In the financial space, the term “spoofing” refers to an illegal form of stock market and exchange trickery that is often used to change asset prices. Given that the stock markets are a wild place, and everyone is trying to gain an advantage, spoofing is one way in which some traders bend the rules to try and gain an advantage.
Spoofing is also something that traders and investors should be aware of. This tactic is sometimes used to change asset prices – whether stocks, bonds, or other types of assets.
Key Points
• Spoofing is an illegal trading tactic where traders place and cancel orders to manipulate asset prices, influencing market supply and demand dynamics.
• Traders often use algorithms to execute high volumes of fake orders, creating a false perception of demand that can inflate or deflate security prices.
• The practice of spoofing is a criminal offense in the U.S., established under the Dodd-Frank Act, with serious penalties for those caught engaging in it.
• Significant fines have been imposed on both institutions and individual traders for spoofing, highlighting the risks of detection and legal consequences.
• Investors should remain vigilant against spoofing, as it can distort market activity and impact trading strategies, particularly for active traders and day traders.
What Is Spoofing?
Spoofing is when traders place market orders — either buying or selling securities — and then cancel them before the order is ever fulfilled. In a sense, it’s the practice of initiating fake orders, with no intention of ever seeing them executed.
Spoofing means that someone or something is effectively spamming the markets with orders, in an attempt to move security prices.
What’s the Point of Spoofing?
Because stock market prices are determined by supply and demand — for instance, the more demand there is for Stock A, the higher Stock A’s price is likely to go, and vice versa — they can be manipulated to gain an advantage. That’s where spoofing comes in.
By using bots or an algorithm to make a high number of trades and then cancel them before they go through, it’s possible for spoofers to manipulate security prices. For a trader looking to buy or sell a certain security, those valuations may be moved enough to increase the profitability of a trade.
Spamming the markets with orders creates the illusion that demand for a security is either up or down, which is then reflected in the security’s price. Because it would require an awful lot of “spoofed” orders to move valuations, spoofers might rely on an algorithm to place and cancel orders for them, rather than handle it manually. For that reason, spoofing is typically associated with high-frequency trading (HFT).
Is Spoofing Illegal?
If it sounds like spoofing is essentially cheating the system, that’s because it is. In the United States, spoofing is illegal, and is a criminal offense. Spoofing was made illegal as a part of the Dodd-Frank Act, which was signed into law in 2010. Specifically, spoofing is described as a “disruptive practice” in the legislation, straight from the U.S. Commodity Futures Trading Commission (CFTC), which is the independent agency responsible for overseeing and policing spoofing on the markets:
Dodd-Frank section 747 amends section 4c(a) of the CEA to make it unlawful for any person to engage in any trading, practice, or conduct on or subject to the rules of a registered entity that —
(A) violates bids or offers;
(B) demonstrates intentional or reckless disregard for the orderly execution of transactions during the closing period; or
(C) is, is of the character of, or is commonly known to the trade as ‘spoofing’ (bidding or offering with the intent to cancel the bid or offer before execution).
A hypothetical spoofing scenario isn’t too difficult to dream up. For instance, let’s say Mike, a trader, has 100,000 shares of Firm Y stock, and he wants to sell it. Mike uses an algorithm to place hundreds of “buy” orders for Firm Y shares — an algorithm that will also cancel those orders before they’re executed, so that no money is actually spent.
The influx of orders is read by the market as an increase in demand for Firm Y stock, and the price starts to increase. Mike then sells his 100,000 shares at an inflated price — an artificially inflated price, since Mike effectively manipulated the market to increase his profits.
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Consequences of Spoofing
Because spoofing is a relatively easy way to manipulate markets and potentially increase profits, it’s also a fairly common practice for some traders and firms, despite being against the law. That transgression can cost spoofers if and when they’re caught.
For example, one financial institution was fined nearly $1 billion by the SEC during the fall of 2020 after the company was caught conducting spoofing activity in the precious metals market.
But it’s not just the big players that can be on the receiving end of a smack down by the authorities. During August of 2020, an individual day trader was caught manipulating the markets through spoofing activity — actions that netted the trader roughly $140,000 in profits. The trader was ultimately ordered by the CFTC to pay a fine of more than $200,000.
Despite the cases that make headlines, it’s generally hard to identify and catch spoofers. With so many orders being placed and executed at once (especially with algorithmic or computer aid) it’s difficult to identify fake market orders in real time.
How to Protect Against Spoofing
There are a number of parties that are constantly and consistently trying to gain an edge in the markets, be it through spoofing or other means. For investors, it’s worth keeping that in mind while sticking to an investing strategy that works for you, rather than investing with your emotions or getting caught up in the news cycle.
