Apr
24
2025
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Ordinary vs Qualified Dividends

By | Growing Wealth, invest, Investing | Comments Off on Ordinary vs Qualified Dividends

The vast majority of dividends — i.e., regular payouts from a company to certain stockholders — are considered ordinary dividends, but some are qualified dividends, and the tax treatment is different for each.

While sorting out which type of dividend you have can be confusing, it’s important to know the difference as they are taxed at different rates: Qualified dividends are taxed at the more favorable capital gains rate, while ordinary dividends are taxed as income.

Key Points

  • Dividends are regular payouts to certain company shareholders. Not all companies pay dividends.
  • Most types of dividends are considered ordinary dividends. Qualified dividends must meet certain IRS criteria.
  • Ordinary dividends are taxed as income; qualified dividends are taxed at the more favorable long-term capital gains rate.
  • Knowing the types of dividends you have is important for tax planning purposes.

What Are Dividends, How Do They Work?

When a company pays shareholders a portion of company earnings on a regular basis (i.e., quarterly), these payouts are called dividends, and they come in addition to any potential gains from stock performance.

Dividend amounts are set by the company, and investors receive a payout based on the number of shares the investor owns. For example, if a stock pays a quarterly dividend of $0.50 per share and the investor owns 50 shares, they would receive a dividend of $25 each quarter.

Companies are not required to pay dividends, and not all shareholders own dividend-paying stock.

As noted, most dividends are ordinary dividends (non-qualified), but some are qualified dividends that meet certain IRS criteria.

How Are Dividends Paid?

Typically, dividends are paid in cash, and they’re sent by the company directly to your brokerage, which will deposit the money into your account.

Alternatively, you might get dividends as additional shares of stock. Some companies and mutual funds offer the option of a dividend reinvestment plan (DRIP) that will automatically reinvest your dividend payment in additional shares. This has the advantage of both simplifying the process (since you won’t have to receive the cash and then buy more shares yourself), and potentially being less expensive, since many DRIP programs don’t charge commissions on share purchases.

Additionally, some DRIP programs offer the ability to buy additional shares at a discount.

Less commonly, a company might award a property dividend instead of cash or stock payouts. This could include company products, shares of a subsidiary company, or physical assets the company owns.


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What Is a Qualified Dividend?

Certain dividends from holding shares of stock in domestic companies and some foreign companies — and which an investor has held for a minimum period of time — are considered qualified dividends.

Equally important, though, is that qualified dividends are distinct from ordinary dividends, which include capital gains distributions, dividends paid on bank deposits, dividends from tax-exempt corporations, and more.

Qualified dividends are taxed at the lower capital gains tax rate versus ordinary dividends, which are taxed as income. They’re taxed at the long-term capital gains rate, which ranges from 0% to 15% to 20%.

Most people won’t pay more than 15% on qualified dividends, but they might owe as much as 37% in income tax on ordinary dividends. As such, investors typically prefer to receive qualified dividends, but they’re the less common kind of dividend paid out.

Qualified dividends must meet certain requirements:

  • The dividend must be paid by a U.S. company or a qualified foreign corporation (i.e., one that’s traded on a U.S. stock exchange).
  • The dividend must not be of the type that does not qualify (i.e., it cannot be an ordinary dividend).
  • In addition, it’s important to know the holding period, and how often dividends are paid. If you hold common stock, you must have held the shares for more than 60 days during the 121-day period starting 60 days before the ex-dividend date. (That’s the date by which an investor must have purchased shares of a stock in order to receive an upcoming dividend.)
  • If you hold preferred stock, you must have held the shares for more than 90 days during the 181-day period starting 90 days before the ex-dividend date.
  • A mutual fund must have held the investment unhedged for more than 60 days during the 121-day period starting 60 days before the ex-dividend date, and investors must have held their shares of the mutual fund for the same period.

Recommended: Capital Gains Tax Guide

How to Figure Out If You Have a Qualified Dividend

For investors about to count the number of days they’ve held a stock, they must include the day they sold the stock, but do not include the day they bought it.

Here is an example:

Imagine you bought 1,000 shares of ABC Company common stock on July 2, 2024, and you sold the 1,000 shares on August 11, 2024. ABC Company paid a cash dividend of 25 cents per share with an ex-dividend date of July 15, 2024.

Since you only held shares of ABC Company for 40 days of the 121-day period that began 60 days before the ex-dividend date, you have no qualified dividends from ABC Company, and your Form 1099-DIV from the company should reflect the ordinary dividend amount in box 1a.

What Is an Ordinary Dividend?

