Mar
20
2025
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Is 24/7 Stock Trading Available?

By | Growing Wealth, invest, Investing | Comments Off on Is 24/7 Stock Trading Available?

Stock exchanges typically have set hours during which they operate, but trading activity isn’t restricted to traditional operating hours. After-hours trading sessions allow investors to continue making trades once the markets have closed for the day.

While after-hours trading isn’t exactly the same as regular day trading, there are some advantages to 24/7 trading. For investors who are interested in trading outside normal stock exchange hours, there are some important things to keep in mind.

Reviewing After-Hours Trading

In the U.S. the NYSE and the Nasdaq are the two primary stock exchanges investors can use to trade stocks and other securities. Like the NYSE, the Nasdaq also follows a 9:30 am ET to 4:00 pm ET operating schedule, with certain holidays observed.

Both the NYSE and the Nasdaq allow after-hours trading. After-hours trading is divided into two distinct windows: pre-market trading and post-market trading.

What Is Pre-market Trading?

Pre-market trading allows investors to make portfolio moves in the hours before the market officially opens for the day. For both the NYSE and the Nasdaq, the pre-market trading period extends from 4:00 am ET to 9:30 am ET.

The NYSE also allows for a 30-minute pre-opening season beginning at 3:30 am ET in which limit orders can be entered and queued ahead of the pre-market session.

What Is Post-market Trading?

Post-market trading, also referred to as extended trading, runs from 4:00 pm ET to 8:00 pm ET on both exchanges. If an investor is completing after-hours trading with an online brokerage, the brokerage may set their own hours for when trading can occur, within the time frames the NYSE and the Nasdaq follow.

Of course, this timing pertains to the U.S. markets only. Globally, foreign markets have their own operating hours. Due to time zone differences, stock markets in the U.S. and markets in other countries don’t always operate during the same time periods.


💡 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.

Put your money to work and make
your first trade with active invest.

How After-Hours Trading Works

After-hours trading takes place outside the regular markets so it doesn’t work exactly like regular day trading. During the day, trades occur through exchanges — but during pre-market or post-market trading, they’re completed through a different type of exchange — technically, an alternative trading system known as an electronic communication networks (ECNs).

An ECN matches up buy orders with sell orders from different investors to execute trades. Orders can only be matched if the buy and sell prices are the same.

All trades placed after-hours have to be limit orders — with buyers and sellers agreeing to the price — rather than market-on-open orders, since the markets are closed.

Just like regular day trades, investors may pay commissions to execute an after-hours trade. But the fees charged may be higher than the fees for normal day trades.

Is 24/7 Trading an Option?

Being able to trade stocks 24 hours a day, 7 days a week might sound appealing to active traders or investors who don’t have the opportunity to make trades during regular market hours. But is 24/7 stock trading even possible?

While after-hours trading allows investors more time to execute trades, there is a gap in between the post-market and pre-market hours. Technically, an investor wouldn’t be able to trade between the end of the post-market period at 8:00 pm ET and the beginning of the pre-market period at 4:00 am ET.

However, some online trading platforms have begun rolling out 24/7 trading as a brokerage account option. With this feature, investors would be able to make trades at all times of day — during regular market trading hours, pre-market trading hours, post-market trading hours, and beyond.

For example, if an investor wanted to place a limit order to purchase 100 shares of stock at midnight, they could do so if their online brokerage offered 24/7 trading.

Depending on which trading platform investors are on, they may be limited as to the type of securities they can trade after-hours. For example, some brokerages may only allow 24/7 trades of select individual stocks and exchange-traded funds (ETFs).

Pros of 24/7 Stock Trading

Being able to make trades on one’s own schedule, rather than following the market’s standard trading hours, can yield some benefits.

Trading stocks and other securities after the market closes and before it opens could pay off if an investor is able to capitalize on overnight news or market developments that could affect stock prices, including:

•   Earnings reports. It’s common for companies to release earnings reports after the market has officially closed for the day. If the earnings report looks to boost a stock’s price or cause it to decline, an investor might choose to place an after-hours trade to buy or sell, according to their investment strategy.

•   The announcement of a merger or acquisition.

•   A major political event. For example, the results of a presidential election can influence market outlooks and trading activity.

Trading overnight could allow an investor to get the jump on other investors who normally trade during the day.

There’s also the convenience factor: 24/7 trading is helpful for investors who don’t have time to watch the markets and schedule trades throughout the day.

Trading after-hours means they don’t have to miss out on any opportunities to build and grow their investment portfolio if their day job keeps them busy.


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

Risks of After-Hours Trading

While having access to 24/7 trading can have its advantages, there are a few potential downsides to keep in mind.

•   Limit orders aren’t guaranteed. There’s no guarantee that limit orders placed after-hours will be executed. For a trade to be completed, an ECN has to be able to match up your order with another investor’s. Since trading volumes are typically lower during the pre-market and post-market periods, finding a match could prove difficult. Or you could get stuck in a trade at a less than desirable price.

•   The potential for increased volatility. Lower trading volume can also lead to increased volatility and sharper, more sudden price movements. For example, an investor may see a much wider gap between the bid price and ask price during after-hours trading.

Those things make 24/7 trading of stocks or other securities riskier overall. For investors considering this strategy, it might require them to pay closer attention to market movements to minimize the potential for losses.

The Takeaway

While 24/7 stock trading was a long-time a dream for some investors, now it’s becoming a reality. As online trading platforms start to offer 24/7 trading to their investors, trading at any hour of the day or night is increasingly possible.

While there are risks to 24/7 trading — notably the chance of increased volatility as well as that a limit order won’t get executed — there are also benefits, such as the convenience of not being limited to the 9:30 am to 4pm ET confines of the NYSE and Nasdaq.

One of the first rules of investing is that in order to make it work for you, you have to get started.

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

For a limited time, opening and funding an Active Invest account gives you the opportunity to get up to $1,000 in the stock of your choice.

