Oct
01
2024

529 Annual Plan Contribution Limits by State in 2024

By | Going to College, Student Loans, student_loan | Comments Off on 529 Annual Plan Contribution Limits by State in 2024

A 529 plan allows you to save money for a child’s education costs. This tax-advantaged plan can be an effective way to build a college fund. However, there are rules regarding 529 plans you should know about, including 529 contribution limits, which differ based on where you live.

Learn how a 529 works and the max contributions to 529 plans in each state.

What Is a 529 Plan?

529 plans, also known as qualified tuition programs, are tax-advantaged savings plans that are designed to be used for qualified education expenses like tuition, housing, and books at postsecondary institutions such as college or trade school. Parents can also withdraw up to $10,000 of 529 funds annually to use for a child’s elementary or secondary school education at a public, private, or religious school.

Each 529 plan has a named beneficiary (the child the plan is for), and the account holder — usually a parent or grandparent — contributes savings to the plan up to the allowable 529 limits. Once contributions are made, you typically have a range of investment options to choose from, including mutual funds or exchange-traded funds (ETFs). Earnings and qualified withdrawals are not subject to federal taxes.

There are some 529 plan withdrawal penalties, however. For instance, any amount of money from the plan used for something other than qualified expenses for the beneficiary’s education incurs an income tax liability and a 10% penalty upon withdrawal.

Why Are There Max Contribution Limits?

While there are no yearly contribution limits to 529 plans, there are aggregate max contribution limits that apply to the total contributions to the plan. States sponsor and operate their own 529 education savings plans and set their own aggregate max contribution amounts. Many states have a total allowable contribution limit of $500,000 per beneficiary, though some states have lower or higher 529 limits. These limits are generally based on the cost to attend a four-year undergraduate or graduate program within the state.

Students who don’t have enough funds in a 529 plan to cover the cost of college can turn to other forms of financial aid, including scholarships, grants, and federal and private student loans.

529 Plan Max Contribution Limits by State

The max contributions to 529 plans vary based on the state plan you’re enrolled in. Below is a list of 529 contribution limits for 2024 in every state.

State Contribution Limit
Alabama $475,000
Alaska $550,000
Arizona $575,000
Arkansas $500,000
California $529,000
Colorado $500,000
Connecticut $550,000
Delaware $350,000
Florida $418,000
Georgia $235,000
Hawaii $305,000
Idaho $500,000
Illinois $500,000
Indiana $450,000
Iowa $420,000
Kansas $475,000
Kentucky $450,000
Louisiana $500,000
Maine $545,000
Maryland $500,000
Massachusetts $500,000
Michigan $500,000
Minnesota $425,000
Mississippi $400,000
Missouri $550,000
Montana $396,000
Nebraska $500,000
Nevada $500,000
New Hampshire $596,925
New Jersey $305,000
New Mexico $500,000
New York $520,000
North Carolina $550,000
North Dakota $269,000
Ohio $541,000
Oklahoma $450,000
Oregon $400,000
Pennsylvania $511,758
Rhode Island $520,000
South Carolina $575,000
South Dakota $350,000
Tennessee $350,000
Texas $500,000
Utah $560,000
Vermont $550,000
Virginia $550,000
Washington $500,000
Washington D.C. $500,000
West Virginia $550,000
Wisconsin $567,500
Wyoming N/A (the state does not offer a 529 plan)

States with Highest Aggregate Limits

The states with the highest allowed aggregate 529 contribution limits include:

•   Arizona

•   New Hampshire

•   South Carolina

•   Utah

•   Wisconsin

These states have a maximum contribution limit greater than $550,000, with New Hampshire allowing the highest 529 limit in the U.S. at $596,925.

States with Lowest Aggregate Limits

State 529 programs that have the lowest total contribution limits of $350,000 or lower include:

•   Delaware

•   Georgia

•   Hawaii

•   New Jersey

•   North Dakota

•   South Dakota

•   Tennessee

Georgia’s 529 savings plan has the lowest aggregate contribution limit nationwide at $235,000, while Wyoming doesn’t offer a state-sponsored 529 plan at all.

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Tax Benefits for 529 Plans

The advantages to 529 plans go beyond saving for your child’s college education. A 529 might unlock certain tax benefits. For example, earnings in the account grow tax-free and there is no federal income tax liability for qualified withdrawals. In some states, qualified 529 withdrawals might not be subject to state income tax either.

A number of states allow you to deduct your 529 contributions up to a certain limit from your taxable income on state income tax returns. For example, West Virginia lets state residents with an in-state 529 plan deduct up to $550,000 in annual contributions per beneficiary from their state income taxes. In Louisiana, residents are allowed a state income tax deduction for in-state 529 contributions of $2,400 ($4,800 if filing jointly) per beneficiary.

But not all states allow you to deduct 529 contributions. For example, California, Kentucky, and Hawaii don’t offer a state tax deduction or credit for 529 contributions on their state income tax returns. However, qualified 529 distributions are exempt from income tax in all three states.