In general, investors should assume that any dividend they receive is an ordinary dividend unless they’re told otherwise. The payer of the dividend is required to identify the type of dividend when they report them on Form 1099-DIV at tax time.

Qualified dividends are reported in box 1b on IRS Form 1099-DIV, while ordinary dividends are reported in box 1a.

Certain kinds of dividends are not qualified dividends even if they’re reported in box 1b of your Form 1099-DIV, according to the IRS. The following dividends are on this list:

  • Capital gains distributions
  • Dividends paid on deposits with mutual savings banks, cooperative banks, credit unions, U.S. building and loan associations, U.S. savings and loan associations, federal savings and loan associations, and similar financial institutions
  • Dividends from a corporation that is a tax-exempt organization or farmer’s cooperative during the corporation’s tax year in which the dividends were paid or during the corporation’s previous tax year
  • Dividends paid by a corporation on employer securities held on the date of record by an employee stock ownership plan (ESOP) maintained by that corporation
  • Dividends on any share of stock to the extent you are obligated (whether under a short sale or otherwise) to make related payments for positions in substantially similar or related property
  • Payments in lieu of dividends, but only if you know or have reason to know the payments are not qualified dividends
  • Payments shown on Form 1099-DIV, box 1b, from a foreign corporation to the extent you know or have reason to know the payments are not qualified dividends

Ordinary dividends must be reported on IRS Form 1040, line 3b, and they are taxed at ordinary income rates, which range from 10% to 37%.


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How Qualified and Ordinary Dividends are Reported at Tax Time

Generally, an investor will receive a Form 1099-DIV — “Dividends and Distributions” — from each institution or company that pays a dividend of $10 or more. This form reports your capital gains distributions, dividend and non-dividend distributions, and any taxes withheld from your payments during that tax year.

Even if an investor does not receive a 1099-DIV from a company, they are still required to report any dividends on their tax return.

On Form 1099-DIV, dividends are reported as follows:

  • Box 1a: Ordinary dividends, representing the total dividends paid to you during that tax year
  • Box 1b: Qualified dividends, and this will be the portion of total dividends that qualify for the lower tax rate
  • Box 3: Non-dividend distributions, which are a nontaxable return of capital

If you have had taxes withheld from your dividends, this will be reported in box 4 for federal taxes, and 14 for state tax withholdings.

The Takeaway

Understanding qualified versus ordinary dividends can help investors make decisions about what account to hold their dividend-paying investments in: Inside a retirement account, such as an IRA, an investor will owe no taxes on dividend income, but they’ll often pay ordinary income taxes on all withdrawals.

Outside a retirement account, an investor will pay lower rates on qualified dividends, and may be able to use dividends to supplement other income or to reinvest in their portfolio.

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For disclosures on SoFi Invest platforms visit SoFi.com/legal. For a full listing of the fees associated with Sofi Invest please view our fee schedule.

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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Apr
24
2025

Common Money Fights

By | Budgeting & Goals, money | Comments Off on Common Money Fights

Fighting about money is one of the top causes of strife among couples. In fact, one recent survey found that couples have on average a whopping 58 fights about finances per year! And 44% worry that discussing money will lead to a fight.

While arguing is no fun, it’s important to address the problems at the heart of financial disagreements and start communicating. Otherwise these issues may fester and grow. Instead of judging each other’s spending habits or fighting over money, couples can learn how to start working on financial issues together as a team.

Here are some ways to help you make money discussions productive, and not a fight.

Key Points

•   Finances are one of the top causes of couple fights; sharing account information can build transparency and trust in a relationship.

•   Setting budgets and spending limits helps manage finances and reduces conflicts.

•   Handling debt, especially when brought into the relationship, requires clear responsibility and repayment plans.

•   Saving for retirement and investing are areas where partners often disagree on methods and amounts.

•   Regular financial check-ins and open communication can prevent misunderstandings and build a stronger financial partnership.

Common Causes of Couple Money Fights

While there are countless variations of money fights you might have, these are a few of the most common triggers:

Sharing Important Account Information

Some couples struggle with privacy limits and financial security, and they may disagree upon what level of access their partner should have to their financial accounts.

If one partner feels they don’t have fair access to bank accounts, passwords, and paperwork, resentment can build. Married couples in particular may find it confusing and challenging to not have a full picture of their complete financial health.

Determining Budgeting and Spending Limits

Maybe one of you likes to spend and enjoy life. And the other likes to save for a rainy day. This disconnect happens all the time. Not all couples see eye to eye on how much they should be spending and this can lead to anger and tension.