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.

Extended hours are from 9 AM – 9:30 AM and 4 PM – 8 PM ET Monday to Friday. Only limit orders can be placed during extended hours. Orders placed after 4 PM ET that and not filled by 8 PM ET will be canceled. Trading during extended hours involves greater risk including lower liquidity and greater volatility.
SoFi Invest®

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

SoFi Invest encompasses two distinct companies, with various products and services offered to investors as described below: Individual customer accounts may be subject to the terms applicable to one or more of these platforms.
1) Automated Investing and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser (“SoFi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC.
2) Active Investing and brokerage services are provided by SoFi Securities LLC, Member FINRA (www.finra.org)/SIPC(www.sipc.org). Clearing and custody of all securities are provided by APEX Clearing Corporation.
For additional disclosures related to the SoFi Invest platforms described above please visit SoFi.com/legal.
Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform.
For a full listing of the fees associated with Sofi Invest please view our fee schedule.

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

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

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Mar
20
2025

Can You Get a Debit Card for a Savings Account?

By | money, Money & Life, Terminology | Comments Off on Can You Get a Debit Card for a Savings Account?

You usually can’t get a debit card for a savings account. Typically, debit cards are issued for checking accounts.

There’s a simple reason for that. Savings accounts are designed to hold money that you don’t plan to spend right away. Earning interest on deposits is the reward you get for adding money to your savings balance. Checking accounts, on the other hand, are designed for spending.

There’s a backdoor way to use a debit card for a savings account, but it requires you to have a checking account and transfer funds. Knowing the rules for debit cards and bank accounts can make it easier to manage your money.

Key Points

•  Savings accounts typically don’t come with debit cards; they are designed for holding money and earning interest.

•  Debit cards are often linked to checking accounts, which are meant for spending.

•  ATM cards can sometimes be issued for savings accounts, allowing limited access to funds.

•  Alternatives to debit cards for savings accounts include transferring funds to checking accounts or making in-person withdrawals.

•  Understanding the rules and limits of savings accounts can help you manage funds effectively.

What Accounts Offer Debit Cards?

Usually, you cannot get a debit card with standard or high-yield savings accounts. You can, however, get a debit card with other types of bank accounts, such as:

•  Traditional checking accounts

•  High-yield checking or interest checking

•  Money market accounts

•  Cash management accounts

•  Health savings accounts

You can find traditional checking accounts, high-yield checking, and money market accounts at traditional banks or online banks. Some banks also offer HSAs with a debit card so that paying for health care is easy and convenient.

A cash management account is a little different. These accounts, which you can find at a brokerage, blend features of savings and checking accounts. You can use them to pay bills, make purchases with a debit card, or hold funds that you plan to transfer into your investment account.

Get up to $300 when you bank with SoFi.

No account or overdraft fees. No minimum balance.

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Debit Cards vs. ATM Cards

Debit cards and ATM cards may look the same at first glance, but there are some key differences between them.

•  A debit card is a PIN-enabled card that’s linked to a checking account or a money market account. You can use a debit card to make purchases, pay bills, or withdraw cash at ATMs. When you complete a debit card transaction, the money is deducted from your checking or money market account.

•  ATM cards are also PIN-based but they have less functionality than a debit card. You can use an ATM card to view your balance, withdraw cash, or make deposits at an automated teller machine. You cannot, however, use a debit card to make purchases.

Banks can issue ATM cards for checking accounts, though it’s more common to get a debit card instead. Some banks also offer ATM cards for savings accounts, though that’s more of an exception than the rule. If you have an ATM card for checking or savings, there may be an ATM withdrawal limit that dictates how much cash you can take out daily or weekly.

Accessing Your Savings Account Funds

If you want to access money in your savings account but don’t have a debit card, your options will depend on your bank’s policies. Generally, the alternatives can include:

•  You can use an ATM card if you’re issued one for transferring funds into a checking account and withdrawing from there. Or you can make a transfer on your financial institution’s website or in the app. That’s the backdoor method that was mentioned earlier. This process can be especially easy if you have linked checking and savings accounts at the same financial institution.

•  If you have a savings account at a traditional bank, you could also make withdrawals in person at the teller window.

When accessing savings account funds, it’s important to know what limits your bank imposes. For instance, it’s not uncommon for banks to limit you to six withdrawals from savings per month. If you go over that limit, the bank can charge an excess withdrawal fee for each additional transaction or convert your savings into a checking account.

Tips for Using Your Savings Account

Savings accounts are not meant to be complicated or confusing, but there are some rules to know about using them. These tips can help you make the most of your savings.

•  Choose the right bank to open a savings account. Online banks can offer higher interest rates on savings with fewer fees, compared to traditional banks. The trade-off is that you don’t have access to bank branches.

•  Know your limits. As mentioned, banks may limit you on the number of withdrawals you can make from savings per month. There may also be limits on how much you can transfer from savings to checking or withdraw in cash at a teller.

•  Link savings to checking. Linking your savings account to a checking account can make it easy to transfer funds between them. Just keep in mind that linking accounts is not an excuse to siphon away money from savings unnecessarily. This is especially true if your savings account is your emergency fund.

•  Automate deposits. Setting up automatic deposits to savings is an easy way to grow your balance. You can also use direct deposit to send some of your paycheck to savings or create a recurring transfer from checking to savings each payday.

If your bank offers an ATM card with a savings account, remember to check the ATM withdrawal limits. Also, it’s important to be aware of any added ATM fees you might pay for using another bank’s machine to withdraw cash.

Alternatives to Getting a Debit Card for Savings Accounts

If you can’t get a debit card for a savings account, you have some other options for managing your money. For instance, you could:

•  Link your savings account to a checking account (especially an interest-bearing one) for convenient transfers.

•  Set up a cash management account that combines features of a checking and savings account, including a debit card.

