Investing Archives

Dec

2024

What Is a Trust Fund?

By Ashley Kilroy | Growing Wealth, Investing | Comments Off

A trust fund can help shelter your assets and determine how they are managed now or in the future. Generally a part of estate planning, trust funds can help minimize estate taxes, provide financial support to your loved ones, or even donate money to your favorite charitable cause.

There are numerous types of trust funds out there, and there likely isn’t a one-size-fits-all option. The trust you select will depend on your goals and unique circumstances, so it’s important to know the ins and outs of trust funds before deciding which option is right for you.

🛈 SoFi currently does not offer trust funds.

Trust Fund Definition

A trust fund is a legal tool or arrangement in which individuals can choose to place assets of various types into a special account. They’re often used to hold those assets, like stocks or real estate, for a beneficiary, like a family member, or even a company.

The purpose of a trust is to hold assets for the beneficiary without giving them direct control over the funds or property — the control remains with a third party designated by the individual creating the trust.

As an example, say a high-net-worth philanthropist desires to leave a legacy to his favorite cause when he dies. He creates a charitable trust that will add the charity as a beneficiary when he passes away. At that time, the predetermined assets move into the trust. A third party, otherwise known as the trustee, will manage the money or assets in the trust and make distributions to the charity following the trust’s terms.

How Do Trust Funds Work?

There are a few key parties involved in a trust fund agreement. They include:

• Grantor. This person is the creator of the trust. The grantor outlines the trust guidelines, designating the funds or other assets that will go into a trust as well as the rules that govern it.

• Trustee. The grantor will name a third party the trustee. This person is responsible for managing trust assets, completing any trust obligations such as distributions, and upholding the fiduciary standard (employed by fiduciary advisors), or, always acting in the best interest of all beneficiaries. A trustee is anyone the grantor deems appropriate for handling the terms of the trust.

• Beneficiary. The beneficiary is the one who will reap the benefits of the assets or property in the trust.

The grantor determines the terms of the trust, choosing how and when the resources are given to the beneficiary.

Say, for example, a grantor wants to establish a trust fund for their grandchild with the stipulation that the funds can only go toward college expenses. In this case, the grantor can write the trust’s terms to reflect these wishes rather than let the beneficiary spend a financial windfall however they please.

Through use of the “spendthrift clause,” a grantor can also prevent a beneficiary from spending the trust’s assets in a particular manner, such as to pay off credit card debt.

Additionally, when the grantor passes away, trust assets are often guarded against creditors, and can bypass the extensive and sometimes costly probate process. Of course, whether that happens depends on the type of trust the grantor sets up.

Different Types of Trust Funds

The needs of the grantor will determine which trust is suitable for their situation. A financial professional or attorney can help outline the features of each trust and help find a suitable solution for the grantor’s trust needs. Some of the most common types of trust funds include:

• Irrevocable trust: Once established, this trust cannot be changed or revoked in any way — not even by the grantor.

• Revocable trusts: Also known as living trusts, revocable trusts permit the grantor to make modifications at will or cancel the trust altogether.

• Charitable trust: Grantors can establish a trust with a charitable organization as the beneficiary. Typically, charitable trusts can help minimize the grantor’s tax obligation, such as reducing estate taxes.

• Constructive trust: This type of trust is an indirect trust that the court creates, believing that there was intention on the part of a property owner to disperse it in a precise manner.

• Special needs trust: Those who have children with special needs may use this type of trust to create support for their child well after their passing. Any asset transferred to the trust will not prohibit the beneficiary from any government funding or benefits they would receive otherwise.

How to Establish a Trust Fund

When creating a trust, it’s important to seek knowledgeable and responsible people or professionals to help create and manage it. For starters, even though it’s not technically necessary to hire a trust attorney, it’s probably a good idea to do so to ensure all legal requirements are upheld and the terms of the trust are solidified.

A trust attorney should be able to identify different trusts that can meet the unique needs of the grantor. From lowering a tax bill to securing assets, trust attorneys understand the intricacies of each type of trust’s advantages, which can help the grantor meet their trust fund objectives.

Depending on the grantor’s circumstances and state of residence, attorney fees can amount to several thousand dollars. To find a trusted attorney, you can start by asking friends and family members for referrals. You can also browse the internet for reviews and cost estimates.

It’s also essential to select a responsible trustee to manage the funds. Since it’s the trustee’s responsibility to manage and distribute the assets, they must be trustworthy and understand the magnitude of the role. After all, the grantor is putting their hard-earned money into the hands of someone else. Using a third-party trustee may help the family avoid scuffles about how assets are divided up.

Why Set Up a Trust Fund?

With the benefits trust funds provide, there are many reasons why a trust fund may make sense for your estate-planning efforts. When asking “Is a trust fund right me?“, consider a few topics:

• Tax reduction. Depending on the size of an estate, some states may levy an estate or inheritance tax. For 2023, an estate tax return is required for estates that exceed $12,920,000. To avoid taxation, a trust may make sense.

• Control over asset distribution. A trust gives a grantor greater power over their wealth, since they can set the terms for how the trustee manages the assets.

• Bypassing probate. When someone passes away, by law, their will must complete the probate process. The creation of a trust can help the estate owner bypass this often costly and extensive process.

• Safeguarding assets. Depending on the trust, assets can be guarded against creditors and/or asset misuse by the beneficiaries. A trust can also protect a beneficiary with special needs so that they can continue to receive both the financial support from the trust and any other government benefits after their caretaker passes away.

• Philanthropic efforts. Trusts give individuals who are passionate about a cause a way to support the mission long after they are gone.

Trusts are worth considering for those concerned with how their assets, property, or life insurance benefits will be managed after their passing. Although everyone has a unique situation that may require an array of estate planning tools, a trust fund can be a valuable addition to the mix if the creator can capitalize on trust benefits.

The Takeaway

A trust fund is a special legal arrangement that allows for the protection of certain assets for beneficiaries. Creating a trust may be advantageous for people who have built some wealth and want to control what happens to it once they are gone. There are a number of different types of trusts, each tailored to the needs of the grantor, and sometimes the beneficiary as well.

About the author

Ashley Kilroy

Ashley Kilroy is a seasoned personal finance writer with 15 years of experience simplifying complex concepts for individuals seeking financial security. Her expertise has shined through in well-known publications like Rolling Stone, Forbes, SmartAsset, and Money Talks News. Read full bio.

You may also be interested in:

Do I Need a Trust?

How to Save for Retirement

What Is a Collective Income Trust (CIT)?

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Dec

2024

10 Top Monthly Dividend Stocks for December 2024

By Michael Flannelly | Growing Wealth, invest, Investing | Comments Off

While most dividend-paying stocks do so every quarter, some companies make monthly dividend payments. Getting dividend payouts on a monthly schedule may appeal to investors, especially those relying on dividends for a steady income stream.

