What is the Difference Between American and European Options?

There are several key differences between American and European options. These include: trading, premiums, settlement, settlement prices, volume, exercising options, pricing models, and underlying assets.

Investing Archives | Page 65 of 191

May

2024

American Option vs European Options: Key Differences

American Option vs European Option: What is the Difference?

By Laurel Tincher | Growing Wealth, invest, Investing | Comments Off

Editor's Note: Options are not suitable for all investors. Options involve risks, including substantial risk of loss and the possibility an investor may lose the entire amount invested in a short period of time. Please see the Characteristics and Risks of Standardized Options.

Two of the most popular types of options are American and European. American and European options have a lot in common, but there are some key differences that are important for investors to understand.

Key Points

• American options offer the flexibility to exercise the buy or sell right on any trading day before expiration.

• European options can only be exercised on the expiration date, limiting flexibility.

• American options are often traded on exchanges, while European options are typically traded over-the-counter.

• The pricing of American options usually includes higher premiums due to their increased flexibility.

• European options are generally less expensive and settle in cash, often related to indices rather than specific stocks.

Options Basics

One of the reasons investors like options trading is that it provides the right, but not the obligation to the buyer, to buy an asset. Making the choice to buy (call) or sell (put) is known as exercising the option.

Like all derivatives, the value of options reflects the value of an underlying asset. The value of an option changes as its expiration approaches and according to the price of the underlying asset. Investors using a naked option trading strategy may not have the cash or assets set aside in their portfolio to meet the obligations of the contract.

If the value of the contract or the underlying asset doesn’t increase, the investor would choose to let it expire and they lose only the premium they paid to enter into the contract. Both put and call options contracts include a predetermined price to which the buyer and seller agree, and the contract is valid for a specified period of time.

After the contract ends on the expiration date, so does the option holder’s ability to buy or sell. There are many different options trading strategies that investors can use.

Recommended: Call vs Put Option: The Differences

What Are American Options?

America options are the most popular, with both retail investors and institutional investors using them. One of the reasons for their popularity is their flexibility. Traders can exercise their right to buy or sell the asset on any trading day during the term of the agreement.

Most often, American stock options contracts have an expiration period between three and twelve months.

American Option Example

Say an investor purchases an American call in March with a one-year expiry date. The contract states that the investor has the option to purchase stock in Company X for $25 per share. In options terminology, $25 would be known as the option’s strike price. As the price of the underlying stock asset changes, the value of the option also changes.

After the investor purchases the American call options, the value of the stock increases. Within a few months the price was $50. The investor decides to exercise their option to buy, purchasing 100 shares of the stock at the agreed upon strike price of $25/share, paying a total of $2,500. The investor then sells the shares at the current market price of $50/share, making a profit of $2,500 because their value had doubled, not including the premium paid.

Investors can also buy put options, which give them the right to sell instead of the right to buy. With put options the scenario is reversed in that the investor would exercise their right to sell if the asset decreased in value.

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What Are European Options?

European options are similar to American options, but holders can only exercise them on the expiration date (not before), making them less flexible.

European Options Example

Let’s say an investor purchases a European call option for 100 shares of Company X with a strike price of $25 and an expiration date six months from the time of purchase. Three months after the contract starts, the price of the stock increases to $50/share. The investor can’t exercise the right to buy because the contract hasn’t reached the expiration date.

When the option holder is able to exercise three months later, the stock is down to $30/share. So the investor can still exercise the option and make a profit by purchasing 100 shares at $25 and selling them for $30. The investor would also need to subtract the upfront premium they made, so this scenario wouldn’t be nearly as profitable as the American option scenario.

This is why European options are not as valuable or popular as American options. Options pricing reflects this difference. The premium, or price to enter into a European option contract is lower. However, traders can sell their European options at any point during the contract period, so in the example above the trader could have sold the option for a profit when the stock price went up to $50/share.

💡 Quick Tip: How to manage potential risk factors in a self-directed investment account? Doing your research and employing strategies like dollar-cost averaging and diversification may help mitigate financial risk when trading stocks.

American Style Options vs European Style

American and European options are similar in that they have a set strike price and expiration date. But there are several key differences between American and European options. These include how they’re traded, associated premiums, and more.

Trading

One main difference between American and European options is traders typically buy and sell European options over-the-counter (OTC) and American options on exchanges.

Recommended: What Is the Eurex Exchange?

Premiums

American options typically have higher premiums than European options since they offer more flexibility. If the investor doesn’t exercise their right to buy or sell before the contract expires, they lose the premium.

Settlement

European options tend to relate to indices, so they settle in cash. American options, on the other hand, typically relate to individual stocks or exchange-traded funds and can settle in stock or cash.

Settlement Prices

With American options, the settlement price is the last closing trade price, while with European options the settlement price is the opening price of index components.

Volume

American options typically have a much higher trading volume than European options.

Exercising Options

Traders can only exercise European options at the expiration date, while they can exercise American options at any point during the contract period. Traders can sell either type of option before its expiration date.

Pricing Models

A popular pricing model for options is called the Black-Scholes Model. The model is less accurate for American options because it can’t consider all possible trading dates prior to the expiration date.

Underlying Assets

The underlying assets of most American options are related to equities, European options are typically pegged to indices.

Risks of Americans and European Options

American options are riskier to an options seller because the holder can choose to exercise them at any time.

For buyers, it’s easier to create a hedging strategy with European options since the holder knows when they can exercise their right to buy or sell. Day traders and others who invest in options realize that there are risks involved with all investing strategies, along with potential reward.

The Takeaway

Options are one commonly traded type of investment, and many traders use them to execute a trading strategy. However, it’s possible to build a portfolio without trading options as well. If you have questions about how options may fit into your investment strategy, it may be a good idea to speak with a financial professional.

Investors who are ready to try their hand at options trading despite the risks involved, might consider checking out SoFi’s options trading platform offered through SoFi Securities, LLC. The platform’s user-friendly design allows investors to buy put and call options through the mobile app or web platform, and get important metrics like breakeven percentage, maximum profit/loss, and more with the click of a button.

Plus, SoFi offers educational resources — including a step-by-step in-app guide — to help you learn more about options trading. Trading options involves high-risk strategies, and should be undertaken by experienced investors. Currently, investors can not sell options on SoFi Active Invest®.