Dealing with Debt

If one partner brings debt with them to the relationship, it isn’t uncommon for the couples to disagree about who is responsible for paying off the debt.

Tackling debt can be stressful under the best circumstances, and it can lead to turmoil and fighting if a romantic partner feels the debt is an unfair burden on the relationship.

Savings and Investing

Some couples can’t agree how much money they should save and how they should be saving it.

One partner may feel investing their savings is the better path to a stronger financial future, but the other partner may find investing too risky and want to keep the money in a high-yield savings account. This can cause turmoil if both partners’ chosen path forward is the only one they are comfortable with.

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Retirement Planning

When you’re balancing a lot of different expenses, deciding as a couple how much money to save for retirement and what age they may want to retire can be challenging.

But those who don’t have a plan for slowly and consistently saving for retirement can find themselves continually fighting about retirement savings. This is especially true if one partner is particularly worried about not being financially prepared for the future.

How to Stop Fighting About Money

Before your next money fight erupts, try these tips to help stop the arguing.

Changing the Way You Talk About Money

Working on your communication skills can help keep financial discussions from devolving into arguments.

When you’re discussing money, the main goal of a productive talk is to really listen to each other and try to understand the other person’s point of view, as opposed to jumping to conclusions or making accusations.

One technique that can help with this is using “I” instead of “you” in your statements. For example, one partner might say, “I get frustrated when the bills aren’t paid on time. Can I help you out with that?” rather than, “you never pay the bills on time.”

Another method is trying to avoid using the words “always” and “never” when discussing money matters. These terms can put the other person immediately on the defensive.

Setting up a Budget Together

Creating a budget as a couple is key. To help establish your saving goals and monthly spending targets, begin by figuring out what your joint net worth is. Then track your income and expenses for several months.

Once you know what you’re spending money on, you can work out a flexible budget, with short-term financial goals and long-term goals.

Planning ahead helps both partners agree on how much needs to be set aside for retirement or a down payment on a house, and how much you each can allocate to spending as you individually see fit.

Being Open and Honest

It’s tempting to omit key information when we’re trying to avoid conflict. But even if a person doesn’t fib about an expensive purchase or lending money to a family member, failing to share significant financial information can make the other partner feel like they’re being lied to and misled. This can breed distrust and cause financial stress.

Prevent these problems by being honest about financial decisions, even if you know they may upset your partner. As reluctant as you may be to bring these topics up, it can be better in the long run than hiding it from them and committing financial infidelity.

Establishing Some Boundaries

One way to avoid the need to cover up pricey purchases is to agree to a few simple rules about what spending decisions should be shared and what spending decisions are okay to make solo.

For example, one couple may decide they don’t need to alert each other about a purchase if it’s under $500. Another couple may agree to lend money to siblings when they need it. And some couples may together decide to never lend money to friends or family under any circumstances.

By setting boundaries and limits, and then adhering to them, couples may stop feeling like they have to report their every financial move.

Setting up a Joint Account

One of the main benefits of opening a bank account together is that it can provide a clear financial picture. A joint account allows couples to track spending, and it can make sticking to a budget easier, while also helping to foster openness.

On the downside, sharing every penny can sometimes lead to tension and disagreements, especially if partners have different spending habits and personalities. One solution might be to have a joint checking account, as well as two individual accounts with a set amount of money to play with every month.

Having different accounts, including one for their personal use, can give each partner some freedom to spend on themselves without having to explain or feel guilty about their expenditures.

Teaming up Against Debt

Working together on a reasonable plan to start getting out of debt can help couples alleviate a major stress on their marriage.

One strategy for debt reduction might be the avalanche method. To do it, you make a list of all your debts by order of interest rate, from the highest percentage to the lowest. Then, while continuing to make all your minimum monthly payments on existing debts, the couple might decide to put as many extra payments as possible to the highest interest rate loan.

Or, they might decide to simply eliminate the smallest debt first, or look into consolidating debts into a single loan, which could make it easier to manage.

Whatever plan you agree on, working on debt reduction can give you a shared goal to work toward together.

Scheduling a Monthly Financial Check-In

Even if one partner takes on a bigger role in managing finances, paying bills, and keeping on top of the budget, both parties need to stay up to date on what’s going on in order to achieve financial security.

Rather than only talking about your finances when you’re stressed about bills, a better strategy might be to set a specific time on your calendar each month to sit down together and review your recent spending, income, savings, bills, and investments.

If you can’t swing monthly meetings, then aim for quarterly or biannual financial sit-downs.

Getting Help From an Advisor

While spending more money may seem like an added stressor, some couples who pay for a financial advisor may find that it helps them save more down the road.