A dividend is a portion of a company’s earnings that it pays to shareholders on a regular basis. Many investors seek out dividend-paying stocks as a way to generate income.

Note that there are no guarantees that a company that pays dividends will continue to do so.

Key Points

• Monthly dividend stocks can provide steady income, but are less common than quarterly dividends.

• Utility and energy companies may offer consistent dividends due to steady consumer demand and limited competition.

• Dividend ETFs are passive and often track indexes of companies with a history of strong dividend growth.

• REITs pay dividends from income-generating properties and must distribute 90% of income to shareholders.

• Consider not only a dividend stock’s yield, but the long-term stability of the company and its dividend payout ratio.

What Are Monthly Dividend Stocks?

As mentioned above, dividend stocks usually pay out quarterly. However, some companies pay dividends monthly.

Stocks that pay dividends monthly may appeal to investors who want steady monthly income. Additionally, monthly dividend stocks may help investors who reinvest the payments to realize the benefit of compounding returns.

For example, through dividend reinvestment plans (DRIPs) investors can use dividend payouts to buy more shares of stock. Potentially, the more shares they own, the larger their future dividends could be.

How Does Dividend Investing Work?

Most dividends are cash payments made on a per-share basis, as approved by the company’s board of directors. For example, if Company A pays a monthly dividend of 30 cents per share, an investor with 100 shares of stock would receive $30 per month.

Some investors may utilize dividend-paying stocks as part of an income investing strategy. Retirees, for example, may seek investments that deliver a reliable income stream for their retirement. It’s also possible to reinvest the cash from dividend payouts.

A stock dividend is different from a cash dividend. Stock dividends are an increase in the number of shares investors own, reflected as a percentage. If an investor holds 100 shares of Company X, which offers a 3% stock dividend, the investor would have 103 shares after the dividend payout.

Understanding Dividend Yield

Understanding dividends is one part of an investor’s decision when choosing dividend-paying stocks. Another factor is dividend yield, which is the annual dividend amount the company pays shareholders divided by its stock price, and shown as a percentage.

If Company A pays 30 cents per share in dividends per month, that’s $3.60 per year, per share. If the share price is $50, to get the dividend yield you divide the annual dividend amount by the current share price:

$3.60 / $50 = 7.2%

The dividend yield can be useful as it can help an investor to assess the potential total return of a given stock, including possible gains or losses over a year.

But a higher or lower dividend yield isn’t necessarily better or worse, as the yield fluctuates along with the stock price. A stock’s dividend yield could be high because the share price is falling, which can be a sign that a company is struggling. Or, a high dividend yield may indicate that a company is paying out an unsustainably high dividend.

Investors will often compare a stock’s dividend yield to other companies in the same industry to determine whether a yield is attractive. Whether investing online or through a brokerage, it’s important to consider company fundamentals, risk factors, and other metrics when selecting any investment.

Top 10 Monthly Dividend Stocks by Yield

Following are some of the top-paying dividend stocks by yield.

Company	Ticker	12-month forward yield
Orchid Island Capital	ORC	18.47%
ARMOUR Residential REIT, Inc.	ARR	15.05%
AGNC Investment Corp.	AGNC	14.99%
Dynex Capital	DX	14.23%
Ellington Financial	EFC	12.60%
EPR Properties	EPR	7.67%
Gladstone Commercial	GOOD	6.83%
Apple Hospitality REIT	APLE	6.04%
LTC Properties	LTC	6.03%
Realty Income Corp.	O	5.64%

Source: Data from Bloomberg, as of Dec. 1, 2024. Universe of stocks derived from Wilshire 5000 index. Companies have >$500M market cap and positive forward EPS.

Types of Monthly Dividend Stocks

To invest in monthly dividend stocks, investors may want to consider companies in industries that tend to offer monthly dividend payouts. These companies usually have regular cash flow that can sustain consistent dividend payments.

Energy and Utility Companies

In the world of dividend payouts, utility and energy companies (e.g. water, gas, electricity) offer investors a certain consistency and reliability, thanks to the fact that consumer demand for utilities tends to be steady, and thus so is revenue.

Utility companies are considered a type of infrastructure investment, meaning that they provide systems that help society function. As such, these companies tend to be highly durable, offering tangible benefits to consumers and investors.

Also, many energy and utility companies may have little competition in a given region, which can add to the stability of revenue and thereby dividends.

ETFs

Just as an ordinary exchange-traded fund, or ETF, consists of a basket of securities, a dividend-paying ETF includes dividend-paying stocks or other assets. And similar to dividend-paying stocks, investors in dividend ETFs may benefit from regular monthly payouts, depending on the ETF.

Like most types of ETFs, dividend-paying funds are passive, meaning they track an index. In many cases, these ETFs seek to mirror indexes that include companies with a solid track record of dividend growth.

REITs

Real estate investment trusts (REITs) offer investors a way to buy shares in certain types of income-generating properties without the headache of having to manage these properties themselves.

REITs pay out dividends because they receive steady cash flow through rent payments and sometimes profits from the sale of a property. Also, these companies are legally required to pay at least 90% of their income to shareholders through dividends. Some REITs will pay dividends monthly.

Note: REIT payouts are ordinary dividends, i.e. they’re taxed as income, not at the more favorable capital gains rate.

Ways to Evaluate Monthly Dividend Stocks

Investors may want to analyze several criteria to determine the dividend stocks ideal for a wealth-building strategy. Here are a few things investors can consider when looking for the highest dividend stocks:

Dividend Payout Ratio

Investors will also factor in a stock’s dividend payout ratio when making investment decisions. This ratio expresses the percentage of income that a company pays to shareholders.

The dividend payout ratio is calculated by dividing a company’s total dividends paid by its net income.

Dividend payout ratio (%) = dividends paid / net income

Investors can also calculate the dividend payout ratio on a per share basis, dividing dividends per share by earnings per share.

Dividend payout ratio (%) = dividends per share / earnings per share

The dividend payout ratio can help determine if the dividend payments a company distributes make sense in the context of its earnings. Like dividend yield, a high dividend payout ratio may be good, especially if investors want a company to pay more of its profits to investors. However, an extremely high ratio can be difficult to sustain.

If a stock is of interest, it may help to check out the company’s dividend payout ratios over an extended period and compare it to comparable companies in the same industry.

Company Stability

Investors may also wish to focus on stable, well-run companies with a reputation for paying consistent or rising dividends for years. Dividend aristocrats – companies that have paid and increased their dividends for at least 25 years – and blue chip stocks are examples of relatively stable companies that are attractive to dividend-focused investors.

These companies, however, do not always have the highest dividend yields. Nor do these companies pay monthly dividends; most companies will pay dividends quarterly.

Furthermore, keep in mind a company’s future prospects, not just its past success, when shopping for high-dividend stocks.

