Mar
24
2025
What Is a Financial Checkup?

What Is a Financial Checkup?

By | Budgeting & Goals, Financial Independence, money | Comments Off on What Is a Financial Checkup?

A financial checkup is a process in which you thoroughly review your finances and how you are tracking against your goals. It’s similar to an annual visit with your doctor to help ensure that you’re maintaining good physical health.

A financial checkup can be an important step in achieving financial wellness, which means meeting your money obligations today and also funding your future goals. Regular financial checkups can help you see how well you’re doing. What’s more, they give you the opportunity to pinpoint where you might be able to improve your money management strategy.

If you’ve never done a personal financial checkup before, fear not. Getting started is easier than you might think.

Key Points

•   A financial checkup involves a thorough review of personal finances, assessing budget, expenses, assets, and debt to gauge financial health.

•   The process can include examining credit reports and retirement savings to ensure progress towards financial goals.

•   Evaluating emergency savings and insurance needs can be a key step to securing financial stability.

•   Regular financial checkups help eliminate bad spending habits and clarify budgeting.

•   These checkups instill financial discipline and encourage consistent saving, essential for financial wellness.

What Is a Financial Checkup?

A financial checkup is a thorough review of your personal finances. It’s similar to getting a health checkup from a doctor, only instead of checking your blood pressure and other vitals, you’re measuring your financial stats. For example, some of the things you might review as part of a financial check include your:

•   Monthly budget and expenses

•   Assets, ranging from money in a savings account to equity in a home

•   Debt situation and repayment strategy

•   Credit reports and scores

•   Retirement savings

•   Emergency savings

•   College planning, if you have kids

•   Insurance needs and coverage

Those are all things that can go along with setting up a financial plan. What is a financial plan? It’s a strategy for managing your money in order to reach your personal money goals. You can complete a financial checkup and financial plan yourself or do so with the help of a professional financial advisor.

Recommended: Emergency Fund Calculator

Why Are Financial Checkups Important?

A financial health checkup can help you establish where you are with your money, where you’d like to be financially, and what steps you need to take to get there. Completing regular personal financial checkups can guide you to improve your financial health as you work toward your goals.

For instance, money checkups could help you to:

•   Get clarity around budgeting and expenses

•   Eliminate bad spending habits so you don’t overdraft your checking account

•   Define your short- and long-term financial goals

•   Instill a sense of financial discipline as you work toward those goals

•   Develop a habit of saving consistently

•   Create an actionable plan for paying off debt

•   Form a workable strategy for retirement savings

•   Fine-tune your investment goals

Taking those kinds of actions can get you on the path to living your personal definition of financial freedom. That might mean retiring early, for instance, or finding ways to create passive income so you can live a lifestyle that isn’t job-dependent.

Skipping regular financial checkups can make it more difficult to do those kinds of things and put your financial security in danger. The simple reason: You’re oblivious to how you’re managing your money.

Key Steps to Take for a Financial Checkup

Money checkups can help you move ahead with achieving financial security, but what do you actually include in one? How often do you need to perform a financial checkup? And do you need to get help from a professional financial advisor? Here’s a closer look.

•   Frequency: In terms of frequency, it may be a good idea to consider a personal financial check at least once a year. For example, you might schedule it for the beginning of January. That way, you can review the previous year and set goals for the upcoming year. Quarterly checkups may be a better option if you’d like to get smaller snapshots of your finances throughout the year.

•   Hiring a financial advisor: Whether you hire an advisor for a financial checkup is entirely up to you. An advisor can offer an extra set of eyes to review your finances but it’s important to know what you’ll pay for that help. The average financial advisor cost is around 1% of the assets they manage annually. However, some financial institutions provide access to professional advisors for free. It’s worth doing a bit of research to see what might be available.

Ready to start your financial health checkup? Here’s a simple checklist you can follow.

Take Your Financial Vital Signs

Getting some numbers down on paper can be a good way to start your financial checkup. Looking at certain metrics for the last 12 months can give you some perspective on where you are financially. Here are some of the most important measurements to take:

•   Your monthly income and expenses

•   How much you have saved for emergencies

•   What you’re carrying in total debt

•   Debt-to-income ratio (i.e., how much of your income goes to debt repayment)

•   Your credit scores

•   How much you’ve invested for retirement

•   What percentage of your income you’re saving monthly

Along with looking at specific numbers, it can also be helpful to ask some basic questions to gauge your financial health. For example, you might ask yourself:

•   How many months did I stick to my budget vs. going over budget?

•   Have I bounced any checks or overdrafted my bank account this year?

•   Was I late paying any bills in the past 12 months?

•   Did I reach any savings goals or fall short of any goals?

•   Did my overall debt load increase or decrease?

•   How well did my investments perform?

The purpose of looking at numbers first and asking these kinds of questions is to establish your financial baseline. You can then move on to the next steps to take a deeper dive into your money situation.

Review Your Budget

Making a budget is usually at the top of the list of personal finance basics for beginners. A budget is a plan for spending the income that you have each month. The basic elements of a budget include:

•   Fixed expenses, such as housing

•   Variable expenses, which need to be paid monthly but their amounts may change (such as food costs)

•   Discretionary expenses or the “wants” in your budget

•   Income

•   Debt repayment

•   Savings

You might also include taxes as its own budget category if you’re self-employed. In this situation, you will need to set aside money regularly to pay estimated tax bills.

If you’re doing a financial checkup for the last 12 months, it can be helpful to look at what’s changed in your variable and discretionary expenses. For example, are you paying more for utilities than you were 12 months ago? Has your grocery bill increased? Is a bigger chunk of your budget going to “fun” things like hobbies, entertainment, or recreation?

Analyzing individual budget categories can help you pinpoint money leaks or areas where you might be able to cut back on spending. It’s also a good opportunity to review what you’re paying for cell phone service, internet, or car insurance to see if it’s worth switching to a cheaper provider.

