Mar
25
2025
Can You Open a Savings Account for an Inmate?

Opening a Savings Account for an Inmate: All You Need to Know

By | Family Finances, Growing Wealth, Life & Career, money | Comments Off on Opening a Savings Account for an Inmate: All You Need to Know

You may wonder if it’s possible to open a bank account for someone who is in prison. The answer is, yes, it may be possible to start a bank account for a prisoner, provided it’s allowed by the Department of Corrections in the state where the individual is incarcerated. (Worth noting: It may also be a challenge to find a bank that offers this kind of account.)

Opening an account can be a positive step. Being imprisoned can limit someone’s ability to pay bills, grow savings, and generally manage their finances. Opening accounts for inmates at external banks can help them to earn interest on savings while saving money on fees. And it can potentially make their reentry into society easier upon release.

While inmates may have access to prison accounts, those can come with high fees, and they typically don’t pay interest. A prison account is a special type of account that allows an inmate to store funds which can be used to pay for hygiene items and other necessities while they’re incarcerated. It doesn’t impact their lives when released.

So, let’s take a closer look at this topic:

•   Whether it’s legal to open a bank account while in prison

•   How to apply for a bank account while in prison

•   What documentation is required to start an account

•   What kinds of accounts are available, including whether joint accounts are a possibility

Let’s start learning about accounts for inmates.

Is It Legal to Open a Bank Account While in Prison?

It’s legal to open a bank account while in prison, unless state law or correctional facility policy specifically prohibits it. The best way to find out whether opening accounts for inmates is allowed is to check with the Department of Corrections in the state where the person is incarcerated.

In Texas, for example, the Department of Criminal Justice encourages inmates to open accounts at an external bank of their choice. They can then link this bank account to their prison account. This can be used to replenish their account for items bought while in prison. Excess funds in their prison account can also be transferred to their external bank account.

The state of New York, on the other hand, prohibits inmates from opening outside bank accounts. Specifically, prisoners are not allowed to open:

•   Checking accounts

•   Savings accounts

•   Stock accounts

•   Mutual fund accounts

•   Money market accounts

•   Certificate of deposit (CD) accounts

•   “In trust for” accounts

Inmates in New York are also barred from receiving distributions from any U.S. savings bonds they might own. Prisoners who enter the system with existing checking accounts or other bank accounts are required to close them.

So, if you are thinking of opening a savings account for an inmate, whether or not you can will depend on where they’re imprisoned. If you’re able to open some kind of savings account for an inmate, the next challenge may be finding a bank that will allow you to do so. Let’s look at that issue in a bit more detail next.

Increase your savings
with a limited-time APY boost.*

*Earn up to 4.00% Annual Percentage Yield (APY) on SoFi Savings with a 0.70% APY Boost (added to the 3.30% APY as of 12/23/25) for up to 6 months. Open a new SoFi Checking and Savings account and pay the $10 SoFi Plus subscription every 30 days OR receive eligible direct deposits OR qualifying deposits of $5,000 every 31 days by 3/30/26. Rates variable, subject to change. Terms apply here. SoFi Bank, N.A. Member FDIC.

Why Banks Might Refuse to Help Prisoners

Not all banks are willing to open accounts for prisoners. Financial institutions can establish their own policies for when opening accounts for inmates is or isn’t allowed. If you’re trying to figure out how to open a bank account for an inmate and you’re hitting a brick wall with banks, it could be due to one of the following:

•   The bank requires a valid ID for the inmate, which you don’t have.

•   You have not been granted power of attorney (POA) for the inmate.

•   The inmate has a negative ChexSystems report (which is a reporting system for the banking industry) or previous issues with managing a bank account.

•   The bank is concerned that funds deposited to the account might be seized by a government entity.

•   The bank is concerned that the account may be used to conduct illegal activity.

It’s also possible that banks may be worried about running afoul of any rules or regulations established by their state’s Department of Corrections or Criminal Justice. In that scenario, it may be easier for the bank to simply not offer accounts for inmates to avoid any issues.

Applying for a Basic Bank Account for an Inmate

Let’s say that it is legal in the inmate’s state for them to hold a bank account, and you have found a financial institution that is willing to open an account. The next step would be to begin the account.

Keep in mind that opening accounts for inmates isn’t exactly the same as opening a checking account or savings account for yourself. In terms of how to open a savings account for an inmate, there may be one of three possibilities you can pursue. Again, the options you’re able to choose from could depend on what’s allowed by the inmate’s correctional facility and/or state.

Option 1: Specific Prison/Bank Arrangement

Correctional facilities may allow inmates to have outside bank accounts if they open them at an approved financial institution. For example, in Wisconsin inmates are allowed to open interest-bearing accounts at a bank that’s approved by the Department of Corrections.

If you’re trying to open a bank account for an inmate, you could check with the Department of Corrections or Criminal Justice to find out which banks are approved. The Department of Corrections should also be able to tell you what restrictions or requirements apply when opening accounts for inmates.

Recommended: How Much Money Do You Need to Open a Bank Account?

Option 2: Applying to Bank of Choice

While some correctional facilities require inmates to open external accounts at approved banks, others give you some leeway in deciding where to bank. As noted, Texas encourages prisoners to open accounts at the bank of their choice if they like.

If you’re trying to open a savings account for an inmate, the hard part may be finding a bank that will allow you to do so. You can start by checking at your current bank to see if it’s an option. If not, you can then try contacting other banks in the area to see which ones offer inmate accounts.

Recommended: How Many Bank Accounts Should You Have?

Option 3: Wait Until Release

Though not ideal, an inmate could simply wait until they’re released to open a savings account. This may be easier said than done, however, if the inmate isn’t able to meet the bank’s requirements for account opening.

What kind of requirements exactly? That could mean providing a valid ID and proof of address. And again, something like a negative ChexSystems report could lead the inmate to be denied a bank account. Unpaid balances or suspected fraud are other red flags that may result in an application for a new bank account being rejected.

Can Prisoners Be a Part of a Joint Bank Account?

You might be wondering how to open a joint bank account with an inmate or if it’s even possible. Whether a prisoner can open a joint bank account with someone else can depend on the bank’s policies. If you’re opening a joint bank account and the bank requires you to do so in person, for example, you may need to provide documentation showing why the joint account owner cannot be present.

Required documentation can include having power of attorney granting you legal authority to act on behalf of the inmate. The rules for establishing power of attorney and the scope of powers granted can vary from state to state.

If the bank allows you to open joint accounts online, then you may not be asked for this document. You will, however, likely need to provide the following for a joint account:

•   The inmate’s name

•   Their date of birth and Social Security number

•   A current address, phone number, and email address

If you’re missing any of those pieces of information, you may not be able to proceed with opening a joint account online. You could call the bank to ask how you can finish the account setup if you run into issues.

Keep in mind that managing a joint bank account — one shared with an inmate before they’re incarcerated — may be handled differently. As mentioned, New York requires inmates to close existing accounts before entering prison. But other correctional systems may allow those accounts to remain open.