For a limited time, opening and funding an Active Invest account gives you the opportunity to get up to $1,000 in the stock of your choice.

Photo credit: iStock/AleksandarNakic

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May

2024

How To Make Changes to Your 401(k) Contributions

By AJ Smith | Growing Wealth, invest, Investing, Preparing for Retirement | Comments Off

Whether you just set up your 401(k) plan or you established one long ago, you may want to change the amount of your contributions — or even how they’re invested. Fortunately, it’s usually a fairly straightforward process to change 401(k) contributions.

How often can you change your 401(k) contributions? You may be able to make changes at any time, depending on your plan. After all, the point of a 401(k) plan is to help you save for your retirement. So it’s important to keep an eye on your account and your investments within the account, to make sure that you’re saving and investing according to your goals.

Learn how to maximize your 401(k), change your 401(k) contributions, and save for retirement.

Key Points

• Adjusting 401(k) contributions can usually be done at any time, depending on the specific plan rules.

• Employers may match contributions up to a certain percentage, enhancing the value of saving.

• Changes in financial circumstances or salary increases can justify modifying contribution amounts.

• Rebalancing investment allocations periodically is crucial to maintain desired risk levels.

• Automatic contribution increases can be set up to progressively enhance retirement savings.

Purpose of a 401(k)

A 401(k) is a retirement account that a company may offer to its employees. In some cases, enrollment in the employer’s 401(k) is automatic; in other cases it’s not. Be sure to check, so that you can take advantage of this savings opportunity.

Employees may contribute a portion of their paycheck to their 401(k) account, and employers might also contribute to each employee’s account (again, depending on the plan).

The employer’s portion is called the company’s “match” or matching funds. Typically, an employer might match up to a certain percentage of what the employee saves. One common matching plan is when a company matches 50 cents for every dollar saved, up to 6% of the employee’s total contributions. Terms vary, so it’s best to ask your Human Resources representative what the match is.

The money a participant contributes to their 401(k) plan is technically called an “elective salary deferral” because it’s optional, not required, and those deductions are not included in an employee’s taxable income. That’s why 401(k) and similar accounts (like a 403(b) and most IRAs) are often called tax-deferred accounts: You don’t pay taxes on the money you’ve saved until you withdraw the money in retirement.

This tax benefit can be significant. Every dollar you save reduces your taxable income, which may result in a lower tax bill in some cases.

💡 Quick Tip: The advantage of opening an IRA, like a Roth IRA, and a tax-deferred account like a 401(k) or traditional IRA is that by the time you retire, you’ll have tax-free income from your Roth, and taxable income from the tax-deferred account. This can help with tax planning.

Can You Change Your 401(k) Contribution at Any Time?

While the opportunity to make changes to some employee benefits, like health insurance, are generally only offered once a year during so-called open enrollment periods, many 401(k) plans allow participants to change the amount of their 401(k) contributions at any point. According to Department of Labor guidelines, an employer must allow plan participants to change investments at least quarterly (sometimes more often, if company stock or other high-risk investments are offered by the plan).

These are some of the reasons you may want to change 401(k) contribution amounts.

The Ability to Save More

You may have gotten a raise, or experienced a change in your financial circumstances, and wish to increase the percentage of your savings. Contributions to these plans are typically expressed as a percentage of your annual salary. For example, if you earn $75,000 per year, and your contribution rate is 10%, you would save a total of $7,500 per year. If you got a raise to $80,000 and now wish to contribute 12%, you would save a total of $9,600 per year.

To Get the Match

As discussed above, some 401(k) plans offer a savings match from the employer. In most cases, the match is a set percentage of the employee’s contribution. If you started your 401(k) at a point when you couldn’t get the full match, you may want to increase your contributions to get the full employer match.

Rebalancing Your Asset Allocation

If you’ve held the account for a while, say a year or more, the original allocation of your investments — i.e. the balance between equities, cash, and fixed income investments — may have shifted. Restoring the original balance of your investments may be a priority, if your strategy and risk tolerance haven’t changed.

Changing Your Asset Allocation

You also might want to shift the asset allocation because your financial strategy has become more aggressive (i.e. tilting toward stocks) or more conservative (tilting toward cash and fixed income).

Setting Up Automatic Increases

Some plans offer participants the option of automatically increasing their contribution rate every year, typically up to a certain percentage (e.g. 15%), and not to exceed the maximum contribution levels. The IRS contribution limit for 401(k) plans for 2024 is $23,000 for participants under age 50. Those 50 and older can save an extra $7,500 in “catch-up contributions”, for a total of $30,500. For 2023, the contribution limit is $22,500 for participants under age 50. Those 50 and older can save an extra $7,500 in “catch-up contributions”, for a total of $30,000.

Setting up automatic increases allows you to save more in your 401(k) each year without having to think about it; this can be beneficial for overcoming the inertia common among some savers.

How to Change 401(k) Contributions: 3 Steps

Again, the 401(k) plan provider will be able to advise participants on how often they can make changes to their contributions, and what the process will look like. For employees unsure of who the plan provider is, the company’s human resource department can point them in the right direction.

In some cases, participants can change their contributions directly through their plan provider’s website. Generally, the process of making changes to a 401(k) looks like this:

Step 1:

The employee contacts their 401(k) provider to discuss how to change contributions for their particular 401(k) plan.

Step 2:

The employee considers how much of their paycheck they want to contribute to their 401(k) moving forward, taking their company’s 401(k) match into consideration, and ideally contributing at least that much. The employee might also change their asset allocation, depending on plan rules.

Step 3:

The participant fills out any forms (online or via paperwork) to confirm their new contribution.

Often, these steps can take just a few minutes, using your plan sponsor’s website.

Why Contribute to a 401(k)? 3 Good Reasons

Contributing to a 401(k) plan is an important way to save for retirement. The funds in a 401(k) are invested, generally in mutual funds, exchange-traded funds (ETFs), or target date funds — which can offer the potential for growth over time. Typically there are about eight to 12 investment options in most 401(k) plans.

But perhaps the three best reasons to contribute to a 401(k) plan are the opportunity to save automatically via regular payroll deductions; the potentially lower tax bill; and the ability to get “free money” from your employer match, if it’s offered.