And, it might be easier to talk about an emotionally charged subject like money with an unbiased third party who can help diffuse tension and get you both to agree on a smart spending and savings strategy.

The Takeaway

Fighting over money, or finding it hard to talk openly and constructively about it, is a common source of friction between couples. Some strategies that can help include learning how to communicate about financial issues more productively, setting up monthly money check-ins, and letting each partner have some financial privacy. Determining whether to have joint bank accounts, separate ones, or a combination can be valuable, too.

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FAQ

Is it normal to fight over money?

If you argue about finances, you are not alone. The American Psychological Association found that money is one of the most common sources of disagreements for couples.

How common are money problems?

Finances can be a source of stress for many people. Research has often shown that up to seven out of 10 people (or more) worry about money.

What is the main reason couples fight over money?

One of the most typical reasons couples argue about money is different values: one person may be a spender and the other a saver, or they might have varying opinions of the most important financial goals. Having regular money talks, compromising, and aligning can help overcome these differences.

About the author

Jacqueline DeMarco

Jacqueline DeMarco

Jacqueline DeMarco is a freelance writer who specializes in financial topics. Her first job out of college was in the financial industry, and it was there she gained a passion for helping others understand tricky financial topics. Read full bio.

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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.

This content is provided for informational and educational purposes only and should not be construed as financial advice.

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Apr
24
2025
How to Avoid FOMO Trading

How to Avoid FOMO Trading

By | Growing Wealth, invest, Terminology | Comments Off on How to Avoid FOMO Trading

FOMO trading, or the “fear of missing out” when trading, applies to the anxiety of potentially passing up a profitable investment that an investor may experience. “FOMO” is a term commonly used to describe other anxiety-inducing situations as well.

For investors who visualize a scenario where a stock rises sharply in value but goes unpurchased, the fear of missing out may cause them to make investing decisions that aren’t fully thought-through or in line with their investing strategy. Making emotional, knee-jerk decisions when investing can derail your overall strategy, too. That’s why it can be important to try and avoid it the best you can.

Key Points

•   Develop a clear investment plan to avoid impulsive trades.

•   Stay calm during market volatility; trade with a strategy.

•   Keep a broader perspective on missed opportunities.

•   Avoid high-risk investments to help prevent significant losses.

•   Be cautious of social media investment advice; always verify sources.

What Is FOMO Trading?

FOMO trading happens when an investor allows their fear of missing out to drive their investing decisions, to the exclusion of other insights and instincts. This can trigger errors, creating problems in an otherwise well-managed investment portfolio.

For example, an impatient trader may rush to buy a hot stock even if it doesn’t fit into their investment strategy, or if the stock risks could jeopardize the portfolio’s stability.

Yet, buying any investment without proper research, risk assessment, or a planned exit strategy if the stock goes down, is the opposite of effective stock market investing.

Understanding Behavioral Finance

Sociologists use the term “behavioral finance” to describe the overall need to abandon rational thought and follow a herd to mitigate any FOMO anxieties. With behavioral finance, emotional and sociological influences replace scrutiny and logical thinking, which can significantly alter investment outcomes.

The fact that so many stock market rumors are stoked on social media, and that there are so many investors who rely on social media for investment ideas, only adds more pressure to give in to your anxieties, and buy a stock or other investment that may not necessarily fit in with your investing strategy.

Ways to Avoid FOMO Trading

How can an investor fight off FOMO tendencies and remain a stable and steadfast investor? It’s not easy given the pressure to trade frequently these days, but these tips may help.

Invest With a Plan in Mind

Investors who trade according to a well-thought-out plan or investing strategy — and not with a FOMO mindset — are likely to be more prepared for better investment outcomes. By doing research, learning how to value a stock, and establishing your own tolerance for risk, you may be less likely to make rash or emotional decisions regarding your investments.

Stay Calm in Highly Volatile Markets

Many impulse trades come at a time when markets move fast. When investing in a volatile market, it’s especially important to trade with strategy in mind, rather than with your feelings.

Be Sensible About Trading

A single stock market trade rarely makes or breaks an investment portfolio. If you do hear about a can’t-miss stock and are anxious to pull the trigger and buy that stock, it can help to keep it in perspective: there’s always another market opportunity down the road. In other words, keep the big picture in mind.

Avoid Investing Money You Can’t Afford to Lose

The old adage of “never play with money you can’t afford to lose” is very much in play with FOMO investing. It’s never wise to chase a stock with large amounts of money your portfolio can’t afford to be without. In nearly all cases, if an investment’s risk is too high, and the potential impact to your portfolio is too acute, then it may be best to wait things out.