Tax Implications

Dividends also have specific tax implications that investors should know.

• A qualified dividend qualifies for the capital gains tax rate, which is typically more favorable than an investor’s marginal tax rate.

• An ordinary dividend is taxed at an individual’s income tax rate, which is typically higher than the capital gains rate.

Investors will receive a Form DIV-1099 when $10 or more in dividend income is paid out during the year. If the dividends are in a tax-advantaged account, an IRA, 401(k), etc., the money will grow tax-free until it’s withdrawn.

Recommended: Ordinary vs Qualified Dividends

Pros and Cons of Investing in Monthly Dividend Stocks

While dividend stocks offer some advantages, they also come with some risks and disadvantages investors must bear in mind.

Pros

• Passive income. As noted above, investing in dividend stocks can provide a source of passive income (although dividends can be cut at any time).

• The ability to reinvest. Dividend stocks allow for reinvestment (using dividend payments to buy more stocks, thus compounding returns). Steady dividends may also allow investors who reinvest the gains to buy stocks at a lower price while the market is down — similar to using a dollar-cost averaging strategy.

Additionally, the stocks of mature companies that pay dividends also may be less vulnerable to market fluctuations than a start-up or growth stock.

• Potential income during a downturn. Another plus for those who choose dividend stocks is that they may receive dividend payments even if the market falls. That can help insulate investors during tough economic times.

Cons

• Dividends are not guaranteed. A company can decide to suspend or cut its dividends at any time. It could be that the company is truly in trouble or that it simply needs the money for a new project or acquisition. This may be especially true for monthly dividend stocks; many REITs that pay monthly dividends suspended or cut dividends during the Covid-19 pandemic.

Either way, if the public sees the dividend cut as a negative sign, the share price could fall. And if that happens, an investor could suffer a double loss.

• Tax inefficiency. First, a corporation must pay tax on its earnings, and then when it distributes dividends to shareholders (which are considered profit-after-tax), the shareholder also must pay tax as an individual. Owing to this tax inefficiency, sometimes referred to as a type of double taxation, some companies decide not to offer dividends and find other ways to pass along profits.

Note that this tax issue doesn’t impact REITs the same way. Entities such as REITs and Master Limited Partnerships (MLPs) pass along most of their profits to investors. In these cases, the company doesn’t owe tax on the profits it passes onto the investor.

• Limited options. Also, choosing the right dividend stock can be tricky. First, monthly dividend stocks aren’t as common as quarterly dividend payouts. And the metrics for analyzing attractive dividend stocks are quite different from those for selecting ordinary stocks.

• Dividends can drop or be cut. Last, it’s important to remember that dividends may fluctuate depending on how a company is performing, or how it chooses to distribute its profits. During a downturn, it’s possible to see lower dividends, or for a company to cut its dividend payout.

• Share price appreciation may be limited. Gains in the share price of some dividend stocks can be limited, as many dividend-paying companies are typically not in a rapid growth phase.

Pros and Cons of Monthly Dividend Stocks
Pros	Cons
Provide passive income	Dividend payments are not guaranteed
Dividend reinvestment can lead to compound returns	Selecting monthly dividend stocks can be tricky/td>
Investors may earn a return even when the stock price goes down	Dividends may be cut or reduced during a downturn
Qualified dividends have preferential tax treatment	Some companies view dividends as tax inefficient
	Share price appreciation may be limited compared to growth stocks

Things to Avoid When Investing in Monthly Dividend Stocks

When investing in monthly dividend stocks, there are a few things to avoid:

• Avoid investing in a company that pays a monthly dividend solely to pay a monthly dividend. Many companies pay monthly dividends, but not all are suitable investments. Do your research and only invest in companies that you believe will be successful in the future.

• Avoid investing in a company or industry that you don’t understand. If you don’t understand how a company makes money, you should hesitate to invest in it.

• Avoid investing all of your money in monthly dividend stocks. Diversify your portfolio by investing in other types of stocks, bonds, funds, and other securities.

The Takeaway

Dividend-paying stocks can be desirable. They can add to your income, or offer the potential for reinvestment via dividend reinvestment plans or other strategies you pursue. Monthly dividend stocks offer the potential for steady income, but they are less common than stocks that pay on a quarterly basis.

Ready to invest in your goals? It’s easy to get started when you open an investment account with SoFi Invest. You can invest in stocks, exchange-traded funds (ETFs), mutual funds, alternative funds, and more. SoFi doesn’t charge commissions, but other fees apply (full fee disclosure here).

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FAQ

How do monthly dividend stocks work?

A monthly dividend stock is a stock that pays out dividends every month instead of the more common quarterly basis. This can provide investors with a steadier stream of income, which can be particularly helpful if you rely on dividends for living expenses.

How can you get stocks that pay monthly dividends?

To invest in stocks that pay monthly dividends, you need to research financial websites and publications to find companies that pay dividends monthly. There are not many monthly dividend stocks, especially compared with stocks that pay quarterly dividends.

How can you determine the stocks that pay the highest monthly dividends?

Investors use metrics like the dividend yield and dividend payout ratio to determine the stocks that might be most desirable. However, stocks that pay the highest monthly dividends can change over time, and it’s important to consider other methods of assessing a stock, since a higher dividend isn’t always a sign of company health.

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Dec

2024

Understanding 401(k) Contribution Limits: 2024-2025

By Pam O’Brien | Growing Wealth, invest, Investing | Comments Off

Participating in a 401(k) through your employer can be a good way to contribute to and save for your retirement. One important thing to know is that there are limits on how much you can contribute each year and the amount typically changes, as per guidelines from the IRS.

Read on to find out about the 401(k) contribution limit for 2024 and 2025.

Overview of 401(k) Contribution Limits

The IRS reviews and often adjusts annual 401(k) contribution limits. The amount you can contribute to your 401(k) is increasing in 2025.

Changes in Contribution Limits for 2025

In 2025, you can contribute up to $23,500 in your 401(k) (up from $23,000 in 2024). If you’re age 50 or older, you can contribute an additional $7,500 to your 401(k) plan for a grand total of $31,000 in annual contributions for 2025. Also in 2025, those aged 60 to 63 may contribute an additional $11,250 instead of $7,500, thanks to SECURE 2.0.

Yearly Contribution Limits Explained

The IRS reviews the annual contribution limits for 401(k)s, typically in the fall of each year, and adjusts them when necessary to account for inflation. The IRS changed the yearly 401(k) contribution limits (also known as elective deferral limits) for 2024 and 2025.

2024 Contribution Limits

For 2024, the IRS is raising the 401(k) contribution limit once again. You may contribute up to $23,000 to your 401(k) in 2024. However, the catch-up contribution limit for older employees is not changing in 2024; instead it will remain at the 2023 level. That means those age 50 and up may contribute an additional $7,500 to their 401(k) for 2024, for a total of $30,500.