In a time when a single social media post or errant comment on TV can send stock prices soaring or into the gutter, it’s critical for investors to understand what’s driving market activity.
Test your understanding of what you just read.
The Takeaway
Spoofing is meant to gain advantage in the markets, but as such it’s illegal and penalties can be steep. Beyond the spoofers trying to manipulate the market, spoofing has the potential to affect all investors.
If spoofers are manipulating prices for their own gain, that can cause traders and investors to react, not realizing what is going on behind the scenes. While this is more of an issue for active investors or day traders, it’s something to be aware of.
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FAQ
What does spoofing mean in the stock market?
In the financial space, the term “spoofing” refers to an illegal form of stock market and exchange trickery that may be used to alter asset prices. Spoofing is one way in which some traders bend the rules to try and gain an advantage.
Is spoofing legal?
In the United States, spoofing is illegal, and is a criminal offense. Spoofing was made illegal as a part of the Dodd-Frank Act in 2010, and is policed by the Commodity Futures Trading Commission (CFTC).
How can you protect yourself from spoofing?
There’s no foolproof way to protect yourself and your portfolio from spoofing, so it may be best to stick to your investing strategy and try not to get caught up in market hype. Further, you can keep an eye out for unusual market movements, use limit orders, and even reporting suspicious activity to the SEC.
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The Chicago Board Options Exchange (CBOE), is now known as CBOE Global Markets, and it is one of the world’s largest exchanges for trading options contracts, a type of derivative.
Like other global trading companies, CBOE is poised to offer extended trading hours in 2026.
CBOE also operates a range of exchanges and trading platforms for various securities (e.g., equities, futures, digital assets). The CBOE also originated one of the most popular volatility indices in the world, the VIX, a.k.a. the fear index.
While you may already be familiar with the New York Stock Exchange and Nasdaq, those are only two of the exchanges investors use to trade securities. Here’s where the CBOE fits in.
Key Points
• The Chicago Board Options Exchange (CBOE), now CBOE Global Markets, is the world’s largest exchange for trading options contracts and other derivatives.
• CBOE operates a variety of exchanges and trading platforms for different securities, including equities, futures, and digital assets.
• The organization originated the CBOE Volatility Index (VIX), which is one of the most popular volatility indices, also known as the “fear index.”
• Options contracts traded on CBOE are financial derivatives that derive their value from an underlying asset.
• CBOE has a history of innovating tradable products, and plans to offer extended trading hours of almost 24 hours per day, five days a week, starting in 2026.
What Is the CBOE Options Exchange?
CBOE, or CBOE Global Markets, Inc., is a global exchange operator founded in 1973 and headquartered in Chicago. Investors may turn to CBOE to buy and sell both derivatives and equities. In addition, the holding company facilitates trading various securities across an array of exchanges and trading platforms.
What Does CBOE Stand For?
Originally known as the Chicago Board Options Exchange, the organization incorporated as a holding company in 2010, making the options exchange its core asset. The company changed its name to CBOE Global Markets in 2017.
The organization also includes several subsidiaries, such as The Options Institute (an educational resource), Hanweck Associates LLC (a real-time analytics company), and The Options Clearing Corporation or OCC (a central clearinghouse for listed options).
The group has global branches in Canada, England, the Netherlands, Hong Kong, Singapore, Australia, Japan, and the Philippines.
CBOE is also a public company with its stock (CBOE) traded on the CBOE exchange, which investors can find when they buy stocks online.
What Are Options Contracts?
Options are considered derivative investments, as they derive their value from underlying assets. Each option is a contract that can be bought and sold on an exchange (similar to the underlying assets they’re associated with). One option contract generally represents 100 shares of the underlying stock or other security.
Because investors trade option contracts, not the underlying security itself, buying or selling an options contract may enable investors to benefit from price changes in the underlying asset without actually owning it. But trading options is a complex endeavor.
First, an options contract generally costs less than the underlying asset, so trading options can offer investors leverage that may result in potentially amplified gains, depending on how the market moves — or amplified losses. For this reason, options are considered high-risk investments and they’re typically suited to experienced investors.
Founded in 1973, CBOE represented the first U.S. market for traders who want to buy and sell exchange-listed options, in addition to investing in stocks. This was a significant step for the options market, helping it become what it is today.
In 1975, the CBOE introduced automated price reporting and trading along with the Options Clearing Corporation (OCC).
Other developments followed in the market as well. For example, CBOE added put options in 1977. And by 1983, the market began creating options on broad-based indices using the S&P 100 (OEX) and the S&P 500 (SPX).