•  Open a money market account that includes a debit card and check-writing privileges.

•  You could also use a prepaid debit card to hold your savings. That can make it easy to access your money, but there are a few drawbacks. You won’t earn interest the way that you could with a savings account at a bank. Also, if your card is lost or stolen you might be out your entire savings if you don’t report the loss to the card issuer right away. Prepaid debit cards can also charge fees, which can nibble away at your savings balance.

These are some work-arounds since you usually can’t get a debit card with a savings account, and as you see, each can have its pros and cons.

The Takeaway

Savings accounts can help you set aside money toward your big (or small) financial goals. While you usually don’t get a debit card for savings accounts, you could still get a great rate for your money to make up for it. If you are determined to get something akin to a debit card with a savings account, you might look at such alternatives as money market or cash management accounts or link your checking and savings accounts for easy transfers and then withdrawals.

Another smart move: Bank with SoFi. We offer checking and savings in one convenient place, with debit card access.

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.


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

Do banks give debit cards for savings accounts?

Banks usually do not issue debit cards for savings accounts. Money market savings accounts may be an exception, as those can sometimes come with a debit card, paper checks, or both. Debit cards are most commonly associated with checking accounts.

Is there a card for a savings account?

A bank may offer an ATM card for a savings account. If you get a savings account with an ATM card, you could use your card to deposit or withdraw cash at ATMs. You would not, however, be able to make purchases with the card.

Can I use an ATM card to access my savings account?

You could use an ATM card to access a savings account if the bank issues one to you. If you don’t have an ATM card for your savings account, you may need to first transfer money to checking and then withdraw it using your debit card.

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/Miljan Živković

SoFi® Checking and Savings is offered through SoFi Bank, N.A. ©2025 SoFi Bank, N.A. All rights reserved. Member FDIC. Equal Housing Lender.
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.

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.

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Mar
20
2025

Guide to Retirement Account Garnishment

By | invest, Investing, Preparing for Retirement | Comments Off on Guide to Retirement Account Garnishment

There isn’t a simple yes or no answer as to whether your retirement accounts can be garnished. The Employment Retirement Income Security Act (ERISA) protects certain retirement accounts from garnishment if you’re sued by a creditor. The Act does not extend to non-qualified accounts like IRAs. However, those accounts do enjoy certain protections in bankruptcy.

The IRS may be able to garnish or take your 401(k) funds, however, if you owe back taxes. The IRS can also dip into your IRA or any self-employed retirement accounts you own to collect on a past due tax bill. If you’re worried about being sued by a creditor or running afoul of the IRS, it’s important to know when retirement accounts may be subject to garnishment.

Key Points

•   Barring certain exceptions, ERISA protects qualified retirement plans from garnishment; however, non-qualified plans like IRAs may lack these safeguards.

•   Retirement accounts — including qualified retirement plans like 401(k)s — can be garnished for unpaid taxes or court-ordered restitution.

•   Qualified retirement accounts may also be garnished if an individual owes child support or alimony.

•   Individuals may be able to avoid garnishment for unpaid taxes by setting up a payment plan, negotiating an Offer In Compromise, or making a claim for financial hardship.

•   To prevent garnishment, timely tax payments, responding to IRS notices, and maintaining domestic support payments are essential.

What Does Garnishment Mean?

Garnishment is a legal process in which one entity takes money from another under the authority of federal or state law to satisfy a debt. Both wages and bank accounts can be subject to garnishment in connection with debt collection lawsuits. A court order may be necessary to enforce a garnishment agreement.

Federal law can limit which wages or bank account deposits are exempt from garnishment and under what conditions. For example, if you receive Social Security benefits, they may be exempt if you’re sued for unpaid credit card debt. Those benefits are not bulletproof, however. And ignoring how your funds could be imperiled could be a critical retirement mistake.

The Social Security Administration (SSA) can withhold some of your benefits if your state presents a garnishment order for unpaid alimony, child support, or restitution. The Treasury Department can also withhold some of your benefits to offset unpaid tax debts. Generally, a garnishment order cannot be lifted until the debt in question is satisfied.

Can Retirement Accounts Be Garnished?

Retirement accounts can be garnished but there are specific rules that apply in determining which accounts are subject to garnishment. This is where it’s important to understand the different types of retirement plans.

As mentioned, certain retirement accounts are protected by ERISA. They’re usually referred to as qualified retirement plans. Examples of ERISA plans include:

•   Profit-sharing plans

•   401(k) plans

•   Money purchase plans

•   Stock bonus plans

•   Employee stock ownership plans

•   Defined benefit plans, including pensions

Generally speaking, money held in ERISA plans are protected from garnishment by creditors. The amount you can protect is unlimited, so whether you’ve saved $1,000 or $1 million in an ERISA plan, it’s safely out of reach of creditors.

There is an exception made in cases where the account owner is ordered by a court to pay restitution to the victim of a crime. In that instance, a federal ruling has deemed it acceptable to allow garnishment of ERISA plans to make restitution payments.

Non-qualified plans are not covered by ERISA protections. Non-qualified plans can include deferred compensation plans and executive bonus plans, but traditional and Roth IRAs can also fall under this umbrella.

The good news is that state law can include provisions to protect IRAs from garnishment. So if you’re sued for a $20,000 credit card debt, your creditor might not be able to touch any money you’ve stashed in a traditional or Roth IRA. Federal law also protects your online IRA or other type of IRA from garnishments relating to unpaid debts if you file for bankruptcy protection.

Get a 1% IRA match on rollovers and contributions.

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

1Terms and conditions apply. Roll over a minimum of $20K to receive the 1% match offer. Matches on contributions are made up to the annual limits.

Reasons Your 401(k) May Be Garnished

It’s not common for a 401(k) to be garnished, thanks to ERISA. But there are some scenarios where it can happen. Here are some of the reasons why a 401(k) can be garnished.