Low-stress Saving

For many people, this type of investment is easy because you can choose how much of your salary to contribute each pay period, and deductions happen automatically. You don’t have to think about your savings, your contributions are taken directly from each paycheck, so it helps to build your nest egg over time.

Lower Taxable Income

Another benefit is the potential for savings during tax season. Since the contributions an employee makes to their 401(k) plan over the course of the year aren’t included in their taxable income, that can lower their overall taxable income. This, in turn, may result in an individual falling into a lower tax bracket and paying less income tax for that year.

And in the future, when they might likely be in a lower tax bracket due to retirement, they’ll pay lower taxes when they withdraw the money from their 401(k) account.

Note: Withdrawing money from a 401(k) account before retirement age may lead to early withdrawal penalties.

Another perk of enrolling in a 401(k) plan is the notion of “free money” from one’s employer. Some companies match a portion of their employees’ contributions — often around 50 cents to $1 for each dollar that an employee contributes.

Typically, an employer might set a maximum matching limit, such as 3% to 6% of the employee’s salary.

This matching contribution is often referred to as free money because the contribution effectively increases an employee’s income without increasing their current tax bill. It’s worth noting that an employer’s match generally vests over the course of three or four years — meaning that the employer-contributed money will accrue in the account, but an employee won’t be able to keep it if they switch jobs, unless they remain with the company for that set period of time.

Setting up Recurring Contributions

When it comes to setting up a 401(k), the process varies by workplace. Some companies offer automatic enrollment to employees, automatically reducing the employee’s wages by a certain amount and diverting that money to the employee’s 401(k) plan, unless the employee chooses not to have their wages contributed.

Or, an employee can choose to enroll, but to contribute a custom amount. This type of contribution is referred to as an elective deferral.

In companies that don’t offer automatic enrollment as an option, employees will need to work with their HR department and retirement plan provider to get their 401(k) set up.

Participants need to decide how much they want to contribute and they may need to choose their investments. They can also opt to take advantage of autopilot settings, and can roll over a 401(k) from a past job into their new one.

💡 Quick Tip: How do you decide if a certain trading platform or app is right for you? Ideally, the investment platform you choose offers the features that you need for your investment goals or strategy, e.g., an easy-to-use interface, data analysis, educational tools.

How Much to Save for Retirement

The Department of Labor (DOL) outlined a few best practices for investing in order to save for retirement.

It estimated that most Americans will need 70% to 90% of their preretirement income saved by retirement, in order to maintain their current standard of living. Doing that math can give plan participants an idea of how much they should be contributing to their 401(k).

Participants might also consider a few basic investment principles, such as diversifying retirement investments to reduce risk and improve return. These investment choices may evolve overtime depending on someone’s age, goals, and financial situation.

The DOL recommends that employees contribute all they can to their employer-sponsored 401(k) plan to take advantage of benefits like lower taxes, company contributions, and tax deferrals.

Adding Alternative Investments to a 401(k)

Some savers may find themselves interested in pursuing alternative investments when saving for retirement. An alternative investment takes place outside of the traditional markets of stocks, fixed-income, and cash. This method may appeal to those looking for portfolio diversification. Popular examples of alternative investments are private equity, venture capital, hedge funds, real estate, and commodities.

Self-directed 401(k)s allow participants to add alternate investments to their 401(k) portfolio. With a self-directed 401(k), the investor chooses a custodian such as a brokerage or investment firm to hold the amount of assets and execute the purchase or sale of investments on the participant’s behalf. If an employer offers a self-directed 401(k), the custodian will likely be the plan administrator.

The Takeaway

For employees looking to change 401(k) contributions, the process is often as simple as reaching out to your plan provider and confirming that you’re allowed to make a change at this time.

Some companies have rules around when and how often employees can make changes to their contributions. Once you have the go-ahead to make the change, and have considered what works best for your current financial situation and your future goals, it’s generally straightforward.

A company-sponsored 401(k) plan offers many benefits, but once you leave your job, many of those benefits — including the employer-matching program — no longer apply. At that point, you may want to consider doing a rollover of your previous 401(k) to an IRA, so you can remain in control of your money.

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).

Easily manage your retirement savings with a SoFi IRA.

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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.

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May

2024

What Is a Stock Split? How Does It Affect Investors?

By Michael Flannelly | Growing Wealth, invest, Investing | No Comments

Table of Contents

What is a Stock Split?
Types of Stock Splits
Why Do Companies Conduct Stock Splits?
Pros and Cons of Stock Splits
Examples of Stock Splits Throughout History
What Happens When A Stock You Own Splits?

A skyrocketing share price is usually a good thing for a company; investors expect the company to continue growing in the future. However, a stock trading with a hefty price tag may frighten away smaller investors, who may perceive the stock as too rich for their blood. That means many investors might pass over the company’s stock for other stocks with a lower per share price tag.

To combat this, a company may conduct a stock split. This action brings down the price of the company’s stock so that shares look more attractive to more investors, even though the company’s value remains the same. The idea is that investors can invest, and the company gets more marketability and liquidity on the stock market.

Learn more about a stock split and how it works.

Key Points

• A stock split is when a company increases the number of its outstanding shares on the stock market, lowering the price per share.

• Stock splits can make shares more affordable to retail investors and increase liquidity in the market.

• There are different types of stock splits, including forward stock splits and reverse stock splits.

• Companies conduct stock splits to make their stock more accessible and increase marketability.

• Stock splits can have pros such as increased accessibility and liquidity, but also cons such as potential expenses and dilution of ownership.

What Is a Stock Split?

A stock split is when a company increases the number of its outstanding shares on the stock market, which lowers the price of its shares, but its market capitalization (sometimes referred to as market cap) stays the same. This is also known as a forward stock split.

For example, if an investor owns 10 shares of a company with a stock price of $100 and the company announces a 5-to-1 stock split, the investor will then own 50 shares of the stock trading at $20 per share after the stock split. Despite the split, the shareholder still owns $1,000 worth of stock.

A stock split may also be referred to as a one-time stock dividend, since the company is giving out additional shares to stockholders.

What Is a Reverse Stock Split?

In a reverse stock split, a company swaps each outstanding share of the company’s stock for a fraction of a share. A company often conducts a reverse stock split when the share price is low and the company is looking to increase the share price.