In 2015, it formed The Options Institute. With this, CBOE had an educational branch to provide investors with information about options. The Options Institute schedules monthly classes and events to help with outreach, and it offers online tools such as an options calculator and a trade maximizer.
From 1990 on, CBOE began creating unique trading products. Notable innovations include LEAPS (Long-Term Equity Anticipation Securities) launched in 1990; Flexible Exchange (FLEX) options in 1993; week-long options contracts known as Weeklys in 2005; and an electronic S&P options contract called SPXPM in 2011.
Understanding What the CBOE Options Exchange Does
The CBOE Options Exchange serves as a trading platform, similar to the New York Stock Exchange (NYSE) or Nasdaq. It has a history of creating its own tradable products, including options contracts, futures, and more. CBOE also has acquired market models or created new markets in the past, such as the first pan-European multilateral trading facility (MTF) and the institutional foreign exchange (FX) market.
The CBOE’s specialization in options is essential, but it’s also complicated. Options contracts don’t work the same as stocks or exchange-traded funds (ETFs). They’re financial derivatives tied to an underlying asset, like a stock, but they have a set expiration date dictating when investors must settle or exercise the contract. That’s where the OCC comes in.
The OCC settles these financial trades by taking the place of a guarantor. Essentially, as a clearinghouse, the OCC acts as an intermediary for buyers and sellers. It functions based on foundational risk management and clears transactions. Under the Security and Exchange Commission (SEC) and Commodity Futures Trading Commission (CFTC), it provides clearing and settlement services for various trading options. It also acts in a central counterparty capacity for securities lending transactions.
CBOE offers a variety of tradable products across multiple markets, including many that it created.
For example, CBOE offers a range of put and call options on thousands of publicly traded stocks, ETFs, and exchange-traded notes (ETNs). Investors may use these tradable products for specific strategies, like hedging. Or, they might use them to gain income by selling cash-secured puts or covered calls.
These options strategies give investors flexibility in terms of how much added yield they want and gives them the ability to adjust their stock exposures.
Investors have the CBOE options marketplace and other alternative venues, including the electronic communication network (ECN), the FX market, and the MTF.
CBOE and Volatility
The CBOE’s Volatility Index (VIX), sometimes called the fear index, is a gauge of market volatility in U.S. equities. It also tracks the metric on a global scale and for the S&P 500. That opens up an opportunity for many traders. Traders, both international and global, use the VIX Index to get a foothold in the large U.S. market or global equities, whether it’s trading or simply exposing themselves to it.
In late 2021, CBOE Global Markets extended global trading hours (GTH) for its VIX options and S&P 500 Index options (SPX) to almost 24 hours per business day, five days a week. They did this with the intention to give further access to global participants to trade U.S. index options products exclusive to CBOE. These products are based on both the SPX and VIX indices.
This move allowed CBOE to meet growth in investor demand. These investors want to manage their risk more efficiently, and the extended hours could help them to do so. With it, they can react in real-time to global macroeconomics events and adjust their positions accordingly.
Essentially, they can track popular market sentiment and choose the best stocks according to the VIX’s movements.
The Takeaway
CBOE, or CBOE Global Markets, Inc., is more than just a hub of global exchanges. CBOE facilitates the trading of various securities across an array of equity and derivatives trading platforms. In addition, CBOE offers educational training and product innovations.
Like other global exchanges, CBOE will offer extended trading hours in 2026, ranging from 23 hours to 24 hours per day, five days a week.
SoFi’s options trading platform offers qualified investors the flexibility to pursue income generation, manage risk, and use advanced trading strategies. Investors may buy put and call options or sell covered calls and cash-secured puts to speculate on the price movements of stocks, all through a simple, intuitive interface.
With SoFi Invest® online options trading, there are no contract fees and no commissions. Plus, SoFi offers educational support — including in-app coaching resources, real-time pricing, and other tools to help you make informed decisions, based on your tolerance for risk.
CBOE is the biggest options exchange worldwide. It offers options contracts on equities, indexes, interest rates, and more. CBOE is also known for creating the so-called fear index, or VIX — a widely used measure of market volatility.
Is the CBOE only for options trading?
No. While CBOE is known primarily for its roles as an options trading platform, it also operates four equity exchanges, as well as other trading platforms like the CBOE Futures Exchange (CFE), for trading this type of derivative.
What are derivatives?
The term derivatives is used to describe four main types of investments that are tied to underlying investments: futures, options, swaps, and forwards. Each of these types of derivatives can be used to trade an underlying asset such as stocks, foreign currencies, commodities, and more, without owning the underlying security.