You Have a Solo 401(k)

A solo 401(k) or one-participant 401(k) is a type of 401(k) plan that’s designed for people who are self-employed or run a business and have just one employee who is their spouse. These plans are not subject to ERISA rules, so they could be vulnerable to creditors which may include garnishment for unpaid debt.

Even though a solo 401(k) isn’t protected at the federal level, your assets could still be safe under state law. As mentioned, many states exempt retirement accounts from creditor garnishments. The exemption limit may vary from state to state, though some states protect 100% of retirement assets.

You Owe Child Support or Alimony

If you’re ordered to pay child support or alimony and fail to do so, the court could order you to turn over some of your 401(k) assets to make those payments. If you’re getting divorced, then your spouse may be able to claim part of those assets as part of the settlement.

They’ll generally need a Qualified Domestic Relations Order (QDRO) to do so. This document directs the plan administrator on how to divide 401(k) assets between spouses, according to the terms set by the divorce agreement.

You Owe Restitution

As mentioned, retirement accounts can be garnished in cases where you’re ordered by a court to pay restitution to someone. For example, say that you were negligent and injured someone in a car accident. The court might order you to pay restitution to the injured person.

If you don’t arrange another form of payment, the court might greenlight garnishment of your 401(k). The amount that can be garnished must reflect the amount of restitution you were ordered to pay.

Can the Government Take My 401(k) or IRA?

The federal government, specifically the IRS, can garnish your retirement accounts. So when can the IRS take your 401(k) or IRA? Simply, if you owe unpaid tax debt and have made no attempt to pay it. Garnishment and property liens are usually options of last resort, as the IRS might give you an opportunity to set up an Installment Agreement or make an Offer In Compromise to satisfy the debt.

Before the IRS can garnish your retirement accounts for unpaid taxes, it has to provide you with adequate notice. That means sending a written letter that specifies how much you owe. If you don’t respond to this notice, the IRS will send out a final notice giving you an additional opportunity to pay your taxes or schedule a hearing.

Should you still do nothing, that opens the door for the government to garnish your 401(k), IRA, and other retirement accounts. Note that the IRS can also garnish your Social Security retirement benefits but not Supplemental Security Income (SSI) benefits.

State tax agencies can seek a judgment against you for unpaid debt. While they can obtain a court order requesting payment, they cannot force you to withdraw money from a retirement account to pay. You could, however, still be subject to wage garnishments or bank account levies.

What Happens When Your Retirement Account Is Garnished?

When a retirement account is garnished, money is withdrawn and handed over to the recipient, which may be a creditor or the government. At that point, there may be nothing you can do to get that money back.

You should receive notification of the garnishment before it happens. That can give you time to make alternate arrangements to pay the debt. You could try to do that after the garnishment moves ahead, though it might be difficult to retrieve the money.

For example, if your 401(k) is garnished to pay back taxes you could contact the IRS to see if you might be able to reverse it by paying the tax debt, setting up a payment plan, or negotiating an Offer In Compromise. You could also attempt to make a claim for financial hardship which may help you to get the garnishment reversed.

Tips for Avoiding 401(k) Garnishment

Having your retirement accounts garnished can be unpleasant to say the least and it’s best avoided if possible. If you’re concerned about your 401(k) or other retirement accounts being garnished, here are some things you can do to try and prevent that from happening.

Pay Your Taxes on Time

One of the simplest ways to avoid a garnishment is to pay your federal taxes on time. If you’ve filed your return but you don’t have the money to pay what’s owed in full, you can potentially work out a payment agreement with the IRS, take out a loan, or charge it to a credit card.

You could also borrow from your 401(k) to satisfy unpaid tax debts. Using your 401(k) to pay down debt is usually not advised, since it can shrink your overall wealth and you might face tax penalties. However, you may prefer it to having the money taken from your account by the IRS.

Don’t Ignore IRS Notices

If the IRS sends you a letter requesting payment for unpaid taxes, don’t ignore it. Doing so could lead to a garnishment if the government makes additional attempts to get you to pay with no success. If you’re questioning whether the amount is accurate you may want to contact the IRS for verification or consult with a tax attorney.

Keep Up With Domestic Support Payments

When you’re ordered by a judge to pay child support or alimony, it’s important that you make those payments in a timely manner. As with back taxes, failing to pay could result in your 401(k) being garnished to satisfy the terms of the order in keeping with the divorce agreement or decree.

The Takeaway

There are certain retirement mistakes that are best avoided and having your savings garnished is one of them. Knowing when retirement accounts can be garnished can help you to preserve your assets.

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 build your nest egg with a SoFi IRA.

FAQ

Can the government legally take your 401(k)?

The federal government can garnish your 401(k) if you owe unpaid tax debts and all other attempts at collection have been unsuccessful. The IRS can also place levies against your property, including homes, vehicles, and other assets to force you to pay what’s owed.

Can a 401(k) be garnished by the IRS?

Yes, the IRS can garnish your 401(k) if you don’t pay federal taxes. Generally, the IRS will give you sufficient notice beforehand so that you have time to either pay the taxes owed or make alternate arrangements for handling your tax bill.

How do I protect my 401(k) from the IRS?

The simplest way to protect a 401(k) from the IRS is to pay your federal taxes on time and not disregard any notices or requests for payment you receive from the government. If you can’t pay in full, you might be able to set up a payment plan or an Offer In Compromise to avoid 401(k) garnishment.

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/Charday Penn

SoFi Invest®

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

SoFi Invest encompasses two distinct companies, with various products and services offered to investors as described below: Individual customer accounts may be subject to the terms applicable to one or more of these platforms.
1) Automated Investing and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser (“SoFi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC.
2) Active Investing and brokerage services are provided by SoFi Securities LLC, Member FINRA (www.finra.org)/SIPC(www.sipc.org). Clearing and custody of all securities are provided by APEX Clearing Corporation.
For additional disclosures related to the SoFi Invest platforms described above please visit SoFi.com/legal.
Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform.
For a full listing of the fees associated with Sofi Invest please view our fee schedule.