If you have a joint account with an inmate, it’s important to note whether any court orders exist or are likely to be filed that would allow for seizure of account assets for repayment of a nondischargeable debt, such as back child support, past due tax bills, and federal student loans. Keep in mind that co-borrowers for joint loans are equally responsible for shared debts, even if one person is incarcerated.

Required Documents to Open a Bank Account

Banks typically have a standard list of documents they require to open a bank account. The list can include:

•   Valid government-issued ID

•   Proof of address

•   Social Security number

•   Birth certificate when other forms of ID are unavailable

Opening bank accounts for inmates can require additional documentation if the bank needs a power of attorney form. An attorney can help you complete a power of attorney for an inmate, which may require a visit to the correctional facility if state law prohibits digital signatures. State law can also dictate whether a power of attorney for an inmate needs to be notarized in order to be legally valid.

Types of Bank Accounts for a Prisoner

The types of bank accounts you can open for a prisoner will generally be governed by Department of Corrections policy. But if you’re able to open a bank account for an inmate, you might be able to choose from these options:

•   Checking accounts

•   Savings accounts

•   Money market accounts

•   Certificate of deposit accounts

These options may also be available once an inmate is released. If a former inmate is having trouble getting a regular checking account after release, they might consider second chance checking or a prepaid debit card instead. These can be easier to access and provide support for day-to-day banking in a way that can be very helpful.

•   Second chance checking is designed for people who have been denied a checking account in the past. Usually offered at online or smaller, local banks, these accounts can help people to develop good banking habits so they can upgrade to regular checking later. They may not offer the full array of bells and whistles, and they may involve higher fees.

•   Prepaid debit cards, meanwhile, allow you to load funds onto the card, which you can then use to pay bills, make purchases, or withdraw cash at ATMs. A prepaid debit card is not a bank account but it can provide a formerly incarcerated person with a way to manage their money until they can get an account at a bank.

The Takeaway

Having a bank account can be a positive experience for inmates, but opening a bank account for a prisoner can be quite challenging. Not all states allow inmates to start accounts, and not all banks are willing to have prisoners as customers.

Whether you’re opening accounts for inmates while they’re incarcerated or after they’re released, choosing the right place to bank matters. Specifically, it’s important to find a bank that offers the best combination of features and benefits for inmates and former inmates and makes it possible for you to open that account before the prisoner is released.

Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with eligible direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their paycheck up to two days early.


Better banking is here with SoFi, NerdWallet’s 2024 winner for Best Checking Account Overall.* Enjoy 3.30% APY on SoFi Checking and Savings with eligible direct deposit.

FAQ

Can an incarcerated person open a bank account?

Whether an incarcerated person can open a bank account will depend on the policies set by the Department of Corrections in their state. Some correctional facilities allow inmates to have external bank accounts, while others limit inmates to having prison accounts only.

Can ex-prisoners have a bank account?

Yes, ex-prisoners can open bank accounts. However, their banking options may be limited if they have a negative ChexSystems report. Former inmates may consider second chance checking accounts if they’re unable to meet the requirements for a regular checking account.

How much money can a federal inmate have in their account?

The Bureau of Prisons (BOP) does not specify an upper limit on how much money a federal inmate can have in their prison account. Inmates can receive funds at a BOP-managed facility, which are deposited into their commissary accounts, by MoneyGram, Western Union, or U.S. Postal Service.

About the author

Rebecca Lake

Rebecca Lake

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


Annual percentage yield (APY) is variable and subject to change at any time. Rates are current as of 12/23/25. There is no minimum balance requirement. Fees may reduce earnings. Additional rates and information can be found at https://www.sofi.com/legal/banking-rate-sheet

Eligible Direct Deposit means a recurring deposit of regular income to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government benefit payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Eligible Direct Deposit”) via the Automated Clearing House (“ACH”) Network every 31 calendar days.

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 the APY for account holders with Eligible Direct Deposit, we encourage you to check your APY Details page the day after your Eligible Direct Deposit posts to your SoFi account. If your APY is not showing as the APY for account holders with Eligible Direct Deposit, 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 the APY for account holders with Eligible Direct Deposit from the date you contact SoFi for the next 31 calendar days. You will also be eligible for the APY for account holders with Eligible Direct Deposit 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, Wise, 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 Bank shall, in its sole discretion, assess each account holder's Eligible Direct Deposit activity to determine the applicability of rates and may request additional documentation for verification of eligibility.

See additional details at https://www.sofi.com/legal/banking-rate-sheet.
SoFi Checking and Savings is offered through SoFi Bank, N.A. Member FDIC. The SoFi® Bank Debit Mastercard® is issued by SoFi Bank, N.A., pursuant to license by Mastercard International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.

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.

We do not charge any account, service or maintenance fees for SoFi Checking and Savings. We do charge a transaction fee to process each outgoing wire transfer. SoFi does not charge a fee for incoming wire transfers, however the sending bank may charge a fee. Our fee policy is subject to change at any time. See the SoFi Bank Fee Sheet for details at sofi.com/legal/banking-fees/.
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.

Photo credit: iStock/alfexe
SOBK0124030

Read more
Mar
25
2025

How to Invest in Hedge Funds

By | Growing Wealth, invest, Investing | Comments Off on How to Invest in Hedge Funds

Hedge funds are pooled investment vehicles that use complex investment strategies to try and generate above-average returns. Investing in hedge funds can be risky, but rewarding if the fund meets or exceeds performance expectations.

Compared to traditional mutual funds or exchange-traded funds, hedge funds typically have more barriers to entry for investors. If you’re interested in how to invest in a hedge fund, it’s helpful to understand who these funds are designed for, and the minimum requirements.

Key Points

•   Hedge funds are private investment vehicles using complex strategies to seek high returns, but they carry significant risks.

•   Access is limited to accredited investors, typically requiring a net worth of more than $1 million, or a relatively high income.

•   Hedge funds invest in diverse assets like stocks, derivatives, and real estate, using strategies like equity long, equity short, or equity neutral.

•   Investing involves understanding fund strategies, performance, and costs, and that fees are often higher than mutual funds.

•   Regulatory oversight by the SEC helps ensure legal compliance, with trends showing slower growth and evolving strategies.

What Exactly Is a Hedge Fund?

A hedge fund is a private investment vehicle that accepts funds from multiple investors. The hedge fund manager directs the investment strategy to attempt to generate the best possible returns for investors.

Hedge funds can hold a variety of investments, including alternative investments. Depending on the fund’s strategy and investment objectives, a hedge fund may offer exposure to:

•   Stocks

•   Derivatives

•   Foreign currencies

•   Real estate

•   Commodities

•   Fixed income investments

Fund managers may utilize a range of strategies to manage fund assets. Examples of hedge fund strategies include equity long, equity short, and market neutral (basically, strategies that take different time frames into consideration, as well as prevailing market conditions), which may be chosen in anticipation of or to hedge against anticipated market movements. The strategy or strategies employed can influence the fund’s risk/reward profile. Greater risk can bring greater rewards, but it also raises the possibility of losing money.

