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If you are a young professional, you most likely have multiple savings goals, including retirement and buying your first home. Saving for both can be challenging while also covering your monthly expenses.

When you factor in things like student loan payments and any other debt, not to mention a bit of wiggle room to actually live your life, you might find yourself struggling to balance it all. You don’t want to spread yourself thin with all of the different payments, so it is a good idea to get an understanding of how much home you can afford.

On one hand, if you start saving early for retirement, your money has more time to grow with compound interest. On the other hand, saving for a down payment on a home in today’s market can take years depending upon the purchase price and loan program you choose. According to research by Zillow, it takes about seven years for home buyers to save a 20% down payment for the median value of a home in the U.S.

While 20% down is often thought of as the golden rule for mortgage down payments, these days it’s not required. In 2018, the median down payment on a home was around 5%, according to HousingWire.

There’s one tool of many that can help you reach both your home and retirement goals without requiring you to plan your entire life out before you turn 30: A Roth IRA.

While you’ve probably been told that you should never tap into your retirement money, using cash from a Roth IRA to fast-track your dream of home ownership can be a worthy exception.

Here are a few reasons you may consider leveraging a Roth IRA to become a first-time homeowner without having to delay your retirement goals, and some tips on how to go about it.

The Low-Down on a Roth IRA

IRAs are designed to help you save for retirement. However, a Roth IRA is different from other retirement accounts, such as 401(k)s and traditional IRAs. The main distinction is that you contribute after-tax dollars to a Roth IRA because contributions are not tax deductible.

Since you already paid taxes on the money before putting it into the account, the distributions you take when you retire can be withdrawn tax-free.

Compare that to traditional IRAs where you reap the tax benefits at the time of contribution (they’re deducted from your income on your tax return). The money is taxed when it is withdrawn in retirement, which according to IRS rules is after age age 59 ½.

Under certain circumstances, distributions can also be withdrawn tax free before retirement from a Roth IRA. So long as the account has been open for at least five years distributions can be withdrawn tax free; in the case of disability, if the distribution is made to a beneficiary after the account holder’s death, or in the case that the withdrawal fulfills the requirements for the first time home buyer exception.

But here’s the real game-changer: Unlike a traditional IRA, you can withdraw the money you contributed to a Roth IRA at any time without penalty.

Things get a little more complicated when it comes to your investment earnings. In very specific instances—buying your first home, for one—you are allowed to withdraw up to $10,000 of investment earnings from a Roth IRA with no tax or penalty. The only stipulations are that you must have had the account open for five years, and that the withdrawal is for your very first home.

Traditional IRAs also qualify for the first time home buyer exception. While this exception allows first time home buyers to avoid the 10% penalty, the withdrawal would still be charged income tax. By comparison, if you wanted to withdraw money from your 401(k), you would likely pay taxes and a penalty. However, there are certain situations that allow first-time homebuyers to withdraw from a 401(k). Whichever retirement account you decide to go with, SoFi is here to help. Start contributing to your account today by opening a online ira.

Crunching the Numbers

The best way to explain how this all works is by running the numbers. Let’s say you open a Roth IRA in 2019, contribute $6,000 per year (the current maximum contribution allowed) for five years, and hypothetically earn 7% per year on that money.

After three years, you would have made $18,000 in contributions and earned about $1,300 on your investment. If you continue to save $6,000 for two more years, your contributions would climb to $30,000 and the investment earnings would be around $4,500.

After five years, you can withdraw all of your contributions and up to $10,000 of your investment earnings—but you might not have earned that much yet.

Because this withdrawal benefit is available only once in a lifetime, ideally, you might want to time it so that you only tap into your Roth after you’ve earned the full amount allowable.

One other important thing to keep in mind: Roth IRAs have contribution limits based on your income. For example, if you are single and make less than $129,000 in 2022 , the maximum Roth IRA contribution is $6,000 , even if you participate in a retirement plan through your employer.

