Investing Archives | Page 78 of 191

Feb

2024

What Are the Different Types of Stocks?

By Amanda Holden | Growing Wealth, invest, Investing | Comments Off

There are numerous types of stocks, categorized by company characteristics, size, region, sector, and more. Equipped with an understanding of different stock types, an investor can start building a diversified portfolio. Though all stocks can experience volatility and potentially lose value, holding a mix of different types of shares can mitigate the risk of being too heavily invested in any one category.

An Overview Of Stocks

A stock represents a percentage of ownership in a publicly traded company. So essentially, investors can own small pieces or “shares” of companies.

Generating returns via the stock market can usually happen in one of two ways. First, the value of the stock can increase over time, something known as capital appreciation. The second is through dividend payments, where companies make cash payouts periodically to all owners of that company’s stock. Some people make investments based on a company’s ability to pay consistent dividends, or “income.” Utility and telephone companies often fit into this bucket.

When you own a stock, you hold equity (or ownership) in that company. That’s why stocks are sometimes referred to as equities. Each individual share represents an equal proportion of ownership. Owners of stocks are often referred to as stockholders or shareholders.

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Categories of Stocks

There are several ways that different stocks are categorized, which is important to know if you’re brushing up on the stock market basics. Stocks are also sometimes classified by styles of investing. These categories often have to do with how that company makes money and how the stock is valued. You may often hear this associated when discussing value vs. growth stocks.

Value Stocks

Value stocks are stocks that are considered to be trading below their actual worth, and are a key component in value investing. Investors hope that by buying companies that are priced below their “true” value, they can profit as the gap narrows over time.

Growth Stocks

Growth stocks are companies that are growing at a fast pace or those that are expected to continue growing at a faster rate than other stocks or competitors. Investors can encounter higher valuations in growth investing.

Common Stock

Common stock represents shares of ownership in a corporation. When an investor receives common shares, they are typically also granted voting rights to the company and can participate in shareholder voting processes — usually one vote for each share. For investors, it can be helpful to understand the differences between common versus preferred stock.

Preferred Stocks

Preferred stocks make regular dividend payments, but holders of preferred shares often have zero or limited voting rights. If a company becomes financially insolvent however, preferred stockholders have a claim on assets before common shareholders do.

Exchange-traded Funds (ETFs)

Exchange-traded funds, or ETFs, group multiple securities into a single share. For instance, a stock ETF will hold numerous companies, while a bond ETF can hold many individual bonds, whether it’s a collection of Treasurys or high-yield debt. ETFs are popular because of the cheap, instant diversification they offer.

There are many types of ETFs, too, including low cost ETFs, and ETFs with their holdings concentrated in certain sectors.

Initial Public Offerings (IPOs)

An initial public offering (IPO) is the process of a private company listing and debuting on a public stock exchange. Investors can buy IPO shares on their first day of trading.

Special Purpose Acquisition Companies (SPACs)

SPACs are shell companies that go public on the stock exchange, and then try to find a private operating business to purchase.

Real Estate Investment Trusts (REITs)

REITs are companies that own and operate real estate, usually focusing on one type of property, such as warehouses, hotels or office buildings. There are pros & cons to investing in REITs. For example, one pro is that they tend to pay consistent dividends. Cons include sensitivity to interest rates, and taxed dividends.

Blue-Chip Stocks

Blue-chip stocks are stocks that large, well-established companies issue and usually have a long-standing history of growth. They’re generally considered to be financially sound, and may be considered lower-risk than other stocks.

Cyclical and Non-Cyclical Stocks

Cyclical investing concerns making stock selections surrounding economic changes, and cyclical stocks are those that may see their performance closely align with larger economic shifts. Non-cyclical stocks, on the other hand, do not see their performance tied to larger economic changes.

Defensive Stocks

Defensive stocks may be used as a part of a defensive investing strategy, and usually involves investing in stocks that may be seen as lower-risk. This can include blue-chip stocks, or stocks from sectories like utilities and consumer staples.

Penny Stocks

Penny stocks are low-priced stocks that generally trade for less than $5 per share, and many trade for less than $1. They’re usually risky, and highly-speculative stocks.

Income Stocks

Income stocks are a category of stocks that tend to offer regular, steady income to investors. That income generally comes in the form of dividends.

Environmental, Social, and Corporate Governance (ESG)

ESG stocks are those that may have certain non-financial criteria that appeal to certain investors. ESG stocks are shares of companies that are socially and environmentally responsible, though there is no universally-shared or accepted set of ESG criteria.

Different Market Caps

The sizes of stocks are classified by the market capitalization of the company’s publicly traded stock. Market cap is calculated by multiplying the stock price by the total number of outstanding shares.

Generally speaking, larger companies tend to be older, more established, and have greater international exposure — so a higher percentage of a large-cap company’s revenue comes from overseas. Meanwhile, smaller-cap stocks tend to be newer, less established and more domestically oriented. Smaller-cap companies can be riskier but also offer more growth potential.

Similarly, if you’re interested in buying mid-cap stocks, that means you’re investing in mid-sized companies — generally speaking.

stock market caps

While the market-caps that determine which companies are small or large can shift, here’s a breakdown that gives some rough parameters.

Micro-Cap: $50 million to $300 million

Small-Cap: $300 million to $2 billion

Mid-Cap: $2 billion to $10 billion

Large-Cap: $10 billion or higher

Mega-Cap: $200 billion or higher

Types of Stock Classes

There are also stock classes that investors should be aware of, and those generally involve Class A, Class B, and Class C shares, which all may be issued by the same company. The specifics of each category will vary from company to company, too.

For some rough guidelines, though, Class A shares tend to have more voting power and higher priority for dividends. Class B shares may have lesser voting power than Class A shares, but no preferential treatment for dividends. Class C shares are often given to employees as a part of a compensation package, and may have associated trading restrictions.

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Stocks By Sector

stock sectors

Additionally, stocks are often grouped by the industry that that company works within. According to the Global Industry Classification Standard (GICS), there are 11 recognized sectors, with numerous industries within those sectors. They include (but are not limited to):

Energy: Energy equipment and services, oil, gas, and consumable fuels. If you want to invest in energy stocks, this is the category to look at.