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SoFi Invest is a trade name used by SoFi Wealth LLC and SoFi Securities LLC offering investment products and services. Robo investing and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser. Brokerage and self-directed investing products offered through SoFi Securities LLC, Member FINRA/SIPC.
For disclosures on SoFi Invest platforms visit SoFi.com/legal. For a full listing of the fees associated with Sofi Invest please view our fee schedule.
Options involve risks, including substantial risk of loss and the possibility an investor may lose the entire amount invested in a short period of time. Before an investor begins trading options they should familiarize themselves with the Characteristics and Risks of Standardized Options . Tax considerations with options transactions are unique, investors should consult with their tax advisor to understand the impact to their taxes.
S&P 500 Index: The S&P 500 Index is a market-capitalization-weighted index of 500 leading publicly traded companies in the U.S. It is not an investment product, but a measure of U.S. equity performance. Historical performance of the S&P 500 Index does not guarantee similar results in the future. The historical return of the S&P 500 Index shown does not include the reinvestment of dividends or account for investment fees, expenses, or taxes, which would reduce actual returns.
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There once was a time when retirement meant leaving your job permanently, either when you reached a certain age or you’d accumulated enough wealth to live without working. Today’s retirement definition is changing, and it can vary widely depending on your vision and your individual financial situation.
It’s important for each person to develop their own retirement definition. That can help you establish a roadmap for getting from point A to point B, with the money you have, and in the time frame you’re expecting.
Key Points
• Retirement’s definition may vary based on individual financial situations and personal visions.
• Retirement has both financial and lifestyle aspects that need to be considered in its definition.
• Being retired means relying on savings, investments, and perhaps federal benefits for income instead of a regular paycheck.
• Retirement doesn’t necessarily mean individuals completely leave the labor force, as some retirees may have part-time jobs or pursue new careers.
• Retirement statistics show that a significant portion of retirees rely on Social Security, and savings levels vary among individuals.
Retirement Definition
Retirement’s meaning may shift from person to person, but the bottom line is that retirement has a financial side and a personal or lifestyle side. It’s important to consider both in your definition of retirement.
Retirement and Your Finances
Being retired or living in retirement generally means relying on accumulated savings and investments to cover expenses rather than counting on a paycheck or salary from employment. Depending upon their retirement age, an individual’s income may also include federal retirement benefits, such as Social Security and other options.
Retiring doesn’t necessarily mean that a person stops working completely. Some retirees might have a part-time job or side hustle, or they may choose to start a small business once they retire from their career. But the majority of their retirement income may still come from savings or federal benefits.
Retirement and Your Lifestyle
Some people embark on a new life or a new career in retirement, complete with new goals, a new focus, sometimes in a brand-new location. But retirement doesn’t have to be a period of reinvention. It depends on how you view the purpose and meaning of retirement. Many people enjoy this period as a time to slow down and enjoy hobbies or priorities that they couldn’t focus on before.
Consider the notion of moving in retirement. While strolling on sandy, sunlit beaches is depicted as a retirement ideal, many people don’t want to move to get there. In fact, 75% of people 50 and older want to remain in their current homes as they get older, according to a 2024 survey by the AARP.
Qualified Retirement Plan Definition
A qualified retirement plan provides you with money to pay for future expenses once you decide to retire from your job. The Employment Retirement Security Act (ERISA) recognizes two types of retirement plans:
Defined Contribution Plans
In a defined contribution plan, the amount of money you’re able to withdraw in retirement is determined by how much you contribute during your working years, and how much that money grows as it’s invested. A 401(k) plan is the most common type of defined contribution plan that employers can offer to employees.
There are other kinds of retirement plans that fall under the defined contribution umbrella. For example, if you run a small business, you might establish a Simplified Employee Pension (SEP) plan for yourself and your employees. Profit sharing plans, stock bonus plans, and employee stock ownership (ESOP) plans are also defined contribution plans.
A 457 plan is another defined contribution option. They work similar to 401(k) plans, in that you decide how much to contribute, and your employer can make matching contributions. The main difference between 457 and 401(k) retirement accounts is who they’re designed for. Private employers can offer 401(k) plans, while 457 plans are reserved for state and local government employees.
Defined Benefit Plans
A defined benefit plan (typically a pension) pays you a fixed amount in retirement that’s determined by your years of service, your retirement age, and your highest earning years. Cash balance plans are another type of defined benefit plan.
Generally speaking, defined benefit plans have been on the wane in the last couple of decades, with more of the responsibility for saving falling to workers, who must contribute to defined contribution plans.