For example, in late July 2021, General Electric (GE) completed a 1-for-8 reverse split of its shares to boost the stock’s share price. The reverse split increased its share price from less than $13 pre-split to more than $100 post-split; the company replaced every eight shares held by an investor with one share.

💡 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.

Types of Stock Splits

A number of different ratios can be used to split a stock. When the bigger number comes first in the ratio (such as 2 for 1) it means that the number of outstanding shares will increase—this is a forward stock split. In other words, the stock split ratio can reveal the number of new shares that will be created.

Here are some common stock split types and what they mean.

5 for 1 (5:1)

With a 5 for 1 stock split, for every one share of stock that currently exists, four new shares will be created, for a total of five shares. The share price will adjust downward accordingly, but the company’s market capitalization will stay the same.

2 for 1 (2:1)

In a 2 for 1 stock split, one new share of stock is created for every share that already exists, for a total of two shares. Again, the price for each share will adjust accordingly. A 2 for 1 stock split is one of the most common stock splits.

3 for 1 (3:1)

With a 3 for 1 split, for every share of existing stock, two more shares of stock are created, for a total of 3 shares.

3 for 2 (3:2)

Another fairly common stock split is the 3 for 2 split. In this case, one new share of stock is created for two already-existing shares, for a total of three shares.

Why Do Companies Conduct Stock Splits?

Companies will often split their stock when the share price gets too high. By splitting the stock, a company lowers its share price and makes it more affordable to retail investors, even though the company’s value stays the same.

For example, retail investors may be more likely to buy a chunk of shares of a stock trading at $20 rather than shares trading at $100 or more. This move to reduce the individual share price helps increase the stock’s liquidity in the market.

Pros and Cons of Stock Splits

There are several potential benefits of stock splits, but there are some possible disadvantages of the practice as well.

Pros

Some advantages of a stock split include:

The stock may become more accessible to more investors.

If a stock’s price is very high, smaller investors may be less likely to buy it. Splitting the stock and making it more affordable can result in more investors purchasing the stock.

The stock may have greater liquidity.

Creating more outstanding shares of the stock can make it easier to buy and sell it. For many investors, greater liquidity means they can more readily access their money by selling the stock if they need the funds. Liquidity is typically an important consideration when building a portfolio.

The stock’s price may rise.

Companies that undergo a stock split often do so because their stock price is rising, signaling investor confidence in the company. So, the announcement of a stock split is an indication that the company is doing well. Investors may want to put money into the company, pushing the share price up even before the stock split.

Following the stock split, the stock’s share price may go up because the lower price makes it more affordable to smaller retail investors that may not be able to purchase shares at, say, a $1,000 price. There becomes an increased demand for the lower share price.

Cons

Stock splits can also have drawbacks, such as:

Expensive and complicated.

In order to conduct a stock split, a company must get legal oversight of the process and meet regulatory requirements, which can be costly. A stock split does not change the company’s market cap, so the company must determine whether a split is worth the expense involved.

May attract too many investors.

A company may prefer to keep ownership of its shares exclusive. However, with a stock split, many more investors may be able to afford to buy the stock, meaning the shares would lose their exclusive equity ownership.

Potential for the share price to drop in the future.

It’s possible that once a stock is split and its share price is reduced, the price might drop even lower in the future, which lowers the value of the stock. For instance, if a company’s performance suffers, the face value of the stock might drop more in response.

Examples of Stock Splits Throughout History

Here are some notable stock splits from the last couple of decades:

• Apple (AAPL): The computer giant split its stock by a 4-to-1 ratio in August 2020. Prior to the split, the stock was trading at around $500. After the split, the stock traded at about $124.

• Netflix (NFLX): The entertainment company announced a 7-to-1 stock split in July 2015. Before the split, the stock was trading at nearly $800 per share. After the split, the stock traded at about $114.

• Nike (NKE): The sports apparel company split its stock by a 2-to-1 ratio in December 2015. Prior to the split, the stock was trading at around $128 per share. After the split the stock traded at about $64 per share.

• Nvidia (NVDA): The technology company engaged in a 4-to-1 stock split in July 2021. Before the split, Apple’s stock was trading at around $750, and after the split, the shares were priced near $187.

• Tesla (TSLA): The electric car manufacturer split its stock by a 5-to-1 ratio in August 2020. Before the split, the stock was trading at around $2,200. After the split, the stock traded at around $440. Tesla’s shares rallied during the next two years, so the company declared a 3-to-1 stock split in August 2022, bringing the stock price down to around $300 from nearly $900 per share.

💡 Quick Tip: Distributing your money across a range of assets — also known as diversification — can be beneficial for long-term investors. When you put your eggs in many baskets, it may be beneficial if a single asset class goes down.

What Happens When a Stock You Own Splits?

If an investor owns stock in a company that announces a split, it will not materially affect the investment. As mentioned above, if an investor owns $1,000 worth of stock and a company splits its stock, an investor will still own $1,000 worth of stock after the split.

The additional shares at the lower share price will be automatically added to an investor’s account by the broker.

A stock split does not dilute the ownership of existing shareholders like a new stock issue may do. After a stock split, an investor still owns the same percentage of the company.

Recommended: Understanding Stock Dilution

The Takeaway

When a company announces a stock split, it can be tempting for investors to buy the stock because it will be more affordable on a per share basis. However, investors should be wary of making rash decisions simply because a stock may look more affordable and attractive. After all, the value of the company is still the same.

For most investors, it’s wise to make financial decisions that line up with their long-term investment and wealth-building goals, regardless of a stock’s price tag.

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).

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

FAQ

Are stock splits a good thing?

Generally, a stock split is considered to be a good thing. It typically happens when the price of a company’s stock is high. The high price and value of the stock tends to be a positive sign reflecting that the company is doing well. Splitting the stock may encourage more investment in it, which could then drive up the price of the stock and be beneficial.

Do stocks do better after a split?

It is possible that a stock might do better after a split, but this isn’t always the case. The stock may be bought by more investors, which could drive up its share price. But even after a stock split, the company’s market capitalization doesn’t change. And it’s possible that a stock could drop in price after a split.

Is a stock split bullish or bearish?