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


Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.

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Mar
20
2025

Putting an IRA in a Trust: What You Need to Know

By | Growing Wealth, invest, Investing | Comments Off on Putting an IRA in a Trust: What You Need to Know

While it’s not possible to put an individual retirement account (IRA) in a trust while you’re alive, you can name a trust to be the beneficiary of your IRA assets after you die. This can be done with traditional IRAs as well as Roth IRAs, SEP, and SIMPLE IRAs.

Trusts are an estate-planning tool that can be useful for passing on assets to others after your death. Assets you can transfer to a trust include investments like stocks and bonds, real estate, bank accounts, and antiques — but not IRA accounts, per se.

Rather, the trust would become a beneficiary of the IRA, and assets within the IRA would transfer to the trust after your death, with instructions about how and when those assets should be distributed.

Key Points

•   You can effectively put an IRA in a trust after you die by naming the trust as the beneficiary of the IRA.

•   Naming a trust as the beneficiary of an IRA allows you, the IRA owner, to manage how and when assets will be distributed after your death.

•   This arrangement can be used for any type of IRA: traditional, Roth, SEP, or SIMPLE.

•   Setting up a trust as an IRA beneficiary requires that you establish a trust, identify a trustee, and name the trust beneficiaries, who will then inherit the IRA assets.

•   Benefits include greater control over how IRA assets are distributed; drawbacks include the cost and time involved in setting up a trust.

What Is an IRA?

To recap what an IRA is, it’s an individual retirement account that allows you to save and invest on a tax-advantaged basis.

You can open an IRA at brokerages, banks, and other financial institutions that offer them. There are different types of IRAs you can fund; each with its own set of restrictions:

•   Traditional IRA: A traditional IRA typically allows you to make tax-deductible contributions. Withdrawals are taxed at your ordinary income tax rate.

•   Roth IRA: Roth IRAs do not allow for deductible contributions. However, qualified withdrawals are tax free.

•   SEP and SIMPLE IRAs: SEP and SIMPLE IRAs are designed for small business owners and self-employed individuals. Similar to traditional IRAs, these plans are tax-deferred, but generally have higher contribution limits.

How much can you put in an IRA? The IRS determines how much you can contribute to an IRA each year. The maximum contribution for tax years 2024 and 2025 is $7,000; an additional $1,000 catch-up contribution is allowed for people aged 50 or older.

Anyone with earned income can contribute to a traditional or a Roth IRA. There are some rules to know, however:

•   The amount of traditional IRA contributions you can deduct, if any, is based on your income and filing status and whether you (or your spouse, if married) are covered by an employer’s retirement plan.

•   The amount of Roth IRA contributions you can make each year is determined by your income and tax filing status. If your income is too high, you may be ineligible to contribute to a Roth IRA.

The assets in any of these types of IRAs could be transferred to a trust upon your death, as long as you name the trust the beneficiary of the IRA account.

Recommended: Calculate Your 2024 IRA Contribution Limits

Inherited IRAs

Before deciding whether to transfer your IRA assets to a trust upon your death, you may want to consider the rules for inherited IRAs. Leaving the funds in the IRA to be inherited by a beneficiary such as your spouse, child, or grandchild is also an option, rather than going to the trouble of setting up a trust.

Inherited IRA rules can be complicated, however. When it comes to IRAs, there are two types of beneficiaries: designated and non-designated. Designated includes people, such as a spouse, child, or friend. Non-designated beneficiaries are entities like estates, charities, and trusts.

Depending on the beneficiary’s relationship to you at the time of your death, as well as your age, different rules will apply to how IRA funds can be accessed and distributed. For example, all inherited IRAs obey a set of IRS rules pertaining to the distribution of funds. But when you set up a trust as the beneficiary for an IRA, the funds can be distributed according to parameters that you have established.

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How Does a Trust Work?

A trust is a legal entity you can establish for the protection and distribution of assets after you die. State law determines the process for creating one, but generally here’s how a trust works:

•   You create the trust document on paper, either by yourself or with the help of an estate planning attorney.

•   You name a trustee who will manage trust assets on behalf of the individuals or entities you name as beneficiaries.

•   Once the trust is created, you typically can transfer assets to the trust and control of the trustee. With an IRA, you would name the trust as the beneficiary of the IRA assets.

•   The assets are transferred to the trust upon your death, and the trustee oversees the distribution of the funds to the beneficiaries of the trust.

•   In many cases, the assets in a trust are not subject to probate after you pass. This can streamline the transfer of assets, and also ensure some privacy.

More Facts About Trusts

•   A trustee is a fiduciary, meaning they’re obligated to act in the best interests of you and the trust’s beneficiaries. The trustee has an ethical duty to manage the trust assets according to the terms you spelled out in the trust document.

•   There are different types of trusts you can consider, but generally they can be classified as revocable or irrevocable: A revocable trust can be altered or canceled, while an irrevocable trust is permanent.

•   In estate planning, a trust is separate from a person’s will. A will is a legal document you can use to specify how you’d like assets to be distributed after your death or name a guardian for minor children.

Can an IRA Be Put in a Trust?

An IRA can be put in a trust, but it cannot be transferred to a trust during your lifetime. You can, however, establish a trust and name it as the beneficiary of your IRA.

Naming a trust as the beneficiary of your IRA assets can give you more control over how and when the funds are distributed.

Making a trust the beneficiary to your IRA may be as simple as updating your beneficiary elections with the company that holds your account, assuming the trust has already been created. Your brokerage account may allow you to make a change to your beneficiary designation online or require you to mail in a new beneficiary election form.

What Happens When You Put an IRA in a Trust?