Materials: Chemicals, construction materials, containers and packaging, metals and mining

Industrials: Aerospace and defense, building products, machinery, construction and engineering, electrical equipment, industrial conglomerates

Consumer Discretionary: Automobiles, automobile components, household durables, leisure products

Consumer Staples: Food products, beverage, tobacco, household products

Health Care: Health care equipment and services, pharmaceuticals, biotechnology, life sciences

Financials: Banks, insurance, consumer finance, capital markets, financial services

Information Technology: IT services, software, communications equipment

Communication Services: Diversified telecommunication services, media, entertainment

Utilities: Electric utilities, gas utilities, water utilities, independent power and renewable electricity producers

Real Estate: Real estate management and development, various REITs (retail, residential, office, etc.)

Again, these categories can be helpful to investors looking to diversify their portfolios. If you want to add some real estate stocks, or even invest in tech stocks, sector investing may be something to research further.

Note, too, that there may be other categories or sectors of stocks not listed above, such as retail stocks.

Stocks by Country

Different overseas stocks can be classified by the country or region in which they’re headquartered, even if the company’s operations are global. Individuals looking to invest in international stocks have found that they can do so easily with ETFs, which hold numerous foreign companies within a single share.

Regions that are commonly used in the world of stock investing are:

EAFE is an acronym which stands for Europe, Australasia, and the Far East. Investors may see this used when making investment choices, as the MSCI EAFE is a common index used for international stock funds. These countries are all “developed” nations, which means they have established financial markets, stable political climates, and mature economies.

Emerging-market stocks, which stocks with companies based out of countries whose economies are described as developing. Brazil, Russia, Mexico, China, and India are just a few emerging markets. Emerging markets may be riskier to invest in but may pose an opportunity for high rates of growth.

The Takeaway

There are numerous types of stocks on the market, and it can be important for investors to understand the differences between them. The stock market can be volatile and prone to dramatic declines, but in order to shield themselves from the risks, investors often create diversified portfolios by stocking their holdings through various different stock types.

Diversification is easier to do if an investor understands the different types of stocks that exist in the U.S. equity market. From mega-cap stocks to ETFs to emerging-market companies, there are a myriad of investing opportunities in the equity market.

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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.

FAQ

What are the benefits of investing in different types of stocks?

Investing in different types of stocks can be beneficial to investors as it can diversify their portfolio, which may help reduce investing risk as the market fluctuates.

What is the riskiest type of stock?

Penny stocks are likely the riskiest type of stock, as they are shares of companies that are new, unproven, and highly volatile. While there’s a big potential upside to investing in penny stocks, the risks are significant.

What stocks are best for beginners?

While it’ll depend on the individual investor, beginner investors may want to look at investing in blue chip stocks, ETFs, or other stocks that have either built-in diversification, or a long track record of viability, which can be a sign of lower associated risks.

What are the risks and opportunities of investing in emerging markets?

Emerging markets can be volatile or unstable, and there may be political, monetary, and economic risks that investors are unaware of in those markets.

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Feb

2024

What Is a Salary Reduction Contribution Plan?

By Mike Zaccardi, CMT, CFA | Growing Wealth, invest, Investing, Preparing for Retirement | Comments Off

A salary reduction contribution plan allows employees to reduce their taxable income by investing for retirement. With this type of plan, an employee’s salary isn’t really reduced; rather the employer deducts a percentage of their salary and deposits the funds in a retirement savings plan where the money can grow tax deferred.

Common employer-sponsored retirement plans include 401(k)s, 403(b)s, and SIMPLE IRAs. Employee contributions — also called elective deferral contributions — are typically made with pre-tax money, effectively reducing the participant’s taxable income and often lowering their tax bill. Some plans feature an after-tax Roth contribution option, too.

You may already be contributing to a salary reduction contribution plan, although your company may not call it that. These plans can be a valuable way to boost your retirement savings, and offer you a tax break. Here’s what you need to know.

Salary Reduction Contribution Plans Explained

A salary reduction contribution plan helps workers save and invest for retirement through their employer via several types of retirement accounts. Money is typically deposited in a retirement account such as a 401(k), 403(b), or SIMPLE IRA on a pre-tax basis through recurring deferrals (aka contributions) on behalf of the employee.

Employees typically select the percentage they wish to deposit, e.g. 3%, 10%, or more. That percentage is deducted from an employee’s paycheck automatically, and deposited in their retirement account. Sometimes a specific dollar amount is established as the salary reduction contribution amount.

The upshot for the worker is that they can delay paying taxes on the amount of the salary reduction for many years, until they withdraw money from the account during retirement. Like a traditional 401(k) or 403(b), these accounts can be tax deferred; Roth options are considered after tax (because you deposit after-tax funds, but pay no tax on withdrawals). Retirement contributions may offer decades of compounded investment returns without taxation. Essentially, retirement contributions through an employer’s plan means saving money from your salary.

There are also SIMPLE IRA salary reduction agreements sometimes offered by small businesses with 100 or fewer employees: “SIMPLE” is short for “Savings Incentive Match Plan for Employees.”

A Salary Reduction Simplified Employee Pension Plan (SARSEP), on the other hand, is a simplified employee pension plan established before 1997.

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.

How Salary Reduction Contribution Plans Work

Salary reduction contribution plans are established between a worker and their employer. The two parties agree to have a set percentage or a dollar amount taken from the employee’s salary and deposited into a tax-advantaged retirement plan. That money can then be invested in stock or bond mutual funds, or other investments offered by the plan.

With pre-tax contributions, the employee has a reduced paycheck but gets current-year tax savings. With after-tax contributions, as in a Roth account, taxes are paid today while the account can potentially grow tax-free through retirement; withdrawals from a Roth account are tax free.

Example of a Salary Reduction Contribution Plan

Here’s an example of how a salary reduction contribution plan agreement might work:

Let’s say an employee at a university has a $100,000 salary and wishes to save 10% of their pay in a pre-tax retirement account. The school has a 403(b) plan in place. The worker contacts their Human Resources department to ask about submitting a salary reduction agreement form. On the form, the worker chooses an amount of their salary to defer into the 403(b) plan (10%).