Retirement Statistics
Retirement statistics can offer some insight into how Americans typically save for the future and when they retire. Here are some key retirement facts and figures to know, according to the Federal Reserve’s Report on the Economic Well-Being of U.S. Households in 2024, which was released in May 2025:
• 27% of adults considered themselves to be retired in 2024, though some were still working in some capacity.
• 53% of adults said they retired to do something else, while 49% said they’d reached their normal retirement age.
• 78% of retirees relied on Social Security for income, increasing to 91% among retirees age 65 or older.
• 61% of adults had savings in a tax-preferred retirement account, including 401(k)s and IRAs.
• 35% of non-retirees felt that they were on track with their retirement savings efforts.
So, how much does the typical household have saved for retirement? According to the Transamerica Center for Retirement Studies, the estimated median retirement savings among American workers is $54,000. Just 27% of adults who are traditionally employed and 24% of self-employed individuals have saved $250,000 or more for retirement.
Saving for Retirement
Saving for retirement is an important financial goal. While Social Security may provide you with some income, it’s not likely to be enough to cover all of your expenses in retirement — particularly if you end up needing extensive medical care or long-term care. In January 2025, according to the Social Security Administration, the average monthly benefit amount was $1,976.
Financial experts often recommend saving 15% of your income for retirement but your personal savings target may be higher or lower, depending on your goals. The longer you have to save for retirement, the longer you have to take advantage of compounding interest. That’s the interest you earn on your interest and it’s one of the keys to building wealth.
Selecting a retirement plan is the first step to getting on track with your financial goals. When saving for retirement, you can start with a defined benefit or defined contribution plan if your employer offers either one. Defined contribution plans can be advantageous because your employer may match a percentage of what you save. That’s free money you can use for retirement.
If you don’t have a 401(k) or a similar plan at work, a retirement investment account, otherwise known as an individual retirement account (IRA), is a general option.
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Retirement Investment Accounts
A retirement investment account is an account that enables you to save money for the future, but it isn’t considered a federally qualified retirement plan, like a 401(k). IRAs are tax-advantaged investment accounts that you can use to purchase mutual funds, exchange-traded funds (ETFs), and other securities.
There are two main types of IRAs you can open: traditional and Roth IRAs. A traditional IRA allows for tax-deductible contributions in the year that you make them. Once you retire and begin withdrawing money, those withdrawals are taxed at your ordinary income tax rate.
Roth IRAs don’t offer a deduction for contributions because you contribute after-tax dollars. You can, however, make 100% tax-free qualified withdrawals in retirement. This might be preferable if you think you’ll be in a higher tax bracket once you retire.
For tax year 2025, individuals can contribute up to $7,000 in a Roth and traditional IRA. Those aged 50 and up can contribute up to $8,000, which includes $1,000 of catch-up contributions. For tax year 2026, individuals can contribute up to $7,500 in a Roth IRA and traditional IRA, and those 50 and over can contribute up to $8,600.
You can open an IRA online, or at a brokerage, alongside a taxable investment account for a comprehensive retirement savings picture.
Pros of Retirement Investment Accounts
Opening an IRA could make sense if you’d like to save for retirement while enjoying certain tax benefits.
• If you’re in a higher income bracket during your working years, being able to deduct traditional IRA contributions could reduce your tax liability.
• And not having to pay tax on Roth IRA withdrawals in retirement can ease your tax burden as well if you have income from other sources.
• IRA accounts often give you more flexibility in terms of your investment choices.
Cons of Retirement Investment Accounts
While IRAs can be good savings vehicles for retirement, there are some downsides.
• Both types of accounts have much lower contribution limits compared to a 401(k) or 457 plan. Annual contribution limits for a 401(k) are $23,500 in 2025 and $24,500 in 2026 for those under age 50. Those aged 50 and over can make an additional catch-up contribution of $7,500 per year, to a 401(k) for 2025, and an additional $8,000 for 2026. And in 2025 and 2026, those aged 60 to 63 only may contribute an additional $11,250 instead of $7,500 and $8,000 respectively, thanks to SECURE 2.0.
• With traditional IRAs, you must begin taking required distributions (RMDs) based on your account balance and life expectancy starting at age 73 (401(k)s have a similar rule). If you fail to do so, you could incur a hefty tax penalty.
• Roth IRAs don’t have RMDs, but your ability to contribute to a Roth may be limited based on your income and tax filing status.
Investing for Retirement With SoFi
However you choose to define your retirement, making a financial roadmap will help you get the retirement you want.