Alternative investments,
now for the rest of us.

Explore trading funds that include commodities, private credit, real estate, venture capital, and more.

Getting Started in Hedge Fund Investments

Getting started in hedge fund investing isn’t exactly straightforward — it’s not the same as firing up an investment account and buying stocks online.

Hedge funds are generally viewed as high-risk investments and as a result, the Securities and Exchange Commission (SEC) regulates who can directly invest in them. Access to hedge investment funds is limited to institutional investors, pension funds, and accredited investors. However, it’s possible for unaccredited investors to gain exposure to hedge funds in their portfolio through certain mutual funds or ETFs.

Under SEC guidelines, you’re an accredited investor if you have:

•   Net worth >$1 million, excluding the value of your primary residence, and

•   Annual income over $200,000 individually or $300,000 with a spouse or partner in each of the prior two years, with the same income expected for current and future years

Financial professionals with Series 7, Series 65, or Series 82 securities licenses also qualify as accredited investors.

Aside from those requirements, you must be able to meet the minimum investment requirements for a hedge fund. The amount you’ll need will vary by fund, but a typical investment minimum may range anywhere from $100,000 to $2 million.

Maximizing Potential for Returns and Managing Risks

The key to making money with hedge funds while minimizing risk generally lies in two things: Market trends and the fund manager. Like other investments, hedge funds are influenced by things like changing interest rates and volatility, and hedge fund managers need to do their best to contend with those risks to try and maximize returns for investors.

Managing risk, of course, starts with doing your research. Specifically, it’s important to understand what the fund invests in, the strategies the fund manager employs, and the fund’s track record. Helpful questions to ask include:

•   How is fund performance determined?

•   Does the fund use leverage or speculative strategies?

•   Does the fund manager have any conflicts of interest?

•   How are the fund’s assets valued?

•   How are fund assets safeguarded?

It may also be wise to consider the costs, as hedge funds can charge higher fees than traditional mutual funds or ETFs. An investor might pay an asset management fee of 1%-2%, as well as a higher performance fee of 20%, which is intended to motivate the hedge fund manager to generate better returns.

Note that hedge funds are generally not liquid assets and you may be required to leave your capital in the fund for a certain period. There may be limits on when you can redeem your shares, so it’s important to consider how much money you’re comfortable putting into these investments.

Regulatory and Legal Aspects

Due to their complexity, hedge funds and hedge fund investments are subject to federal regulation. Some of the laws and regulations governing hedge funds include:

•   Securities Act of 1933

•   Securities Exchange Act of 1934

•   Investment Company Act of 1940

•   Dodd-Frank Wall Street Reform and Consumer Protection Act of 20106

The SEC regulates hedge funds to ensure that they act within the scope of the law concerning registration, investment offerings, and investor protections. Hedge funds that trade in commodities or futures may also be subject to regulation from the Commodity Futures Trading Commission (CFTC).

Hedge funds are required to file Form ADV with the SEC. This document includes relevant details about the fund’s assets, its investment strategies, and potential conflicts of interest. You have the right to review a hedge fund’s Form ADV before investing to learn more about it.

Evolving Trends in Hedge Funds

Hedge funds are not static, as new trends emerge and older ones fade away. Some of the most significant trends to watch right now, according to the CAIA Association, include:

•   Slower growth as the hedge fund industry reaches maturity

•   Increased focus on long/short equity strategies, private debt, and private credit

•   Gradual reduction in hedge fund fees

Demand for hedge funds may slow, too, should the U.S. economy enter a recession. If you’re all interested in how to invest in hedge fund markets now, or in the future, it’s worth watching these and other trends to see how this investment space will develop.

The Takeaway

Hedge funds can help you build a diversified portfolio, with the potential to generate returns. If you’re interested in how to invest in hedge funds, you’ll first need to determine whether you’re an accredited investor. If not, consider other avenues for accessing these and other types of alternative investments, such as through investing in mutual funds or ETFs. You can quickly start investing online in funds that offer exposure to venture capital, real estate, and other alternatives.

Ready to expand your portfolio's growth potential? Alternative investments, traditionally available to high-net-worth individuals, are accessible to everyday investors on SoFi's easy-to-use platform. Investments in commodities, real estate, venture capital, and more are now within reach. Alternative investments can be high risk, so it's important to consider your portfolio goals and risk tolerance to determine if they're right for you.

Invest in alts to take your portfolio beyond stocks and bonds.

FAQ


What are the requirements to invest in hedge funds as an individual?


Individual investors must typically be accredited to invest in hedge funds. That means having a net worth greater than $1 million, excluding the value of your primary residence, and an annual income of $200,000 (or $300,000 for couples).

Is it possible to start investing in hedge funds with a small capital?


It’s possible to find hedge funds that have a lower minimum investment of $20,000 or $25,000. But that may still be out of reach for the average person who’s just getting started with investing. It may be easier to invest in diversified funds that hold alternatives such as hedge funds, real estate, or private equity through a brokerage.

What are the key benefits of investing in hedge funds?


The most attractive feature of hedge fund investing is that it’s possible to see returns that beat the market. It’s important to remember, however, that hedge funds don’t always outperform and in some cases, returns may lag significantly behind returns generated by the S&P 500.

About the author

Rebecca Lake

Rebecca Lake

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


Photo credit: iStock/ridvan_celik

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.

An investor should consider the investment objectives, risks, charges, and expenses of the Fund carefully before investing. This and other important information are contained in the Fund’s prospectus. For a current prospectus, please click the Prospectus link on the Fund’s respective page. The prospectus should be read carefully prior to investing.
Alternative investments, including funds that invest in alternative investments, are risky and may not be suitable for all investors. Alternative investments often employ leveraging and other speculative practices that increase an investor's risk of loss to include complete loss of investment, often charge high fees, and can be highly illiquid and volatile. Alternative investments may lack diversification, involve complex tax structures and have delays in reporting important tax information. Registered and unregistered alternative investments are not subject to the same regulatory requirements as mutual funds.
Please note that Interval Funds are illiquid instruments, hence the ability to trade on your timeline may be restricted. Investors should review the fee schedule for Interval Funds via the prospectus.


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.

SOIN-Q324-039

Read more
Mar
25
2025
How To Make Money Even With No Job

How to Make Money Even With No Job

By | Budgeting & Goals, Financial Independence, relay | Comments Off on How to Make Money Even With No Job

If you currently don’t have a job, finding ways to make money is likely at the top of your to-do list. The good news is that there are numerous ways to earn income when you aren’t working a steady gig. Some opportunities require Wifi and a laptop or smartphone; others require little more than your physical presence — and some require that you have a little money that you’d like to multiply into more.

Keep reading even if you have a job, because starting a side hustle can be a great option for making money from home.

How to “Make Money With Money” With No Job

What does it mean to make money with money? In simple terms, it means finding ways to make the money that you already have work for you, without necessarily getting a traditional first or second job.