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Check Your Emergency Fund

An emergency fund is money that you save for unplanned or unexpected expenses. Emergency savings is meant to be separate from money you save for sinking funds or for various short- and long-term financial goals.

If you have an emergency fund, check the balance to see how much cash you have on hand for rainy days. How much should you have in an emergency fund? An often-cited rule of thumb dictates saving three to six months’ worth of expenses for emergencies. If your savings balance is below that amount, you might go back to your budget to see where you might be able to find extra money to set aside.

Also, consider where you’re keeping your emergency fund. Ideally, that money should be somewhere that’s easily accessible in case a true emergency comes along. But you might also be interested in earning a great interest rate in the meantime.

If you’re keeping your emergency fund in a traditional savings account at a regular bank, you might consider upgrading to a high-yield savings account instead in order to snag a higher rate. Online banks may be a good option for finding one with a competitive interest rate.

Recommended: Emergency Fund Calculator

Factor in Life Changes

Life changes can affect your financial plans in different ways. Losing a job, for instance, can shrink your income. Getting married might increase your household income if you’re both working. Having a child, changing jobs, moving, buying a home, and starting a business are other situations that can impact your financial outlook.

If you’ve been through any of these life changes in the past year, consider what that might mean for things like budgeting, saving, and expenses. It’s also important to review your tax situation.

Getting married, for instance, means a change to your tax filing status. Having a child can open the door for added tax breaks. And starting a new business can bring additional tax obligations, such as estimated quarterly tax payments. Those are all things that could increase your tax bill year to year. It’s therefore important to consider where they fit in during your financial checkup.

Recommended: Getting Back on Track After Going Over Budget

Review Your Investment and Retirement Goals

Investing can be key to building wealth over the long-term. You can invest inside of a tax-advantaged plan, such as a 401(k) or individual retirement account (IRA), or through a taxable brokerage account. As part of your financial health check, it’s helpful to know:

•   Where your money is invested (i.e., taxable vs. tax-advantaged accounts)

•   How your portfolio is diversified across different asset classes

•   How those assets have performed over the last year

•   What you’re paying in investment fees

•   How your risk tolerance or tax situation has changed over the past year

•   Whether you’re on track with retirement saving.

Reviewing those things can give you an idea of whether you’re on the right track with your investments. For example, if you’re 30 years old and want to retire at 50 with $1 million, but you only have $10,000 invested, that’s a clear sign that you’ve got a lot of work left to do.

Using online investment calculators and retirement calculators can help you to figure out how closely you’re keeping up with your goals. And if you don’t have an investment account yet, you may want to consider setting up an IRA online and a taxable brokerage account so you can start growing wealth.

The Takeaway

A financial checkup is a smart way to keep tabs on your money and your financial health. It will give you the opportunity to make course corrections and can aid you with overcoming personal financial challenges. If you’re struggling with credit card debt, for example, then a periodic financial checkup can help you to figure out a strategy for paying down your balances while streamlining your expenses so you’re less reliant on plastic. It can also help you highlight ways you are succeeding financially and inspire you to keep going and keep your money growing.

Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with 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.

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FAQ

How often should you do a financial checkup?

Completing a financial checkup at least once a year can be a good way to see whether you’re on track with your goals and where you might be able to improve. If you’d like to check in with your money more often, you might schedule quarterly financial checkups instead.

How do you do a financial health checkup?

A financial health checkup starts with gathering information about your income, expenses, debt, and savings. From there, you can review your financial progress and goals to determine what steps to take next with your money.

What does financial wellness include?

Financial wellness means being able to manage your current money obligations with ease while also being able to look ahead to the future. Someone who has achieved financial wellness generally has stable income, a firm grip on their expenses, a dedicated savings habit, and little to no “bad” debt. Another component is looking forward and tracking well for future financial goals, like retirement.

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.


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Mar
24
2025

Tips for Spotting a Fake Money Order

By | Financial Topics, Terminology | Comments Off on Tips for Spotting a Fake Money Order

A money order can be a convenient way to make payments or receive funds, but fake ones are out there, perhaps without the usual watermarks or in too high denominations. These fraudulent paper documents can leave you vulnerable to being scammed.

Knowing how to tell if a money order is real can protect you against financial losses. Read on to learn how to spot a fake money order.

Key Points

•   Fake money orders often lack watermarks, have incorrect amounts, or show signs of tampering.

•   Verifying authenticity of money orders involves checking serial numbers and consulting the issuer to confirm legitimacy.

•   Accepting fake money orders can lead to financial loss and legal issues, underscoring the need for caution.

•   Reporting money order scams to the issuing entity and your bank is crucial to prevent further fraud.

•   Protecting yourself involves avoiding money orders from strangers and verifying payment methods before acceptance.

Common Money Order Scams

First, a quick refresher on what a money order is. It’s a common way to pay for things when you can’t or don’t want to write a check, use a debit card, or pay cash. When someone purchases a money order, they’re getting a financial instrument that the recipient can cash or deposit just like a check.

Typical places to buy money orders include financial institutions, U.S. Post Office branches, Western Union and similar businesses, and major retailers (such as Walmart). Money orders are usually only available in denominations up to $1,000, and the fee to get one is usually just a dollar or two.

Money orders are often used by scammers as a means of fleecing unsuspecting victims out of their money. Some scams are obvious but others are more subtle in nature. Here, some specifics:

•   Fake buyers. Scammers may target people who are selling items on Craigslist, Facebook Marketplace, or other online forums by making a purchase and sending payment via money order. However, the money order is a fake, and by the time the seller deposits it into their bank account and learns the truth, the scammer has made off with their item.