If you make more than that, the benefit begins to phase out. If you make more than $144,000 as a someone who is filing single, you’re not able to contribute to a Roth IRA.For more information about IRA accounts and contribution, check out SoFi’s IRA calculator.

To recap, you can withdraw from the investment earnings in your Roth IRA to buy a house if:

•   You are a first time home buyer.

•   It has been at least five years since you first contributed to your Roth IRA (the five year mark starts on January 1st of the year you made your first contribution.)

•   You only withdraw up to $10,000 within your lifetime (pre-retirement).

•   You use the funds to purchase, build, or rebuild a home.

•   You can also use the money to help fund the purchase of a home for your child, grandchild, or parent who qualifies as a first time home buyer.

•   The funds must be used within 120 days of withdrawal.

You can withdraw from the contributions you have made into your Roth IRA at any time, for any reason. There is no tax or penalty, and you can use the money however you like.

Qualifying as a First Time Home Buyer

Even if you have owned a home in the past, you may still be able to qualify as a first time home buyer and withdraw money from your Roth IRA.

According to the IRS, you qualify as a first time home buyer if “you had no present interest in a main home during the 2-year period ending on the date of acquisition of the home which the distribution is being used to buy, build, or rebuild. If you are married, your spouse must also meet this no-ownership requirement.”

So if the acquisition date (the date you enter into a contract to purchase a home or start building a home) is at least two years later than the last date you had any ownership interest in a primary residence home, you can qualify as a first time home buyer under this program.

💡 Recommended: First-Time Home Buyer’s Guide

Things to Consider Before Withdrawing from Your Roth IRA

Although using money from your Roth IRA may seem like an easy source to fund a down payment to purchase your first home, it might not be the right decision for everyone. Before you cash out your Roth IRA, think about how it might broadly impact your financial future.

Where Will Your Money Work the Hardest?

Figure out where your money will be working harder for you. Keep market conditions in mind and compare your mortgage interest rate to the expected long term return you would earn by keeping your money in your Roth IRA.

It can be difficult to predict the stock market, but in the past 90 years, the average rate of return for the S & P 500 has hovered around 7%, and that’s adjusted for inflation. When money is withdrawn from the Roth IRA, the potential for additional growth is eliminated, as is the opportunity to benefit from compounding interest.

The housing market is also subject to fluctuation. Consider things like the location and housing market where you plan to buy. In addition, it’s worth factoring in things like current mortgage rates. Another factor that could influence your decision—mortgage interest is generally tax deductible up to $750,000.

There are a lot of moving pieces to consider when determining whether or not to use your Roth IRA to fund a down payment on a house. Consulting with a financial advisor or other qualified professional could be helpful as you weigh your options.

What Mortgage Options Are Available?

Conventional wisdom suggests a 20% down payment when buying a house. And generally, a larger down payment can mean improved loan terms and lower monthly payments.

But if it requires tapping into your retirement fund you may want to think twice. Before committing to a mortgage, explore your options—some mortgages, such as Fannie Mae’s 97% program, offer as little as 3% for a down payment.

How Will Your Retirement Goals Be Impacted?

Everyone’s financial journey is different. Financial and retirement goals are deeply personal, as are the amount of money an individual is able to save each month. For most people, taking money out of a retirement account early will hinder their progress.

Plus withdrawing the money early means you’ll miss out on the tax free growth offered by a Roth IRA. These negative impacts would need to be weighed against any market appreciation you may gain through homeownership.

How Will Your Retirement Goals Be Impacted?

Everyone’s financial journey is different. Financial and retirement goals are deeply personal, as are the amount of money an individual is able to save each month. For most people, taking money out of a retirement account early will hinder their progress.

Plus withdrawing the money early means you’ll miss out on the tax free growth offered by a Roth IRA. These negative impacts would need to be weighed against any market appreciation you may gain through homeownership.