Don’t Mistake Social Media Advice for a Sound Investment Strategy

Social media captures a great deal of attention from market investors. But these platforms may be loaded with touts, short-sellers, penny stock promoters, and other investment shills who have their best interest in mind, rather than yours. As a rule, social media touts always talk up their gains but rarely mention their losses. Remember that maxim when you’re under the temptation of a FOMO trade.

The Takeaway

FOMO trading is a type of behavioral finance in which an investor lets emotions like the fear of missing out replace logical, strategic thinking. FOMO trading often happens on a whim without much thought, which can significantly impact investment outcomes.That’s why it’s important to have a cogent strategy in place, and to keep your goals in mind when making investing decisions.

While it can be difficult to completely separate your emotions from your investing activities, keeping your strategy top of mind can help direct your decision-making process. Again: It’s not easy, but with some practice and experience in the markets, learning to skip investing trends might become a bit easier.

Invest in what matters most to you with SoFi Active Invest. In a self-directed account provided by SoFi Securities, you can trade stocks, exchange-traded funds (ETFs), mutual funds, alternative funds, options, and more — all while paying $0 commission on every trade. Other fees may apply. Whether you want to trade after-hours or manage your portfolio using real-time stock insights and analyst ratings, you can invest your way in SoFi's easy-to-use mobile app.

Opening and funding an Active Invest account gives you the opportunity to get up to $1,000 in the stock of your choice.¹

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

SoFi Invest is a trade name used by SoFi Wealth LLC and SoFi Securities LLC offering investment products and services. Robo investing and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser. Brokerage and self-directed investing products offered through SoFi Securities LLC, Member FINRA/SIPC.

For disclosures on SoFi Invest platforms visit SoFi.com/legal. 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.


¹Probability of Member receiving $1,000 is a probability of 0.026%; If you don’t make a selection in 45 days, you’ll no longer qualify for the promo. Customer must fund their account with a minimum of $50.00 to qualify. Probability percentage is subject to decrease. See full terms and conditions.

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2025
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Vesting Schedule: Important Things to Know

By | Growing Wealth, invest, Investing, Life & Career | Comments Off on Vesting Schedule: Important Things to Know

A vesting schedule refers to the requirements employees must meet in order to become “vested” and gain ownership of the assets the employer is providing, whether that’s company stock, 401(k) contributions, or another benefit.

In some companies, employees vest right away — i.e., there is no waiting period or other qualification they must meet to gain full ownership of a certain benefit. In other cases, the vesting schedule typically incentivizes employees by offering matching retirement funds, shares of company profit, or stock options over a certain time period.

For example, you may be partially vested in your 401(k) after one year, and fully vested after two years.

While remaining at a company for a certain amount of time is a common vesting requirement, hitting specific performance benchmarks may also be a part of the vesting contract.

An employee is fully vested when they receive ownership of a portion of, or all of, the assets their employer offers. If the employee were to leave the company before the assets were fully vested, they would lose out on some or all of those contributions/profits/stock options.

What Is a Vesting Schedule?

A vesting schedule is essentially a way to incentivize employees to stay with a company for a period of time. The reward for remaining with the company may include stock options or restricted stock units, retirement plan contributions (also known as the employer match), or other rewards.

So how does an individual know when they are partially or fully vested? The vesting schedule is typically provided when the employee is hired. But they can ask their employer for a vesting schedule, which lays out the conditions they must meet or the dates that must be reached before vesting begins.

Employees who are partially vested are only entitled to a percentage of the assets being offered: e.g., 25% after one year, 50% after two years, and so on. These employees have not yet met certain requirements, such as years spent with the company or hours worked during the year, for example. Those who are not “vested” are typically not entitled to any assets at all.

Employees who are fully vested have the right to full ownership of the assets; in essence, they’ve earned this additional form of compensation.

Three Types of Vesting Schedules

Vesting schedules may come in a few different varieties: immediate, graded, and cliff vesting.

Immediate Vesting

Immediate vesting schedules give employees full ownership of assets as soon as the assets hit their accounts.

For example, under an immediate vesting schedule, if an employer makes a matching contribution to a retirement account, that contribution belongs to the employee regardless of any other conditions. The employee is now free to do what they will with the contribution.

Note that if you open an IRA, you’re effectively vested immediately because IRAs are self-funded. Vesting schedules only pertain to employer contributions.

Graded Vesting

A graded vesting schedule increases the portion of vested assets over time. Typically as an employee’s tenure at a company increases, the amount of vested assets gradually increases — until the employee eventually owns 100% of the assets.