Learning how to make money with money often involves various ways to earn passive income. Passive income is money that you earn with little to no work involved. That doesn’t mean you don’t do any work at all: Some degree of work is required in the beginning to create passive income streams before you can start making money on autopilot. It’s a good idea to use a free budget app to track how much you spend to set up your income stream and to track the money you make.

If that sounds good to you, then you might consider these passive income ideas.

Check your score with SoFi

Track your credit score for free. Sign up and get $10.*

Earn Cash Back

When you download cash-back apps, you can link your debit card or credit cards, then earn back a percentage of what you spend at partner retailers.

There are several different cash-back apps to choose from, and they all pay different cash-back reward rates. Some of the apps you might consider for online shopping, grocery shopping, or travel include:

•   Rakuten

•   Ibotta

•   Dosh

•   Mr. Rebates

You can sign up for one or multiple apps to maximize your cash-back earnings potential.

Invest in Real Estate

Real estate can be a great investment, especially when there’s uncertainty in the stock market. Of course, you might have enough cash on hand to buy a rental property, but figuring out how to make money with money in real estate doesn’t have to be that complicated. Investing in a real estate investment trust (REIT), for example, offers the benefits of real estate ownership without the hassles of operating a rental property. You can also invest in real estate mutual funds or exchange-traded funds (ETFs) to gain exposure to a variety of properties in a single investment.

These investment options might be offered through your online brokerage. You may also consider real estate crowdfunding platforms, which allow you to pool your money along with other investors in a variety of property types. You make money through any of these investments in the form of dividends, which is another type of passive income.

Invest in Dividend Stocks

A dividend represents a share of a company’s profits. Some companies pay out dividends to investors who own shares of their stock as a reward for their loyalty. Dividend investing is something that might appeal to you if you’re specifically interested in passive income or residual income, since you can make a one-time investment, then collect dividends as they’re paid out.

When comparing dividend stocks, it helps to familiarize yourself with how the stock has paid out historically. You’ll also want to consider how often dividends are paid out and what kind of tax liability you’ll incur by receiving dividend payments.

Practice Peer-to-Peer Lending

Peer-to-peer (P2P) loans are funded by money pooled from different investors. Those investors make passive income from the loans by collecting interest from borrowers.

You might consider P2P lending as an investor if you’re looking for another idea on how to make money with no job passively. Keep in mind that with peer-to-peer lending, a higher potential rate of return usually equates to higher risk. If the borrower defaults on the loan you’ve helped fund, you won’t be able to collect any remaining interest.

For that reason, you might want to diversify the types of loans you invest in. You can also balance risk by investing in other things, such as real estate, dividend stocks, or even fine art.

More Ways to Make Money Without A Job

Maybe you don’t have a nest egg to invest up front via a making-money-with-money strategy. Never fear — there are still ways to pull in cash without a conventional 9-to-5 schedule.

Sell Your Plasma

Selling plasma can be an easy way to make extra money without a job or without doing any real work. Plasma donation centers pay healthy people real cash to donate their plasma. Depending on where you donate, you can make $1,000 your first month as a new donor.

Keep in mind that there may be a limit on the number of times you can donate plasma each month. You may also want to read up on potential side effects of donating plasma and how the process works.

Get Cash for Your Clutter

If you have things around the house you no longer need or use, you could sell them to make some quick cash. Some of the places you can sell items you don’t need include:

•   Craigslist

•   Facebook Marketplace

•   Facebook bargain groups

•   eBay

•   Etsy (for vintage items)

•   Consignment stores

You can also try selling items through an app like Mercari or Decluttr (for tech products).

Selling items for cash could generate a steady income if you reinvest the money you make clearing your clutter into a flipping business. Flipping simply means taking things you get for one price, then selling them for a higher price. For example, you might be able to find bargains on clothing or accessories at thrift stores and flea markets, then turn around and flip them on Facebook Marketplace or eBay. You might need to spend a little money to purchase your first items to flip, but this can be another great idea for how to make money with money.

Get Paid to Do Market Research

Companies are always interested in figuring out how to gain a competitive edge. One way they do that is by paying everyday consumers to participate in market research. There are numerous apps and websites that pay you cash to complete surveys, share your opinions, or participate in focus groups. The amount you can make largely depends on which apps or sites you’re signing up for. But this can be an easy way to make money from home using your cellphone or laptop.

Recommended: Does Net Worth Include Home Equity?

Start a Blog

Blogging can help you to generate passive income in a variety of ways. For example, you might earn passive income from advertisements on your site, affiliate marketing, or product sales. You can also make a more active income by writing sponsored posts or offering some type of service, like coaching or consulting.

There is a certain amount of work that goes into setting up a blog and growing various income streams. But it’s entirely possible to make a full-time income from home as a blogger, even if you’re starting with no experience and very little money.

Offer Childcare, Senior Care, and Pet Care

If you want to make money offline, consider babysitting, pet sitting, or dog walking within your social circle or local area. You might also branch out to offer help to seniors who need it. For example, if you don’t mind leaving the house, you can hire yourself out to run errands for elderly people who may not have transportation. Or you may earn extra money by sitting with a senior for a few hours a day while their regular caretaker does the grocery shopping or cleaning.

Rent Out a Room on Airbnb

If you’ve got a spare room, you might have an easy solution for how to make money without a job. You can rent out a spare room or part of your home on Airbnb to create passive income. Or you might take on a regular roommate, which can help to reduce your share of monthly expenses.

You’ll need to register for an account on Airbnb to start hosting guests in your home. Before you do that, however, it’s important to check the zoning laws where you live to determine whether you need any special permits to act as an Airbnb host.

Rent Out Your Car

Have a car that you rarely drive? You can rent it out to people who need a vehicle short-term through a site like Turo. Renting your car for cash is similar to renting out a room on Airbnb, in that you’re effectively sharing your vehicle with someone else. This can be an easy option for making money with your car passively versus driving for Uber or Lyft.

Recommended: What Credit Score Is Needed to Buy a Car?

Become a Tutor

Tutoring is something you might consider if you’re comfortable helping students learn and you want to be able to make money from home. You might offer tutoring services virtually through a site like Tutor.com or from the comfort of your home if you’re helping students locally. Keep in mind that with tutoring websites, you may be required to pass a skills test or show proof of a college degree in order to get approved.

Freelance Online

You might try freelancing to make money without a job if you have some marketable skills. (Freelancing is also a good option if you’re looking for a good job for an introvert.) Some of the ways you can make money as a freelancer include:

•   Proofreading

•   Virtual assistant services

•   Graphic design services

•   Website design

•   Freelance writing or editing

If you’re not sure where to get started with making money as a freelancer, you might try a site like Fiverr. With Fiverr, you can list your freelance skills and services, along with your preferred rate. Potential clients can browse freelancer profiles and if yours is a good fit, hire you for their project.