Nine states (Alaska, Florida, New Hampshire, Nevada, South Dakota, Tennessee, Texas, Washington, and Wyoming) have no state income tax so there is no 529 deduction in those states. (As a reminder, Wyoming has no 529 plan.)

Tax deduction limits and rules vary by state, so check with yours.

529-to-Roth IRA Rollover

Traditionally, a downside to saving money in a 529 plan has been the 10% penalty and potential tax liability incurred on earnings for non-qualifying withdrawals. This might come up if you over-saved in the account, or if your child chooses not to go to college.

The SECURE 2.0 Act of 2022 has addressed these concerns. Beginning in 2024, unused 529 funds can be rolled over into a Roth IRA under the original beneficiary’s name without penalty or tax implications.

There are some guidelines for a 529 to Roth IRA rollover. The 529 plan must have been active for at least 15 years, and the rolled over funds must have been in the account for at least five years. Finally, the maximum annual rollover contribution permitted for 2024 is $7,000, based on Roth IRA 2024 contribution limits (IRA contribution limits typically change annually). Despite these rules, the ability to do an IRA rollover gives 529 account holders a penalty-free option, if needed.

How to Maximize Your 529 Contributions

If you’re considering a 529 for your child, you are not limited to choosing a 529 plan from the state you reside in. Many states allow out-of-state residents to open a 529 account. Here are some tips on how to maximize your savings in a 529.

•   Explore plans from multiple states and compare their tax benefits and fees to potential tax benefits and fees of your state’s plan.

•   Check to see if your company offers 529 plan employee benefits. Some employers now provide these benefit plans, which allow you to contribute directly from your paycheck.

•   Many states offer direct-sold plans in which you select the investments in the plan yourself, and broker-sold plans in which a broker selects investments for you. Broker-sold plans typically come with more fees. Consider enrolling in a direct-sold 529 plan to help save on fees.

•   Anyone, including grandparents and family friends, can contribute to a 529 plan, so make sure loved ones are aware that you have a 529 for your child to save for college. They may want to make a contribution to the plan as a birthday gift, for instance.

•   You can open a 529 as soon as the beneficiary has a Social Security number. Start saving early and set up automatic contributions to the plan. The longer the money is invested, the more time it has to grow.

The Takeaway

A 529 can be a good way to save for your child’s education. The earlier you open a 529, the more time you have to contribute and save, and the more time the money in the plan has to grow. Just be sure to find out the 529 maximum contribution limits for the state in which you have the plan.

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FAQ

What happens if you contribute too much to a 529 plan?

Contributing more than a 529 plan allows might result in taxes and penalties. If you over-contribute to a 529 account beyond the 529 limit, one option is to change the primary beneficiary of the plan to another child to be used for their education savings. You can also consider rolling the funds into a Roth IRA for the original beneficiary. Either option can help you avoid a taxable event.

What is the 5-year rule for 529 plans?

You’re allowed to contribute up to $18,000 ($36,000 if filing jointly) per beneficiary in 2024 without paying a gift tax. This amount is not counted against your lifetime gift tax exemption. To contribute more in one year to a single 529 recipient without impacting your lifetime gift tax exemption, you can front-load up to five years of contributions (up to $90,000 in 2024) into the 529. Doing so avoids impacting your lifetime gift tax exemption, but it also means that you can’t make additional contributions to the same beneficiary for the next five years.

What happens to a 529 plan if your child doesn’t go to college?

If your child doesn’t go to college, you have a few options for a 529. You can consider rolling the funds into a Roth IRA for the beneficiary, for instance. Or you could change the primary beneficiary to another family member, like a younger sibling.

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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.


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.

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Oct
01
2024

Is a SWIFT Code the Same as a Routing Number?

By | money, Terminology | Comments Off on Is a SWIFT Code the Same as a Routing Number?

A SWIFT code, a group of letters and numbers used globally to identify a bank account, is similar to a routing number, but they function differently.

Say you want to transfer money from your bank account to someone else’s: You’ll need to know some basic information about the recipient’s financial institution and their account. This ensures safe and accurate electronic transfers of funds. If you’re conducting a domestic transfer (that is, from one bank account in the United States to another), an ABA routing number will be required. If you are moving funds internationally (sending money to another country from the U.S. or vice-versa), a SWIFT code is typically required.

Key Points

•   SWIFT codes and routing numbers are both used to transfer money, but they are not the same: SWIFT codes are used for international transfers, while routing numbers are used for domestic ones.

•   SWIFT codes are alphanumeric and identify banks globally, while routing numbers are numeric and used within the U.S.

•   The Society for Worldwide Interbank Financial Telecommunications, founded in 1973, oversees SWIFT codes

•   The American Bankers Association, established in 1910, manages the use of routing numbers in the U.S.