2025 Contribution Limits

For 2025, the IRS is raising the 401(k) contribution limit once again. You may contribute up to $23,500 to your 401(k) in 2025. However, the catch-up contribution limit for older employees is not changing in 2025; instead it will remain at the 2024 level. That means those age 50 and up may contribute an additional $7,500 to their 401(k) for 2025, for a total of $31,000. And in 2025, those aged 60 to 63 may contribute an additional $11,250 instead of $7,500, thanks to SECURE 2.0.

💡 Quick Tip: Did you know that opening a brokerage account typically doesn’t come with any setup costs? Often, the only requirement to open a brokerage account — aside from providing personal details — is making an initial deposit.

Employer Contributions and Catch-Up Provisions

One of the factors that makes a 401(k) a good vehicle for saving for retirement is that an employer may also contribute to the plan on your behalf.

And for older employees, the opportunity to make catch-up contributions to help save for retirement can be especially helpful.

Understanding Employer Match Limits

Your employer can make matching contributions to your 401(k) in addition to the funds you contribute. Matching funds may be based on the amount you choose to contribute.

For example, your employer might offer matching funds if you contribute 5% or more of your salary, as an incentive to get you to save. It’s a good idea to save at least the minimum amount to receive an employer’s match. If you don’t, you could be giving up free money.

There is an overall limit on how much you and your employer can contribute to your 401(k) plan each year. The combined limit for employer plus employee contributions in 2024 for those under age 50 cannot exceed 100% of your income or $69,000, whichever is lower. The 2025 combined limit is 100% of your income or $70,000, whichever is lower.

Catch-Up Contributions for Older Investors

If you are over the age of 50, your retirement contribution limit increases. The 401(k) catch-up contribution lets you fill in gaps in your retirement savings as you get closer to retirement. In 2024 and 2025, you can make up to $7,500 in catch-up contributions. Also, in 2025, those aged 60 to 63 can contribute an extra $11,250, instead of $7,500.

Roth 401(k) vs Traditional 401(k) Limits

In addition to traditional 401(k)s, there are other types of employer-sponsored retirement accounts, such as a Roth 401(k). The main difference between a traditional 401(k) and a Roth 401(k) is that contributions to a Roth 401(k) are made after-tax, while contributions to a traditional 401(k) are made with pre-tax dollars. Money grows inside a Roth 401(k) account tax-free and is not subject to income tax when you withdraw it.

Like a traditional 401(k), a Roth 401(k) has contribution limits.

Understanding Roth 401(k) Limits

Employee contribution limits for Roth 401(k)s are $23,000 for 2024, and $23,500 for 2025, the same as traditional 401(k)s. Roth 401(k) catch-up contribution limits for those 50 and up are $7,500 in 2024 and 2025— also the same as catch-up contribution limits for traditional 401(k)s. And just like a traditional 401(k), in 2025, those aged 60 to 63 may contribute an additional $11,250 instead of $7,500, thanks to SECURE 2.0.

Comparing Traditional 401(k) Limits

Here’s a side-by-side comparison of traditional 401(k) contribution limits for 2024 and 2025.

Traditional 401(k)	2024	2025
Employee contribution limit	$23,000	$23,500
Catch-up contribution limit	$7,500	$7,500
SECURE 2.0 higher catch-up contribution limit for those aged 60 to 63	N/A	$11,500
Combined employee and employer contribution limit	$69,000 ($76,500 with catch-up)	$70,000 ($77,500 with standard catchup; $81,250 with SECURE 2.0 catch-up)

Managing Multiple 401(k) Plans

You may have multiple 401(k) plans, including some with previous employers. In that case, the same yearly contribution limits still apply.

Contribution Limits with Multiple Employers

Even if you have 401(k) plans with multiple employers, you must abide by the same annual contribution limits across all your plans. So, for 2024, the maximum you can contribute to all your 401(k) plans is $23,000, and for 2025, the maximum amount you can contribute is $23,500. You can split these total amounts across the different plans, or contribute them to just one plan.

After-Tax 401(k) Contribution Rules

Some 401(k) plans allow for after-tax contributions. What this means is that as long as you haven’t reached the maximum combined limit of your plan — which is $69,000 in 2024 and $70,000 in 2025 — you can make after-tax contributions up to the maximum combined limit.

For instance, if you contribute $23,000 to your 401(k) in 2024, and your employer contributes $5,000 through an employer match, you can contribute an additional $41,000 in after-tax dollars, if your plan allows it, to reach the $69,000 maximum.

Excess Contributions and Their Implications

Figuring out how much you want to contribute to your 401(k) can be tricky. And you’re not allowed to go over the contribution limits or you may face penalties.

Handling Over-Contribution

If you contribute too much to your 401(k), you could be charged a 10% fine. You might also owe income tax on the excess amount.

Fortunately, many 401(k) plans have automatic cut-offs in place to help you avoid excess contributions. However, if you change jobs or you have more than one 401(k) plan, you might accidentally contribute too much. If you realize you’ve done this, you have until April 15 to request that the excess contributions be returned to you, along with any earnings those contributions made while they were in your 401(k). You can report excess contributions when you file your taxes using form 1099-R.

Strategies to Avoid Excess Contributions

To avoid making excess 401(k) contributions:

• Check the maximum contribution limits each year.

• If you get a raise, reassess your contribution amount to make sure you’re not exceeding it.

• If you have more than one 401(k) plan, review your contributions across all of your plans to make sure you’re not exceeding the maximum contribution limits.

Maximizing Your 401(k) Contributions

When you have a 401(k), you’ll want to get the most out of it to help you save for retirement. Here’s how.

Ideal Contribution Strategies

To maximize your 401(k):

• Start contributing to the plan as soon as you can. The earlier you start saving, the more time your money has to grow.

• Contribute at least enough to get the employer match on your 401(k). If you don’t, you are essentially passing up free money.

• Keep track of all your 401(k) plans to make sure you don‘t exceed the annual contribution limits. And if you have a 401(k) from a previous employer, you might want to do a 401(k) rollover to potentially get more out of the plan.

Balancing 401(k) with Other Retirement Plans

Along with your 401(k), you can open other types of retirement accounts to help you save for your golden years. For instance, consider opening a tax-advantaged IRA online. You can save up to $7,000 in both 2024 and 2025 in a traditional or Roth IRA, plus an extra $1,000 each year if you are over age 50 — and that’s in addition to what you can save in your 401(k).

Having more than one type of retirement plan could potentially help you reach your financial goals faster. Not only can you put away more money for your retirement, an IRA typically gives you more investing options that a 401(k) does, making it more flexible. It can also assist you with diversifying your portfolio to help manage risk and potentially help grow your retirement savings.