•   Fake sellers. It’s also possible to fall prey to a money order scam if you’re trying to purchase something online. The seller, who appears legitimate, may ask you to send payment via money order while sending you a tracking number for the item you purchased. When the item arrives, however, you’re left holding nothing but an empty box while the scammer has cashed the money order and disappeared. Or worse, nothing ever arrives at all.

•   Refund scams. Another common money order scam involves buyers who purchase something from you, mail a fake money order, and then say they’ve changed their minds. They ask you to refund the amount of the money order and send it back to them via wire transfer or through a person-to-person payment app. Meanwhile, you try to deposit the money order when it arrives, only to find out it’s a fake and you’ve lost money.

•   Overpayment scams. One money order scam involves a buyer paying you for something via money order, only the amount is more than the purchase price. They’ll say they made a mistake and ask you to refund the difference. You do so, then find out later that you’ve been paid with a counterfeit money order. You are out the amount you refunded the buyer.

•   Deposit scams. Scammers may try to take advantage of your goodwill by offering you a money order in exchange for cash. They might claim they don’t have a bank account to deposit the money order into and you agree, thinking you’re doing someone a favor. However, you end up losing money when your bank refuses to accept the fake money order.

Recommended: Can You Purchase a Money Order With a Credit Card?

Tips for Spotting a Counterfeit Money Order

Fake money orders may not be easily recognizable at first or even second glance. Taking a close look at the money order can help you identify some clues that may suggest it’s a fake. Here’s what to look for to detect counterfeit money orders.

•   Watermarks. If you’re trying to cash a postal money order, the lack of watermarks is a sign that it’s a fake. The Postal Service includes a series of repeating watermarks on its money orders. If those are missing, you might have a counterfeit money order on your hands.

•   Dollar amounts. Check if the dollar amount matches the amount that the money order is supposed to be for. Are there any signs that someone has tried to erase or write over the dollar amounts or add an extra zero or two? Those can indicate attempted tampering or forgery.

•   Money order limits. Domestic postal money orders cannot exceed $1,000; the same is usually true for Western Union money orders within the U.S. International postal money orders cannot be more than $700. If you receive a money order that exceeds the allowed limit, then it’s likely a fake.

•   Discoloration. Any discoloration or what looks like an ink bleed could suggest that someone has tried to alter the money order in some way or that they’ve printed it themselves, which would make it a fake.

Worth noting: While the U.S. Postal Service is a popular place to get money orders, keep in mind that options are available. Money orders obtained through other sources typically deploy different measures to prevent tampering or duplication, which may include watermarks or security strips. You can familiarize yourself with them via their websites or customer service to help detect a falsified money order.

Recommended: 10 Personal Finance Basics

Tips to Verify a Real Money Order

If you receive a money order as payment, here are some steps you can take to ensure it’s not a fake before trying to cash or deposit it.

•   Examine the money order. As mentioned, there are several physical indicators that can tip you off to fake money orders. Once you receive a money order, give it a thorough examination to see if there’s anything that hints that it might be a fake. How to spot a fake money order can involve looking for discoloration, watermarks, and the like.

•   Check the serial number. Money orders are issued with a unique serial number. If you’d like to make sure a money order is real, you can call the customer service number that’s listed on it to double-check that the serial number is legit.

•   Take it to the issuer. Another option for verifying that a money order is real is to take it back to where it was issued. That might mean visiting a post office or calling their verification line at 866-459-7822. Or you might go to a Western Union location or a branch of the bank from which it was issued, or you could try phoning. Someone who works at one of these locations should be able to determine whether the money order is authentic.

•   Wait it out. If someone gives you a money order as payment, you could deposit it into your checking account and wait for it to clear. In the meantime, you would not want to spend any of the funds from the money order, nor would you want to send any money back to the other person until your bank has verified it and made the funds available to you.

You might try one or all of these methods to prove that a money order isn’t a fake. If you send payment to someone else via a money order, it’s also a good idea to keep your receipt so you have a means of tracking it. That could help you avoid any issues later if the person you sent the money order to claims they never received it.

What Happens If You Accept a Fake Money Order?

Accepting a fake money order or any other type of fake check can lead to unintended financial consequences. Here’s what can happen if you try to deposit a counterfeit money order to your bank account:

•   You won’t receive any of the funds the sender promised to you.

•   If funds are deposited, you’ll be responsible for paying the money back to your bank.

•   The bank may charge you a returned item fee for the deposited money order, meaning it cannot be processed.

•   Should you make purchases against the money order amount and the deposit is later reversed, you may be charged overdraft fees if the reversal leaves your account balance in the red.

There is a possibility that you could also get into legal trouble if the bank believes that you knowingly deposited a fake money order. In a worst-case scenario, you may be charged with bank fraud or money laundering, both of which could result in jail time and fines if convicted.

Recommended: 7 Money Management Tips

Ways to Report a Money Order Scam

If you believe you’ve been scammed by someone using a money order, it’s important to report it to try and minimize any financial damage. How you report a money order scam can depend on which entity issued the money order.

•   In the case of postal money orders, to report fraud, call the U.S. Postal Service’s hotline at 800-372-8347.

•   For Western Union money orders, you’d need to get in touch online or by phone; their number is 800-448-1492.

With bank-issued money orders, you could call or visit a branch of the bank. You’ll also want to let your bank know that you’ve received and deposited what you believe is a fake money order. That can prevent the bank from attempting to honor the money order and potentially triggering bank fees for you when it fails to clear.

Tips to Protect Yourself From Being Scammed

Money order scams continue to make the rounds, but that doesn’t mean you have to get taken in. Taking steps to protect yourself can help you avoid potentially costly scams.

•   Avoid accepting money orders from strangers or anyone who isn’t a trusted sender.

•   Ask for alternative forms of payment, such as a wire transfer or person-to-person payment.

•   When sending money orders to others, first verify the identity of the recipient to make sure they’re legit.

•   Look for signs of forgery or tampering if you receive a money order from someone as payment.