Typically they also select investments from a lineup of mutual funds or exchange-traded funds (ETFs).

Come payday, the employee’s paycheck will look different. If the usual biweekly gross earnings amount is $3,846 ($100,000 salary divided by 26 pay periods, per year), then $384.60, or 10% of earnings, is deducted from the employee’s paycheck and deposited into the 403(b) and invested, assuming the employee has selected their desired investment options.

Depending on other deductions, the employee’s new taxable income might be $3,461.40. The contribution effectively reduced the worker’s salary, potentially lowering their tax bill at the end of the year.

If the worker is in the 22% marginal income tax bracket, the $10,000 annual deferral amounts to an annual federal income tax savings of $2,200 per year.

Bear in mind that withdrawals from the 403(b) plan are taxable with pre-tax salary reductions. We’ll look at salary reduction plan withdrawal rules later.

Pros & Cons of Salary Reduction Contribution Plans

Although your employer may offer a salary reduction contribution plan like a 401(k) or SIMPLE IRA salary reduction agreement for retirement, it’s not required to participate. Before deciding whether you want to join your organization’s plan, here are some advantages and disadvantages to consider.

Pros

A salary reduction contribution offers employees the chance to reduce their current-year taxable income. A lower salary defers taxation on the money you save, until retirement. For young workers, that could mean decades of compounding returns without having to pay taxes along the way.

For those who have the option of choosing to open a Roth account, taxes are paid in the current year, but withdrawals are tax free (as long as certain criteria are met). Also, contributions to a Roth 401(k) or Roth 403(b) plan can grow tax-free through retirement.

What’s more, the employer might offer their own contribution such as a matching contribution. Typically, an employer might match employees’ contributions up to a certain amount: e.g. they’ll match 50 cents for every dollar an employee saves, up to 6% of their salary.

Another upside is that lowering one’s salary through automated savings can help an individual live on less money and avoid spending beyond their means — which may help establish long-term savings habits. Thus, contributing to a salary reduction plan can be a step toward creating a financial plan.

Cons

Like many aspects of personal finance, salary reduction contributions can be a balancing act between meeting your obligations today and providing for your future self.

Saving for the future can mean forgoing some pleasure in the present, similar to the concept of delayed gratification. Maybe you decide to postpone a vacation or purchase of a new car in exchange for a more robust retirement account balance.

Employees should also weigh the likelihood of needing money in the event of an emergency. Taking early withdrawals or borrowing from your 401(k) account can be costly, or may come with penalties, versus having extra cash in a checking or savings account. In most cases if you take out a loan from an employer-sponsored plan, you would have to repay the loan in full if you left your job.

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Salary Reduction Contribution Limits

Annual salary reduction contribution limits can change each year. The Internal Revenue Service (IRS) determines the yearly maximum contribution amount. For 2024, the most a worker can contribute to a 401(k) or 403(b) is $23,000. For those age 50 and older, an additional $7,500 contribution is permitted.

In 2023, a worker can contribute up to $22,500 to a 401(k) or 403(b), and those 50 and older can contribute an additional $7,500 in catch-up contributions.

A SIMPLE IRA salary reduction agreement has different limits. For 2024, a SIMPLE IRA’s annual maximum contribution is $16,000 with a catch-up contribution of up to $3,500 for those age 50 and older. For 2023, the annual maximum SIMPLE IRA contribution limit is $15,500 and $3,500 for those 50 and up.

Salary Reduction Contribution Plan Withdrawal Rules

There are many rules regarding salary reduction contribution plan withdrawals.

At a high level, when an employee withdraws money from a tax-deferred retirement account, they will owe income tax on the money. If you withdraw money before age 59 ½, a 10% early-withdrawal tax might be applied.

There can be some exceptions to these rules, but it’s best to consult with a professional.

Should you withdraw money when you leave your employer? While taking a lump sum is possible under those circumstances, it may not be your best choice: You’d owe taxes on the full amount, and you’d risk spending money that’s meant to support you when you’re older.

The standard rule of thumb is that individuals who are leaving one employer should consider rolling over their retirement account to an IRA, or their new employer’s plan. In that case there are no penalties or taxes owed, and the money is once again secured for the future.

The Takeaway

Salary reduction contribution plans can help workers save money for retirement on a pre-tax or after-tax basis. Steadily putting money to work for your future is a major step toward building a solid long-term financial plan. And in many cases you will reap a tax advantage in the present — or in the future.

That said, there are important pros and cons to weigh when deciding whether you should contribute via a salary reduction plan. You may have another strategy. But if you don’t, you might want to consider opting into your employer’s plan for the benefits it can provide.

An important point to know: Even when you join a salary reduction plan, you can still open up an IRA online to boost your savings. And if you leave your job, you can roll over your salary reduction retirement account to an IRA without paying taxes or penalties.

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

Does a 401(k) reduce salary?

Not really. Contributions toward a traditional 401(k) retirement plan are a tax-deductible form of savings that effectively reduce an individual’s taxable income. In that regard, making retirement contributions on a pre-tax basis can reduce someone’s salary (but you still have the money in your retirement account).

Also, some plans allow for after-tax contributions which also reduce the size of your paycheck, but are not tax deductible.

What does employee salary reduction mean?

Employee salary reduction means that money is automatically deducted from an employee’s paycheck and contributed to a retirement plan. Money moves into a plan such as a 401(k), 403(b), or a SIMPLE IRA. The account is in the employee’s name, and they decide how to invest the funds.

What is the difference between SEP and SARSEP?

A SEP is known as a Simplified Employee Pension Plan. A SEP plan allows employers to contribute to traditional IRAs (called SEP IRAs) for their employees. The IRS states that a business of any size, even self-employed, can establish a SEP. These plans are common in the small business world.

A SARSEP, on the other hand, is a simplified employee pension plan established before 1997. A SARSEP includes a salary reduction arrangement. The employee can choose to have the employer contribute a portion of their salary to an IRA or annuity. Per the IRS, a SARSEP may not be established after 1996.

Photo credit: iStock/visualspace

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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.