Invest with as little as $5 with a SoFi Active Investing account.

FAQ

What is the maximum 401(k) contribution for 2024?

The maximum 401(k) contribution limit for 2024 is $23,000. Those aged 50 and up may contribute an additional $7,500 in 2024.

Are 401(k) contribution limits changing in 2025?

Yes, 401(k) contribution limits are changing in 2025. The 401(k) contribution limit in 2025 is $23,500. Individuals who are 50 and older can contribute an additional $7,500 to their 401(k) in 2025. Another change for 2025: Those aged 60 to 63 may contribute an extra $11,250, instead of $7,500, thanks to SECURE 2.0.

Can I contribute 100% of my salary to a 401(k)?

If you make less than $23,000 in 2024 and less than $23,500 in 2025, you may be able to contribute 100% of your salary to a 401(k). However, your specific 401(k) plan may limit the amount you can contribute.

You should also note that there is an overall limit on how much you and your employer can contribute to your 401(k) plan each year. The combined limit for employer plus employee contribution in 2024 cannot exceed 100% of your income or is $69,000, whichever is lower. The 2025 combined limit is 100% of your income or $70,000, whichever is lower.

Is there a salary cap for 401(k) contributions?

Yes, there are income limit rules for 401(k) contributions. The amount of compensation eligible for 401(k) contributions in 2024 is $345,000, and in 2025 it’s $350,000. Anything above that amount of compensation is not eligible for contribution. What this means is that while you can contribute up to the maximum employee contribution, which is $23,000 in 2024 and $23,500 in 2025, your employer can only match up to the income limit.

What happens if I exceed the 401(k) max?

If you contribute too much to your 401(k), you could be charged a 10% penalty. You might also owe income tax on the excess amount. If you realize you’ve exceeded the 401(k) maximum, you have until April 15 to request that the excess contributions be returned to you, along with any earnings the contributions made while they were in your 401(k). You can report excess contributions on form 1099-R when you file your taxes.

How much can I contribute to a 401(k) if I’m 50 years of age or older?

If you are 50 or older, you can contribute up to $30,500 in your 401(k) in 2024, and up to $31,000 in 2025. This includes an additional $7,500 each year in catch-up contributions. And if you are aged 60 to 63, you may contribute an extra $11,250 in 2025, instead of $7,500, thanks to SECURE 2.0.

SoFi Invest®

INVESTMENTS ARE NOT FDIC INSURED • ARE NOT BANK GUARANTEED • MAY LOSE VALUE

SOIN-Q424-093

Dec

2024

Investing in Index Funds in a Roth IRA

By Rebecca Lake | Growing Wealth, invest, Investing | Comments Off

An index fund is a type of mutual fund or exchange-traded fund that aims to track the performance of a specific stock index. A Roth IRA is a type of tax-advantaged investment account. Index funds are one type of investment you could hold inside a retirement plan like a Roth IRA.

Here’s a closer look at investing in index funds through a Roth IRA.

Key Points

• A Roth IRA is a tax-advantaged retirement account, while index funds are investments that can be held within such accounts.

• Investing in index funds within a Roth IRA allows for tax-free growth and withdrawals.

• Index funds provide diversification and offer the potential for long-term growth, which could make them an efficient choice for retirement savings.

• When selecting an index fund, consider factors like risk tolerance, investment goals, expense ratios, and historical performance.

• It’s important to regularly review your Roth IRA and the investments in it and make any necessary adjustments to meet your financial objectives and comply with contribution limits.

Understanding Your Investing Options in a Roth IRAs

A Roth IRA is an individual retirement account that allows you to set aside after-tax dollars for retirement. Because you’ve already paid taxes on the money you contribute to the Roth IRA, you can withdraw it tax-free in retirement, which is an attractive feature to some investors.

Roth IRAs can offer a number of different investment options, including:

• Index funds

• Target-date funds

• Exchange-traded funds (ETFs)

• Real estate investment trust (REIT) funds

• Bonds

Index funds, target-date funds, and REITs can feature a mix of different investments. So, you might invest in a target-date fund that has a 70% allocation to stocks, and a 30% allocation to bonds, for instance. When comparing different funds it’s important to consider the expense ratio you might pay to own it and its past performance.

Some brokerage companies that offer IRAs may also offer other investments, such as individual stocks, commodities, or even cryptocurrency. Evaluating your personal risk tolerance, investment timeline, and goals can help you decide how to invest your money if you’re opening a retirement account online like a Roth IRA.

¹Terms and conditions apply. Roll over a minimum of $20K to receive the 1% match offer. Matches on contributions are made up to the annual limits.

What Are Index Funds?

An index fund is a type of mutual fund or ETF that aims to track the performance of a specific stock index. A stock index measures a specific segment of the market. For example, the S&P 500 index tracks the 500 largest companies listed on public stock exchanges in the U.S.

Index funds typically work by investing in the same securities that are included in the index they’re trying to match. So, for example, if an index fund is using the S&P 500 as its benchmark, then its holdings would reflect the companies that are included in that index.

Index funds are a type of passively managed fund, since assets turn over less frequently. In terms of performance, index funds are not necessarily designed to beat the market but they can be more cost-friendly for investors as they often have lower expense ratios.

Long-term Benefits

Index funds offer the opportunity for long-term appreciation. Because they track the stock market, which historically has an annual return of about 7% (as measured by the S&P and adjusted for inflation), index funds may be able to get a similar rate of return over time, minus any fund fees.

Why Invest in Index Funds Through a Roth IRA?

As noted above, you can hold a range of investments in a Roth IRA, including index funds. Investing in index funds may help diversify your portfolio. Here are some of the other possible factors to consider.

Tax-free Growth and Withdrawals

Because you’ve already paid taxes on the money you contribute to a Roth IRA, you can withdraw it tax-free in retirement, as long as you are age 59 ½ and meet the five-year rule, which dictates that your account has to be open for at least five years before you start withdrawing funds. Tax free withdrawals in retirement might appeal to you if you expect to be in a higher tax bracket at that time.

Any earnings you have from index funds or other investments grow tax-free in a Roth IRA and they can be withdrawn tax-free in retirement.

Supporting Retirement Goals

Because they offer the potential for long-term growth, index funds can be part of a retirement savings strategy. An investor can choose the funds that best fit their risk tolerance and investment goals. The fees are also lower for index funds than some other types of investments, which means you can keep more of your earnings over the long term.

How to Invest in Index Funds in a Roth IRA

If you’ve decided to invest in index funds through your Roth IRA, the process for getting started is relatively simple:

1. Decide which index fund or funds you’d like to invest in (see more on that below).

2. Log into your Roth IRA account.

3. Find the fund you’d like to purchase and select “Buy.” You may be able to specify a specific dollar amount you want to spend or choose the number of shares you want to buy.