Sell Photography

Selling photography online is another way to make money from home. You’ll need a good camera (or smartphone camera) to take pictures, and it’s helpful to have good editing software on hand. Once you have some pictures to sell, you can upload them to a site like Shutterstock or Foap.

These sites allow you to license the rights to your photography. When someone purchases a license, you earn royalty income. Once again, this is another good way to make money passively without leaving home.

Sell eBooks or Low-Content Books

Ebooks and low-content books like blank journals or lined notebooks can be an excellent way to create steady income without a lot of ongoing work. You can create an ebook or low-content book, upload to a self-publishing website like Amazon Kindle Direct Publishing (KDP), and collect income each time you sell a copy.

You typically don’t need much to get started with self-publishing, other than a great idea for a book and some graphic design software to create your covers and interiors. When deciding where to sell your finished books, take time to research the fees each platform charges, since they can eat into your earnings.

How to Make the Most of Extra Income

Figuring out how to make money with money or in another way that doesn’t involve having a job can increase your cash flow, sometimes significantly. But it’s important to think about what to do with extra money that you’re earning from a side hustle or passive income ideas.

Some of the best ways to put extra income to work include:

•   Paying down high-interest debt

•   Increasing your savings

•   Investing money in the market, where it can grow through compounding

•   Reinvesting it into new passive income ideas

Those are just a few ways to make the most of supplemental income, versus simply spending all of the extra cash you’re bringing in.

The Takeaway

Earning money while still having the flexibility that comes from not having a conventional job is an attractive prospect. If you’re testing out different ideas for how to make money with money (or make money even when you don’t have capital to invest), there are plenty of passive income ideas worth trying. A budgeting app can help you track your expenses and revenue to find the method that delivers the biggest rewards.

Take control of your finances with SoFi. With our financial insights and credit score monitoring tools, you can view all of your accounts in one convenient dashboard. From there, you can see your various balances, spending breakdowns, and credit score. Plus you can easily set up budgets and discover valuable financial insights — all at no cost.

See exactly how your money comes and goes at a glance.

FAQ

How can I make money with no job?

Starting a side hustle or online business, or doing gig work, are great ways to make money without a job. It’s possible to make money online or from home doing things like market research, shopping with cash back apps, mystery shopping, or offering freelance services.

How can I make $100 without a job?

The fastest way to make $100 without a job is to sell something. For example, you might sell items around the house that you no longer need, or resell bargain items that you find on Facebook or at flea markets. If you’d like to make $100 a day or $100 a week consistently, then you might consider pet sitting, dog walking, freelancing, or blogging.

How do I live without a job?

Living well without a job starts with creating a realistic budget and understanding how you spend your money. Having savings to rely on can make it easier to live without a job if you expect to be out of work temporarily. You can also work on finding ways to make money without a job, including passive income ideas, or gig work.

About the author

Rebecca Lake

Rebecca Lake

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


Photo credit: iStock/Natalia Bodrova

SoFi Relay offers users the ability to connect both SoFi accounts and external accounts using Plaid, Inc.’s service. When you use the service to connect an account, you authorize SoFi to obtain account information from any external accounts as set forth in SoFi’s Terms of Use. Based on your consent SoFi will also automatically provide some financial data received from the credit bureau for your visibility, without the need of you connecting additional accounts. SoFi assumes no responsibility for the timeliness, accuracy, deletion, non-delivery or failure to store any user data, loss of user data, communications, or personalization settings. You shall confirm the accuracy of Plaid data through sources independent of SoFi. The credit score is a VantageScore® based on TransUnion® (the “Processing Agent”) data.

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

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.

SORL-Q324-048

Read more
Mar
25
2025

How to Invest in Commodities: Ways to Invest, Pros/Cons

By | Growing Wealth, invest, Investing | Comments Off on How to Invest in Commodities: Ways to Invest, Pros/Cons

Commodities are the raw materials or basic goods that are used to produce many of the things you use every day. Investing in commodities such as crude oil, soybeans, livestock, and wheat can be an effective way to diversify a portfolio, hedge against inflation, and potentially generate returns.

Key Points

•   Investing in commodities can diversify a portfolio, hedge against inflation, and potentially generate returns.

•   Commodities offer a low correlation to traditional asset classes like stocks and bonds, reducing market volatility impact.

•   Different ways to invest in commodities include physical ownership, commodity mutual funds and ETFs, commodity futures contracts, individual stocks, and hedge funds.

•   Commodities can act as an inflationary hedge, as their prices tend to rise with increases in consumer prices.

•   Investing in commodities carries risks, including price volatility, geopolitical factors, and the feasibility of physical ownership for individual investors.

Why Invest in Commodities?

Commodities are alternative investments that offer a low correlation to traditional asset classes like stocks or bonds. Thus, holding commodities in your portfolio can help minimize the impact of market volatility, as commodities prices are driven largely by supply and demand rather than the mood of the market.

Investing in commodities can also be a strategic play for investors who are hoping to counter the effects of rising inflation. As prices for consumer goods rise, the prices of the underlying commodities used to produce them also tend to rise. Stock prices, by comparison, do not always move in tandem with inflation.

Commodities can also be highly liquid assets, depending on how you’re trading them. Liquidity may be of importance to investors who are focused on generating short-term returns, versus a longer-term buy-and-hold approach.

💡 Quick Tip: While investing directly in alternative assets often requires high minimum amounts, investing in alts assets through a mutual fund or ETF generally involves a low minimum requirement, making them accessible to retail investors.

Alternative investments,
now for the rest of us.

Explore trading funds that include commodities, private credit, real estate, venture capital, and more.

5 Ways to Invest in Commodities

If you’re considering investing in commodities, there are several options to choose from. The one that makes the most sense for you will depend on your risk tolerance, time frame for investing, and how much capital you have to invest.

1. Physical/Direct Ownership

Physical ownership of commodities may be impractical for most individual investors as it involves taking ownership of the actual commodity. Purchasing and storing two tons of wheat, or maintaining 1,000 live animals likely isn’t realistic if you don’t have the proper facilities.

On the easier end of the spectrum, precious metal investors may hold gold or silver as bullion, or coins inside a secure bank vault. But even then, holding quantities of specific metals also require storage, insurance; and reselling these commodities comes with liquidity issues.

2. Commodity Mutual Funds and Exchange-Traded Funds (ETFs)

Commodity mutual funds and exchange-traded funds can offer exposure to commodities without requiring you to hold anything physically. There are three broad categories of commodity funds you might invest in:

•   Physically backed funds. These funds maintain direct ownership of commodities, specifically, precious metals. A gold commodity ETF, for example, may hold gold bars at a bank.

•   Futures-based funds. Futures-based commodity ETFs invest in futures contracts. We’ll explain those in more detail shortly, but in general, a future contract is an agreement to buy or sell an asset at a predetermined price on a set date.

•   Commodity company funds. Commodity company funds invest in commodity producers. For example, you might buy shares in an oil ETF that invests in oil and gas companies, oilfield servicers, and pipeline companies.