•   Attempt to verify a money order before depositing it to a bank account.

Finally, it’s important to trust your gut. If something feels off to you or you’re buying something with a money order, and the deal seems too good to be true, it probably is.

The Takeaway

Money orders can be a convenient way to pay, but they can also leave you vulnerable to scammers. You can attempt to verify money orders before depositing them, using such techniques as checking for watermarks on U.S. Postal Service money orders and looking for signs of tampering with the amount. If you have a bank account, you might consider using other ways to pay bills or send funds to eliminate the odds of being hit by a money order scam.

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Better banking is here with SoFi, NerdWallet’s 2024 winner for Best Checking Account Overall.* Enjoy up to 3.80% APY on SoFi Checking and Savings.

FAQ

Can you file a complaint about a fake money order with your bank?

If you receive a fake money order and deposit it into your bank account, it’s a good idea to let the bank know as soon as possible. While you could complain to the bank, there may be nothing the bank can do about the scammer, but your actions might help you avoid, say, overdraft fees. You could also report fake money orders to the issuing entity, such as the postal service or Western Union.

Do scammers get your information if you fall victim?

Most financial scams involve the exchange of information. For example, a scammer might ask for your name and address so they can purchase a money order to send to you. Other scams may attempt to gain direct access to your bank account. When buying or selling online, it’s important to use caution, protect your sensitive personal and financial information, and keep it out of the hands of scammers.

What is the most common tell of a fake money order?

A lack of watermarks is usually a sign that a money order is a fake, as most issuers include them as a security measure, most notably the U.S. Postal Service. Other red flags include smudged ink, numbers that don’t match up to the amount the money order is supposed to be, and signs of physical alteration or damage.

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SoFi members with Eligible Direct Deposit activity can earn 3.80% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. 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 during a 30-day Evaluation Period (as defined below).

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

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

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

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

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

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

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

Interest rates are variable and subject to change at any time. These rates are current as of 1/24/25. There is no minimum balance requirement. Additional information can be found at http://www.sofi.com/legal/banking-rate-sheet.
*Awards or rankings from NerdWallet are not indicative of future success or results. This award and its ratings are independently determined and awarded by their respective publications.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.


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

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

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.


photocredits: iStock/Diy13
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24
2025
Exit Strategy for Investors: Definition and Examples

Exit Strategy for Investors: Definition and Examples

By | Growing Wealth, invest, Investing | Comments Off on Exit Strategy for Investors: Definition and Examples

An exit strategy is a plan to leave an investment, ideally by selling it for more than the price at which it was purchased.

Individual investors, venture capitalists, stock traders, and business owners all use exit strategies that set specific criteria to dictate when they’ll get out of an investment. Every exit strategy plan is unique to its situation, in terms of timing and under which conditions an exit may occur.

What Is an Exit Strategy?

Broadly speaking, the exit strategy definition is a plan for leaving a specific situation. For instance, an employee who’s interested in changing jobs may form an exit strategy for leaving their current employer and moving on to their next one.

What is an exit strategy in a financial setting? In this case, the exit strategy definition is a plan crafted by business owners or investors that cover when they choose to liquidate their position in an investment. To liquidate means to convert securities or other assets to cash. Once this liquidation occurs, the individual or entity that executed the exit strategy no longer has a stake in the investment.

Creating an exit strategy prior to making an investment can be advantageous for managing and minimizing risk. It can also help with defining specific objectives for making an investment in the first place. In other words, formulating your exit strategy beforehand can give you clarity about what you hope to achieve.

Exit strategies often go overlooked, however, as investors, venture capitalists, and business owners may move ahead with an investment with no clear plan for leaving it.

💡 Quick Tip: Look for an online brokerage with low trading commissions as well as no account minimum. Higher fees can cut into investment returns over time.

How Exit Strategies Work

Investors use exit strategies to realize their profit or to mitigate potential losses from an investment or business. When creating an exit strategy, investors will typically define the conditions under which they’ll make their exit.

For instance, an exit strategy plan for investors may be contingent on achieving a certain level of returns when starting to invest in stocks, or reaching a maximum threshold of allowable losses. Once the contingency point is reached, the investor may choose to sell off their shares as dictated by their exit strategy.

A venture capital exit strategy, on the other hand, may have a predetermined time element. Venture capitalists invest money in startups and early stage companies. The exit point for a venture capitalist may be a startup’s IPO or initial public offering.

Again, all exit strategies revolve around a plan. The mechanism by which an individual or entity makes their exit can vary, but the end result is the same: to leave an investment or business.

When Should an Exit Strategy Be Used?

There are different scenarios when an exit strategy may come into play. For example, exit strategies can be useful in these types of situations:

•   Creating a succession plan to transfer ownership of a profitable business to someone else.

•   Shutting down a business and liquidating its assets.

•   Withdrawing from a venture capital investment or angel investment.

•   Selling stocks or other securities to minimize losses.

•   Giving up control of a company or merging it with another company.

Generally speaking, an exit strategy makes sense for any situation where you need or want to have a plan for getting out.

Exit Strategy Examples

Here are some different exit strategy examples that explain how exit strategies can be useful to investors, business owners, and venture capitalists.

Exit Strategy for Investors

When creating an exit strategy for stocks and investing, including how to buy stocks, there are different metrics you can use to determine when to get out. For example, say you buy 100 shares of XYZ stock. You could plan your exit strategy based on:

•   Earning target return from the investment

•   Realizing a maximum loss on the investment

•   How long you want to stay invested

Say your goal is to earn a 10% return on the 100 shares you purchased. Once you reach that 10% threshold you may decide to exit while the market is up and sell your shares at a profit. Or, you may set your maximum loss threshold at 5%. If the stock dips and hits that 5% mark, you could sell to head off further losses.