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Feb

2024

Default Deferral Rate 401(k) Explained

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

Your 401(k) deferral rate is the amount that you contribute to the plan via your paychecks. Many companies have a default deferral rate on 401(k) plans, in which they automatically direct a certain amount of your paycheck to your 401(k) plan. This occurs automatically, unless you opt out of participation or select a higher default rate.

The default deferral rate on 401(k) plans varies from one plan to another (and not all plans have a default rate), though the most common rate is 7%. If you’re currently saving in a 401(k) plan or will soon enroll in your employer’s plan, it’s important to understand how automatic contributions work.

What Is a 401(k) Deferral Rate?

A deferral rate is the percentage of salary contributed to a 401(k) plan or a similar qualified plan each pay period. Each 401(k) plan can establish a default deferral percentage, which represents the minimum amount that employees automatically contribute, unless they opt out of the plan.

For example, someone making a $50,000 annual salary would automatically contribute a minimum of $1,500 per year to their plan if it had a 3% automatic deferral rate.

Employees can choose not to participate in the plan, or they can contribute more than the minimum deferral percentage set by their plan. They may choose to contribute 10%, 15% or more of their salary into the plan each year, and receive a tax benefit up to the annual limit. Again, the more of your income you defer into the plan, the larger your retirement nest egg may be later.

There are several benefits associated with changing your 401(k) contributions to maximize 401(k) salary deferrals, including:

• Reducing taxable income if you’re contributing pre-tax dollars

• Getting the full employer matching contribution

• Qualifying for the retirement saver’s credit

If you qualify, the Saver’s Credit is worth up to $1,000 for single filers or $2,000 for married couples filing jointly. This credit can be used to reduce your tax liability on a dollar-for-dollar basis.

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.

Average Deferral Rate

Studies have shown that more employers are leaning toward the higher end of the scale when setting the default deferral rate. According to research from the Plan Sponsor Council of America (PSCA), for instance, 32.9% of employers use an automatic default deferral rate of 6% versus 29% that set the default percentage at 3%.

In terms of employer matching contributions, a recent survey from the PSCA found that 96% of employers offer some level of match. The most recent data available from the Bureau of Labor suggests that the average employer match works out to around 3.5%. Again, it’s important to remember that not every employer offers this free money to employees who enroll in the company’s 401(k).

Research shows that higher default rates result in higher overall retirement savings for participants.

What Is the Actual Deferral Percentage Test?

The actual deferral percentage (ADP) test is one of two nondiscrimination tests employers must apply to ensure that employees who contribute to a 401(k) receive equal treatment, as required by federal regulations. The ADP test counts elective deferrals of highly compensated employees and non-highly compensated employees to determine proportionality. A 401(k) plan passes the ADP test if the actual deferral percentage for highly compensated employees doesn’t exceed the greater of:

• 125% of the ADP for non-highly compensated employees, or the lesser of

• 200% of the ADP for non-highly compensated employees or the ADP for those employees plus 2%

If a company fails the ADP test or the second nondiscrimination test, known as actual contribution percentage, then it has to remedy that to avoid an IRS penalty. This can mean making contributions to the plan on behalf of non-highly compensated employees.

How Much Should I Contribute to Retirement?

If you’re ready to start saving for retirement, using your employer’s 401(k), one of the most important steps is determining your personal deferral rate. The appropriate deferral percentage can depend on several things, including:

• How much you want to save for retirement total

• Your current age and when you plan to retire

• What you can realistically afford to contribute, based on your current income and expenses

A typical rule of thumb suggested by financial specialists is to save at least 15% of your gross income toward retirement each year. So if you’re making $100,000 a year before taxes, you’d save $15,000 in your 401(k) following this rule. But it’s important to consider whether you can afford to defer that much into the plan.

Using a 401(k) calculator or retirement savings calculator can help you to get a better idea of how much you need to save each year to reach your goals, based on where you’re starting from right now. As a general rule, the younger you are when starting to invest for retirement the better, as you have more time to take advantage of the power of compounding returns.

If you don’t have a 401(k), you can still save for retirement through an individual retirement account (IRA) and set up automatic deposits to mimic paycheck deferrals and give you the benefit of dollar-cost averaging.

Contribution Limits

It’s important to keep in mind that there are annual contribution limits for 401(k) plans. These limits determine how much of your income you can defer in any given year and are established by the IRS. The IRS adjusts annual contribution limits periodically to account for inflation.

For 2023, employees are allowed to contribute $22,500 to their 401(k) plans. An additional catch-up contribution of $7,500 is allowed for employees aged 50 or older. That means older workers may be eligible to make a total contribution of $30,000.

For 2024, employees can contribute $23,000 to their 4091(k), and those 50 and older can make an additional catch-up contribution of $7,500.

The total annual 2023 contribution limit for 401(k) plans, including both employee and employer matching contributions, is $66,000. For 2024, the total annual contribution limit is $69,000.

The money that you contribute to the 401(k) is yours, but you might not own the contributions from your employer until a certain period of time has passed, if your plan uses a 401(k) vesting schedule.

You’re not required to max out the annual contribution limit and employers are not required to offer a match. But the more of your salary you defer to the plan and the bigger the matching contribution, the more money you could end up with once you’re ready to retire.

The Takeaway

Contributing to a 401(k) can be one of the most effective ways to save for retirement but it’s not your only option. If you don’t have a 401(k) at work or you want to supplement your salary deferrals, you can also save using an Individual Retirement Account (IRA).

An IRA allows you to set aside money for the future while snagging some tax breaks. With a traditional IRA, your contributions may be tax-deductible. A Roth IRA, meanwhile, allows for tax-free distributions 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).

Help grow your nest egg with a SoFi IRA.

FAQ

What is a good deferral rate for 401(k)?

A good deferral rate for 401(k) contributions is one that allows you to qualify for the full employer match if one is offered, at a minimum. The more money you defer into your plan, the more opportunity you have to grow wealth for retirement.

What is an automatic deferral?

An automatic deferral is a deferral of salary into a 401(k) plan or similar qualified plan through paycheck deductions. Your employer automatically redirects money from your paycheck into your retirement account.

What is the maximum default automatic enrollment deferral rate?