The main difference between a commodity mutual fund and a commodity ETF is how they’re traded. Mutual fund prices are set at the end of the trading day, while ETFs trade on an exchange just like a stock. Both commodity mutual funds and ETFs charge expense ratios, which represent the cost of owning the fund on an annual basis.

3. Commodity Futures Contracts

Commodity futures contracts are an agreement to buy or sell an underlying asset at a future date. The contract includes the price at which commodities will be bought or sold. Futures are derivative investments, meaning their value is determined by the price of another asset, i.e., the commodities you’re agreeing to trade.

Trading commodity futures contracts can be risky, as outcomes rely largely on investors making correct assumptions about which commodity prices will move. It’s possible to lose money on futures contracts if you’re expecting prices to increase but they decline instead.

4. Individual Stocks

Investing in stocks of commodity companies is another way to gain exposure to this asset class. For example, if you’re interested in adding energy sector assets to your portfolio you might buy shares in companies that produce oil, natural gas, solar technology, and so on.

Purchasing individual stocks can ensure that you’re only owning the companies that you want to, unlike a commodity mutual fund or ETF, which can hold dozens of different investments. However, picking individual stocks can be a bit more time-consuming and it may take more capital to buy shares if you’re choosing high dollar stocks.

5. Hedge Funds

Hedge funds are private investments that pool money to buy and sell assets, similar to a mutual fund. The difference is that hedge funds tend to use high-risk strategies like short-selling and may require a higher minimum investment to buy in or limit access to accredited investors only. Under SEC rules, an accredited investor is someone who:

•   Has $200,000 or more in annual income ($300,000 for married couples) for the previous two years and expects the same level of income going forward

•   Has a net worth exceeding $1 million, not including their primary residence

Financial professionals who hold certain securities licenses also qualify for accredited status.

Hedge funds can potentially offer higher returns than other commodity investments, but the risks are greater as well. If you’re considering private investment in commodities through a hedge fund you may want to talk to a professional about the pros and cons.

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

How Do You Open a Commodities Investing Account?

Opening a commodities trading account is no different from opening any other type of brokerage account. You’ll first need to decide which brokerage you want to trade with, then complete the necessary paperwork and funding requirements to start trading.

Personal Information

When you open a brokerage account, you’ll need to provide some basic details about yourself. That includes your:

•   Name

•   Date of birth

•   Social Security number

•   Email and phone number

•   Mailing address

•   Driver’s license number

•   Annual income

•   Net worth

•   Employment status

•   Investment objectives and risk tolerance

You may also be asked about your experience with investing and your citizenship status. You’ll need to disclose whether you’re employed by a brokerage firm.

All of this information is required to verify your identity, meet FINRA’s suitability requirements, and comply with anti-money laundering regulations. Net worth and income information may also be used to determine whether you meet the standards for an accredited investor.

Minimum Funds

The minimum amount of money you’ll need to invest in commodities through your brokerage can depend on what you’re investing in. If you’re buying individual commodities stocks, then the stock’s share price will determine how much you’ll need based on the number of shares you plan to buy.

With commodity mutual funds minimums are typically determined by the brokerage. So you might need $1,000, $3,000, or $5,000 to get started, depending on what you’re buying. Commodity ETFs sell on a per-share basis, similar to stocks.

Some brokerages offer fractional share trading, which allows you to buy shares of mutual funds, ETFs, or stocks in increments. The minimum investment may be as low as $1, though it’s important to keep in mind that it can take time to build up the commodity portfolio of your portfolio when investing in such small amounts.

Trading futures can be a little trickier as you may need to meet a minimum investment requirement and margin requirements. Margin is a set amount of money you’re required to deposit with the brokerage as a condition of trading futures contracts.

Margin is typically calculated as a percentage of the contract but it can easily run into the thousands of dollars.

Pros and Cons of Investing in Commodities

Investing in commodities has advantages and disadvantages, and it may not be right for every investor. Examining the pros and cons can help you make a more informed decision about whether it’s something you should pursue.

Pros

•   Commodities can help you diversify your portfolio beyond traditional stocks and bonds.

•   Investing in commodities can act as an inflationary hedge since commodity prices usually move in sync with increases in consumer prices.

•   Commodity ETFs and mutual funds offer a lower barrier to entry versus direct investment or hedge funds, making commodities more accessible to a wider range of investors.

•   Returns may potentially outstrip stocks, bonds, and other investments.

•   Commodity trading may generate short-term profits

Cons

•   Commodity prices can be volatile, as they may be affected by natural disasters, geopolitical conditions, and other factors.

•   Investing in commodities is generally riskier than other types of investments since supply and demand can impact trading.

•   Holding physical ownership of commodities may not be feasible for every investor.

•   Futures trading in commodities is highly speculative and while there may be potential for higher returns, there’s also more risk involved.

Is Investing in Commodities Right for Me?

Whether commodity trading makes sense for you can depend on your preferences concerning risk and your time horizon for investing. You might consider commodities if you are:

•   Comfortable trading the potential for higher returns against higher risk

•   Looking for short-term gains versus a long-term, buy-and-hold investment

•   Savvy about futures contracts (if you plan to trade futures)

•   Have sufficient capital to meet minimum investment requirements

Before investing in commodities, it’s helpful to learn more about the different types and their associated return profiles. It’s also wise to consider any costs you might pay to trade commodity ETFs, mutual funds, and stocks or the margin requirements for commodity futures trading.

The Takeaway

Although the commodities market is complex, commodities themselves are tangible products that are relatively easy to understand. Investing in commodities can take many forms, including direct or cash investment via the spot market, or by investing in commodity-related funds.

Although trading commodities comes with its own set of risks, commodities may offer some protection against inflation and traditional market movements, because these products are driven by supply and demand.

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 in alts to take your portfolio beyond stocks and bonds.

FAQ

Are there IRA accounts that specialize in commodity trading?

Some brokerages offer an IRA that’s designed for trading commodity futures contracts. You may also be able to gain exposure to commodity ETFs or mutual funds with a regular traditional or Roth IRA.

How much money do I need to invest in commodities?

The amount of money you’ll need to invest in commodities will depend on which vehicle you’re using. With a commodity stock or ETF, the amount of money required would depend on the share price and the number of shares you plan to purchase. Direct investment, hedge fund investments, or commodity futures contracts may require a larger financial commitment.

Can you make money with commodities?

Investors can make money with commodities through capital appreciation or by trading futures contracts. Returns may be higher than traditional assets but you may need to accept a greater degree of risk when trading commodities.

What is the risk profile for someone investing in commodities?

Investing in commodities often means being comfortable with more risk, as commodity prices can fluctuate quickly. You may want to limit your commodities allocation to 5%-10% of your portfolio to minimize your risk exposure.

About the author

Rebecca Lake

Rebecca Lake

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


Photo credit: iStock/filadendron

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.