You may also use time as your guide for making an exit strategy for stocks. For instance, if you’re 30 years old now and favor a buy-and-hold strategy, you may plan to make your exit years down the line. On the other hand, if you’re interested in short-term gains, you may have a much shorter window in which to complete your exit strategy.

Exit strategies can work for more than just stock investments. For instance, you may have invested in crowdfunding investments, such as real estate crowdfunding or peer-to-peer lending. Both types of investments typically have a set holding period that you can build into your exit plan.

Recommended: Bull Put Spread: How This Options Trading Strategy Works

Exit Strategy for Business Owners

An exit strategy for business owners can take different forms, depending on the nature of the business. For instance, if you run a family-owned business then your exit strategy plan might revolve around your eventual retirement. If you have a fixed retirement date in mind your exit plan could specify that you will transfer ownership of the business to your children or sell it to another person or company.

Another possibility for an exit strategy may involve selling off assets and closing the business altogether. This is something a business owner may consider if the business is not turning a profit, and it looks increasingly unlikely that it will. Liquidation can allow a business owner to repay their creditors and walk away from a failed business without having to file bankruptcy.

Exit Strategy for Startups

With startups and larger companies, exit strategies can be more complex. Examples of exit strategy plans may include:

•   Launching an IPO to allow one or more founders to make an exit

•   A merger or acquisition that allows for a transfer of ownership

•   Selling the company

•   Liquidating assets and shutting the company down

If a founder is ready to move on to their next project, they can use an IPO to leave the company intact while extricating themselves from it. And angel investors or venture capitalists who invested in the company early on also have an opportunity to sell their shares.

Startup exit strategies can also create possible opportunities for some investors. IPO investing allows investors to buy shares of companies when they go public.

The mechanics of using an IPO as an exit strategy can be complicated, however. There are IPO valuations and regulatory requirements to consider.

It’s important for startup founders to know how to value a business before taking it public to ensure that an IPO is successful. And early-stage investors may have to observe IPO lock-up period restrictions before they can sell their shares.

💡 Quick Tip: IPO stocks can get a lot of media hype. But savvy investors know that where there’s buzz there can also be higher-than-warranted valuations. IPO shares might spike or plunge (or both), so investing in IPOs may not be suitable for investors with short time horizons.

5 Types of Exit Strategies

There are different types of exit strategies depending on whether you’re an investor, a business owner, or a venture capitalist. Some common exit strategies include:

1. Selling Shares of Stock

Investors can use an exit strategy to set a specific goal with their investment (say, 12%), reach a certain level of profit, or determine a point at which they’ll minimize their loss if the investment loses value. Once they reach the target they’ve set, the investor can execute the exit strategy and sell their shares.

2. Mergers and Acquisitions

With this business exit strategy, another business, often a rival, buys out a business and the founder can exit and shareholders may profit. However, there are many regulatory factors to consider, such as antitrust laws.

3. Selling Assets and Closing a Business

If a business is failing, the owner may choose to liquidate all the assets, pay off debts as well as any shareholders, if possible, and then close down the business. A failing business might also declare bankruptcy, but that’s typically a last resort.

4. Transferring Ownership of a Business

This exit strategy may be used with a family-run business. The owner may formulate an exit plan that allows him to transfer the business to a relative or sell it at a particular time so that he or she can retire or do something else.

5. Launching an IPO

By going public with an IPO, the founder of a startup or other company can leave the company if they choose to, while leaving the business intact. As noted, using an IPO as an exit strategy can be quite complicated for business founders and investors because of regulatory requirements, IPO valuations, and lock-up period restrictions.

Why Exit Strategies Are Important

Exit strategies matter because they offer a measure of predictability in a business or investment setting. If you own a business, for example, having an exit strategy in place that allows you to retire on schedule means you’re not having to work longer than you planned or want to.

An exit strategy for investors can help with staying focused on an end goal, rather than following the crowd, succumbing to emotions, or attempting to time the market. For example, if you go into an investment knowing that your exit plan is designed to limit your losses to 5%, you’ll know ahead of time when you should sell.

Using an exit strategy can prevent doubling or tripling losses that could occur when staying in an investment in the hopes that it will eventually turn around. Exit strategies can also keep you from staying invested too long in an investment that’s doing well. The market moves in cycles and what goes up eventually comes down.

If you’re on a winning streak with a particular stock, you may be tempted to stay invested indefinitely. But having an exit strategy and a set end date for cashing out could help you avoid losses if volatility sends the stock’s price spiraling.

How To Develop an Exit Strategy Plan

Developing an exit strategy may look different, depending on whether it involves an investment or business situation. But the fundamentals are the same, in that it’s important to consider:

•   What form an exit will take (i.e. liquidation, IPO, selling shares, etc.)

•   Whether an exit is results-based or time-based (i.e. realizing a 10% return, reaching your target retirement date, etc.)

•   Key risk factors that may influence outcomes

•   Reasons and goals for pursuing an exit strategy

If you’re an individual investor, you may need to formulate an exit plan for each investment you own. For instance, how you exit from a stock investment may be different from how you sell off bonds. And if you’re taking on riskier investments, such as cryptocurrency, your exit strategy may need to account for the additional volatility involved.

For business owners and founders, exit strategy planning may be a group discussion that involves partners, members of the board, or other individuals who may have an interest in the sale, transfer, or IPO of a company. In either situation, developing an exit strategy is something that’s best done sooner, rather than later.

SoFi Investing

Investing can help you build wealth for the long-term and an exit strategy is an important part of the plan. It allows you to decide ahead of time how and when you’ll get out of an exit, and could help you lock in returns or minimize losses.

Ready to invest in your goals? It’s easy to get started when you open an investment account with SoFi Invest. You can invest in stocks, exchange-traded funds (ETFs), mutual funds, alternative funds, and more. SoFi doesn’t charge commissions, but other fees apply (full fee disclosure here).