Making This Strategy Work for You

In a perfect scenario, you wouldn’t choose to become a homeowner at the expense of draining your retirement nest egg. Instead, explore other options such as opening a Roth IRA and treat it almost like a savings account, with the intention of using it for your first home purchase five years (or more) from now.

Unlike other investment accounts, your investment returns are tax free, and—contrary to other retirement products—you wouldn’t even be taxed when it comes time to withdraw, as long as all Roth IRA requirements are met.

Ideally, at the same time, you would continue to fund other retirement accounts, such as the one offered through your employer. Even though home ownership is your immediate goal, you’d likely be working toward other longer-term financial goals (like retirement) as well.

And what if you don’t end up buying a home, or you come up with another source of down payment? A Roth IRA is still a win, since you can leave that money be and let it continue to grow for your retirement.

There are a few other circumstances in which you can likely avoid penalties on a withdrawal. These include qualified higher education expenses, some medical costs, and other hardships. Be sure to consult with your tax professional to clarify any of these exceptions before you move forward.

It’s also worth noting that traditional IRAs also qualify for a first time home buyer exception. This exception allows for up to $10,000 to be withdrawn from the IRA before the age of 59 ½, to purchase a house as a first time home buyer and avoid penalties.

In this case, income tax will likely need to be paid but qualifying withdrawals won’t be subject to the additional 10% early withdrawal penalty.

For most young adults with other financial obligations and an early career-level salary, using a Roth IRA to help save for a down payment will require an examination of personal priorities.

Getting Professional Advice

Only you can determine if using money from your Roth IRA to purchase your first home is a trade-off you are willing to make. As you’re starting to make these large life decisions, it can be very useful to seek out tools and resources to help you through the process.

SoFi offers an integrated platform where you can invest toward your financial goals and get personalized advice from qualified professionals.

With SoFi Invest®, you can set up an IRA or another investment vehicle and choose between active or automated investing, depending on your personal preference and financial goals.

Schedule a complimentary consultation with a SoFi Financial Planner to discuss your goals and develop a plan to help you reach them.

Learn more about SoFi Invest now, and start online investing smartly.

External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.

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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Money talks. And student debt proves you’ve made a massive investment in your career. While most people want to pay student loans off as quickly as possible, it can actually be smart to take a little longer to do so and start saving for retirement sooner.

Sure, retirement isn’t a trendy topic at happy hour. But concerns over investing in your future have a way of creeping up on you. In fact, respondents to a nationwide May 2019 survey , indicate that not saving enough for retirement is a major financial regret (27% of people).

The good news? Paying down your student loans while contributing towards your retirement (e.g. cruising the Mediterranean) is not only possible, but also very doable with the right strategy and just a little bit of patience.

Making At Least Minimum Student Loan Payments

When you have outstanding student loans, your first financial obligation is to make the minimum payments. If you don’t, you risk default, which could harm your credit score and, worse, lead to higher monthly payments and higher interest rates.

Automatic payments are a great way to help ensure you never miss a due date. Autopay can also potentially save you money too, as many private and government loan servicers offer an autopay discount.

Taking Advantage of Employer Matching Benefits

When you start a new job, you’re pummeled with decisions regarding insurance, 401(k) plans, and other benefits. Sure you get a big 401(k) information packet, but many people just scan that material or skip it altogether. A tip: don’t do that. You could miss out on a big opportunity—namely employer-matching benefits.

Many 401(k) plans include a match on employee contributions as a percentage of your annual salary. That is free money each year contributed to your retirement account. To get the match, you usually do have to contribute to the plan yourself. Make sure you don’t leave that money on the table.

Making Extra Loan Payments When Possible

If you have leftover income each month that’s not used for living expenses, loan payment minimums, or to supplement your emergency fund, you could pay more toward your student loans to lower the balance.

For example, if you get a tax refund or a bonus at work, you could put it toward an extra student loan payment. It’s money you don’t rely on for your monthly budget, so use it as a tool to get out of debt as fast as possible.