4. Review your order to make sure it is correct, then finalize it.

Tips on Choosing the Right Index Funds

While index funds operate with a similar goal of matching the performance of an underlying benchmark like the S&P 500, they don’t all work the same. There can be significant differences when it comes to things like the expense ratio, the fund’s underlying assets, its risk profile, and its overall performance.

When choosing an index fund to invest in, consider the following factors:

• Risk tolerance. How much risk are you willing to take with your investments? Knowing if you’re a conservative, moderate, or aggressive investor is important to choosing index funds that make the most sense for you. Our risk tolerance quiz can help you figure out which category you fall into.

• Your goals. What specifically, are you hoping to get out of your investment? Are you saving for the long term and aiming for it to grow over time? Are you putting away money for retirement? Determining exactly what you want to do with your investment will help you decide what type of index funds to invest in.

• Broad vs. specialized fund. Broad funds attempt to mimic the performance of a stock market as a whole, while a specialized fund like a small cap index fund, for example, targets companies with a smaller market capitalization. A specialized fund can be riskier because you’re invested in one type of asset, while a broad fund can provide some diversification, although like any investment, there are still risks involved.

• Performance history. A fund’s performance history can help you see how the fund has handled different market conditions. Look to see how it has consistently performed relative to the benchmark it tracks. You can also compare its performance to other index funds in the same category.

• Expense ratios. These ratios represent the annual cost of managing an index fund. They’re expressed as a percentage of your total investment. Keep in mind that a small difference in expense ratios can add up over time. With a smaller expense ratio, less of your investment goes to management costs.

Managing Your Index Funds

Even though index funds are passively managed, it’s a good idea to review them from time to time.

First, check their performance to see if they are mirroring the index they follow, minus the expense ratio. If their performance is not keeping up, you may want to consider another fund.

Also, keep an eye on fees. If you see that the fees for your index funds are growing over time, you may want to change your investment.

Managing Your Roth IRA

Similarly, with a Roth IRA, it’s wise to review your account and the investments inside it at least once a year. Monitor how well your assets are performing and see if they are on track to help you reach your goals.

You may find that you need to do some portfolio rebalancing. Based on how your assets have performed, you might have a different asset allocation than you originally started out with, as some things may have performed better than others. For instance, maybe stocks outperformed bonds. Review your asset allocation carefully and make any adjustments needed to help stay true to your risk tolerance and investment goals.

Finally, contribute to your Roth IRA each year if you can, but be sure not to over-contribute. The IRS sets the maximum limit for annual Roth IRA contributions. For 2024, the maximum limit is $7,000, or $8,000 if you’re age 50 or older. You have until the tax filing deadline to make contributions for that tax year. For 2025, the maximum limits are the same: $7,000 or $8,000 if you’re 50 or older.

It’s important to note that the limits are cumulative. If you have more than one Roth IRA, or a Roth IRA and a traditional IRA, your total contributions to all accounts cannot be greater than the limit allowed by the IRS. Unlike traditional IRA contributions, Roth IRA contributions are not tax-deductible.

Also, be aware that you’ll need to have earned income for the year to contribute to a Roth IRA, but there are limits. The IRS sets a cap on who can make a full contribution, based on their filing status and modified adjusted gross income (MAGI).

Here are the income thresholds for the 2024 and 2025 tax years:

Filing Status	You Can Make a Full Contribution for 2024 If Your MAGI is…	You Can Make a Full Contribution for 2025 If Your MAGI is…
Single or Head of Household	Less than $146,000	Less than $150,000
Married Filing Jointly	Less than $230,000	Less than $236,000
Married Filing Separately and Did Not Live With Your Spouse During the Year	Less than $146,000	Less than $150,000
Qualifying Widow(er)	Less than $230,000	Less than $236,000

Contribution amounts are reduced as your income increases, eventually phasing out completely. The 2024 phaseout limits are $146,000 for single filers, heads of households, and qualifying widows or widowers. The limit for couples is $230,000.

If you’re married and file separate returns but lived with your spouse during the year, you’d only be able to make a reduced contribution for 2024 if your MAGI is less than $10,000.

The 2025 phaseout limits are $150,000 for single filers, heads of households, and qualifying widows or widowers. The limit for couples is $236,000. And if you’re married and filed separate returns and lived with your spouse during the year, you can make a reduced contribution only if your MAGI is less than $10,000.

Recommended: Roth IRA Calculator

The Takeaway

A Roth IRA is a tax-advantaged account that can help you save for retirement. There are a number of different investment options to choose from when you have a Roth IRA, including target-date funds and index funds.

If you decide to invest in index funds, research different funds to find the best ones for you, and be sure to look at their performance and expense ratio, among other factors. Also, consider your risk tolerance and goals when choosing index funds to make sure that they are aligned to help you reach your financial goals.

Ready to invest for your retirement? It’s easy to get started when you open a traditional or Roth IRA with SoFi. SoFi doesn’t charge commissions, but other fees apply (full fee disclosure here).

Help build your nest egg with a SoFi IRA.

FAQ

Can I lose money investing in index funds?

It is possible to lose money investing in index funds. All investments involve risk and can lose money. However, broad index funds, such as those that use the S&P 500 as a benchmark, are diversified and hold many different types of stocks. Even if some of those stocks lose value, they may not all lose value at the same time.

Is it better to invest in index funds or individual stocks for a Roth IRA?

Which investment is best depends on an investor’s financial situation, goals, and risk tolerance. There is no one-size-fits-all answer. But in general, individual stocks can be more volatile with more potential for risk (they may also have more potential for higher returns). Broad index funds that provide significant diversification may help minimize risk and maximize returns over the long term.

Rebecca Lake

Rebecca Lake has been a finance writer for nearly a decade, specializing in personal finance, investing, and small business. She is a contributor at Forbes Advisor, SmartAsset, Investopedia, The Balance, MyBankTracker, MoneyRates and CreditCards.com. Read full bio.

You may also be interested in:

What Is a Roth IRA and How Does It Work?

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Do You Pay Capital Gains on Roth IRAs and IRAs?

Photo credit: iStock/Ridofranz

SoFi Invest®

INVESTMENTS ARE NOT FDIC INSURED • ARE NOT BANK GUARANTEED • MAY LOSE VALUE

SoFi Invest encompasses two distinct companies, with various products and services offered to investors as described below: Individual customer accounts may be subject to the terms applicable to one or more of these platforms.
1) Automated Investing and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser (“SoFi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC.
2) Active Investing and brokerage services are provided by SoFi Securities LLC, Member FINRA (www.finra.org)/SIPC(www.sipc.org). Clearing and custody of all securities are provided by APEX Clearing Corporation.
For additional disclosures related to the SoFi Invest platforms described above please visit SoFi.com/legal.
Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform.

Investment Risk: Diversification can help reduce some investment risk. It cannot guarantee profit, or fully protect in a down market.

