially being rolled out to its current 450,000 customers, but will be offered to the rest of us in a few months.