When you name a trust as the beneficiary of an IRA, funds in the IRA account are directed into the trust once you pass away. IRA funds can then be distributed among the trust’s beneficiaries, according to the conditions you set.

Moving an IRA to a trust would not affect the beneficiary designations for any other retirement accounts you might have, such as a 401(k).

Reasons Someone Might Put Their IRA in a Trust

There are different scenarios in which it might make sense to name a trust as your IRA beneficiary, versus passing it on to your heirs directly. You might choose to do so if you:

•   Want to set specific conditions or restrictions on when beneficiaries can access IRA assets.

•   Are interested in creating a legacy of giving through your estate plan and have named one or more charities as trust beneficiaries.

•   Want to protect IRA assets from creditors.

•   Need to set up a trust for a special needs beneficiary.

Control is often the biggest reason for naming a trust as an IRA beneficiary. For example, say one of your children is a spendthrift. If you were to name them as beneficiary to your IRA, then they’d have free access to that money once you pass away.

Instead, you could name the trust as beneficiary, with a stipulation that your child is only able to withdraw a certain amount of money from the IRA each year, or only for a certain purpose (e.g., their education). Or you could specify that the IRA assets should only be released to them when they reach a certain age.

Things to Consider Before Putting an IRA in a Trust

Before setting up a trust for an IRA, it’s important to consider whether it actually makes sense for your situation.

Here are some questions to weigh:

•   What are the goals of the trust, and specifically for the IRA assets?

•   Will you transfer other assets to the trust as well?

•   Which type of trust should you open?

•   Who will benefit from the trust itself?

•   What are the tax implications for beneficiaries?

•   Who is the best choice to act as executor?

It’s also important to factor in the cost of setting up and maintaining a trust. Doing it yourself could save you the expense of hiring an attorney, but that might not be an option if you have a complex estate.

Once the trust is created, there may be additional costs including any fees the executor is entitled to collect.

How Can You Put an IRA in a Trust?

As mentioned, you cannot transfer an IRA into a trust during your lifetime. To plan for a trust to be the beneficiary of an IRA, you’ll need to take the following steps.

1. Open an IRA

If you don’t already have a retirement account, opening an IRA is a good place to start. That’s easy to do, as many brokerages allow you to set up a traditional, Roth, SEP or SIMPLE IRA online. When deciding where to open an IRA, pay attention to:

•   The range of investment options offered

•   What you might pay in fees

•   How easily you’ll be able to access and manage your account (i.e., website, mobile app, etc.)

You can open an IRA with money from a savings account or rollover funds from another retirement account.

Recommended: A Beginner’s Guide to Opening an IRA

2. Establish a Trust

Once you have an IRA, you’ll need a trust to name as its beneficiary. You could create a simple living trust yourself using an online software program. Remember that the rules governing trusts vary depending on the state.

If you have a more complicated estate, you might want to work with an attorney.

Here are some of the key steps to establishing a trust:

•   Select the trust type. As mentioned, there are different types of trusts to choose from. If you’re unsure which one might be right for you, it may be helpful to talk to a professional.

•   Choose a trustee. Your trustee should be someone you can rely on to manage trust assets ethically. It’s possible to name yourself as the trustee in your lifetime, with one or more successor trustees to follow you.

•   Decide which assets to transfer. An IRA isn’t the only thing you might transfer to a trust. You’ll want to take some time to decide what other assets you’d like to include.

•   Set the rules. Again, you have control over what happens to trust assets. So as you create the trust you’ll need to decide what conditions, if any, to place on when beneficiaries can gain access to those assets.

3. Name Trust Beneficiaries

You’ll need to decide who to name as beneficiaries for the trust. Individuals you might name include:

•   Your spouse

•   Children

•   Siblings

•   Other relatives or family members

•   Charities or nonprofit organizations

Remember, these are the people who benefit from the trust directly. When naming beneficiaries, you can further specify which trust assets they will or won’t have access to, including IRA funds.

4. Fund the Trust

After creating the trust, you’ll need to fund it. Funding a trust simply means transferring assets into it.

Depending on the type of trust, you might choose to place real estate, land, antiques, collectibles, bank accounts, or investments under the control of the executor. Remember that once assets are transferred to an irrevocable trust you can’t change your mind later.

5. Name the Trust as Your IRA Beneficiary

Once you’ve established the trust and arranged to fund it, the final step is naming it as a beneficiary on your IRA account. Again, that might be as simple as logging in to your brokerage account to update your beneficiary choices. If you’re not sure how to change your IRA beneficiary to a trust, you can reach out to your brokerage for help.

Tax and Withdrawal Rules for Trust IRAs

When IRA money is held inside a trust, withdrawals may be taxable according to the type of trust it is. If money from IRA assets is distributed to beneficiaries of the trust, they’re responsible for paying any taxes due.

That said, in some cases the trust can assume responsibility for paying taxes on distributions, including elective and required minimum distributions, when required.

For example, say you set up a trust to hold your IRA assets, and specify that a beneficiary cannot receive distributions until age 30. In that scenario, the trust could take distributions from the IRA to pay expenses for the beneficiary and pay any tax owed on those distributions.

Qualified distributions from Roth IRAs are always tax free. IRA withdrawal rules dictate that early or non-qualified withdrawals from a traditional or Roth IRA can trigger a 10% tax penalty. Income tax may also be due on early distributions, unless an exception or exclusion applies. Unlike 401(k)s, IRAs do not allow for loans.

Pros and Cons of Putting an IRA in a Trust

If you have a trust already, then naming it as beneficiary of your IRA may not be that difficult. However, it’s important to consider what kind of advantages you may gain by setting up a trust if you don’t have one yet.
On the pro side, putting an IRA in a trust gives you more control over how your heirs use that money. It can also make it easier to create financial security for a special needs beneficiary. It can protect the assets from creditors.