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

FAQ

What are different exit strategies?

Examples of some different exit strategies include selling shares of a stock once an investor realizes a certain return or profit, transferring ownership of a family business so an owner can retire, or selling all the assets and closing down a failing business.

What are the most common exit strategies?

The most common exit strategies depend on whether you’re an investor, the owner of an established business, or the founder of a startup. For investors, the most common exit strategy is to sell shares of stock once they reach a certain target or profit level. For owners of an established business, the most common exit strategy is mergers and acquisitions, because doing so is often favorable to shareholders. For founders of startups, a common exit strategy is an initial public offering (IPO).

What is the simplest exit strategy?

For an investor, the simplest exit strategy is to sell shares of stock once they reach a certain profit or target level of return. At that point they can sell their shares for more money than they paid for them.

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/Christian Guiton


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

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

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

Investing in an Initial Public Offering (IPO) involves substantial risk, including the risk of loss. Further, there are a variety of risk factors to consider when investing in an IPO, including but not limited to, unproven management, significant debt, and lack of operating history. For a comprehensive discussion of these risks please refer to SoFi Securities’ IPO Risk Disclosure Statement. IPOs offered through SoFi Securities are not a recommendation and investors should carefully read the offering prospectus to determine whether an offering is consistent with their investment objectives, risk tolerance, and financial situation.

New offerings generally have high demand and there are a limited number of shares available for distribution to participants. Many customers may not be allocated shares and share allocations may be significantly smaller than the shares requested in the customer’s initial offer (Indication of Interest). For SoFi’s allocation procedures please refer to IPO Allocation Procedures.

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2025

Can You Use Your 529 to Pay Off College Loan Debt?

By | Financial Topics, Terminology | Comments Off on Can You Use Your 529 to Pay Off College Loan Debt?

A 529 plan is a type of savings account that can help pay for college and other education expenses. If you’re among the more than 43 million Americans who have student loan debt, you might be wondering, can I use a 529 to pay student loans?

While money from a 529 plan can be put toward student loan debt, there are funding limits and other requirements to keep in mind. Read on to learn about how to maximize your 529 plan, plus other student loan repayment strategies to consider.

Key Points

•   A 529 plan can be used to help pay off a beneficiary’s student loan debt.

•   These plans can also be used to help pay for student loans of a beneficiary’s siblings or parents, as long as the account is transferred to them.

•   There is a maximum $10,000 lifetime limit per beneficiary for using 529 funds for student loan repayment.

•   Additionally, up to $35,000 in unused 529 plan funds can be rolled over to a Roth IRA to help borrowers save for retirement, with some restrictions.

•   Besides using 529 funds, borrowers can also pay off student loan debt by making interest-only payments while still in school, signing up for automatic payments, or with student loan refinancing.

Understanding 529 Plans and Their Uses

Going to college in the U.S. is expensive — four years at a private university is approximately $234,512, and four years at an in-state public university is $108,584, according to 2025 data from the Education Data Initiative. To help families cover rising higher education costs, in 1996 Congress enacted Section 529 of the Internal Revenue Code, which established federal tax rules for 529 college plans.

Parents, grandparents, and students can open a 529 plan to help build college savings for themselves or a designated beneficiary. There are two types of 529 college savings plans: prepaid tuition plans and education savings plans.

The contributions and investments grow tax-free with either plan option, but there are some key differences. Prepaid tuition plans are typically offered by public colleges and allow in-state students to prepay tuition and fees at today’s rates. Education savings plans represent the majority of 529 college plans, as the funds can be used at any accredited school.

Families can deposit a maximum amount that ranges from $235,000 to $575,000 into these tax-advantaged investment accounts, depending on their state’s 529 contribution limits. Contributions aren’t eligible for a federal income tax deduction, but some states offer state income tax deductions.

Money withdrawn from a 529 college savings plan to pay for qualified educational expenses is tax exempt. This includes the following education-related costs:

•   Tuition and fees for college, graduate, or vocational school

•   Books and school supplies

•   Room and board

•   Special needs services and equipment

•   Computers, internet access, and software related to school work

•   Tuition and fees for elementary or secondary school (capped at $10,000 per year)

•   Student loan payments

If funds from a 529 plan are used for nonqualified expenses, those withdrawals are subject to taxes and a 10% federal tax penalty.

If a family has other children who are planning to pursue higher education, it’s possible to transfer a 529 college savings plan with unused funds to another beneficiary.

Recommended: Refinance Health Care Student Loans

The SECURE Act and 529 Plans for Student Loan Repayment

Originally, 529 plans were limited to paying for higher education costs. But thanks to the Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019, 529 plans can now be used to pay for student loans — a maximum of $10,000 for a beneficiary. The lifetime limit per beneficiary applies regardless of whether a family has multiple 529 plans.

However, you can use a 529 account to pay student loans for other family members. The SECURE Act allows an additional $10,000 to be withdrawn from a 529 college savings plan to repay student loans for each of the beneficiary’s siblings. That means a family with three children could withdraw a maximum of $30,000 to pay off student loan debt.

Keep in mind that the plan holder is unable to claim any tax deductions for student loan interest paid with money from the 529 plan.

In addition to student loan repayment, the SECURE Act also lets plan holders roll over extra 529 funds into a Roth IRA retirement account. This helps borrowers jumpstart retirement savings, which might otherwise be delayed by student loan repayment. The lifetime limit for converting 529 funds is $35,000, and annual conversions cannot exceed the IRA contribution limit. Additionally, the 529 account must be open for at least 15 years to qualify for Roth IRA conversion.

Who Qualifies to Use a 529 for Student Loans?

The designated beneficiary of a 529 plan can use funds in the account to pay their student loans. Both federal student loans and private student loans qualify under the SECURE Act.