S&P 500 IndexThe S&P 500 Index is a market-capitalization-weighted index of 500 leading publicly traded companies in the U.S. It is not an investment product, but a measure of U.S. equity performance. Historical performance of the S&P 500 Index does not guarantee similar results in the future. The historical return of the S&P 500 Index shown does not include the reinvestment of dividends or account for investment fees, expenses, or taxes, which would reduce actual returns.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.

SOIN0822020

Dec

2024

A Comprehensive Guide to Treasury Bills (T-Bills)

By Ashley Kilroy | Financial Topics, Growing Wealth, invest, Investing, Terminology | Comments Off

U.S. government-backed securities like Treasury bills (T-bills) provide a way to invest with minimal risk. These debt instruments are one of several different types of Treasury securities including Treasury notes (T-notes) and Treasury bonds (T-bonds).

Unlike other treasuries, however, T-bills don’t pay interest. Rather, investors buy T-bills at a discount to par (the face value).

Investors looking for a low-risk investment with a short time horizon and a modest return may find T-bills an attractive investment. T-bills have minimal default risk and maturities of a year or less. But Treasury bill rates are typically lower than those of some other investments.

Key Points

• T-bills are short-term investments that offer a guaranteed rate of return.

• Investors don’t receive coupon, or interest, payments. The return is the discount rate.

• T-bills have a near-zero risk of default.

• Investors can buy T-bills directly from TreasuryDirect.gov, or on the secondary market using a brokerage account.

What Is a Treasury Bill (T-Bill)?

Treasury bills are debt instruments issued by the U.S. government. They are short-term securities and are issued with maturity dates ranging from 4 weeks to one year. It may be possible to buy T-bills on the secondary market with maturities as short as a few days.

How Treasury Bills Work

Essentially, when an individual buys a T-bill, they are lending money to the U.S. government. In general, T-bills are considered very low risk, since they are backed by the full faith and credit of the U.S. government, which has never defaulted on its debts.

T-bills are sold at a discount to their par, or face value. They are essentially zero-coupon bonds. They don’t pay interest, unlike other types of Treasuries (and coupon bonds); rather the difference between the discount price and the face value is like an interest payment.

T-Bill Purchase Example

While all securities have a face value, also known as the par value, typically investors purchase Treasury bills at a discount to par. Then, when the T-bill matures, investors receive the full face value amount. So, if they purchased a treasury bill for less than it was worth, they would receive a greater amount when it matures.

Example

Suppose an investor purchases a 52-week T-bill for $4,500 with a par value of $5,000, a 5% discount. Since the government promises to repay the full value of the T-bill when it expires, the investors will receive $5,000 at maturity, and realize a profit or yield of $500.

In the example above, the discount rate of the T-bill is 5% — and that is also the yield. But examples aside, the actual 52-week Treasury bill rate, as of Feb. 1, 2024, is 4.46%.

Recommended: How to Buy Treasury Bills, Bonds, and Notes

T-Bill Maturities

Understanding the maturity date of a T-bill is important. This is the length of time you’ll hold the bill before you redeem it for the full face value. Maturity dates affect the discount rate, with longer maturities generally offering a higher discount/return, but interest rates will influence the discount.

The government issues T-bills at regular auctions, in four-, eight-, 13-, 17-, 26-, and 52-week terms, in increments ranging from $100 to $10 million. The minimum T-bill purchase from TreasuryDirect.gov is $100.

Some investors may create ladders (similar to bond ladders), which allow them to roll their T-bills at maturity into more T-bills. Although T-bill rates are fixed, and because their maturities are so short, they don’t have much sensitivity to interest rate fluctuations.

💡 Quick Tip: Look for an online brokerage with low trading commissions as well as no account minimum. Higher fees can cut into investment returns over time.

How to Purchase T-Bills

You can purchase T-bills at regular government auctions on TreasuryDirect, or on the secondary market, from your brokerage account.

Buying From Treasury Direct

Noncompetitive bids: With a noncompetitive bill, the investor accepts the discount prices that were established at the Treasuries auction, which are an average of the bids submitted.

Since the investor will receive the full value of the T-bill when the term expires, some investors often favor this simple technique of investing in T-bills.

Competitive bid: With a competitive bid, all investors propose the discount rate they are prepared to pay for a given T-bill. The lowest discount rate offers are selected first. If investors don’t propose enough low bids to complete the entire order, the auction will move onto the next lowest bid and so on until the entire order is filled.

Buying and Selling on the Secondary Market

Another option is to purchase or sell T-bills on the secondary market, using a standard brokerage account.

Investors can also trade exchange-traded funds (ETFs) or mutual funds that may include T-bills that were released in the past.

Redemption and Interest Earnings on T-Bills

As noted above, although T-bills are debt instruments and an investor’s loan is repaid “with interest,” T-Bills don’t have a coupon payment the way some bonds do. Rather, investors buy T-bills at a discount, and the difference between the lower purchase price and the higher face value is effectively the interest payment when the T-bill matures.

When a T-bill matures, investors can redeem it for cash at Treasury.gov.

T-bill purchases and redemptions are now fully digital. Paper T-bills are no longer available.

Tax Implications for T-Bill Investors

Gains from all Treasuries, including T-bills, are taxed at the federal level; i.e. they are taxed as income on your federal income tax return.

Treasury gains are exempt from state and local income tax.

Comparing T-Bills to Treasury Notes and Bonds

The U.S. government offers a number of debt instruments, including Treasury Bills, Notes, and Bonds. The difference between them is their maturity dates, which can also affect interest rates and discount rates.

Treasury Notes

Investors can purchase Treasury notes (or T-notes) in quantities of $1,000 and with terms ranging from two to 10 years. Treasury notes pay interest, known as coupon payments, bi-annually.

Treasury Bonds

Out of all Treasury securities, Treasury bonds have the most extended maturity terms: up to 30 years. Like T-notes, Treasury bonds pay interest every six months. And when the bond matures the entire value of the bond is repaid.

Recommended: How to Buy Bonds: A Guide for Beginners

Considerations When Investing in T-Bills

Like any other investments, it’s important to understand how T-bills work, the pros and cons, and how they can fit into your portfolio.

What Influences T-Bill Prices in the Market?

Although any T-bill you buy offers a guaranteed yield at maturity, because T-bills are short-term debt the discount rates (and therefore the yield) can fluctuate depending on a number of factors, including market conditions, interest rates, and inflation.

The Role of Maturity Dates and Market Risk

Generally, the longer the maturity date of the bill, the higher the returns. But if interest rates are predicted to rise over time, that could make existing T-bills less desirable, which could affect their price on the secondary market. It’s possible, then, that an investor could sell a T-bill for lower than what they paid for it.