This depends on your employer. Some employers may set the threshold higher to allow employees to make better use of the plan.

Photo credit: iStock/guvendemir

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.

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.

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.

SoFi Invest®

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

Feb

2024

How to Manage Your 401(k): Tips for All Investors

By Pam O’Brien | Growing Wealth, invest, Investing | No Comments

A 401(k) plan is an employer-sponsored retirement plan that you fund with pre-tax dollars deducted from your paycheck.

Understanding the nuances of a 401(k) plan may help individuals maximize their savings.

While financial and retirement situations differ, there are some 401(k) tips that could be helpful to many using this popular investment plan. Consider these eight strategies to help you save for retirement.

1. Take Advantage of Your Employer Match

2. Consider Your Circumstances Before Contributing the Match

3. Understand Your 401(k) Investment Options

4. Stay the Course

5. Change Your Investments Over Time

6. Find—and Keep—Your Balance

7. Diversify

8. Beware Early Withdrawals

8 Tips for Managing Your 401(k)

1. Take Advantage of Your Employer Match

Understanding an employer match is important to making the most of your 401(k).

Also called a company match, an employer match is an employee benefit that allows an employer to contribute a certain amount to an employee’s 401(k). Depending on the plan, the amount of the match might be a percentage of the employee’s contribution up to a specific dollar amount, or a set dollar amount.

Some employers may require that employees make a certain minimum contribution to be eligible for matching funds. For example, an employer might match 3% when you contribute 6%. Your employer may do something different, so be sure to check with your HR or benefits representative.

Even if you don’t contribute the maximum allowable amount to your 401(k), you still may want to take advantage of the match. In other words, in the example above, if the maximum contribution limit for your 401(k) is 10% and you aren’t contributing that much, it might make sense to at least contribute 6% to get the employer match of 3%.

An employer match is sometimes referred to as “free money,” as in, “don’t leave this free money on the table.” An employer match is money that is part of your compensation and benefits package. Claiming it could be your first step in wealth building.

💡 Quick Tip: Investment fees are assessed in different ways, including trading costs, account management fees, and possibly broker commissions. When you set up an investment account, be sure to get the exact breakdown of your “all-in costs” so you know what you’re paying.

2. Consider Your Circumstances Before Contributing the Max

Contributing the maximum amount allowed to a 401(k) may make sense for some individuals, particularly if contributing the max isn’t a financial stretch for them. But if you’re struggling to reach that maximum contribution number, or if you have other pressing financial obligations, it may not be the best use of your money.

For 2024, the maximum amount you can contribute to a 401(k) is $23,000 if you’re under age 50, and $30,500, including catch-up contributions, if you’re 50 or older. (These limits don’t include matching funds from your employer.)

If you are living paycheck to paycheck, or you don’t have an emergency savings fund for unexpected expenses, you may want to prioritize those financial situations first. Also, if you have a lot of high-interest debt like credit card debt, it may be in your best interest to pay that debt down before contributing the full amount to your 401(k).

In addition, you may want to think about whether you’re going to need any of the money you might contribute to your 401(k) prior to retirement. Withdrawing money early from a 401(k) can result in a hefty penalty.

There are some exceptions, depending on what you’ll use the withdrawn funds for. For example, qualified first-time home buyers may be exempt from the early distribution penalty. But for the most part, if you know you need to save for some big pre-retirement expenses, it may be better to do so in a non-qualified account.

You might also want to consider whether it makes sense to contribute to another type of retirement account as well, rather than putting all of your eggs in your 401(k) basket. While a 401(k) can offer benefits in terms of tax deferral and a matching contribution from your employer, individuals who are eligible to contribute to a Roth IRA, may want to think about splitting contributions between the two accounts.

While 401(k) contributions are made with pre-tax dollars and you pay taxes on the withdrawals you make in retirement, Roth IRA contributions are made with after-tax dollars and typically withdrawn tax-free in retirement.

If you’re concerned about being in a higher tax bracket at retirement than you are now, a Roth IRA can make sense as a complement to your 401(k). A caveat is that these accounts are only available to people below a certain income level.

3. Understand Your 401(k) Investment Options

Once you start contributing to a 401(k); the second step is directing that money into particular investments. Typically, plan participants choose from a list of investment options, many of which may be mutual funds.

When picking funds, consider what they consist of. For example, a mutual fund that is invested in stocks means that you will be invested in the stock market.

With each option, think about this: Does the underlying investment make sense for your goals and risk tolerance?

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.

4. Stay the Course

At least part of your 401(k) money may be invested in the stock market through the funds or other investment options you choose.

If you’re not used to investing, it can be tempting to panic over small losses. Getting spooked by a dip in the market and pulling your money out is generally a poor strategy, because you are locking in what could possibly amount to be temporary losses. The thinking goes, if you wait long enough, the market might rebound. (Though, as always, past performance is no predictor of future success.)

It may help to know that stock market fluctuations are generally a normal part of the cycle. However, some investors may find it helpful to only check their 401(k) balance occasionally, rather than obsess over day-to-day fluctuations.

5. Change Your Investments Over Time

Lots of things change as we get older, and one important 401(k) tip is to change your investing along with it.

While everyone’s situation is different and economic conditions can be unique, one rule of thumb is that as you get closer to retirement, it makes sense to shift the composition of your investments away from higher risk but potentially higher growth assets like stocks, and towards lower risk, lower return assets like bonds.

There are types of funds and investments that manage this change over time, like target date funds. Some investors choose to make these changes themselves as part of a quarterly or annual rebalancing.

6. Find — And Keep — Your Balance

While you may want your 401(k) investments to change depending on what life stage you’re in, at any given time, you should also have a certain goal of how your investments should be allocated: for instance, a certain portion in bonds, stocks, international stocks, American stocks, large companies, small companies, and so on.

These targets and goals for allocation can change, however, even if your allocations and investment choices don’t change. That’s because certain investments may grow faster than others and thus, they end up taking up a bigger portion of your portfolio over time.

Rebalancing is a process where, every year or every few months, you buy and sell shares in the investments you have in order to keep your asset allocation where it was at the beginning of the year.