•   Incorrect SWIFT codes or routing numbers can cause transaction failures and potential fees, but in some cases may lead to deposits in the wrong account.

Understanding SWIFT Codes

To send money internationally, you’ll usually need a SWIFT code. Learn more about how this string of letters and numbers usually works.

What Is a Swift Code?

The Society for Worldwide Interbank Financial Telecommunications (SWIFT) is a network that allows banks and other financial institutions to electronically communicate with each other securely, across borders. A key part of that involves a SWIFT code, also called a BIC (Business Identifier Code), which identifies a specific bank, with information about the country, location, and, if applicable, branch.

Purpose and Usage of SWIFT Codes

SWIFT codes identify specific details of a bank to ensure international payments are going to the right bank. These codes are comprised of eight to 11 alphanumeric characters:

•   The first four characters are letters and represent the name of the bank.

•   The next two characters, also letters, indicate the country the bank is located in.

•   The next (and sometimes final) two characters can be letters or numbers and indicate where the bank’s main office is located.

•   In instances where the bank is large enough to have branches in multiple countries, cities, or regions, there may be a three-digit branch code at the end of the SWIFT code.

If you’re sending an international wire transfer from the United States, you’ll usually need to know the recipient’s SWIFT code. There are a number of countries that do not participate in SWIFT, but generally speaking, SWIFT is the global standard for international payments.

Recommended: Guide to International Bank Account Numbers (IBANs)

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Understanding Routing Number

To send money domestically in the United States, you’ll usually need a routing number. Here’s important information about what these series of digits are and how they function.

What Is a Routing Number?

A routing number is a nine-digit code composed of numbers that are used to identify banks and credit unions within the United States during domestic transfers.

These codes have been around for more than a century. The American Bankers Association (ABA) started to link routing numbers to financial institutions in 1910 as a unique identifier.

Purpose and Usage of Routing Numbers

Like a SWIFT code, a routing number helps direct money transfers to the right financial institution. You’ll also need the recipient’s bank account number to successfully move the funds.

You might think of the routing number like a street name for your bank account (Main or Church Street, say), but your bank account number is the actual numeric portion of your address (to continue the analogy, this would specifically identify a house), to ensure money goes to the right “home” on that “street.”

(It’s worth noting that Canada also uses routing numbers, but not ABA routing numbers. Instead, Canada’s eight- or nine-digit routing numbers include a three-digit institution number and a five-digit transit number, and possibly a zero.)

ACH transfers and wire transfers require knowing the recipient’s bank account and routing number. And you’ll frequently need to know your own routing number for several common transactions, such as:

•   Online bill and tax payments

•   Payment app setup

•   Direct deposit setup

There are some ways to send money to another person in the United States without needing to know their routing number. For instance, you can write and mail a check, you can send a money order, and you can use a peer-to-peer (P2P) transfer app to send money to someone in the U.S. without needing to know their routing number.

Differences Between SWIFT Codes and Routing Numbers

While they serve a similar purpose in electronic funds transfers, there are some key differences when comparing SWIFT codes vs. routing numbers.

Domestic vs. International Transactions

In the U.S., you’ll use routing numbers for domestic transfers. For international transactions, you’ll need to know the recipient’s SWIFT code. U.S. banks typically have a SWIFT code for such situations that is specific to each branch. (Some smaller banks and credit unions may not, however, have SWIFT codes.)

Code Structure and Format

Routing numbers are nine characters, all digits. SWIFT codes are alphanumeric and are typically between eight and 11 characters long.

Issuing Authorities

The Society for Worldwide Interbank Financial Telecommunications oversees SWIFT codes and was founded in 1973. The American Bankers Association manages routing numbers in the U.S. and was established much earlier — in 1910.

Recommended: How to Send Money to Someone Without a Bank Account

When To Use SWIFT Codes and Routing Numbers

If you are wiring money internationally, you’ll need to know a recipient’s SWIFT code. (There are a number of countries that do not use SWIFT codes, in which case you’ll need to find an alternate way to identify their bank during an electronic transfer or move money using another method.) Similarly, if someone is wiring money from another country to you in the U.S., you’ll need to provide them with your bank’s SWIFT code.

If you’re transferring money to someone else domestically in the United States, you’ll instead need to know their bank’s routing number. You’ll also need your own routing number when transferring funds, as well as setting up direct deposit, online payments, and other forms of digital transfers and payments.

Locating SWIFT Codes and Routing Numbers

You can typically find your SWIFT code on a bank statement or on your bank’s website or app. Call customer service for your bank if you’re unable to locate it.

Your routing number is also easy to find online or via mobile app when you log into your account. The routing number is also printed on your paper checks. Typically, it is the first set of numbers at the lower left corner of a check.

The Takeaway

SWIFT codes and routing numbers serve the same basic purpose of helping to identify banks when transferring money electronically, but they are used for different kinds of transfers. Domestic transfers in the U.S. rely on routing numbers while international transfers typically need SWIFT codes.