An investor should consider the investment objectives, risks, charges, and expenses of the Fund carefully before investing. This and other important information are contained in the Fund’s prospectus. For a current prospectus, please click the Prospectus link on the Fund’s respective page. The prospectus should be read carefully prior to investing.
Alternative investments, including funds that invest in alternative investments, are risky and may not be suitable for all investors. Alternative investments often employ leveraging and other speculative practices that increase an investor's risk of loss to include complete loss of investment, often charge high fees, and can be highly illiquid and volatile. Alternative investments may lack diversification, involve complex tax structures and have delays in reporting important tax information. Registered and unregistered alternative investments are not subject to the same regulatory requirements as mutual funds.
Please note that Interval Funds are illiquid instruments, hence the ability to trade on your timeline may be restricted. Investors should review the fee schedule for Interval Funds via the prospectus.

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

Exchange Traded Funds (ETFs): Investors should carefully consider the information contained in the prospectus, which contains the Fund’s investment objectives, risks, charges, expenses, and other relevant information. You may obtain a prospectus from the Fund company’s website or by emailing customer service at [email protected]. Please read the prospectus carefully prior to investing.

Utilizing a margin loan is generally considered more appropriate for experienced investors as there are additional costs and risks associated. It is possible to lose more than your initial investment when using margin. Please see SoFi.com/wealth/assets/documents/brokerage-margin-disclosure-statement.pdf for detailed disclosure information.

Fund Fees
If you invest in Exchange Traded Funds (ETFs) through SoFi Invest (either by buying them yourself or via investing in SoFi Invest’s automated investments, formerly SoFi Wealth), these funds will have their own management fees. These fees are not paid directly by you, but rather by the fund itself. these fees do reduce the fund’s returns. Check out each fund’s prospectus for details. SoFi Invest does not receive sales commissions, 12b-1 fees, or other fees from ETFs for investing such funds on behalf of advisory clients, though if SoFi Invest creates its own funds, it could earn management fees there.
SoFi Invest may waive all, or part of any of these fees, permanently or for a period of time, at its sole discretion for any reason. Fees are subject to change at any time. The current fee schedule will always be available in your Account Documents section of SoFi Invest.

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.

SOIN0124118

Read more
Mar
25
2025
woman in kitchen

What Is a Pension Plan & How Does It Work?

By | Growing Wealth, invest, Investing, Preparing for Retirement | Comments Off on What Is a Pension Plan & How Does It Work?

While pension plans are less common today than they once were, many workers still receive a pension — a type of retirement plan that provides guaranteed income throughout retirement (or a lump sum at retirement).

Pension plans are known as defined-benefit plans because the benefits the worker will receive during retirement are predictable (i.e., defined). A 401(k) plan or IRA account, on the other hand, is called a defined-contribution plan — because workers typically contribute a defined amount each month.

Pensions are employer-provided benefits; an individual can’t set up a pension as they would an IRA account — a key aspect of what a pension is and how it works.

Key Points

•   A pension is a defined-benefit plan that gives employees a regular paycheck throughout retirement, or in some cases a lump sum upon retirement (i.e. the payment is defined).

•   Defined contribution plans, like 401(k)s, rely on worker savings but don’t provide a guaranteed payout like defined benefit plans.

•   A pension is an employer-provided plan; workers cannot set up a pension plan.

•   Pension plans are less common today; about 19% of U.S. private sector and government workers were eligible for a pension in 2024.

•   While workers can choose their investments in a defined contribution plan like a 401(k) or 403(b), workers in pension plans cannot.

How to Get a Pension Plan

Unlike other types of retirement plans, such as IRAs, an investor who wants to save for retirement can’t simply fund a pension on their own. Like 401(k) plans, pension plans must be offered by an employer.

While pension plans were once a mainstay of how companies took care of their workers, they’ve become rare in recent decades. Only a small percentage of private sector and government employers — about 19% — offered some form of pension to their employees as of 2024.

The main reason many companies no longer offer pensions is that it’s cheaper for them to offer defined-contribution plans, such as 401(k) or 403(b) plans. That said, if an individual works for the federal, state, or local government, they may be offered a pension.

Among state and local government workers who participate in a retirement savings plan, a majority are in a pension plan.

Recommended: A 4-Step Guide to Planning Retirement

Pension Plans vs. Other Retirement Accounts

The key difference between pension plans and other retirement plans comes down to the difference between a “defined benefit” plan and a “defined contribution” plan.

•   With a defined benefit plan, such as a pension, the amount workers will receive in retirement is predictable: e.g., $2,000 per month, which is valuable when you’re living in retirement.

•   With a defined contribution plan, such as a 401(k) or similar, employees’ contributions, or savings, are defined: e.g., $500 per month. Unlike a pension, a defined contribution plan doesn’t guarantee a fixed benefit amount once the employee retires.

401(k) vs. Pension Plan

Although 401(k) plans and pension plans are both types of tax-deferred accounts that aim to provide workers with income in retirement, they differ in a few ways.

•   Funding and contribution limits

While the employer provides the bulk of funding for a pension plan, 401(k) plans are primarily funded by the employee. In some cases, an employer has the option to contribute to the 401(k) through matching funds. (Employers are not, however, required to provide an employer match.)

Another key difference is the annual contribution limit for each type of account.

For tax year 2025, employee contributions to a 401(k) plan are capped at $23,500 per year ($31,000, if you’re 50 and older), with a total limit of $70,000, including employer contributions.

The maximum total annual contribution to a pension plan for 2025 is $280,000.

•   Roth designation

There are other points of distinction between pension plans and 401(k) plans. For example, a 401(k) plan may offer a Roth feature (i.e., a Roth 401(k) account), which allows workers to contribute after-tax funds, and take tax-free withdrawals in retirement. Pensions generally do not offer a Roth option.

•   Income and Taxes

As noted, the income from a pension plan is guaranteed, and thus a defined benefit.

But the income from a 401(k), 403(b), Roth or traditional IRA, or other defined contribution plan depends on the amount the employee has saved over time, and the investments they selected for their portfolio, and how those investments performed.

Also, because a pension provides a guaranteed payout (typically monthly), these plans do not come with required minimum distributions (RMDs), as 401(k) plans do.

The income from both a pension and a regular 401(k) is considered taxable income, however.

Pension Plan vs. IRAs

Individuals can also contribute to tax-advantaged IRAs and Roth IRA accounts. These are also quite different from pension plans. First, IRAs are Individual Retirement Arrangements, and they are a type of defined contribution plan that only an individual can set up (employers generally cannot offer IRAs, although small businesses may offer a SEP IRA or SIMPLE IRA to employees)

•   Funding and contribution limits

The annual contribution limits for traditional and Roth IRAs for tax year 2025 is $7,000 per individual, with an extra $1,000 catch-up contribution for those 50 and older, for a total of $8,000.

Since standard traditional and Roth IRA plans are self-funded, there is no employer match. Small-business IRAs, like SEP and SIMPLE accounts, may offer an employer match.