For example, if you have 80% of your assets in a diversified stock market fund and 20% of your assets in a diversified bond fund, over the course of a year, those allocations may end up at 83% and 17%.

To address that, you might either sell shares in the stock fund and buy shares in the bond fund in order to return to the original 80/20 mix, or adjust your allocations going forward to hit the target in the next year.

7. Diversify

By diversifying your investments, you put your money into a range of different asset classes rather than concentrating them in one area. The idea is that this may help to lower your risk (though there are still risks involved in investing).

There are several ways to diversify a 401(k), and one of the most important 401(k) investing tips is to recognize how diversification can work both between and within asset classes.

Diversification applies to your overall asset allocation as well as the assets you allocate into. While every situation is different, you may want to be exposed to both stocks and fixed-income assets, like bonds.

Within stocks, diversification can mean investing in U.S. stocks, international stocks, big companies, and small companies. It might make sense to choose diversified funds in all these categories that are diversified within themselves — thus offering exposure to the whole sector without being at the risk of any given company collapsing.

8. Beware Early Withdrawals

An important 401(k) tip is to remember that the 401(k) is designed for retirement, with funds withdrawn only after a certain age. The system works by letting you invest income that isn’t taxed until distribution. But if you withdraw from your 401(k) early, some of this advantage can disappear.

With a few exceptions, the IRS imposes a 10% penalty on withdrawals made before age 59 ½. That 10% penalty is on top of any regular income taxes a plan holder would pay on 401(k) withdrawals. While withdrawals are sometimes unavoidable, the steep cost of withdrawing funds early should be a strong reason not to, if possible.

If you would like to buy a house, for instance, there are other options to explore. First consider pulling money from any accounts that don’t have an early withdrawal penalty, such as a Roth IRA (contributions can typically be withdrawn penalty-free as long as they’ve met the 5-year rule).

The Takeaway

If you have a 401(k) through your employer, consider taking advantage of it. Not only might your employer offer a match, but automatic contributions taken directly from your paycheck and deposited into your 401(k) may keep you from forgetting to contribute.

Also be aware that a 401(k) is not the only option for saving and investing money for the long-term. One alternative option is to open an IRA account online. While there are income limitations to who can use a Roth IRA, these accounts also tend to have a bit more flexibility when withdrawing funds than 401(k) plans.

Another option is to open an investment account. These accounts don’t have the special tax treatment of retirement-specific accounts, but may still be viable ways to save money for individuals who have maxed out their 401(k) contributions or are looking for an alternative way to invest.

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 grow your nest egg with a SoFi IRA.

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.

External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.

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

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.

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.

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.

SOIN0124125

Feb

2024

403(b) vs Roth IRA: Key Differences and How to Choose

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

What’s the Difference Between a 403(b) and a Roth IRA?

A 403(b) and a Roth IRA account are both tax-advantaged retirement plans, but they are quite different — especially regarding the amount you can contribute annually, and the tax implications for each.

Generally speaking, a 403(b) allows you to save more, and your taxable income is reduced by the amount you contribute to the plan (potentially lowering your tax bill). A Roth IRA has much lower contribution limits, but because you’re saving after-tax money, it grows tax free — and you don’t pay taxes on the withdrawals.

In some cases, you may not need to choose between a Roth IRA vs. a 403(b) — the best choice may be to contribute to both types of accounts. In order to decide, it’s important to consider how these accounts are structured and what the rules are for each.

Comparing How a 403(b) and a Roth IRA Work

When it comes to a 403(b) vs Roth IRA, the two are very different.

A 403(b) account is quite similar to a 401(k), as both are tax-deferred types of retirement plans and have similar contribution limits. A Roth IRA, though, follows a very different set of rules.

403(b) Overview

Similar to a 401(k), a 403(b) retirement plan is a tax-deferred account sponsored by an individual’s employer. An individual may contribute a portion of their salary and also receive matching contributions from their employer.

An employee’s contributions are deducted — this is known as a salary reduction contribution and deposited in the 403(b) pre-tax, where they grow tax-free, until retirement (which is why these accounts are called “tax deferred”). Individuals then withdraw the funds, and pay ordinary income tax at their current rate.

Although 403(b) accounts share some features with 401(k)s, there are some distinctions.

Eligibility

The main difference between 403(b) and 401(k) accounts is that 401(k)s are offered by for-profit businesses and 403(b)s are only available to employees of:

• Public schools, including public colleges and universities

• hurches or associations of churches

• Tax-exempt 501(c)(3) charitable organizations

Early Withdrawals

Typically, individuals face a 10% penalty if they withdraw their money before age 59 ½. Exceptions apply in some circumstances. Be sure to consult with your plan sponsor about the rules.

Contribution Limits and Rules

There are also some different contribution rules for 403(b) accounts. The cap for a 403(b) is the same as it is for a 401(k): $23,000 in 2024 and $22,500 in 2023. And if you’re 50 or older you can also make an additional catch-up contribution of up to $7,500 in 2024 and 2023.

In the case of a 403(b), though, if it’s permitted by the 403(b) plan, participants with at least 15 years of service with their employer can make another catch-up contribution above the annual limit, as long as it’s the lesser of the following options:

• $15,000, reduced by the amount of employee contributions made in prior years because of this rule

• $5,000, times the number of years of service, minus the employee’s total contributions from previous years

• $3,000

The wrinkle here is that if you’re over 50, and you have at least 15 years of service, you must do the 15-year catch-up contribution first, before you can take advantage of the 50-plus catch-up contribution of up to $7,500.

Roth IRA Overview

Roth IRAs are different from tax-deferred accounts like 403(b)s, 401(k)s, and other types of retirement accounts. With all types of Roth accounts — including a Roth 401(k) and a Roth 403(b) — you contribute after-tax money. And when you withdraw the money in retirement, it’s tax free.

Eligibility

Unlike employer-sponsored retirement plans, Roth IRAs fall under the IRS category of “Individual Retirement Arrangements,” and thus are set up and managed by the individual. Thus, anyone with earned income can open a Roth IRA through a bank, brokerage, or other financial institution that offers them.

Contribution Limits and Rules

Your ability to contribute to a Roth, however, is limited by your income level.