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FAQ

Can a SWIFT code be used for domestic transactions?

In the U.S., SWIFT codes are not used for domestic transactions. Instead, you’ll need to know your bank account number and routing number, as well as the bank account and routing number of the person to whom you are wiring money. Or, if someone is transferring funds to you, they will need your identifying information, including your bank account number and routing number.

Are SWIFT codes and routing numbers interchangeable?

When considering SWIFT codes vs. routing numbers, it’s important to recognize that they are not interchangeable. They’re issued by different authorities, have a different number of characters, and are used for different purposes. While similar, routing numbers are for domestic transfers, and SWIFT codes are for international transfers.

What happens if I use the wrong SWIFT code or routing number?

If you use the wrong SWIFT code or routing number for a wire transfer, the transaction will typically fail, and the payment will be returned to you. In some cases, you might have to pay a fee (including if you resubmit the transaction), and it’s possible money could be routed to the wrong account. For this reason, it’s important to verify that you have the correct SWIFT or routing number when transferring funds.

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Although we do our best to recognize all Eligible Direct Deposits, a small number of employers, payroll providers, benefits providers, or government agencies do not designate payments as direct deposit. To ensure you're earning 3.80% APY, we encourage you to check your APY Details page the day after your Eligible Direct Deposit arrives. If your APY is not showing as 3.80%, contact us at 855-456-7634 with the details of your Eligible Direct Deposit. As long as SoFi Bank can validate those details, you will start earning 3.80% APY from the date you contact SoFi for the rest of the current 30-day Evaluation Period. You will also be eligible for 3.80% APY on future Eligible Direct Deposits, as long as SoFi Bank can validate them.

Deposits that are not from an employer, payroll, or benefits provider or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Eligible Direct Deposit activity. There is no minimum Eligible Direct Deposit amount required to qualify for the stated interest rate. SoFi members with Eligible Direct Deposit are eligible for other SoFi Plus benefits.

As an alternative to Direct Deposit, SoFi members with Qualifying Deposits can earn 3.80% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant. SoFi members with Qualifying Deposits are not eligible for other SoFi Plus benefits.

SoFi Bank shall, in its sole discretion, assess each account holder’s Eligible Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving an Eligible Direct Deposit or receipt of $5,000 in Qualifying Deposits to your account, you will begin earning 3.80% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Eligible Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.

SoFi Bank reserves the right to grant a grace period to account holders following a change in Eligible Direct Deposit activity or Qualifying Deposits activity before adjusting rates. If SoFi Bank grants you a grace period, the dates for such grace period will be reflected on the APY Details page of your account. If SoFi Bank determines that you did not have Eligible Direct Deposit activity or $5,000 in Qualifying Deposits during the current 30-day Evaluation Period and, if applicable, the grace period, then you will begin earning the rates earned by account holders without either Eligible Direct Deposit or Qualifying Deposits until SoFi Bank recognizes Eligible Direct Deposit activity or receives $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Eligible Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Eligible Direct Deposit.

Separately, SoFi members who enroll in SoFi Plus by paying the SoFi Plus Subscription Fee every 30 days can also earn 3.80% APY on savings balances (including Vaults) and 0.50% APY on checking balances. For additional details, see the SoFi Plus Terms and Conditions at https://www.sofi.com/terms-of-use/#plus.

Members without either Eligible Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, or who do not enroll in SoFi Plus by paying the SoFi Plus Subscription Fee every 30 days, will earn 1.00% APY on savings balances (including Vaults) and 0.50% APY on checking balances.

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*Awards or rankings from NerdWallet are not indicative of future success or results. This award and its ratings are independently determined and awarded by their respective publications.

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.


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01
2024

5 Common Recession Fears and How to Cope

By | Growing Wealth, invest, Investing, Life & Career | Comments Off on 5 Common Recession Fears and How to Cope

Millions of Americans are anxious about recessions and economic downturns, which often involve job-losses and tightening budgets. Not to mention, investment portfolios tend to take a hit, too. These worries are normal, and fortunately there are ways to cope in the short-term.

The first step to handling that anxiety is overcoming the fear itself. While it’s normal to be worried about a recession — how long it might last, how dire the consequences might be — the truth is that the economy is cyclical. It expands and contracts, and recessions are a natural part of the order.

5 Common Recession Fears

Some investors choose to stick to their strategies or mantras during a recession. Of course, you can always carry on with your online stock trading even during a recession, but whether you choose to do that is up to you. But it’s not always so simple for every investor.

That’s because when it comes to making financial decisions, emotions are rarely your friend – that includes fear, doubt, and anxiety. With that in mind, here are some of the most common recession-related fears people often grapple with during times of economic uncertainty.

1. What If This Recession Lasts for Many Years?

While it’s possible that a recession could last for a long time, it helps to have some historical context.