Making extra payments can save you a little bit in interest every month for the entire life of the loan. To get an idea of how much you would save by paying your loans off early, you can use this student loan calculator.

If you focus on paying off your student loans early, you could save money on interest over the life of the loan and then take those savings and put them towards retirement.

Refinancing Your Student Loans

Another option to help speed up your student loan payoff date and put saved money towards retirement is to refinance your student loans. When you refinance, you take out a brand new loan with a private lender at a new rate and new terms. You can usually refinance both private and federal student loans, but keep in mind you’ll lose access to federal benefits (such as deferment, forbearance, and forgiveness) if you refinance federal student loans with a private lender.

Refinancing can be a great idea if you have a stronger financial profile currently than when you took out your original student loans. If you qualify for a lower interest rate on your new refinanced loan, that could help save money over the life of the loan. Those extra savings could then go towards your retirement savings. You can check out this student loan refinancing calculator to see how much you could save by refinancing.

Stepping Up Retirement Savings

If you keep true to your budget, make student loan payments responsibly, and still have income to set aside at the end of each month—then you could funnel those extra dollars into retirement savings.

For most young professionals, a Roth IRA—a retirement account that allows you to set aside after-tax income for tax-free withdrawal in retirement—can be a solid investment option once you are taking advantage of the full 401(k) employer match. Prepare for retirement with an online IRA from SoFi Invest.

While the name is stodgy, the impact on your bank account is anything but. Roth IRA investments are typically preferred for professionals in their 20s, 30s, and 40s due to how they are taxed. All of the money going into your Roth IRA is taxed, so that when you take out your money in the future it will be tax-free. Younger people are generally in a lower tax bracket, so choosing a Roth IRA could make sense compared to a Traditional IRA where you would be taxed for taking your money out later (when you may be at a higher tax bracket). For more information on which IRA account could be right for you, you can check out our IRA calculator.

For a more complex retirement savings system aimed at investors with retirement dates farther into the horizon, consider the following in terms of priority:

– Investing in your employer 401(k) until reaching a full employer match.

– Putting money in a Roth IRA until reaching the annual maximum or income limit. The 2022 limit is $6,000 for individuals under age 50.

– Dropping more into an employer 401(k) up to the annual maximum, which is $20,500 for 2022.

– Depositing additional dollars into a regular investment account through your favorite brokerage or through SoFi Invest®, which also offers IRAs.

Getting on Track Today

Retirement might seem a long way off, but every year counts when your goal is financial comfort. It’s okay to start small, especially while keeping your loan debt in check.

By taking practical and responsible steps today to put your student loans behind you, you could be debt-free in no time, and on track for that dream retirement.

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A box spread, or long box, is an options strategy in which a trader buys a call and sells a put, which yields a similar trade profile of a long stock trade position. Depending on which strike prices the trader chooses, the spread will come close to the current market value of the stock.

The arbitrage strategy involves a combination of buying a stock at one strike price and selling stock on another strike price. These trade quotes, when connected form a box and make the difference between the two strike prices.

What Is a Box Spread in Options Trading?

A box spread is an arbitrage options trading strategy used by traders attempting to profit by taking little to no risk. To do this, they’re using both long and short strategies.

This options trade involves a four-legged spread, buying a bull call spread with the corresponding bear put spread with both vertical spreads having the same strike prices and expiration dates. The box spread trading strategy is a delta neutral strategy because the trader is neither bearish or bullish, rather the goal of the trade is to lock in a profit.

Recommended: Popular Options Trading Terminology to Know

Traders using box trades are mostly professional traders such as market makers or institutional traders. Box spreads are not the best trading strategy for retail traders because they don’t yield high profits and transaction costs can impact potential returns. Large investment firms have the tools and resources to execute on box spread trades quickly and efficiently.

How Do Box Spreads Work?