A forward stock split, in which more shares of stock are created, is generally considered bullish, since it typically indicates that the company is performing well. However, a reverse stock split, which reduces the total number of shares of a stock, is usually considered bearish, since it may indicate that a company has underperformed.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

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.

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

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May

2024

How to Convert a Traditional 401(k) to a Roth IRA

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

When moving on to a new job, it may be difficult to keep track of the 401(k) left behind at your last job.

What’s more, administrative fees on the account that may have been previously covered by your employer might now shift to you—making it more expensive to maintain the 401(k) account once you’ve left the company. This may leave you wondering, can you roll over a 401(k) to a Roth IRA?

You can! In fact, one of the rollover options for a 401(k) is to convert it to a Roth IRA. For some people, especially those at a certain salary level, this may be an attractive option.

Read on to learn more about rolling over a 401(k) to a Roth IRA, and explore the benefits, restrictions, and ways to execute a rollover, so that you can decide if that’s the right financial move for you.

Key Points

• Rolling over a 401(k) to a Roth IRA involves converting pre-tax retirement savings to an account funded with after-tax dollars.

• Taxes must be paid at the time of conversion based on current income rates.

• There are no limits on the amount that can be transferred, unlike annual contribution limits.

• The rollover can be direct, transferring funds between providers, or indirect, requiring a 60-day deposit window to avoid penalties.

• Converting to a Roth IRA can be advantageous for those expecting to be in a higher tax bracket during retirement.

What Happens When You Convert a 401(k) to a Roth IRA?

Converting, or rolling over, your 401(k) to a Roth IRA means taking your money out of one retirement fund and placing it into a new one.

When you convert your 401(k) to a Roth IRA this is known as a Roth IRA conversion. However, because of some important differences between a traditional 401(k) and a Roth IRA, you will owe taxes when you make this kind of rollover.

The reason: A traditional 401(k) is funded with pre-tax dollars. You don’t pay taxes on the money when you contribute it. Instead, you pay taxes on the funds when you withdraw them in retirement. A Roth IRA, on the other hand, is funded with after-tax dollars. You pay taxes on the contributions in the year you make them, and your withdrawals in retirement are generally tax free.

Because with a 401(k) you haven’t yet paid taxes on the money in your account, when you roll it over to a Roth IRA, you’ll owe taxes on the money at that time. The money will be taxed at your ordinary income rate, depending on what tax bracket you’re in. For the 2023 and 2024 tax years, the income tax brackets range from 10% to 37%.

💡 Quick Tip: How much does it cost to set up an IRA? Often there are no fees to open an IRA account, but you typically pay investment costs for the securities in your portfolio.

Steps to Converting a 401(k) to a Roth IRA

These are the actions you’ll need to take to convert your 401(k) retirement plan to a Roth IRA.

1. Open a new Roth IRA account.

There are multiple ways to open an IRA, including through online banks and brokers. Choose the method you prefer.

2. Decide whether you want the rollover to be a direct transfer or indirect transfer.

With a direct transfer, you will fill out paperwork to transfer funds from your old 401(k) account into a Roth IRA. The money will get transferred from one account to another, with no further involvement from you.

With an indirect transfer, you cash out the 401(k) account with the intention of immediately reinvesting it yourself into another retirement fund. To make sure you actually do transfer the money into another retirement account, the government requires your account custodian to withhold a mandatory 20% tax — which you’ll get back in the form of a tax exemption when you file taxes.

The caveat: You will have to make up the 20% out of pocket and deposit the full amount into your new retirement account within 60 days. If you retain any funds from the rollover, they may be subject to an additional 10% penalty for early withdrawal.

3. Contact the company that currently holds your current 401(k) and request a transfer.

Tell them the type of transfer you want to make, direct or indirect. They will then send you the necessary forms to fill out.

4. Keep an eye out to make sure the transfer happens.

You’ll likely get an alert when the money is transferred, but check your new Roth IRA account to see that your funds land there safely. At that point, you can decide how you want to invest the money in your new IRA to start saving for retirement.

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.

Considerations Before Rolling a 401(k) to a Roth IRA

There are a few rules to consider when rolling over 401(k) assets to a Roth IRA.

Roth IRA Contribution Limits

Contribution limits for Roth IRAs and traditional IRAs are much lower than they are for 401(k)s. For tax year 2023, you can contribute up to $6,500 in a Roth or traditional IRA. Those aged 50 and up can contribute up to $7,500, which includes $1,000 of catch-up contributions. For tax year 2024, individuals can contribute up to $7,000 in a Roth IRA, and those 50 and over can contribute up to $8,000.

By comparison, contribution limits for a 401(k) are $22,500 in 2023, and $23,000 in 2024 for those under age 50. Those aged 50 and over can make an additional $7,500 in catch-up contributions to a 401(k) in 2023 and 2024.

Income Limits for Roth IRA Eligibility

Unlike traditional IRAs, which anyone can contribute to, Roth IRAs have an income cap on eligibility. These income limits are adjusted each year to account for inflation. However, when you are rolling a 401(k) to a Roth IRA, the income limits do not apply. So if you are a high earner, a conversion from a 401(k) to a Roth IRA could be a good option for you.

What are those income caps? For tax year 2023, single filers with a modified adjusted gross income (MAGI) below $138,000 can contribute the full amount to a Roth IRA. However, those with a MAGI of $138,000 to $153,000 can only make a partial contribution to a Roth, while those who make more than $153,000 cannot contribute at all.

For individuals married filing jointly for tax year 2023, those with a MAGI of less than $218,000 can contribute the full amount, while those whose MAGI is $218,000 to $228,000 may contribute a partial amount, and those making more than $228,000 can’t contribute to a Roth IRA.

For tax year 2024, single filers with a MAGI below $146,000 can contribute the full amount to a Roth IRA, those with a MAGI between $146,000 and $161,000 can make a partial contribution, and those making more than $161,000 can’t contribute.

For individuals married filing jointly for tax year 2024, those with a MAGI under $230,000 can contribute the full amount, those whose MAGI is $230,000 to $240,000 can contribute a partial amount, and those making more than $240,000 can’t contribute to a Roth IRA.

As you can see, for high earners, the fact that these income limits do not apply to a 401(k) to Roth conversion, could be a potential reason to consider this type of rollover.