Since the end of World War II, there have been 12 recessionary periods — including the short, sharp decline in early 2020 sparked by the pandemic. While that one only lasted a couple of months, U.S. recessions have averaged about 11 months in duration.

There have been outliers: Notably, the Great Recession of 2008 lasted for 18 months; and the Great Depression of the 1930s lasted about four years, although the repercussions extended that financial crisis until 1938.

That said, bull markets tend to last longer than bear markets. Equally important to remember is that every financial crisis has also informed new monetary policy and new fiscal tools that help protect consumers and investors.

2. What If Unemployment Soars?

It’s true that the potential for job loss is higher during a recession, when companies may be forced to lay off some of their workforce. While this is a common occurrence — as demand for goods lessens and output drops, companies typically need to cut expenses — there is a potential upside.

Unemployment numbers tend to lag a bit; joblessness typically rises to its highest level at certain points during the recession, and recovers to prior levels after the recession has ended. This means that some workers may have a window of opportunity to either look for new jobs now, or shore up their savings (in case of a layoff).

Be open and flexible to changes in responsibility. Lower your expectations around raises and bonuses. Try to bring value to the company, by going above and beyond, or by learning a new skill.

Make connections with your coworkers and network with people in your industry. It might be helpful to spruce up your resume too. That way, should you be laid off you can hit the ground running.

Take advantage of the shift to the gig economy, e.g. becoming your own boss, and relying on various income streams rather than a single full-time job. Not only are part-time positions becoming more common, it’s possible that your employer may be open to a gig arrangement, rather than completely letting go of a qualified employee.

A common rule of thumb is to keep three to six months’ worth of income in an emergency fund.

Recommended: Discover your ideal emergency fund amount with our emergency fund calculator.

3. What If You Lose Your Savings?

Emergency savings are important in any circumstances, as life is full of curveballs and unpredictable expenses. To that end, it’s smart to keep at least one month’s worth of expenses in a rainy day fund — three to six months is better, of course, but always have a cushion for life’s inevitable emergencies.

A recession can hit your savings hard. But it’s better to spend down your emergency fund than to panic and make financial moves you’ll later regret. At all costs, try to avoid the following:

•   Covering expenses with your credit card, and incurring debt that you have to pay off at high interest rates.

•   Taking out a home equity loan. While the interest rates may be lower on these loans, it’s still an additional monthly expense. And if your home value dips, you could put yourself in a precarious position when you need to sell.

•   Taking a loan from your 401(k). While borrowing from a 401(k) has its pros and cons, and a loan is usually better than taking an early withdrawal, there are still a number of risks. The biggest being: If you do get laid off, the entire loan could be due within a 12-month period.

In short: Build up your savings while you can, especially if you’re concerned about losing your job. And don’t be afraid to spend some or even all of that emergency money if things go south. That’s what the money is there for.

4. What If You Can’t Cover All Your Bills?

A recession can mean that money is tight, and that your bills may go up. If a job loss is looming, you may have real fears of being able to cover your expenses. Fortunately, one area where you have some control is how much money you spend.

The first step in lowering your expenses is to get to know them, especially the bills and subscriptions you pay automatically (or are on an auto-renewal system).

Take a look at your current spending habits by examining your bank statements (you can usually get a transaction history right on your phone). You don’t have to read through months of expenditures. What you spend in one month is probably similar to what you spend any other month (despite some seasonal differences).

As you examine what, where, and why you spend, note that some expenses are easier to control than others. Here are some common areas where it’s often possible to make cutbacks:

•   Food (eating out, snacks) and groceries are generally the biggest household expenses, after mortgage or rent — but they’re also easy to rein in.

•   Utilities (e.g. use less gas, oil, electricity).

•   Clothing and other “nice-to-haves” (limit spending to necessities).

•   Subscriptions (you’re likely paying for several streaming or music services you rarely use; it’s easy to forget what you signed up for a year ago).

•   Examine your insurances. Sometimes you can lower premiums by switching providers or calling and asking for a discount.

Once you trim your expenses, you may realize there are other ways you can cut back that aren’t on the above list — but not everyone has these options. You could change your commute to save money. You could take on a roommate who can split expenses.

5. What If Your Investments Lose Value?

It’s likely that your retirement account(s) and investment portfolio could lose value when the markets are down, or fluctuating. As discussed above, you don’t want to react strongly and pull your money out of the market impulsively. That’s when you lock in losses that can be hard to recover from.

If you have a financial advisor, or you’re thinking of working with one, you may want to discuss sooner rather than later how well-diversified your portfolio is. Diversification can help protect against volatility in some cases. But portfolio diversification is ideally something you do before a recession sets in.

A better approach during a recession is to stay the course. Continue to invest; continue to save for retirement. Rather than impulsively change your financial behavior, intentionally keep doing what you’ve always done. One way to do this is by using a robo advisor, which incorporates highly sophisticated technology that uses automation to help you stick to your own plan. You’ll likely find yourself in better shape when the recession ebbs and the markets rise once more.