To form a box spread, traders start out by buying a bull call spread and a bear put spread. These two options positions have the same strike prices and expiration dates. These trades must take place at the same time to execute a profit effectively.

The bear spread starts out with the trader taking a fixed profit, then after a period of time, the trader loses money then, the trader has a fixed loss. A bull spread is the opposite. Initially the trader incurs a fixed loss, then after a period time, the trader takes a fixed profit.

By taking both of these vertical spread positions, traders can lock in a profit that could potentially be risk free. In both corresponding positions there is either a fixed loss or fixed profit. This is why many traders see box spreads as a low risk trading option.

The bear spread bets that the stock price will decline while the bull spread bets that the stock price will increase. By combining both positions, the profit and loss offset one another, leaving the trader with a small profit, known as the box spread.

Recommended: Guide to Options Spreads: Definition & Types

How to Use the Box Spread Strategy

Traders make money on a box spread based on the difference between the two strike prices. When executed correctly, this is worth the difference in strike prices at expiration. This means, if a trader purchases a $100/$110 vertical spread, that trade would be worth ten dollars at expiration, no more, no less.

This is a guaranteed profit regardless of market volatility or whether the stock price increases or decreases. Traders execute on box spreads when an options contract is mispriced, or more specifically when spreads are underpriced.

If traders believe the outlook of the stock market will change in the future, they may take advantage of a scenario where put options are less expensive than call options, a perfect set up for box spreads.

When the trader believes the spreads are overpriced in relation to their value at expiration, the trader would employ a short box spread, selling a bull call spread with its corresponding bear put spread with the same prices and expiration dates. If the trade yields an amount higher than the combined expiration value of the spreads for selling these two spreads, that’s the trader’s profit.

Box Spread Risks

Many sophisticated investors think of box spread options trading as a risk-free trading strategy but in reality there is no such thing as a risk-less trade. When asset prices are misplaced, this is the ideal time to execute on a box spread. However, the market moves fast and prices can change quickly, so these trades can be difficult to fill and hard to identify in the first place.

Profits from box spreads tend to be small. Traders also need to consider expenses associated with these trades like brokerage fees, taxes, and transaction costs, which could eat at overall returns. This is why box spreads typically make the most sense for institutional traders who are able to do a high volume of trades and manage other expenses.

Another risk for traders to consider is early exercise. This is when a trader decides to exercise an option before expiration. If traders are in a box spread and exercise one of their positions early, they are no longer in a box spread and their risk/reward profile has changed. When employing a box spread trading strategy, early exercise could impact the initial desired outcome.

Box Spread Example

To execute on a box spread, traders buy the call spread at the lower strike price and the put spread at the higher strike price. By making these positions traders are “buying the box.” A lower strike call and a higher strike put have to be worth more to secure a profit.

For example, a trader takes two strike prices $95 and $100 and buys a long $95 call and sells the short $100 call, this is a long $95/$100 vertical spread. To form the box spread, the trader would have to buy the $95/$100 put spread. This means buying the $100 put and selling the $95 put.

These trading positions are synthetic, meaning, the trader copies a position to mimic another position so they have the same risk and reward profile.

For this example, at the $95 strike price, the trader is synthetically long and for the $100 strike, the trader is synthetically short. In other words, the trader in these positions is buying shares at $95 and selling them at $100 and the most the trader can make is $5 at expiration.

Start Trading Stocks with SoFi

The best time to use a box spread is when a trader believes the underlying spreads are underpriced relative to their value at expiration. While considered a low-risk, low-reward trading strategy, box trades may not be the best trading strategy for the retail investor. Still, understanding box spreads can be beneficial to understand the relationship between how different options can work together.

For market participants who want to start trading options, SoFi’s options trading platform is a great way to get started. The platform offers an intuitive, user-friendly design, as well as access to a slew of educational resources about options. Investors can trade options from the mobile app or the web platform.

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