However, it’s important to consider the cost and the level of effort required to set up a trust for an IRA. A trust may not be necessary if you don’t have a lot of other assets or wealth to pass on.

Pros

 Cons

•   Allows for greater control of trust assets, including IRA funds.

•   Can protect assets from creditors.

•   May make financial planning easier when you have a special needs beneficiary.

•   Setting up a trust for an IRA can be time-consuming and potentially costly.

•   IRA funds only transfer to the trust once you pass away.

•   May not be necessary if you have a simple estate.

The Takeaway

If you have assets in any type of IRA account (traditional, Roth, SEP, or SIMPLE), you can set up a trust so that the assets in the IRA can be transferred to the trust upon your death — and then distributed to beneficiaries according to your wishes.

Just as funding an IRA can help you save for retirement, bequeathing your IRA to a trust can protect your assets and perhaps add to the financial security of the person(s) who later inherits those funds.

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

Easily manage your retirement savings with a SoFi IRA.

FAQ

What happens to an IRA in a trust?

When an IRA is placed in a trust, what really happens is that the trust becomes the beneficiary of the IRA. After your death, the assets are then managed by a trustee according to the direction of the trust creator. The beneficiaries of the trust can access IRA assets, but only according to the instructions specified by the trust document. Beneficiaries of the trust can include spouses, children, or other family members, as well as charities and nonprofits.

Why put an IRA in a trust?

Naming a trust as the beneficiary of an IRA could be the right move if you’d like to have more control over how your beneficiaries access those assets. You may also set up a trust for an IRA if you have a special needs beneficiary, you want to protect those assets from creditors, or you want all of your estate assets to be held in the same place.

How is an IRA taxed in a trust?

IRA tax rules still apply when assets are held in a trust. The difference is that the trust, not the trust beneficiaries, are responsible for any resulting tax liability associated with earnings from IRA assets. Once the trust distributes income from an IRA to beneficiaries, they become responsible for paying any taxes owed on earnings.

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/Milan Markovic

SoFi Invest®

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

SoFi Invest encompasses two distinct companies, with various products and services offered to investors as described below: Individual customer accounts may be subject to the terms applicable to one or more of these platforms.
1) Automated Investing and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser (“SoFi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC.
2) Active Investing and brokerage services are provided by SoFi Securities LLC, Member FINRA (www.finra.org)/SIPC(www.sipc.org). Clearing and custody of all securities are provided by APEX Clearing Corporation.
For additional disclosures related to the SoFi Invest platforms described above please visit SoFi.com/legal.
Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform.
For a full listing of the fees associated with Sofi Invest please view our fee schedule.


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.

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Mar
20
2025
Understanding the Buy Low, Sell High Strategy

Buy Low, Sell High Strategy: An Investor’s Guide

By | Growing Wealth, invest, Investing | Comments Off on Buy Low, Sell High Strategy: An Investor’s Guide

When it comes to investing, there are certain rules of thumb that investors are often encouraged to follow. One of the most-repeated adages in investing is to try and “buy low, sell high.”

Buying low and selling high simply means purchasing securities at one price, then selling them later at a higher price. This bit of investing wisdom offers a relatively straightforward take on how to realize profits in the market. But figuring out how to buy low and sell high — and make this strategy work — is a bit more complicated. Timing the market is not a perfect science, and understanding that implementing a buy low, sell high strategy is more complicated than it sounds is critical to investor success.

Key Points

•   Buy low, sell high is an investment strategy that involves purchasing securities at a lower price and selling them later at a higher price.

•   Timing the market and implementing this strategy can be challenging, as market movements are unpredictable.

•   Understanding stock market cycles and trends can help determine when to buy low and sell high.

•   Technical indicators and moving averages can assist in identifying pricing trends and points of resistance.

•   Investor biases and herd mentality can impact decision-making, so it’s important to make rational choices based on research and analysis.

What Does It Mean to “Buy Low, Sell High”?

“Buy low, sell high” is an investment philosophy that advocates buying stocks or other securities at one price, and then selling them later when they’ve (hopefully) gained value. This is the opposite of buying high and selling low, which effectively results in investors selling stocks at a loss.

When investors buy low and sell high, they may do so to maximize profits. For example, a day trader may purchase shares of XYZ stock at $10 in the morning, then turn around and sell them for $30 per share in the afternoon if the stock’s price increases. The result is a $20 profit per share, less trading fees or commissions. Of course, a price increase of that magnitude within a single day is highly unlikely.

Likewise, a buy and hold investor may purchase stocks, exchange-traded funds (ETFs), or mutual funds and hold onto them for years or even decades. The payoff comes if they sell those securities later for more than what they paid for them.

Recommended: How to Know When to Sell a Stock

4 Tips on How to Buy Low and Sell High

The following tips may help investors develop a buy low, sell high strategy (or avoid the buy high, sell low trap).

1. Investing with the Business Cycle

Understanding stock market cycles and their correlation to the business cycle can help when determining how to buy low and sell high.

The business cycle is the rise and fall in economic activity that an economy experiences over time. If the business cycle is in an expansion phase and the economy is growing, for instance, then stock prices may be on the upswing as well. On the other hand, if it’s become apparent that economic growth has peaked, that could be a signal for stock price drops to come as an economy slows or enters into a recession.

But like most strategies that aim to buy low and sell high, investing with the business cycle can be challenging.

It’s also important to remember that security prices typically don’t move in a straight line up or down in lockstep with a specific phase of the business cycle. Instead, most securities experience a level of volatility, where prices move up or down (or both) in the short term before reverting to the mean.

2. Look at Stock Pricing Trends

Investors who want to buy low may find it helpful to pay attention to pricing trends or technical indicators. Tracking trends for individual securities, for a particular stock market sector, or the market as a whole can help investors get a sense of what kind of momentum is driving prices.