The Takeaway

It’s natural to feel worried about the onset of a recession. Most people have fears about how long a recession could last and what the possible consequences could be in terms of their jobs, their bills, their long-term savings and even retirement.

That said, there are a number of ways to cope. While headlines may sound dire, the reality of a recession is that it may not last as long as you fear. Also, it can take some time for ordinary people to feel the impact. That can give you time to be proactive, including giving your job options (and spending habits) a careful review, beefing up your emergency savings, and reminding yourself to stay calm above all.

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).


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.

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.
For a full listing of the fees associated with Sofi Invest please view our fee schedule.

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.

Claw Promotion: Customer must fund their Active Invest account with at least $50 within 30 days of opening the account. Probability of customer receiving $1,000 is 0.028%. See full terms and conditions.

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Investing for Retirement: Guide to Emerging Markets

Guide to Investing in Emerging Markets

By | invest, Investing, Preparing for Retirement | Comments Off on Guide to Investing in Emerging Markets

Emerging market investments include owning shares in companies from countries like China, India, Brazil, and South Africa, among others. There are pros and cons to owning emerging market investments, but these stocks are a significant part of the global market.

Investing in emerging markets can help diversify your portfolio, which is one of the reasons that some investors do it. There are, however, risks associated with investing in emerging markets that investors should be aware of.

Understanding Emerging Markets

Investing in emerging markets, or even if you plan to open an IRA and use it to add foreign stocks to your portfolio, may prove to be a part of a successful investment strategy. If, that is, you understand what you’re investing in.

Emerging markets are economies that are in the middle between the developing and developed stages. Emerging markets risk can be high since these areas often see rapid growth and high volatility with booms and busts. Some of the most well-known and biggest countries that investors may look to invest in include China, India, Brazil, and South Korea.

Emerging market investments are generally seen as a higher-risk area of the global stock market. Volatility can spike during periods of political upheaval and when emerging market recessions strike.

As investors get older, risk must be managed through diversified investment plans. You might consider reducing emerging market exposure in your portfolio as your time horizon shortens and retirement nears.

Why Invest in Emerging Markets?

Emerging market investments have been popular for decades. It became easy to own a broad emerging market index fund within an investment portfolio in the early, when exchange-traded funds (ETFs) gained popularity.

The decade of the 2000s featured strong outperformance from the high-risk, high-reward profile of emerging market investments. But volatility in these markets has also been a factor.

People like to invest in areas of the stock market that exhibit rapid growth potential along with having the potential for diversification. High economic growth rates, such as those in China and India, often attract investors seeking to benefit from stocks of those nations. Indeed, there can be periods like the 2000s when strong bull markets take place.

Moreover, owning high-growth areas within a tax-advantaged account can be a savvy retirement savings strategy. This can be helpful when choosing a retirement plan.

Can You Build a Retirement Portfolio With Emerging Markets?

It’s possible to build a segment of a retirement portfolio by investing in emerging markets. Also consider that emerging market bonds are a growing piece of the global fixed-income market.

In addition, owning emerging market investments in retirement accounts is possible via ETFs and both active and passive mutual funds. Moreover, many 401(k) plans offer an emerging markets fund, too.

When thinking about investing in emerging markets, keep in mind that emerging market stocks comprise a fraction of the overall market. Emerging markets stocks represent 27% of the global stock market.

Get a 1% IRA match on rollovers and contributions.

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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.

Pros of Investing in Emerging Markets

There are many pros and cons of investing in emerging markets. When you start saving for retirement, it may be a good time to think about investing in emerging market stocks, since you’d likely have a relatively long time horizon to weather volatility.

Here are some of the pros of investing in emerging markets.

Opportunity to Generate Returns

Investing in emerging markets may present the opportunity to generate returns in your portfolio, although it does assume risks, too.

Also consider that more than 80% of the world’s population lives in emerging market countries, while just 27% of the global stock market is weighted to them. Investing for retirement could have at least some exposure to this area for risk-tolerant individuals.

Diversification Benefits

International investments can help offset the ebbs and flows of U.S. stocks through diversification. Consider that the domestic equity market is more than 60% of the global market. So if the U.S. goes into a bear market, foreign shares might outperform. Retirement investing should have a diversified approach.

Cons of Investing in Emerging Markets

Emerging markets can be volatile, and they expose investors to a host of risk factors. Political, economic, and currency risks can all hamper emerging market investments’ growth.

Due to the many risks, it’s common for retirement investors to tone down their stock allocation as they approach retirement. Here are some potential downsides to investing in emerging markets.

Potential Underperformance

Emerging market stocks have underperformed in recent years for a host of factors – such as the global pandemic, and military conflicts in Europe and the Middle East. So, it’s important to consider that these stocks could underperform domestic stocks in the future as well.