Rollover Amount Will be Taxed

You will have to pay taxes on your IRA rollover. Since your 401(k) account was funded with pre-tax dollars and a Roth IRA is funded with post-tax dollars, you’ll need to pay income tax on the 401(k) amount being rolled over in the same tax year in which your rollover takes place.

A Roth IRA is Subject to the Five-Year Rule

Once you transfer money into your new Roth IRA, it pays to keep it there for a while. If you withdraw any earnings that have been in the account for less than five years, you will likely be required to pay income tax and an additional 10% penalty. This is known as the five-year rule. After five years, any earnings withdrawn through a non-qualified distribution is subject to income tax only, with no penalties.

Penalties for Early Withdrawals

In addition to the five-year rule, non-qualified distributions or withdrawals from a Roth IRA — meaning those made before you reach age 59 ½ — can result in penalties and taxes. While there are certain exceptions that may apply, including having a permanent disability or using the funds to buy or build a first home, it’s wise to think twice and research any potential consequences before withdrawing money early from a Roth IRA.

💡 Quick Tip: Before opening an investment account, know your investment objectives, time horizon, and risk tolerance. These fundamentals will help keep your strategy on track and with the aim of meeting your goals.

Should You Convert Your 401(k) to a Roth IRA ?

Converting a 401(k) to a Roth IRA may be beneficial if you anticipate being in a higher tax bracket when you retire since withdrawals from the account in retirement are tax-free. And if you are a high earner, a 401(k) rollover to a Roth IRA may give you the opportunity to participate in a Roth IRA that you otherwise wouldn’t have.

Another advantage of a Roth IRA is that you can withdraw the money you contributed (but not the earnings) at any time without paying taxes or penalties. And unlike 401(k)s, there are no required minimum distributions (RMDs) with a Roth IRA. Finally, IRAs generally offer more investment options than many 401(k) plans do.

Can You Reduce the Tax Impact?

There are some potential ways to reduce the tax impact of converting a 401(k) to a Roth IRA. For instance, rather than making one big conversion, you could consider making smaller conversion amounts each year, which may help reduce your tax bill.

Another way to possibly lower the tax impact is if you have post-tax money in your 401(k). This might be the case if you contributed more than the maximum deductible amount allowed to your 401(k), for instance. You may be able to avoid paying taxes currently by rolling over the after-tax funds in your 401(k) to a Roth IRA, and the rest of the pre-tax money in the 401(k) to a traditional IRA.

In general it’s wise to consult a tax professional to see what the best strategy is for you and your specific situation.

The Takeaway

One way to handle a 401(k) account from a previous employer is by rolling it over into a Roth IRA. For some individuals, it might be the only way to take advantage of a Roth IRA, which typically has an income limit. With a Roth IRA, account holders can contribute post-tax dollars now, and enjoy tax-free withdrawals in retirement.

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).

Easily manage your retirement savings with a SoFi IRA.

FAQ

Can I roll over my 401(k) to an existing Roth IRA?

Yes, you can roll over a 401(k) to an existing Roth IRA — or to a new Roth IRA.

Can I roll my 401(k) into a Roth IRA without penalty?

You can roll over 401(k) to a Roth IRA without penalty as long as you follow the 60-day rule if you’re doing an indirect rollover. You must deposit the funds into a Roth IRA within 60 days to avoid a penalty.

How much does it cost to roll over 401k to Roth IRA?

Typically there is no charge to roll over a 401(k) to a Roth IRA, unless you are charged processing fees by the custodian of your old 401(k) plan or the new Roth IRA. However, you will owe taxes on the money you roll over from a 401(k) to a Roth IRA. The money will be taxed at your ordinary income tax rate.

Is there a time limit when rolling over a 401(k) to a Roth IRA?

If you do an indirect rollover, in which you cash out the money from your 401(k), you have 60 days to deposit the funds into a Roth IRA in order to avoid being charged a penalty.

Is there a limit on rollover amounts to a Roth IRA?

No, there is no limit to the amount you can roll over to a Roth IRA. The standard annual contribution limits to a Roth IRA do not apply to a rollover.

How do you report a 401(k) rollover to a Roth IRA?

You will need to report a 401(k) rollover on your taxes. Your 401(k) plan administrator will send you a form 1099-R with the distribution amount. You typically report the distribution amount on IRS form 1040 when filing your taxes. You can consult a tax professional with any questions you might have.

Can you roll over partial 401(k) funds to Roth IRA?

You can typically roll over partial 401(k) funds as long as your plan allows it. Check with your plan’s administrator.

SoFi Invest®

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May

2024

15 Technical Indicators for Stock Trading

7 Technical Indicators for Stock Trading

By Mike Zaccardi, CMT, CFA | Growing Wealth, invest, Investing, Tools & Calculators | Comments Off

One way traders seek to profit from short-term movements in security prices is by using technical analysis.

While some stock analysis tools examine company fundamentals, technical stock indicators identify patterns in price and volume data to give investors and traders insights about how a stock might move in the future.

For that reason, although technical indicators can assist with trend identification, it’s best to combine different indicators when conducting stock analysis.

Table of Contents

How Do Stock Technical Indicators Work?
Reasons to Use Stock Market Indicators
Top 7 Stock Indicators for Technical Analysis
The Takeaway

How Do Stock Technical Indicators Work?

Technical analysis uses various sets of data and indicators, such as price and volume, to identify patterns and trends. This type of stock market analysis is different from fundamental analysis, which looks at company financials, industry trends, and macroeconomics.

Rather, technical analysis solely analyzes a stock’s performance. Stock technical indicators are often rendered as a pattern that can overlay a stock’s price chart to predict the market trend, and whether the stock would be considered “overbought” or “oversold.”

Two Main Types of Technical Indicators

Stock technical indicators generally come in two flavors: overlay indicators and oscillators.

Overlay Indicators

An overlay indicator typically overlays one trend onto another on a stock chart, often using different colors to distinguish between the lines.

Oscillator Indicators

An oscillator typically uses metrics such as a stock’s price or trading volume to determine momentum, or rate of change, over time. It uses this info to generate a signal, or trend line, whose fluctuations between two values in a range can indicate if a stock may be overbought or oversold.