If the employee should leave the company before the vesting period is over, they will only be entitled to the portion of the assets in which they are already vested.

Graded vesting schedules are usually no longer than six years for retirement plans, according to federal guidelines, though employers may choose to use a shorter vesting schedule. With a hypothetical six-year vesting schedule, an employee might be 0% vested for their first two years of employment and 20% vested every year after that.

Cliff Vesting

This type of vesting schedule transfers 100% of assets to employees after a certain amount of time has passed. For example, an employee may need to work at their job for two years before they are fully vested. If they separate from employment for any reason before that period is up, they aren’t entitled to any of the assets.

Cliff vesting schedules for retirement accounts are three years at most, according to federal guidelines, but may be shorter.

Vesting and IRAs

Most people might be familiar with traditional IRAs and Roth IRAs, which individuals can set up and contribute to themselves. But there are a couple of IRA options that employers can contribute to as well, including SEP and SIMPLE IRAs.

Employers may offer SIMPLE IRAs in place of a 401(k). They can then offer funds that match employee contributions, or they can make non-elective contributions, money they put in an employee’s account regardless of how much that employee has contributed themselves.

A SEP IRA is a retirement plan available to self-employed workers and small business owners. Unlike with other IRA plans, with a SEP IRA employees do not make contributions. Employers, including the self-employed, make contributions for them. Self-employed individuals act as their own employer and employee.

By law, required employer contributions to SEP IRAs and SIMPLE IRAs are immediately vested. This goes for any other IRA-based plan as well.

Vesting and 401(k)s

When you contribute to your 401(k), your employer may offer matching contributions to incentivize you to save at least enough to get the match.

While your own contributions to your 401(k) are 100% yours immediately, your employer may decide to give you ownership of the employer matching funds according to a vesting schedule.

It’s important to know the difference between your vested 401(k) balance and your overall balance. Your 401(k) may offer a variety of different vesting schedules, the terms of which are laid out in the plan document. As noted, some plans offer immediate vesting, while others may offer cliff vesting after up to three years of service, or a graded vesting system in which an employee’s vested percentage grows over time.

When Must Employees Be 100% Vested?

A retirement plan’s “normal retirement age” is the age set by the plan at which an employee is eligible to receive their full accrued benefits. In the case of annuity payments or other installment payments, this is the date employees can begin receiving payments.

According to government rules, employees must be 100% vested by the time they reach normal retirement age, which is typically age 65 in the private sector. With some government jobs, employees who are at least 62 may be considered fully vested. Again, terms vary and so do age requirements; it’s best to check with your employer.

Additionally, employees must be immediately 100% vested in their accrued benefits if an employer decides to terminate a plan, including for the following reasons: voluntarily; as part of bankruptcy proceedings; when the company is sold; or because of a switch to another retirement plan.

At such a point, employer matching contributions and any profit sharing are fully vested regardless of any previous vesting schedule.

Sometimes employers will terminate only part of a retirement plan — for example, if a factory closure forces 25% of the company workforce to be laid off. In this case, workers affected by the partial termination have the same vesting rights as those affected by a full plan termination.

Vesting Stock Options

Employee stock options offer employees the chance to buy company stock at a predetermined price, and are often offered on a vesting schedule as well. Employees are often not allowed to buy the stock — also known as exercising their stock options — until they are vested.

As with other types of compensation, vesting can follow a number of schedules, including graded scheduling, which allows employees to exercise their stock option gradually, and cliff scheduling. In some cases employees may be granted stock options that are immediately vested.

Once a stock option vests and an employee exercises it, they can sell the stock or hang on to it and hope the value appreciates.

What Are Restricted Stock Units?

Restricted stock units (RSUs) are another form of compensation in which employees are promised a specific amount of stock at a later date. While there are some differences between ESOs and RSUs, one similarity is that both may follow a vesting schedule and don’t belong to the employee until they are vested.

Employees who receive RSUs from a private company — a company whose shares don’t trade on the open market — may not be able to sell them until the company goes public in an initial public offering.

Learning more about stock market basics may be useful in understanding how employee stock options work.

Why Companies Choose to Use Vesting

The different vesting schedules and the rules around them can get complicated. So why would an employer go through all that trouble? By using vesting schedules, employers are trying to align employees’ goals with their own.

It can be time-consuming and costly to find new employees, so when an employer finds someone they like, they want them to stick around. Vesting schedules are one way employers can motivate employees to stay with the company for a certain period of time.

Some types of compensation, such as stock options, add another layer of incentive to the mix. That’s because as a company flourishes, that company’s stock may theoretically become more valuable, incentivizing workers to work hard to keep the company successful.