Correlations Might Be Changing

Some argue that emerging markets today have more correlation to other markets, so having exposure might simply expose someone to the risks and not the benefits.

High Volatility

Investors of all experience levels might want to steer away from the boom-and-bust nature of emerging markets. The process of evolving from an emerging market to a developed market is usually fraught with risk. In some areas, political turmoil might cascade into a full-blown economic recession.

Emerging market fixed-income investors can also suffer when high-risk currency values fall during such periods of volatility. Back in 1998, the “Asian Contagion” was an emerging markets-led debacle that caused a big decline in markets across the globe.

Uncertainty in China

China is now the biggest weighting in many emerging market indexes, up to one-third in some funds. That can be a lot in just one country, particularly in one as uncertain as China, given its one-party controlled economy.

Start Investing for Retirement With SoFi

Building a retirement portfolio often includes owning many areas of the global stock market. Emerging market investments can play a pivotal role to ensure your allocation has higher growth potential, but you must be mindful of the risks.

It’s possible to invest in emerging markets through a variety of means, including through a retirement account, such as an IRA. But keep the risks in mind, along with your overall investment goals and time horizon.

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).

FAQ

Is it worth investing in emerging markets?

Strong growth potential and diversification benefits are reasons to own emerging markets for your retirement portfolio. That said, emerging markets are a small part of the global stock market. A diversified retirement portfolio should include this slice of the market, but investors also must recognize the risks. There are periods during which emerging market investments can underperform the U.S. stock market.

What is the best emerging market to invest in?

When figuring out emerging markets, you might be curious which one is the best. It is hard to say there is one in particular. Emerging market risk can be high, so to help mitigate that, owning the entire basket can help ensure the benefits of diversification.

Should my entire retirement portfolio be in emerging markets?

Building a retirement portfolio with emerging markets is common but putting all your eggs in the emerging market basket might not be the wisest move. Young investors can perhaps own a larger weight in this volatile equity area, but older investors should think about winding down their emerging markets stock exposure as they near retirement.

Photo credit: iStock/Kateywhat

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.
For a full listing of the fees associated with Sofi Invest please view our fee schedule.

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.

Claw Promotion: Customer must fund their Active Invest account with at least $50 within 30 days of opening the account. Probability of customer receiving $1,000 is 0.028%. See full terms and conditions.

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2024
Budgeting for Residents

Budgeting as a New Resident

By | Budgeting & Goals, Life & Career, student_loan | Comments Off on Budgeting as a New Resident
The member’s experience below is not a typical member representation. While their story is extraordinary and inspirational, not all members should expect the same results.

As a resident, Dr. Saira Z. worked in one of the most expensive places in the country—the New York City area. Besides managing the high cost of living on a residency budget, Saira was also paying back loans from medical school.

Figuring out how to stretch her $65,000 a year medical resident’s salary wasn’t easy, even after she got married. She and her husband tried to be as frugal as possible. When they took stock of their spending, however, they found places to cut back.

The couple drew up a budget to help them stay the course through Saira’s three-year residency and when her medical fellowship salary dipped. It also allowed them to set good habits that still serve them well. Saira and her husband now have twins, and she’s in a private practice.

As Saira learned, residency can test your finances. While you’re finally drawing an income—the average annual salary of a first-year resident is less than $63,000, according to 2023 data from the Association of American Medical Colleges—a residency budget needs to cover a lot. Your medical school finances likely include considerable student loan debt. The median medical school debt for the class of 2023 is $200,000, according to the Association of American Medical Colleges, which doesn’t include undergraduate student loans, credit card balances or other debt.

Having a financial plan is a way to make the most of your income and set up for the future. These tips for budgeting for residents may help you get started.

Identify Your Biggest Budget Busters

A budget can serve a variety of purposes. It can help you make progress toward your savings goals, adopt healthier spending habits, and pay down debt. It can even allow you to spot the biggest drains on your money so you can look for ways to curb spending.

For Saira and her husband, meals out with friends were a top budget buster. But they had no idea that was the case until they reviewed their finances. “You don’t realize eating out is such a huge expense until after the fact,” Saira says. As a result, the couple decided to temporarily stop going to restaurants, which allowed them to put that money into their savings.

Build Your Financial Foundation

Budgeting for medical residents should include working on your financial foundation, says Brian Walsh, CFP, senior manager, financial planning for SoFi. “These foundational pieces are so critical to establish,” Walsh says. “Then, once you get that big paycheck, it will be much easier to sock away 25% or more of your income toward retirement.”

Here are a few steps he recommends:

•  Pay off “bad debt.” Walsh defines “bad debt” as anything that accelerates consumption and comes with a high interest rate (such as credit cards).

•  Build up an emergency fund. This stash of cash should cover three to six months’ worth of your total living expenses and be placed in an easy-to-access place, like money market funds, short-term bonds, CDs or a high-yield savings account.