If the trend line moves above the higher value of the range, it can indicate a stock is overbought, while dipping below the lower value can indicate it’s oversold. The movements of the trend line thus can help traders determine support and resistance in certain price trends, so they can decide whether to sell or buy (support being the price at which a downturn generally bounces back up, and resistance being the point at which rising prices generally start to fall).

Oscillator indicators can be leading or lagging:

• A leading indicator tracks current market movements to anticipate where the trend is headed next.

• A lagging indicator is based on recent history and seeks patterns that will indicate potential price movements.

The moving average is a common oscillator; it’s considered a lagging indicator as it measures specific intervals in the past.

Naturally, every stock indicator has its pros and cons. Various trading indicators can be used by investors to analyze supply and demand forces on stock price, to help shed light on market psychology, or to manage risk.

But while stock indicators and trading tools can help with buy and sell points, false signals can also occur.

Reasons to Use Stock Market Indicators

Knowing some of the most popular trading tools might benefit your investing strategy by providing you with easier-to-spot buy and sell signals. You don’t have to know every single technical indicator, and there are many ways to analyze stocks, but using multiple stock indicators may help you improve trading results.

You can also use these stock indicators to help you manage risk when you are actively trading.

Price trend indicators are some of the most important technical trading tools since identifying a security price’s trend is often a first step to forming a trading strategy. Long positions are often initiated during uptrends, while short sale opportunities can occur when prices are in a downtrend.

Volume trend indicators are also helpful to gauge the power or conviction of an asset’s price move. Some believe that the higher the stock volume on a bullish breakout or bearish breakdown, the more confident the move is. Higher volume could signal a lengthier trend continuation.

💡 Quick Tip: All investments come with some degree of risk — and some are riskier than others. Before investing online, decide on your investment goals and how much risk you want to take.

7 Stock Indicators for Technical Analysis

It’s important to remember that these trading tools were developed based on the belief that mathematically derived patterns may be valuable as predictors of stock movements. Past performance, however, is not a guarantee of future results. So while it can be useful to employ stock technical indicators, they are best used in combination before deciding on a potential trade.

Also, many of these trading tools are lagging indicators, which can lead to an inaccurate reflection of current and future market conditions.

Following are seven of the most common technical stock indicators, along with their advantages and disadvantages.

Moving Averages (MA)
Moving Average Convergence Divergence (MACD)
Relative Strength Index (RSI)
Stochastic Oscillator
On-Balance Volume (OBV)
Accumulation / Distribution Line (ADL)
Standard Deviation

1. Moving Averages (MA)

A moving average (MA) is the average value of a security over a specific time. The MA can be:

• Simple Moving Average (SMA)

• Exponential Moving Average (EMA)

• Weighted Moving Average (WMA).

A moving average smooths stock price volatility, and is taken as an indicator of the direction a price may be headed. If the price is above the moving average, it’s considered an uptrend versus when the price moves below the MA, which can signal a downtrend.

Moving averages are typically used in combination with each other, or other stock indicators, to identify trends.

Pros

• Using moving averages can filter out the noise that comes from price fluctuations and focus on the overall trend.

• Moving average crossovers are commonly used to pinpoint trend changes.

• You can customize moving average periods: common time frames include 20-day, 30-day, 50-day, 100-day, 200-day.

Cons

• A simple moving average may not help some traders as much as an exponential moving average (EMA), which puts more weight on recent price changes.

• Market turbulence can make the MA less informative.

• Moving averages can be simple, exponential, or weighted, which might be confusing to new traders.

2. Moving Average Convergence Divergence (MACD)

The Moving Average Convergence Divergence (MACD) helps investors gauge whether a security’s movement is bullish or bearish, and helps gauge the momentum of the trend. The MACD uses two different exponential moving averages (EMAs) to do so.

A 26-period EMA is subtracted from a short-term 12-period EMA to generate the MACD line. Then a signal line, based on a nine-day EMA, is plotted on top of the MACD to help reveal buy and sell entry points.

If the MACD line crosses above the signal line, that can signal a buy opportunity. If it crosses below the signal line, that could signal a price decline and an opportunity to sell or take a short position.

Pros

• The MACD, used in combination with the relative strength index (below) can help identify overbought or oversold conditions.

• It can be used to indicate a trend and also momentum.

• Can help spot reversals.

Cons

• The MACD might provide false reversal signals.

• It responds mainly to the speed of price movements; less accurate in gauging the direction of a trend.

3. Relative Strength Index (RSI)

The relative strength index or RSI is an oscillator tool that looks at price fluctuations in a given period and calculates average price losses and gains. It ranges from 0 to 100. Generally, above 70 is considered overbought and under 30 is thought to be oversold.

Traders often use the RSI in conjunction with the MACD to confirm a price trend. The RSI can sometimes identify a divergence, when the indicator moves in opposition to the price; this can show the price trend is weakening.

Pros

• An RSI can help investors spot buy or sell signals.

• It may also help detect bull market or bear market trends.

• It can be combined with moving average indicators to spot breakout trends or reversals.

Cons

• The RSI can move without exhibiting a clear trend.

• The RSI can remain at an overbought or oversold level for a long time, making this tool less useful.

• It does not give clues as to volume trends.

Recommended: 5 Bullish Indicators for a Stock

4. Stochastic Oscillator

Traders will often use the stochastic oscillator, which is a momentum indicator, to determine whether a given security is overbought or oversold. The stochastic oscillator allows traders to compare a specific closing price of a security to a range of its prices over a certain time frame.

By using a stochastic chart, traders can gauge the momentum of a security’s price with the aim of anticipating trends and reversals. A stochastic oscillator uses a range of 0 to 100 to determine if an asset is overbought (when the measurements are above 80) or oversold (when the measurement is below 20).

Pros

• Clearer entry/exit signals: The oscillator has a basic design and generates visual signals when it reaches the outer bounds of a price range. This can help a trader determine when it may be time to buy or to sell stocks.

• Frequent signals: For more active traders who trade on intraday charts such as the 5-, 10-, or 15-minute time frames, the stochastic oscillator generates signals more often as price action oscillates in smaller ranges.

• Easy to understand: The oscillator’s fluctuating lines are fairly clear for investors who know how to use them.