• For 2024, if you’re married filing jointly, you can contribute the maximum to a Roth if your modified adjusted gross income (MAGI) is less than $230,000. If your income is between $230,000 and $240,000 you can contribute a reduced amount.

• For single filers in 2024, your income must be less than $146,000 to contribute the maximum to a Roth, with reduced contributions up to $161,000.

• For 2023, if you’re married filing jointly, you can contribute the maximum to a Roth if your modified adjusted gross income (MAGI) is less than $218,000. If your income is between $218,000 and $228,000 you can contribute a reduced amount.

• For single filers in 2023, your income must be less than $138,000 to contribute the maximum to a Roth, with reduced contributions up to $153,000.

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.

Roth 403(b) vs Roth IRA: Are They the Same?

No. A Roth 403(b) does adhere to the familiar Roth structure — the individual makes after-tax contributions, and withdraws their money tax free in retirement — but otherwise these accounts are similar to regular 403(b)s.

• The annual contribution limits are the same: $23,000 with a catch-up contribution of $7,500 for those 50 and older for 2024; $22,500 with a catch-up contribution of $7,500 for those 50 and older for 2023.

• There are no income limits for Roth 403(b) accounts.

Also, a Roth 403(b) is like a Roth 401(k) in that both these accounts are subject to required minimum distribution rules (RMDs), whereas a regular Roth IRA does not have RMDs.

One possible workaround: You may be able to rollover a Roth 403(b)/401(k) to a Roth IRA — similar to the process of rolling over a regular 401(k) to a traditional IRA when you leave your job or retire.

That way, your nest egg wouldn’t be subject to 401(k) RMD rules.

Finally, another similarity between Roth 403(b) and 401(k) accounts: Even though the money you deposit is after tax, any employer matching contributions are not; they’re typically made on a pre-tax basis. So, you must pay taxes on those matching contributions and earnings when taking retirement withdrawals. (It sounds like a headache, but your employer deposits those contributions in a separate account, so it’s relatively straightforward to know which withdrawals are tax free and which require you to pay taxes.)

💡 Quick Tip: Investment fees are assessed in different ways, including trading costs, account management fees, and possibly broker commissions. When you set up an investment account, be sure to get the exact breakdown of your “all-in costs” so you know what you’re paying.

Which Is Better, a 403(b) or Roth IRA?

It’s not a matter of which is “better” — as discussed above, the accounts are quite different. Deciding which one to use, or whether to combine both as part of your plan, boils down to your tax and withdrawal strategies for your retirement.

To make an informed decision about which retirement plan is right for you, it can be helpful to conduct a side-by-side comparison of both plans. This chart breaks down some of the main differences, giving you a better understanding of these types of retirement plans, so that you can weigh the pros and cons of a Roth IRA vs. 403(b).

	403(b)	Roth IRA
Who can participate?	Employees of the following types of organizations: • Public school systems, if involved in day-to-day operations • Public schools operated by Indian tribal governments • Cooperative hospitals and • Civilian employees of the Uniformed Services University of the Health Sciences • Certain ministers and chaplains • Tax-exempt charities established under IRC Section 501(c)(3)	Individuals earning less than the following amounts: • Single filers earning less than $146,000 for 2024 (those earning $146,000 or more but less than $161,000 may contribute a reduced amount) • Married joint filers earning less than $230,000 for 2024 (those earning $230,000 or more but less than $240,000 may contribute a reduced amount) • Single filers earning less than $138,000 for 2023 (those earning $138,000 or more but less than $153,000 may contribute a reduced amount) • Married joint filers earning less than $218,000 for 2023 (those earning $218,000 or more but less than $228,000 may contribute a reduced amount)
Are contributions tax deductible?	Yes	No
Are qualified distributions taxed?	Yes	No (if not qualified, distribution may be taxable in part)
Annual individual contribution limit	$23,000 for 2024 (plus catch-up contributions of $7,500 for those 50 and older) $22,500 for 2023 (plus catch-up contributions up to $7,500 for those age 50 and older)	$7,000 for 2024 (individuals 50 and older may contribute $8,000) $6,500 for 2023 (individuals 50 and older may contribute $7,500)
Are early withdrawals allowed?	Depends on individual plan terms and may be subject to a 10% penalty	Yes, though account earnings may be subject to a 10% penalty if funds are withdrawn before account owner is 59 ½
Plan administered by	Employer	The individual’s chosen financial institution
Investment options	Employee chooses based on investments available through the plan	Up to the individual, though certain types of investments (collectibles, life insurance) are prohibited
Fees	Varies depending on plan terms and investments	Varies depending on financial institution and investments
Portability	As with other employee-sponsored plans, individual must roll their account into another fund or cash out when switching employers	Yes
Subject to RMD rules	Yes	No

Pros and Cons of a 403(b) and a Roth IRA

There are positives to both a 403(b) and a Roth IRA — and because it’s possible for qualified individuals to open a Roth IRA and a 403(b), some people may decide that their best strategy is to use both. Here’s a side-by-side comparison of a 403(b) vs. a Roth IRA:

	403(b)	Roth IRA
Pros	• Contributions are automatically deducted from your paycheck • Earning less during retirement may mean an individual pays less in taxes • Employer may offer matching contributions • Higher annual contribution limit than a Roth IRA	• More investment options to choose from • Withdrawal of contributions are not taxed; withdrawal of earnings are not taxed under certain conditions and/or after age 59 ½ • Account belongs to the owner
Cons	• May have limited investment options • May charge high fees • There may be a 10% penalty on funds withdrawn before age 59 ½	• Has an income limit • Maximum contribution amount is low • Contributions aren’t tax deductible

403(b)

Roth IRA

Pros

• Contributions are automatically deducted from your paycheck

• Earning less during retirement may mean an individual pays less in taxes

• Employer may offer matching contributions

• Higher annual contribution limit than a Roth IRA

• More investment options to choose from

• Withdrawal of contributions are not taxed; withdrawal of earnings are not taxed under certain conditions and/or after age 59 ½

• Account belongs to the owner

Cons

• May have limited investment options

• May charge high fees

• There may be a 10% penalty on funds withdrawn before age 59 ½

• Has an income limit

• Maximum contribution amount is low

• Contributions aren’t tax deductible

Pros of 403(b)

• Contributions are automatically deducted by an employer from the individual’s paycheck, which can make it easier to save.