Federal Reserve Policies and Inflation Concerns

It’s also important to consider the role of the Federal Reserve Bank, which sets the federal funds target rate, for overnight lending between banks. When the fed funds rate is lower, banks have more money to lend, but when it’s higher there’s less money circulating.

Thus the fed funds rate has an impact on the cost of lending across the board, which impacts inflation, purchasing power — and T-bill rates and prices as well. As described, T-bill rates are fixed, so as interest rates rise, the price of T-bills drops because they become less desirable.

By the same token, when the Fed lowers interest rates that tends to favor T-bills. Investors buy up the higher-yield bills, driving up prices on the secondary market.

How Can Investors Decide on Maturity Terms?

Bear in mind that because the maturity terms of T-bills are relatively short — they’re issued with six terms (four, six, 13, 17, 26 and 52 weeks) — it’s possible to redeem the T-bills you buy relatively quickly.

T-bill rates vary according to their maturity, so that will influence which term will work for you.

💡 Quick Tip: It’s smart to invest in a range of assets so that you’re not overly reliant on any one company or market to do well. For example, by investing in different sectors you can add diversification to your portfolio, which may help mitigate some risk factors over time.

Advantages and Disadvantages of T-Bills

Advantages of T-Bills

• They are a low-risk investment. Since they are backed in the full faith of the U.S. government, there is a slim to none chance of default.

• They have a low barrier to entry. In other words, investors who don’t have a lot of money to invest can invest a small amount of money while earning a return, starting at $100.

• They can help diversify a portfolio. Diversifying a portfolio helps investors minimize risk exposure by spreading funds across various investment opportunities of varying risks and potential returns.

Disadvantages of T-Bills

• Low yield. T-bills provide a lower yield compared to other higher-yield bonds or investments such as stocks. So, for investors looking for higher yields, Treasury bills might not be the way to go.

• Inflation risk exposure. T-bills are exposed to risks such as inflation. If the inflation rate is 4% and a T-bill has a discount rate of 2%, for example, it wouldn’t make sense to invest in T-bills—the inflation exceeds the return an investor would receive, and they would lose money on the investment.

Using Treasury Bills to Diversify

Investing all of one’s money into one asset class leaves an investor exposed to a higher rate of risk of loss. To mitigate risk, investors may turn to diversification as an investing strategy.

With diversification, investors place their money in an assortment of investments — from stocks and bonds to real estate and alternative investments — rather than placing all of their money in one investment. With more sophisticated diversification, investors can diversify within each asset class and sector to truly ensure all investments are spread out.

For example, to reduce the risk of economic uncertainty that tends to impact stocks, investors may choose to invest in the U.S. Treasury securities, such as mutual funds that carry T-bills, to offset these stocks’ potentially negative performance. Since the U.S. Treasuries tend to perform well in such environments, they may help minimize an investor’s loss from stocks not performing.

The Takeaway

Treasury bills are one investment opportunity in which an investor is basically lending money to the government for the short term. While the return on T-bills may be lower than the typical return on other investments, the risk is also much lower, as the US government backs these bills.

Invest with as little as $5 with a SoFi Active Investing account.

About the author

Ashley Kilroy

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Photo credit: iStock/Marco VDM

SoFi Invest®

INVESTMENTS ARE NOT FDIC INSURED • ARE NOT BANK GUARANTEED • MAY LOSE VALUE

SoFi Invest encompasses two distinct companies, with various products and services offered to investors as described below: Individual customer accounts may be subject to the terms applicable to one or more of these platforms.
1) Automated Investing and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser (“SoFi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC.
2) Active Investing and brokerage services are provided by SoFi Securities LLC, Member FINRA (www.finra.org)/SIPC(www.sipc.org). Clearing and custody of all securities are provided by APEX Clearing Corporation.
For additional disclosures related to the SoFi Invest platforms described above please visit SoFi.com/legal.
Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform.

Investment Risk: Diversification can help reduce some investment risk. It cannot guarantee profit, or fully protect in a down market.

Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.

Exchange Traded Funds (ETFs): Investors should carefully consider the information contained in the prospectus, which contains the Fund’s investment objectives, risks, charges, expenses, and other relevant information. You may obtain a prospectus from the Fund company’s website or by email customer service at https://sofi.app.link/investchat. Please read the prospectus carefully prior to investing.
Shares of ETFs must be bought and sold at market price, which can vary significantly from the Fund’s net asset value (NAV). Investment returns are subject to market volatility and shares may be worth more or less their original value when redeemed. The diversification of an ETF will not protect against loss. An ETF may not achieve its stated investment objective. Rebalancing and other activities within the fund may be subject to tax consequences.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

SOIN1023135

Trust Fund Definition

How Do Trust Funds Work?

Different Types of Trust Funds

How to Establish a Trust Fund

Why Set Up a Trust Fund?

The Takeaway

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Types of Monthly Dividend Stocks

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Dividend Payout Ratio

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Pros

Cons

Things to Avoid When Investing in Monthly Dividend Stocks

The Takeaway

FAQ

How do monthly dividend stocks work?

How can you get stocks that pay monthly dividends?

How can you determine the stocks that pay the highest monthly dividends?

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Changes in Contribution Limits for 2025

Yearly Contribution Limits Explained

2024 Contribution Limits

2025 Contribution Limits

Employer Contributions and Catch-Up Provisions

Understanding Employer Match Limits

Catch-Up Contributions for Older Investors

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Understanding Roth 401(k) Limits

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Maximizing Your 401(k) Contributions

Ideal Contribution Strategies

Balancing 401(k) with Other Retirement Plans

FAQ

What is the maximum 401(k) contribution for 2024?

Are 401(k) contribution limits changing in 2025?

Can I contribute 100% of my salary to a 401(k)?

Is there a salary cap for 401(k) contributions?

What happens if I exceed the 401(k) max?

How much can I contribute to a 401(k) if I’m 50 years of age or older?

Understanding Your Investing Options in a Roth IRAs

Get a 1% IRA match on rollovers and contributions.

Double down on your retirement goals with a 1% match on every dollar you roll over and contribute to a SoFi IRA.1

What Are Index Funds?

Long-term Benefits

Why Invest in Index Funds Through a Roth IRA?

Tax-free Growth and Withdrawals

Supporting Retirement Goals

How to Invest in Index Funds in a Roth IRA

Tips on Choosing the Right Index Funds

Managing Your Index Funds

Managing Your Roth IRA

The Takeaway

FAQ

Can I lose money investing in index funds?

Is it better to invest in index funds or individual stocks for a Roth IRA?

You may also be interested in:

What Is a Treasury Bill (T-Bill)?

How Treasury Bills Work

T-Bill Purchase Example

T-Bill Maturities

How to Purchase T-Bills

Buying From Treasury Direct

Double down on your retirement goals with a 1% match on every dollar you roll over and contribute to a SoFi IRA.¹

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