In addition, 529 funds can also be allocated to repaying student loans for a beneficiary’s siblings or even their parents. Because 529 plans can be transferred between beneficiaries, it’s possible to make a parent the designated beneficiary if they are still paying off student loans.

This can be helpful to parents who may have outstanding student loan debt from their own education or from financing or refinancing their child’s college expenses, such as with a Parent PLUS refinance loan.

Each beneficiary can pay a maximum of $10,000 of student loan debt using money in a 529.

Pros and Cons of Using a 529 for Student Loan Payments

A 529 savings plan is primarily a tool to save for education-related expenses, such as tuition, fees, and room and board. If you choose to use these funds for student loan payments, there are some advantages and drawbacks to keep in mind.

thumb_up

Pros:

•   Beneficiaries can repay up to $10,000 in student loans by using funds in a 529.

•   Siblings and parents of a beneficiary can use up to $10,000 of 529 funds to repay student loans, provided that the account is transferred to them as a beneficiary.

•   529 plans can be used to pay off student loans that are for nonqualified expenses, such as health care or transportation costs.

•   Up to $35,000 in any leftover funds can be rolled into a Roth IRA retirement account.

thumb_down

Cons:

•   A 529 may carry management fees, which can reduce overall savings.

•   There is a lifetime limit of $10,000 per beneficiary to repay student loans.

•   Remaining funds that can’t be rolled into a Roth IRA or transferred are subject to a 529 withdrawal penalty and a 10% federal tax penalty on any earnings.

Recommended: Law & MBA Refinancing

Alternative Ways to Pay Off Student Loan Debt Without a 529

For those who don’t have a 529 or don’t have funds left in their account to put toward student loan debt, there are several other student loan repayment strategies to consider.

•   Make interest-only payments while you’re in school on student loans for which interest accrues, such as federal Direct Unsubsidized Loans.

•   Pay down your student loan principal by making additional payments. Doing this may help reduce the amount of interest you owe over the life of the loan. (Check first for any prepayment penalties your loan might have.)

•   Set up automatic payment on your student loans. Federal Direct Loan holders may be eligible for a 0.25% discount when they sign up for automatic payments, and some private student loan lenders offer a similar discount.

•   Consider student loan refinancing. Refinancing with a private lender involves taking out a new loan to pay off your existing loan. The new loan comes with a new interest rate, loan term, and monthly payment. Ideally, you may be able to qualify for a lower interest rate or more favorable loan terms.

•   Just be aware that if you refinance federal loans, they are no longer eligible for federal benefits or protections. Also, you may pay more interest over the life of the loan if you refinance with an extended term. Weigh the pros and cons of refinancing to determine if it makes sense for you.

The Takeaway

Thanks to the SECURE Act of 2019, beneficiaries of 529 plans can withdraw up to $10,000 to pay toward their own student loan debt or that of their siblings or parents. The $10,000 maximum is a lifetime limit per beneficiary.

Other ways to repay student loan debt include making interest-only payments on unsubsidized loans while you’re still in school, signing up for automatic payments, and student loan refinancing.

Looking to lower your monthly student loan payment? Refinancing may be one way to do it — by extending your loan term, getting a lower interest rate than what you currently have, or both. (Please note that refinancing federal loans makes them ineligible for federal forgiveness and protections. Also, lengthening your loan term may mean paying more in interest over the life of the loan.) SoFi student loan refinancing offers flexible terms that fit your budget.


With SoFi, refinancing is fast, easy, and all online. We offer competitive fixed and variable rates.

FAQ

Can you use a 529 plan to pay private student loans?

Yes, you can use a 529 plan to pay up to $10,000 in private student loan debt for the designated beneficiary of the plan, as well as each of their siblings.

Is using a 529 plan for student loan repayments tax-free?

Using a 529 plan for student loan repayments is tax-free as long as the withdrawals don’t exceed the lifetime limit of $10,000 per beneficiary.

What is the lifetime limit on 529 student loan repayments?

The lifetime limit on 529 student loan repayments is $10,000 per beneficiary — even if a beneficiary has more than one 529 plan.

Can parents use their 529 savings to pay off their own student loans?

Yes, parents can use a 529 to pay off their own student loan debt, up to a limit of $10,000, if they are named beneficiary on the account. A 529 plan can be transferred between beneficiaries (from child to parent, for instance) to use remaining funds.

Are there penalties for misusing 529 funds?

If 529 funds are not used for qualified education-related expenses, an individual could face a 10% penalty on the earnings accrued on the withdrawal, plus federal income tax.

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

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Mar
24
2025
Finding Your Old 401k: Here's What to Do

How to Find an Old 401(k)

By | Growing Wealth, invest, Investing, Preparing for Retirement | Comments Off on How to Find an Old 401(k)

Tracking down an old 401(k) may take some time, and perhaps the quickest way to find old 401(k) money is to contact your former employer to see where the account is now. It’s possible that your lost 401(k) isn’t lost at all; instead, it’s right where you left it.

In some cases, however, employers may cash out an old 401(k) or roll it over to an IRA on behalf of a former employee. In that case, you might have to do a little more digging to find lost 401(k) funds. If you ever wished you could click on an app called “Find my 401(k),” the following strategies may be of use.

Key Points

•   Contacting previous employers is a primary method for locating old 401(k) accounts.

•   Old account statements can be useful for directly reaching out to 401(k) providers.

•   Government agencies keep records that can help track down old 401(k) plans.

•   National registries may list unclaimed retirement benefits, searchable by Social Security number.

•   Recovered 401(k) funds can be rolled over into another retirement account or cashed out.

4 Ways to Track Down Lost or Forgotten 401(k) Accounts

There’s no real secret to how to find old 401(k) accounts. But the process can be a little time consuming as it may require you to search online or make a phone call or two. But it can be well worth it if you’re able to locate your old 401(k).