Cons

• Possible false signals: Depending on the time settings chosen, traders may misperceive a sharp oscillation as a buy or sell signal, especially if it goes against the trend. This is more common during periods of market volatility.

• Doesn’t measure the trend or direction: It calculates the strength or weakness of price action in a market, not the overall trend or direction.

💡 Quick Tip: When you’re actively investing in stocks, it’s important to ask what types of fees you might have to pay. For example, brokers may charge a flat fee for trading stocks, or require some commission for every trade. Taking the time to manage investment costs can be beneficial over the long term.

5. On-Balance Volume (OBV)

OBV is a little different from the other indicators mentioned. It primarily uses volume flow to gauge future price action on a security or market. When there’s a new OBV peak, it generally indicates that buyers are strong, sellers are weak, and the price of the security may increase.

Similarly, a new OBV low is taken to mean that sellers are strong and buyers are weak, and the price is trending down.

The numerical value of the OBV isn’t important — it’s the direction that matters. In that respect it can be used as a trend confirmation tool. It can also signal divergences, when the price and the volume move in opposite directions.

Pros

• Volume-based indicator gauges market sentiment to predict a bullish or bearish outcome.

• OBV can be used to confirm price action and identify divergences.

Cons

• It can be hard to find definitive buy and sell price levels.

• False signals can happen when divergences and confirmations fail.

• Volume surges can distort the indicator for short-term traders.

Recommended: How to Find Portfolio Beta

6. Accumulation / Distribution Line (ADL)

The accumulation/distribution line (ADL) looks at the trading range for a certain stock, and uses price and volume data to gauge whether shares are being accumulated or distributed. Like OBV it also looks for divergences, so that if a price trend isn’t supported by volume flow it could indicate the trend is about to reverse.

Although this sounds similar to OBV, they are calculated differently, and the ADL gives more attention to price and volume data within a specified range.

Pros

• Traders can use the ADL to spot divergences in price compared with volume that can confirm price trends or signal reversals.

• The ADL can be used as an indicator of the flow of cash in the market.

Cons

• It doesn’t capture trading gaps or factor in their impact.

• Smaller changes in volume are hard to detect.

7. Standard Deviation

Standard deviation measures the extent to which a data point deviates from an expected value, i.e. the mean return. When used as a technical indicator, standard deviation is a common stock volatility measure; it refers to how far a stock’s performance varies from its average.

Investors often measure an investment’s volatility by the standard deviation of returns compared with a broader market index or past returns.

Pros

• Standard deviation mathematically captures the volatility of a stock’s movements, i.e. how far the price moves from the mean.

• It provides technicians with an estimate for expected price movements.

• It can be used to measure expected risk and return.

Cons

• It does not provide precise buy and sell signals.

• It must be used in conjunction with other indicators.

The Takeaway

Technical analysis tools use past price and volume data to help traders identify price trends and make buy and sell decisions. It’s important to know that technical analysis does not use fundamentals to assess the underlying companies, their industries, or any macroeconomic trends that might drive their success or failure. Rather, technical analysis solely analyzes the movement and volume inherent in a stock’s performance.

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FAQ

What is the most popular technical indicator for stocks?

Traders typically combine technical indicators, so it’s difficult to point to one as being a top choice. That said, many traders use the moving average indicators in combination with others to gauge price trends.

What is the most accurate indicator of the stock market?

There is no single indicator that can anticipate overall stock market performance. In fact, it’s an important factor to keep in mind when using technical indicators: For every successful price prediction or winning trade, there are countless others that don’t pan out. There are no crystal balls.

Which indicator gives buy and sell signals?

Different traders favor different indicators when looking for signals about how to place a trade. That said, the stochastic oscillator is relatively clear-cut in that it can help traders identify buy and sell opportunities based on price closes and trends within a certain range.

Photo credit: iStock/staticnak1983

SoFi Invest®

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

American Option vs European Option: What is the Difference?

Options Basics

What Are American Options?

American Option Example

Finally, user-friendly options trading is here.*

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What Are European Options?

European Options Example

American Style Options vs European Style

Trading

Premiums

Settlement

Settlement Prices

Volume

Exercising Options

Pricing Models

Underlying Assets

Risks of Americans and European Options

The Takeaway

How To Make Changes to Your 401(k) Contributions

Purpose of a 401(k)

Can You Change Your 401(k) Contribution at Any Time?

The Ability to Save More

To Get the Match

Rebalancing Your Asset Allocation

Changing Your Asset Allocation

Setting Up Automatic Increases

How to Change 401(k) Contributions: 3 Steps

Step 1:

Step 2:

Step 3:

Why Contribute to a 401(k)? 3 Good Reasons

Low-stress Saving

Lower Taxable Income

Setting up Recurring Contributions

How Much to Save for Retirement

Adding Alternative Investments to a 401(k)

The Takeaway

What Is a Stock Split? How Does It Affect Investors?

What Is a Stock Split?

What Is a Reverse Stock Split?

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Types of Stock Splits

5 for 1 (5:1)

2 for 1 (2:1)

3 for 1 (3:1)

3 for 2 (3:2)

Why Do Companies Conduct Stock Splits?

Pros and Cons of Stock Splits

Pros

Cons

Examples of Stock Splits Throughout History

What Happens When a Stock You Own Splits?

The Takeaway

FAQ

Are stock splits a good thing?

Do stocks do better after a split?

Is a stock split bullish or bearish?

How to Convert a Traditional 401(k) to a Roth IRA

What Happens When You Convert a 401(k) to a Roth IRA?

Steps to Converting a 401(k) to a Roth IRA

1. Open a new Roth IRA account.

2. Decide whether you want the rollover to be a direct transfer or indirect transfer.

3. Contact the company that currently holds your current 401(k) and request a transfer.

4. Keep an eye out to make sure the transfer happens.

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

Considerations Before Rolling a 401(k) to a Roth IRA

Roth IRA Contribution Limits

Income Limits for Roth IRA Eligibility

Rollover Amount Will be Taxed

A Roth IRA is Subject to the Five-Year Rule

Penalties for Early Withdrawals

Should You Convert Your 401(k) to a Roth IRA ?

Can You Reduce the Tax Impact?

The Takeaway

FAQ

Can I roll over my 401(k) to an existing Roth IRA?

Can I roll my 401(k) into a Roth IRA without penalty?

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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