SoFi Invest offers traditional and Roth investment accounts to help you build the future you envision. You can also open a SEP IRA if you’re self-employed and want to get a jump on retirement savings. Another way to keep track of your retirement savings is to roll over your old accounts to a rollover IRA, so you can manage your money in one place.
SoFi makes the rollover process seamless and straightforward. There are no rollover fees, and you can complete your 401(k) rollover without a lot of time or hassle.
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).
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FAQ
What is the meaning of retirement?
Retirement generally means leaving your job or the workforce, and living off your savings and investments, but that definition is changing for some. Some people may choose to continue working in retirement, though it may not be their primary source of income. Others may shift their work to focus more on lifestyle changes.
How common is retirement?
According to the Federal Reserve, about 27% of adults considered themselves to be retired in 2024, though some were still working in some capacity. Of these, 53% said they had retired to do something else, while 49% said they’d reached their normal retirement age.
How does retirement work?
When someone retires, they stop working at their job. Or, in the case of a business owner, they hand the business over to someone else. At that point, it’s up to them to decide how they want to spend their retirement, which might include taking care of family, traveling, working part-time, or exploring new hobbies. Their sources of income might include savings, investments, a pension, and Social Security benefits.
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INVESTMENTS ARE NOT FDIC INSURED • ARE NOT BANK GUARANTEED • MAY LOSE VALUE
SoFi Invest is a trade name used by SoFi Wealth LLC and SoFi Securities LLC offering investment products and services. Robo investing and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser. Brokerage and self-directed investing products offered through SoFi Securities LLC, Member FINRA/SIPC.
For disclosures on SoFi Invest platforms visit SoFi.com/legal. For a full listing of the fees associated with Sofi Invest please view our fee schedule.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.
Mutual Funds (MFs): Investors should carefully consider the information contained in the prospectus, which contains the Fund’s investment objectives, risks, charges, expenses, and other relevant information. You may obtain a prospectus from the Fund company’s website or clicking the prospectus link on the fund's respective page at sofi.com. You may also contact customer service at: 1.855.456.7634. Please read the prospectus carefully prior to investing.Mutual Funds must be bought and sold at NAV (Net Asset Value); unless otherwise noted in the prospectus, trades are only done once per day after the markets close. Investment returns are subject to risk, include the risk of loss. Shares may be worth more or less their original value when redeemed. The diversification of a mutual fund will not protect against loss. A mutual fund may not achieve its stated investment objective. Rebalancing and other activities within the fund may be subject to tax consequences.
Exchange Traded Funds (ETFs): Investors should carefully consider the information contained in the prospectus, which contains the Fund’s investment objectives, risks, charges, expenses, and other relevant information. You may obtain a prospectus from the Fund company’s website or by emailing customer service at [email protected]. Please read the prospectus carefully prior to investing.
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.
If you’re looking for ways to invest $1,000, there are numerous options available, including stocks, bonds, Treasurys, and more. But how do you get started? And which option — or options — may be right for you?
While it’s impossible to predict how the market will perform in 2026, many investors have taken note of the economic and market conditions in 2025, e.g., increased interest in tech stocks, a slower real estate market, the impact of tariffs on global markets, and so on. Inevitably, these trends are likely to change, but understanding the different market dynamics can be valuable.
Read on to learn about different ways to invest $1,000 — or any other amount — how they work, and the pros and cons of each one to help you make an informed decision to help reach your financial goals.
Key Points
• Align investments with financial goals, investment timeline, and risk tolerance.
• Investing in an emergency fund can help cover unexpected costs.
• A 529 plan is a tax-advantaged savings account that families can invest in to save for education expenses.
• ETFs tend to offer ease of trading, lower fees, and potential tax efficiency.
• Contributing to tax-advantaged IRAs could help build retirement savings.
A Look-Ahead for Investing in 2026
There’s a reason this classic investing mantra has stood the test of time: “Past performance is no guarantee of future returns.” Will the trends of 2025 — interest in artificial intelligence, worries about interest rates — persist in the year to come? It’s hard to say, and there’s no guarantee.
A better approach for investors who are curious about ways to invest in 2026 and beyond is not to focus on short-term trends, but rather use those markers as information about investor behavior and markets in general.
Getting to know those basics can help you make choices in light of your own goals and financial circumstances, as will the following 10 suggestions.
1. Getting Into the Stock Market With Index Funds
Investors who want to ease into the stock market may want to consider index funds. Investing in index funds is a passive investing strategy that may be less risky than buying individual stocks or securities. Index funds follow a market index and track it to mirror its performance.