• If an individual earns less money annually in retirement than during their working years, deferring taxes may mean they ultimately pay less in taxes.

• Some employers offer matching contributions, meaning for every dollar an employee contributes, the employer may match some or all of it, up to a certain percentage.

• Higher annual contribution limit than a Roth IRA.

Pros of Roth IRAs

• Individuals can invest with any financial institution and thus will likely have many more investment options when opening up their Roth IRA.

• Withdrawal of contributions are not taxed; withdrawal of earnings are not taxed under certain conditions and/or after age 59 ½.

• Account belongs to the owner and is not affected if the individual changes jobs.

There are also some disadvantages to both types of accounts, however.

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

Cons of 403(b)s

• There are limited investment options with 403(b)s.

• Some 403(b) plans charge high fees.

• Individuals typically pay a 10% penalty on funds withdrawn before age 59 ½. However, there may be some exceptions under the rule of 55 for retirement.

Cons of Roth IRAs

• There’s an income limit to a Roth IRA, as discussed above.

• The maximum contribution amount is fairly low.

• Contributions are not tax deductible.

Choosing Between a Roth IRA and 403(b)

When considering whether to fund a 403(b) account or a Roth IRA, there’s no right choice, per se — the correct answer boils down to which approach works for you. You might prefer the automatic payroll deductions, the ability to save more, and, if it applies, the employer match of a 403(b).

Or you might gravitate toward the more independent setup of your own Roth IRA, where you have a wider array of investment options and greater flexibility around withdrawals (Roth contributions can be withdrawn at any time, although earnings can’t).

Or it might come down to your tax strategy: It may be more important for you to save in a 403(b), and reduce your taxable income in the present. Conversely, you may want to contribute to a Roth IRA, despite the lower contribution limit, because withdrawals are tax free in retirement.

Really, though, it’s possible to have the best of both worlds by investing in both types of accounts, as long as you don’t exceed the annual contribution limits.

Investing With SoFi

Because 403(b)s and Roth IRAs are complementary in some ways (one being tax-deferred, the other not), it’s possible to fund both a 403(b) and a Roth IRA.

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

Which is better: a 403(b) or a Roth IRA?

Neither plan is necessarily better. A 403(b) and a Roth IRA are very different types of accounts. A 403(b) has automatic payroll deductions, the possibility of an employer match, and your contributions are tax deductible. A Roth IRA gives you more control, a greater choice of investment options, and the ability to withdraw contributions (but not earnings) now, plus tax free withdrawals in retirement. It can actually be beneficial to have both types of accounts, as long as you don’t exceed the annual contribution limits.

Should you open a Roth IRA if you have a 403(b)?

You can open a Roth IRA if you have a 403(b). In fact it may make sense to have both, since each plan has different advantages. You may get an employer match with a 403(b), for instance, and your contributions are tax deductible. A Roth IRA gives you more investment options to choose from and tax-free withdrawals in retirement. In the end, it really depends on your personal financial situation and preference. Be sure to weigh all the pros and cons of each plan.

When should you convert your 403(b) to a Roth IRA?

If you are leaving your job or you’re at least 59 ½ years old, you may want to convert your 403(b) to a Roth IRA to avoid taking the required minimum distributions (RMDs) that come with pre-tax plans starting at age 73. However, because you are moving pre-tax dollars to a post-tax account, you’ll be required to pay taxes on the money. Speak to a financial advisor to determine whether converting to a Roth IRA makes sense for you and ways you may be able to minimize your tax bill.

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.

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.

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.

SOIN0224006

What Are the Different Types of Stocks?

An Overview Of Stocks

Categories of Stocks

Value Stocks

Growth Stocks

Common Stock

Preferred Stocks

Exchange-traded Funds (ETFs)

Initial Public Offerings (IPOs)

Special Purpose Acquisition Companies (SPACs)

Real Estate Investment Trusts (REITs)

Blue-Chip Stocks

Cyclical and Non-Cyclical Stocks

Defensive Stocks

Penny Stocks

Income Stocks

Environmental, Social, and Corporate Governance (ESG)

Different Market Caps

Types of Stock Classes

Stocks By Sector

Stocks by Country

The Takeaway

FAQ

What are the benefits of investing in different types of stocks?

What is the riskiest type of stock?

What stocks are best for beginners?

What are the risks and opportunities of investing in emerging markets?

What Is a Salary Reduction Contribution Plan?

Salary Reduction Contribution Plans Explained

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

How Salary Reduction Contribution Plans Work

Example of a Salary Reduction Contribution Plan

Pros & Cons of Salary Reduction Contribution Plans

Pros

Cons

Salary Reduction Contribution Limits

Salary Reduction Contribution Plan Withdrawal Rules

The Takeaway

FAQ

Does a 401(k) reduce salary?

What does employee salary reduction mean?

What is the difference between SEP and SARSEP?

Default Deferral Rate 401(k) Explained

What Is a 401(k) Deferral Rate?

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

Average Deferral Rate

What Is the Actual Deferral Percentage Test?

How Much Should I Contribute to Retirement?

Contribution Limits

The Takeaway

FAQ

What is a good deferral rate for 401(k)?

What is an automatic deferral?

What is the maximum default automatic enrollment deferral rate?

How to Manage Your 401(k): Tips for All Investors

8 Tips for Managing Your 401(k)

1. Take Advantage of Your Employer Match

2. Consider Your Circumstances Before Contributing the Max

3. Understand Your 401(k) Investment Options

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

4. Stay the Course

5. Change Your Investments Over Time

6. Find — And Keep — Your Balance

7. Diversify

8. Beware Early Withdrawals

The Takeaway

403(b) vs Roth IRA: Key Differences and How to Choose

What’s the Difference Between a 403(b) and a Roth IRA?

Comparing How a 403(b) and a Roth IRA Work

403(b) Overview

Eligibility

Early Withdrawals

Contribution Limits and Rules

Roth IRA Overview

Eligibility

Contribution Limits and Rules

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

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

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

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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