There are several ways to find an old 401(k) account. Here are a handful that may prove fruitful.

1. Contact Former Employers

The first place to start when trying to find old 401(k) accounts is with your previous employer.

If you had more than $5,000 in your 401(k) at the time you left your job, it’s likely that your account may still be right where you left it. In that case, you have a few options for what to do with the money:

•   Leave it where it is

•   Transfer your 401(k) to your current employer’s qualified plan

•   Rollover the account into an Individual Retirement Account (IRA)

•   Cash it out

When your plan balance is less than $5,000 your employer might require you to do a 401(k) rollover or cash it out. If you’re comfortable with the investment options offered through the plan and the fees you’ll pay, you might decide to leave it alone until you get a little closer to retirement. On the other hand, if you’d like to consolidate all of your retirement money into a single account, you may want to roll it into your current plan or into an IRA.

Cashing out your 401(k) has some downsides. You would owe taxes on the money, and likely an early withdrawal penalty as well. So you may only want to consider this option if your account holds a smaller amount of money. If you had less than $5,000 in your old 401(k), it’s possible that your employer may have rolled the money over to an IRA for you or cashed it out and mailed a check to you.

Recommended: How Does a 401(k) Rollover Work?

2. Track Down Old Statements

If you have an old account statement, you can contact your 401(k) provider directly to find out what’s happened to your lost 401(k). This might be necessary if your former employer has gone out of business and your old 401(k) plan was terminated.

When a company terminates a 401(k), the IRS requires a rollover notice to be sent to plan participants. If you’ve moved since leaving the company, the plan administrator may have outdated address information for you on file. So you may not be aware that the money was rolled over.

Either way, your plan administrator should be able to tell you which custodian now holds your lost 401(k) funds. Once you have that information, you could reach out to the custodian to determine how much money is in the account. You can then decide if you want to leave it where it is, roll it over to another retirement account, or cash it out.

3. Check With Government Agencies

Different types of retirement plans, including 401(k) plans, are required to keep certain information on file with the IRS and the Department of Labor (DOL). One key piece of information is DOL Form 5500. This form is used to collect data for employee benefit plans that are subject to federal ERISA (Employee Retirement Income Security Act) guidelines.

How does that help you find your 401(k)? The Department of Labor offers a Form 5500 search tool online that you can use to locate lost 401(k) plans. You can search by plan name or plan sponsor. If you know either one, you can look up the plan’s Form 5500, which should include contact information. From there, you can reach out to the plan sponsor to track down your lost 401(k).

4. Search National Registries

Another place to try is the National Registry of Unclaimed Retirement Benefits. This is an online database you can use to search for an unclaimed 401(k) that you may have left with a previous employer. You’ll need to enter your Social Security number to search for lost retirement account benefits.

In order for your name to come up in the search results, your former employer must have entered your name and personal information in that database. If they haven’t done so, it’s possible you may not find your account this way.

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What Should I Do With Recovered Funds?

If you do manage to recover an old 401(k) account and its assets, you’ll have some options as to what to do with it. In many cases, it might be a good idea to roll it over into another retirement account to try and stay on track with your retirement savings.

Another important point to consider: If you’ve changed jobs multiple times, it’s possible that you could have more than one “lost” 401(k) — and taken together, that money could make a surprising difference to your nest egg.

Last, if you were lucky to have an employer that offered a matching 401(k) contribution, your missing account (or accounts) may have more money in them than you think. For example, a common employer match is 50%, up to the first 6% of your salary. If you don’t make an effort to find old 401(k) accounts, you’re missing out on that “free money” as well.

But if you’re unsure of what to do, it may be worth speaking with a financial professional for guidance.

Further, if you’re not able to find lost 401(k) accounts you still have plenty of options for retirement savings. Contributing to your current employer’s 401(k) allows you to set aside money on a tax-deferred basis. And you might be able to grow your money faster with an employer matching contribution.

What if you’re self-employed? In that case, you could choose to open a solo or individual 401(k). This type of 401(k) plan is designed for business owners who have no employees or only employ their spouses. These plans follow the same contribution and withdrawal rules as traditional employer-sponsored 401(k) plans, though special contribution rules apply if you’re self-employed.

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The Takeaway

There are several ways to try and find an old 401(k) account, but for most people, the best place to start is by contacting your old employers to see if they can help you. From there, you can also try reaching out to government agencies, tracking down old statements, or even searching through databases to see what you can find.

Saving for retirement is important for most people who are trying to reach their financial goals – as such, if you have money or assets in a retirement account, it may be worthwhile to try and track it down. Again, it may be worth consulting with a financial professional if you need help.

Ready to invest for your retirement? It’s easy to get started when you open a traditional or Roth IRA with SoFi. SoFi doesn’t charge commissions, but other fees apply (full fee disclosure here).

Help grow your nest egg with a SoFi IRA.

FAQ

Is it possible to lose your 401(k)?

It’s possible to lose money from your 401(k) if you’re cashing it out and taking a big tax hit or your investments suffer losses. But simply changing jobs doesn’t mean your old 401(k) is gone for good. It does, however, mean that you may need to spend time locating it if it’s been a while since you changed jobs.

Do I need my social security number to find an old 401(k)?

Generally, yes, you’ll need your Social Security number to find a lost 401(k) account. This is because your Social Security number is used to verify your identity and ensure that the plan you’re inquiring about actually belongs to you.

What happens to an unclaimed 401(k)?

Unclaimed 401(k) accounts may be liquidated or converted to cash if enough time passes, and that cash could be transferred to a state government, where it will be held as unclaimed property.

Can a financial advisor find old 401(k) accounts?

A financial advisor may be able to help, but the simplest way to find old 401(k) accounts is contacting your former employer. It’s possible your money may still be in your old plan and if not, your previous employer or plan administrator may be able to tell you where it’s been moved to.

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/svetikd

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