Why S&P 500 Index Funds Might Make Sense
S&P 500 index funds track the S&P 500 index. These funds give investors exposure to the stock performance of about 500 of the leading companies on the market.
When you buy shares of an index fund, your money is basically invested in the many companies that make up the index. This helps provide some diversification to an investor’s portfolio.
Index fund investing has some advantages, such as ease of management and relatively low entry costs in some cases. However, investing in S&P 500 index funds does have risks. In the event of a broad market downturn, for instance, your portfolio could take a significant hit, depending on its specific makeup.
The Long-Term Benefits of Tracking the Market
Broad index funds track the performance of the market over time, which tends to go up based on historical data. As for the S&P 500, it has grown over time — but not without some hiccups along the way. The S&P 500 has averaged about 10% annually over time — or about 7% a year when adjusted for inflation.
2. Investing in ETFs
Exchange-traded funds, or ETFs, are another potential option for investors looking at how to invest $1,000. ETFs offer a way to gain broad exposure to a potentially wide variety of different types of investments, such as different sectors or asset classes.
How ETFs Offer Accessibility to Beginners
Purchasing shares of an ETF works much like purchasing shares of an individual company’s stock. Investors can find them on online investment platforms and as investment options for many retirement accounts, for example.
However, like other types of investment vehicles, ETFs have pros and cons, and it’s important to weigh the potential benefits and drawbacks. As for the advantages, ETFs can be easy to trade, offer a degree of built-in diversification, tend to have lower fees, and may be more tax-efficient than some other assets like mutual funds.
Disadvantages of ETFs may include lack of exposure to certain industries or asset types, or conversely, ready access to ETFs that might be based on highly complex and high risk assets or strategies. It’s important to research investments thoroughly before putting money in them, including ETFs. ETFs may also not precisely match the performance of the index they’re tracking — or might on some occasions go more widely offtrack.
Comparing Popular ETF Options
Interested investors can explore broad index-focused ETFs, or any number of others. There are ETFs for bonds, real estate, oil, other commodities, and even currency, among other types.
For example, say an investor wants exposure to gold mining stocks. But researching all of the different mining companies out there, examining their plans, management, profitability, and more could be overwhelming. Such an investor may want to consider ETFs that include some gold mining stocks instead.
3. Creating an Emergency Fund
Having an emergency fund is important. When unexpected expenses or situations pop up, as they inevitably do, an emergency fund can help cover those costs.
For instance, a person might need surgery and end up with a big medical bill they weren’t planning on. Or perhaps they get laid off from your job. The money in an emergency fund can help you cover the bills.
How Big Your Fund Should Be
Most financial professionals advise having three to six months’ worth of expenses in an emergency fund. It’s possible to start by investing $100, $1,000, or even $50 to get started, and commit to adding more of a cushion over time. It’s also possible to automate deposits, which can help you save.
4. Securing the Future With Retirement Funds
A tax-advantaged retirement account is designed to help people save for the future. Investors could consider opening an IRA or enrolling in an employer-sponsored account like a 401(k). There are also certain types of accounts, like SEP and SIMPLE IRAs, that are designed to help small business owners and people who are self-employed save for the future.
The Advantage of IRAs
There are different kinds of individual retirement accounts, including traditional and Roth IRAs. Both types of IRAs are tax-advantaged, but there are differences between them. With a traditional IRA, an individual contributes pre-tax dollars. These contributions are generally tax deductible because they lower taxable income. The money in the account grows tax deferred, and the individual pay taxes on withdrawals in retirement.
Contributions to a Roth IRA are made with after-tax dollars and are typically not tax deductible. The money grows in the account tax-free and withdrawals in retirement are also tax-free — as long as the account has been open for at least five years.
Maximizing 401(k) Matches
Maxing out a 401(k) retirement plan can be another option for investors to consider. Some employers match employee contributions to 401(k) accounts up to a certain amount. This employer match is essentially free money. Investors who have $1,000 to invest may want to consider putting it in a 401(k), if they have access to one, especially if doing so could help them get their employer’s match.
5. Stepping Into Tech With Robo Advisors
Robo advisors are not robots, but rather sophisticated computer algorithms that pick investments for investors and help them manage those investments. Using this kind of technology may be appealing to some investors because it takes much of the guesswork, calculation, and research out of the investing process — while still offering high-quality professional guidance.
Simplifying Investments With Technology
Generally, an online robo advisor will ask an investor some questions about their investment goals, risk tolerance, and desired retirement age (or the time until they’ll need the money for another goal). Then, based on those answers, the platform generates a portfolio, and the amount of money the investor would like to invest will be allocated accordingly.