•   Roth accounts

The Roth designation refers to the use of after-tax money to fund a retirement account, such as with a Roth IRA. Roth IRA account holders invest after-tax funds, and qualified withdrawals are tax-free in retirement.

However, pension plans are tax-deferred accounts; the employee pays tax on their pension income in retirement. Typically, defined-benefit plans don’t offer a Roth option.

•   Income

Like other defined contribution accounts, IRA investors can choose the investments in their portfolio. As a result, the ultimate payout from these plans depends on the amount saved and the performance, or returns of the investments in the plan.

Traditional IRAs are tax-deferred accounts, so withdrawals are subject to ordinary income tax. And traditional IRA holders must take RMDs, starting at age 73 (which is older than social security retirement age). Roth IRAs are not subject to RMD rules.

One advantage that pensions have over defined contribution plans is that pensions are guaranteed by the federal government through the Pension Benefit Guaranty Corporation (PBGC). It effectively guarantees the benefits of pension-plan participants. But the PBGC does not cover people with defined contribution plans.

Recommended: What Is a Money Purchase Pension Plan (MPPP)?

Managing Your Pension Plan

Workers with pension plans should talk to a representative in their human resources department and find out what the plan offers. Every pension plan is unique. An employee may benefit from looking into the specifics such as:

•   The pension benefit amount

•   Whether it includes health and medical benefits

•   What kind of benefits the pension will offer a surviving spouse or family members.

Someone just starting in their career may also want to ask when their pension benefits vest. In many plans, the benefits vest immediately, while others vest in stages, over the course of as many as seven years, which could affect their plans to move on to a new job or company.

One way to get a better handle on what a pension may pay over time is to inquire about the unit benefit formula. Utilizing that formula is how an employer tallies up its eventual contribution to a pension plan based on years of service.

Most often, the formula will use a percentage of the worker’s average annual earnings, and multiply it by their years of service to determine how much the employee will receive. But an employee can use it themselves to see how much they might expect to receive after 20 or 30 years of service.

Pros of a Pension Plan

Perhaps the biggest advantage of a defined-benefit plan is the guarantee of predictable income from the day a worker retires until the day they die. That’s the core promise that the PBGC protects.

Many pension plans also include related medical and other benefits for the employee, as well as related benefits for surviving spouses. Those benefits vary widely from plan to plan and are important to investigate.

A defined-benefit plan enables workers to predict the amount they’ll have to live on after they retire, and when they can retire. This can help workers plan for other needs, such as supplemental medical insurance or long-term care insurance, in order to better protect themselves down the road.

Cons of a Pension Plan

The downside of knowing that a pension will provide guaranteed income is that it can give would-be retirees a false sense of security.

A pension, with its promise of steady income, can lead people to ignore important questions, and avoid budgeting for basic living expenses.

That flat monthly income might also lead people to believe that their expenses will be the same each month — which is rarely the case.

And that can lead retirees to avoid planning for increased overall living expenses due to the effects of inflation or sudden, unexpected expenses that may crop up.

There’s also the likelihood that their expenses later in life could be significantly higher, as they’re able to accomplish fewer daily necessities themselves.

That’s why, regardless of how thorough a pension plan is, it can pay to save for retirement in other ways, including through a 401(k), IRA or Roth IRA. Just because a worker has a pension, that doesn’t mean that it’s the only retirement plan that’s right for them. And employees will benefit from preparing for retirement early.

The Takeaway

Pension plans are a type of savings plan that are offered by employers, guaranteeing a certain amount of income to workers after they retire. Pension plans are defined-benefit plans, and differ in some key ways from IRAs or 401(k)s. Pensions have become less common in recent decades, and they have their pros and cons, like any other financial product or service.

Prepare for your retirement with an individual retirement account (IRA). It’s easy to get started when you open a traditional or Roth IRA with SoFi. Whether you prefer a hands-on self-directed IRA through SoFi Securities or an automated robo IRA with SoFi Wealth, you can build a portfolio to help support your long-term goals while gaining access to tax-advantaged savings strategies.

Easily manage your retirement savings with a SoFi IRA.

FAQ

What is a pension plan?

A pension plan is a type of defined-benefit retirement plan offered by employers. Pensions are known for providing a guaranteed amount of income to retired workers. But pensions today are uncommon, and have largely been replaced by defined contribution plans like IRAs and 401(k)s.

How do pension plans work?

Generally, an employer maintains a pension fund that will pay workers’ income benefits when they retire; in some cases, workers may also contribute to their pensions. At retirement, the employee receives a guaranteed amount of income, often monthly. Because pension benefits are paid regularly, these accounts don’t have RMDs. Pension income is taxed at ordinary income rates.

What are the different types of pension plans?

Pension plans vary, so it’s important to know what the rules and restrictions are. For example, a defined-benefit plan uses a basic formula to calculate the amount the employee will receive. A cash-balance plan bases a worker’s payout on the account balance, while still providing a guaranteed income. In addition, some pensions may include insurance or spousal benefits (or not). Be sure to know the terms.

How do pension plans compare to 401(k)s and IRAs?

While there are several differences between these accounts, the most important distinction is that pension plans are defined-benefit plans that provide guaranteed income throughout retirement (or a lump sum) for the employee. Defined-contribution plans, like 401(k)s and IRAs, do not provide guaranteed income; rather, the account holder takes withdrawals in retirement.

Another important point is that an individual can set up a defined contribution plan and select the investments in their portfolio, but they cannot join a pension unless they work for a company that offers one.

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.

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.

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.

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.

SOIN-Q125-081

Read more
Close modal

See what SoFi can do for you and your finances.

Select a product below and get your rate in just minutes.

Student Loan
Refinancing

Personal
Loans

Online
Investments

Other

Terms and conditions apply. SOFI RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE. To qualify, a borrower must be a U.S. citizen or other eligible status, be residing in the U.S., and meet SoFi's underwriting requirements. Not all borrowers receive the lowest rate. Lowest rates reserved for the most creditworthy borrowers. If approved, your actual rate will be within the range of rates at the time of application and will depend on a variety of factors, including term of loan, evaluation of your creditworthiness, income, and other factors. If SoFi is unable to offer you a loan but matches you for a loan with a participating bank, then your rate may be outside the range of rates listed above. Rates and Terms are subject to change at any time without notice. SoFi Personal Loans can be used for any lawful personal, family, or household purposes and may not be used for post-secondary education expenses. Minimum loan amount is $5,000. The average of SoFi Personal Loans funded in 2023 was around $33K. Information current as of 2/26/24. SoFi Personal Loans originated by SoFi Bank, N.A. Member FDIC. NMLS #696891 (www.nmlsconsumeraccess.org). See SoFi.com/legal for state-specific license details. See SoFi.com/eligibility for details and state restrictions.

✝ To check the rates and terms you may qualify for, SoFi conducts a soft credit pull that will not affect your credit score. However, if you choose a product and continue your application, we will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and may affect your credit.

©2026 Social Finance, LLC All rights reserved.
TLS 1.2 Encrypted
Equal Housing Lender