Additionally, having some time before an employee is fully vested in their benefits allows companies a bit of a trial period. If a new hire doesn’t work out, the company can let them go without owing them additional benefits.

How to Find Out Your Vesting Schedule

It’s critical to know how and when employer contributions to retirement accounts vest. That way, individuals can make informed decisions about when to leave their jobs, while minimizing the amount of money they’re leaving on the table. For example, to make the most of their benefits, an employee with 12 months to go before they are fully vested may want to hang on to their job for another year before they start looking for a new one.

To fully understand an employer’s vesting policies, employees can speak with a representative in their human resources department. They may also get details of their retirement plan by reading the summary plan description, which lays out how it operates and what it provides. Individuals may also check their annual benefits statement. This statement should reflect an employee’s accrued and vested assets, and it may lay out what assets an employee will forfeit upon termination.

The Takeaway

Vesting schedules are a tool used by employers to motivate employees to stay with the company by offering full monetary or stock contributions after a certain period of employment. There are generally three different types of vesting: immediate, cliff, and graded.

For employees, it’s important to understand the vesting schedule of one’s retirement plan, stock options, or RSUs. This information can help guide career decisions as well as investment decisions.

Invest in what matters most to you with SoFi Active Invest. In a self-directed account provided by SoFi Securities, you can trade stocks, exchange-traded funds (ETFs), mutual funds, alternative funds, options, and more — all while paying $0 commission on every trade. Other fees may apply. Whether you want to trade after-hours or manage your portfolio using real-time stock insights and analyst ratings, you can invest your way in SoFi's easy-to-use mobile app.


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

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

SoFi Invest is a trade name used by SoFi Wealth LLC and SoFi Securities LLC offering investment products and services. Robo investing and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser. Brokerage and self-directed investing products offered through SoFi Securities LLC, Member FINRA/SIPC.

For disclosures on SoFi Invest platforms visit SoFi.com/legal. 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.

Disclaimer: The projections or other information regarding the likelihood of various investment outcomes are hypothetical in nature, do not reflect actual investment results, and are not guarantees of future results.

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Apr
24
2025
father and son desk and tablet

Tips for Teaching Your Kids About Investing

By | Family Finances, Growing Wealth, Investing | No Comments

Many parents are thinking about financial literacy in a new light. Money has always been complicated, but the world of digital transactions and ready credit has made it even more so. But because personal finance classes in schools may not be required, it’s largely up to parents to help their kids become money savvy.

Parents can try to set their kids on the right path by teaching them the investment basics you wish you’d learned when you were young. Here are some actionable, age-appropriate tips for teaching your kids about investing.

Key Points

•   Financial literacy primarily falls on parents, as few states mandate personal finance education in schools.

•   Savings accounts offer safety but limited growth; investments are higher risk but may grow faster.

•   Diversification involves spreading money across different investment types to manage risk.

•   Online games and apps can educate and engage children in investing without using real money.

•   Compound returns can be illustrated using calculators and the Rule of 72.

Set the Stage: From Saving to Investing

If your children have their own savings accounts, or even a piggy bank, you’re off to a good start. But at some point, you can start introducing more advanced financial topics (with examples whenever possible). Every kid is different, so you’ll have to gauge your children’s interest and comprehension. These are some concepts to discuss.

Risk vs Reward

Conventional wisdom says that the riskier the investment, the higher the payout. But the opposite is also true. The riskier the investment, the more you can lose.

Explain to kids that unlike a savings account, which is safe but grows money slowly, an investment account usually carries more risk, so it may grow faster but it also may lose money.

Diversifying Investments

Even a young child should be able to understand diversification by the phrase “Don’t put all your eggs in one basket.” When teaching older kids, you can give examples of different types of investments — stocks, bonds, mutual funds, real estate, and other investments — and explain the role each might play in a portfolio.

Supply and Demand

The stock market is generally driven by supply and demand. If more investors demand to own stocks, the market rises. If there are more sellers than buyers, the market falls. As an example, you might be able to talk about how the price of a hard-to-get toy drops over time, or how clothes get cheaper when they’re out of season.

Researching Investments

If you have children who love to look up things online, why not make the most of that interest and skill set? Ask them about the companies they think might be a good investment, and then check out the reality. (Some of their favorite brands may be privately traded, so that’s another conversation you can have.)

Older kids can look for news stories that summarize analysts’ reports.

Gaming and the Market

Another way to get older kids interested in investing? Let them learn and practice trading with an online game or app. There are many options out there, including animated games that give kids a goal and ask them to make investment choices about getting there.