For instance, an investor wondering how low a stock price can go can look at technical indicator trends to identify significant pricing dips or rises in the stock’s history. This could, potentially, help determine when a stock or security has reached its bottom, opening the door for buying opportunities. Conversely, investors may also use trends to evaluate when a stock has likely reached its high point, indicating that it’s prime time to sell.

3. Use Moving Averages

Moving averages are a commonly used indicator for technical analysis. A moving average represents the average price of a security over a set time period. So to find a simple moving average, for example, an investor would choose a time period to measure. Then they’d add up the stock’s closing price each day for that time period and divide it by the number of days.

The moving average formula can help compare stock pricing and determine points of resistance. In other words, they can tell investors where stock prices have topped out or bottomed out over time. Moving averages can smooth out occasional pricing blips that temporarily push stock prices up or down.

Comparing one moving average to another, such as the 50-day moving average to the 200-day moving average, can also help investors to spot sustainable up or down pricing trends. All this can help when deciding when to buy low or sell high.

4. Beware of Investor Bias

An investor bias is a pattern of behavior that influences reactions to a changing market. For example, noise trading happens when an investor makes a trade without considering the state of the market or timing. The investor may follow pricing trends but make trades without considering whether the time is right to buy or sell.

Investors who give in to biases may find themselves following a herd mentality when it comes to making trades. If news of a pending interest rate hike sparks fear in the markets, investors may start panic selling in droves. This can, in turn, cause stock prices to drop. On the other hand, irrational exuberance for a specific stock or type of security can push prices up, causing an unsustainable market bubble.

Investors who can refrain from being influenced by the crowd stand a better chance of making rational decisions about when to buy or when to sell to either maximize profits or minimize losses.

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Pros and Cons of Buy Low, Sell High

A buy low, sell high strategy can work for investors, but while it’s a worthy goal, the implementation can be difficult. Investors who are too focused on timing the stock market can run into difficulties.

Benefits of Buy Low, Sell High

Buying low and selling high can yield these advantages to investors.

•   Potential bargain-buying opportunities. If investor sentiment is causing fear and panic to take over the market and push stock prices down, that could open a door for buy low, sell high investors as they buy the dip. Individuals who ignore market panic could purchase stocks and other securities at a discount, only to benefit later once the market rebounds and prices begin to rise again.

•   Potential for high returns. An investor skilled at spotting trendings and reading the market cycle could reap sizable profits using a buy low, sell high strategy. The wider the gap between a stock’s purchase and sale price, the higher the profit margin.

•   Beat the market. A buy low, sell high approach could also help investors to beat the market if their portfolio performs better than expected. This might be preferable for active traders who forgo a passive or indexing approach to investing.

Disadvantages of Buy Low, Sell High

Attempting to buy low and sell high also holds some risks for investors.

•   Timing the market is imperfect. There’s no way to time the market and which way stock prices will go at any given moment with 100% accuracy. So there’s still some risk for investors who jump the gun on when to buy or sell if stocks have yet to reach their respective lowest or highest points.

•   Being left out of the market. Investors who want to buy low and sell high would not want to buy securities when the market is up. That practice, however, could lead to substantial time out of the market entirely, especially during bull markets.

•   Biases can influence decision-making. Investment biases and herd mentality can wreak havoc in a portfolio if an investor allows it. Instead of buying low and selling at a profit later, investors may find themselves in a buy high, sell low cycle where they lose money on investments.

•   Pricing doesn’t tell the whole story. While tracking stock pricing trends and moving averages can be useful, they don’t offer a complete picture of what drives pricing changes. For that reason, it’s important for investors also to consider other factors, such as consumer sentiment, the possibility of a merger, or geopolitical events, influencing stock prices.

Alternatives to Buy Low, Sell High

Buying low and selling high is not a foolproof way to match or beat the market’s performance. It’s easy to make mistakes and lose money when attempting to time the market unless, of course, you possess a crystal ball or psychic abilities.

There are, however, other ways to invest without trying to time the market. Take dollar-cost averaging, for example. This strategy involves staying invested in the market continuously through its changing cycles. Instead of trying to time when to buy or sell, investors continue making new investments. Over time, the highs and lows in stock pricing tend to average out.

A dividend reinvestment plan (DRIP) is another option. Investors who own dividend-paying stocks may have the opportunity to enroll in a DRIP. Instead of receiving dividend payouts as cash, they’re reinvesting into additional shares of the same stock. Similar to dollar-cost averaging, this approach could make it easier to ride out the ups and downs of the market over time and eliminate the stress of deciding when to buy or sell.

Investing with SoFi

A buy low, sell high investment strategy is fairly simple, in that it involves buying a security at one price, and selling it after, or if, it appreciates. Obviously, there’s no guarantee that any asset will appreciate, so it’s possible investors could lose money – but they could also see positive returns, too.

Further, the strategy can be challenging to implement. Executing a buy low, sell high plan successfully means researching and doing due diligence to understand how the market works.

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

For a limited time, opening and funding an Active Invest account gives you the opportunity to get up to $1,000 in the stock of your choice.

FAQ

Is buying low and selling high a good strategy?

Buying low and selling high can generally be a good strategy as it allows you to take advantage of price movements in the market. However, there is no guarantee that this strategy will always be successful, and you may end up losing money if the market conditions are not favorable.

Is it illegal to buy low and sell high?

There is no law against buying low and selling high. Most investors make money by buying a security at a low price and then selling it later at a higher price.

Why do you sell high and buy low?

Many investors sell high and buy low because they want to take advantage of market conditions to realize a positive return. When the market is high, investors may sell an investment they purchased at a lower price to make a profit.

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/katleho Seisa

SoFi Invest®

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

SoFi Invest encompasses two distinct companies, with various products and services offered to investors as described below: Individual customer accounts may be subject to the terms applicable to one or more of these platforms.
1) Automated Investing and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser (“SoFi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC.
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For a full listing of the fees associated with Sofi Invest please view our fee schedule.

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

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

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