•  Protect your income. There are two types of protection you may want to consider. Disability insurance covers a portion of your income in the event you’re unable to work due to an injury or illness. Monthly premium amounts vary, but generally, the younger and healthier you are, the less expensive the policy. You may also want to consider purchasing a life insurance policy if other people depend on your income.

Recommended: Short Term vs. Long Term Disability Insurance

Start Saving for the Future

Next, Walsh suggests putting any leftover funds into retirement. Over time, as your emergency fund grows and “bad debt” diminishes, you’ll be able to put more money into retirement.

One simple way to build up savings now is to contribute to your employer’s 401(k) or 403(b) retirement plan, if one is available, and tap into any matching funds program. There’s a limit to how much you can contribute annually to either plan. In 2024, the amount is $23,000; if you’re 50 or older, you can contribute up to an additional $7,000, for a total of $30,500.

There are other investment vehicles Walsh suggests exploring if you have additional money to save, don’t have access to a 401(k) or 403(b), or simply prefer to have more control over your money. These include an individual retirement account (IRA), such as a traditional IRA or Roth IRA, both of which can offer tax advantages.

Contributions made to a traditional IRA are tax deductible, and no taxes are due until you withdraw the money. Contributions to a Roth IRA are made with after-tax dollars; your money grows tax-free and you don’t pay taxes when you withdraw the funds. However, there are limits on how much you can contribute each year and on your income.

Another option is a health savings account (HSA), which may be available if you have a high deductible health plan. HSAs provide a triple tax benefit: Contributions reduce taxable income, earnings are tax-free, and money used for qualified medical expenses is also tax-free.

Recommended: Budgeting as a New Doctor

Come Up With a Plan to Pay Student Loan Debt

As a resident, you have several priorities competing for a piece of your paycheck: lifestyle expenses, long-term savings goals, and medical student loan debt. Loan repayment typically starts six months after graduation, and options vary based on the type of loan you have.

If you have federal student loans and need extra help making payments, for example, you can explore a loan forgiveness program or an income-driven repayment (IDR) plan, which can lower monthly payments for eligible borrowers based on their income and household size. You also have the option to postpone payments during residency, but the interest will continue to accrue and add to your total balance.

Your medical student loan debt may feel overwhelming, but there are a couple of ways to consider tackling it. With the avalanche approach, you prioritize debt repayment based on interest rate, from highest to lowest. With the snowball approach, you pay off the smallest balance first and then work your way up to the highest balance.

While the right approach is the one you’ll stick with, Walsh often sees greater success with the snowball approach. “Most people should start with paying off the smallest balance first because then they’ll see progress, and progress leads to persistence,” he says.

Find Out If Refinancing Is Right for You

You may want to consider refinancing your student loans as part of your repayment strategy. When you refinance, your existing loans are paid off and you get one new loan. You may be able to get a lower interest rate, which could potentially reduce your monthly payments. Some lenders, including SoFi, also provide benefits for residents and other medical professionals.

Though the refinancing process is fairly straightforward, “People overestimate the amount of work it takes to refinance and underestimate the benefits,” Wash says. A quarter of a percentage point difference in an interest rate might seem small, but if you have a big loan balance, it could save you quite a bit.

However, refinancing may not be right for everyone. By refinancing federal student loans, you could lose access to benefits and protections, such as income-driven repayment and student loan deferment. Your best bet is to weigh all of your options and decide what makes the most sense for your situation.

The Takeaway

After years of medical school, you’re finally starting to make some money. But you also likely have a lot of student loan debt that you need to start paying back during your residency. Having a solid plan for repaying your loans, and using a few key strategies to start saving money for your future, can help position you for long-term financial success.

If part of that plan includes refinancing your student loans, SoFi can help. With our medical professional refinancing, you may qualify for a special competitive rate if you have a loan balance of more than $150,000. You can also reduce your monthly payments to as low as $100 during residency, for up to seven years.

SoFi reserves our lowest interest rates for medical professionals like you.

Photo credit: iStock/Andrei Orlov

SoFi Student Loan Refinance
Terms and conditions apply. SoFi Refinance Student Loans are private loans. When you refinance federal loans with a SoFi loan, YOU FOREFEIT YOUR EILIGIBILITY FOR ALL FEDERAL LOAN BENEFITS, including all flexible federal repayment and forgiveness options that are or may become available to federal student loan borrowers including, but not limited to: Public Service Loan Forgiveness (PSLF), Income-Based Repayment, Income-Contingent Repayment, extended repayment plans, PAYE or SAVE. Lowest rates reserved for the most creditworthy borrowers. Learn more at SoFi.com/eligibility. SoFi Refinance Student Loans are originated by SoFi Bank, N.A. Member FDIC. NMLS #696891 (www.nmlsconsumeraccess.org).

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SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.


The member’s experience below is not a typical member representation. While their story is extraordinary and inspirational, not all members should expect the same results.

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.

Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article.

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.

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