Play Follow the Market

Once your kids understand a little bit about how the stock market works, you can begin following the markets together and track how they’d do if they were actually invested in a particular stock, for example. Older kids might like to create an online watch list of their favorites on finance sites where they can watch market movements without risking actual cash.

Go Buy the Book

It might sound like a pretty old-school way to explain investing to kids, but there are books out there that include plenty of illustrations, fun language, and important lessons, including these:

What All Kids (and Adults Too) Should Know About … Savings and Investing, by Rob Pivnick, covers saving, budgeting and investing.

Go! Stock! Go!: A Stock Market Guide for Enterprising Children and Their Curious Parents, by Bennett Zimmerman, follows the Johnson family as they learn the fundamentals of stocks and bonds, the mechanics of investing, and the ups and downs of risk and reward.

I’m a Shareholder Kit: The Basics About Stocks — For Kids/Teens, by Rick Roman, is a spiral-bound book that was last updated in May 2018 and is designed to appeal to kids who want to know about investing and managing their money.


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

Make It Real With a Custodial Account

If you want to give kids a taste of what investing is like, you can open a custodial account and either make some picks yourself or let your children do the choosing.

Custodial accounts give kids financial visibility but limited responsibility because they are not allowed access to the account’s money or assets. In almost all cases, the parent is responsible for managing the money until their child reaches adulthood.

Many discount brokers offer investment accounts for kids online. Some brokers have also introduced hybrid products for teens that allow them to save money, spend, and invest all in one place with the supervision of their parents.

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What to Invest in

One way to make the lesson more meaningful might be to think about the things that are important to the kids at each stage of life and pick a stock that represents it. (The company that makes their favorite snacks, for example, a top toy brand, or a clothing label.)

As your children get older, they can have more input, and you can talk about how dividends work, the power of compounding returns, and what it means to buy and hold. If your kids can’t decide between two companies, they can work together to research the better choice.

Recommended: What Does Buy & Hold Mean?

It’s important to note that there are pros and cons to creating investing portfolios for minors, so you’ll likely want to check out any consequences related to future taxes and when the child applies for financial aid for college.

Discuss Compounding Returns

Want to show your kids the magic of compounding interest? The Compound Interest Calculator on the Securities and Exchange Commission’s Investor.gov website is easy to use and understand. Just plug in an initial amount, how much you expect to add each month, and the interest rate you expect to earn. The calculator will chart out an estimate of how much your child’s initial deposit would grow over time.

To take it a step further, you can teach your children to use the “Rule of 72” to compare different types of investments. According to this rule, money doubles at a rate where 72 is divided by the percentage gain. So, if your child is looking at an investment that returns 4% annually, it will double in 18 years, or 72 divided by 4.

Share Your Own Family’s Adventures in Investing

Whether it’s a success story or a cautionary tale, kids can learn a lot from their family history. For example, in a conversation about the value of investing and goal-setting, you could talk about how your parents and grandparents made and saved their money vs. how it’s done today. Focus on storytelling instead of lecturing, and encourage questions to keep kids involved.

The Takeaway

There are many ways to introduce kids of all ages to the concept of investing. The simplest one is to share with them your own investing history and perspectives. Beyond that, use websites, videos, books, and other tools — including a custodial account, if you want — to illustrate the how-tos, dos, and don’ts of investing.

Keep it fun, and don’t forget to share some of your own goals and financial plans with your kids. Kids learn by participating in real life. Someday your adult children might be telling tales around the dinner table about how your lessons helped advance their financial savvy.

Invest in what matters most to you with SoFi Active Invest. In a self-directed account provided by SoFi Securities, you can trade stocks, exchange-traded funds (ETFs), mutual funds, alternative funds, options, and more — all while paying $0 commission on every trade. Other fees may apply. Whether you want to trade after-hours or manage your portfolio using real-time stock insights and analyst ratings, you can invest your way in SoFi's easy-to-use mobile app.

Opening and funding an Active Invest account gives you the opportunity to get up to $1,000 in the stock of your choice.¹

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

SoFi Invest is a trade name used by SoFi Wealth LLC and SoFi Securities LLC offering investment products and services. Robo investing and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser. Brokerage and self-directed investing products offered through SoFi Securities LLC, Member FINRA/SIPC.

For disclosures on SoFi Invest platforms visit SoFi.com/legal. 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.


¹Probability of Member receiving $1,000 is a probability of 0.026%; If you don’t make a selection in 45 days, you’ll no longer qualify for the promo. Customer must fund their account with a minimum of $50.00 to qualify. Probability percentage is subject to decrease. See full terms and conditions.

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