There are typically several different pre-set portfolios robo advisors recommend to investors, ranging from conservative risk, to moderate risk, to aggressive risk.These portfolios usually provide a mix of assets that align with an investor’s tolerance for risk, which is determined by the answers given to the robo advisor’s questions.
For example, conventional wisdom says that younger investors may take more risk because they have more time to make up for potential losses. On the other hand, older investors who are closer to retirement are generally advised to be more conservative, since steep losses could compromise their retirement plans.
Disadvantages of Automated Portfolios
It’s important to understand the potential downsides of using a robo advisor. For example, there may be limited personalization and flexibility, which could be a turn-off for investors who want to take a more active hand in their portfolio.
Typically, there is also a lack of human input, so an investor may not be able to speak with someone at their brokerage as easily as they might like. And finally, robo advisors generally have fees and costs investors should be aware of, though they are typically much less than those of a financial advisor.
6. Paying Down High-Interest Debts
Paying down debt may not seem like an “investment” in the traditional sense. However, an individual could think of it as an investment in their financial future since wiping out debt could free up money that might otherwise go toward interest payments. They could then invest or save that money instead.
There are a lot of different strategies to pay down debt, but the process can start with some simple steps: Create a budget, set goals, and stick to them.
In terms of specific methods, one common debt-payoff strategy is the snowball method, which involves paying debt with the lowest overall balance first, and then moving on to the next lowest debt and so on.
With the avalanche method, an individual focuses on paying off the debt with the highest interest rate first, and then moves to the debt with the next highest rate.
7. Investing in Stocks
Stocks are shares of ownership in a company. An investor interested in buying stocks could do research and find a company that they believe will appreciate in value over time and then buy shares of that stock through a brokerage account. However, while stocks may potentially offer a bigger return on investment than some other assets, such as certain bonds, they can also be highly volatile and involve more risk.
Fractional Shares
Because of their risk and volatility, stocks may be best for those with a diversified portfolio who are willing to take on more risk. Another option is something called fractional shares. A fractional share is less than one whole equity share of stock. For example, it might be 0.42 of a share of a stock.
Fractional shares allow access to stocks that might otherwise be out of reach because of their expense. For beginning investors, they could be a way to invest small amounts of money into part of a share of stock. If a stock is $100 a share, for instance, an investor could potentially buy 0.50 of a share for $50, hypothetically.
There are some disadvantages of fractional shares to be aware of. Among other drawbacks, fractional shares may incur higher transaction fees. Also, some fractional shares might be less liquid than full shares of stock, making them more difficult or time consuming to sell. Investors should carefully consider the pros and cons of fractional shares before investing.
8. Exploring Passive Income Opportunities
Passive income is income that typically comes from a source that requires less time and effort than most regular jobs do. It could be a side hustle, renting out something a person owns like their car or bike, or starting a blog or YouTube channel. Some passive income opportunities may require a little capital to get off the ground; even so, many can be started for $1,000 or less.
Getting Started With Passive Ventures
There are dozens of ways to put money to work and start a passive income venture. In addition to the passive income ventures mentioned above, alternatives include publishing an ebook, selling homemade artwork or clothing online, or creating an online course around something that teaches a skill, like photography.
Some of these options will require a little start-up cash, but they could end up bringing in some extra money.
Low-Investment Ideas for Passive Earnings
Some other potential ways to earn passive income is through certain investments with $1,000. For example, if an individual owns stocks or ETFs that pay dividends, those dividends are considered passive income. Or, if they own property, they could use their $1,000 to spruce it up and then rent it out and possibly earn passive income that way.
Just remember, investing involves risk, as does starting a new business venture. There are no guarantees that it will be successful.
9. Investing in Your Child’s Education With a 529 Plan
For those with children, investing in a 529 college savings plan can be a way to help pay for their education, especially as school costs continue to rise. Think of it as investing in their future.
The Basics of 529 Plans
A 529 plan is a tax-advantaged savings account that allows families to save for education expenses. Contributions to the account grow tax-free, and as long as the money is withdrawn for qualified education expenses like tuition, books, and room and board, the withdrawals are also tax-free.
529 plans aren’t just for college. They can be used to help pay for some K-12 expenses and also for trade schools.
Long-Term Benefits for Your Family
529 plans can be used to ease the financial burden of school and/or college, and they offer tax-free growth. With the rising costs of schooling, saving and investing for tuition early on can be helpful.
Beneficiaries of 529 plans (aka your children) can even withdraw up to $10,000 tax-free (this is a lifetime amount) to help repay their student loans later on, thanks to the SECURE Act. And any unused 529 funds can be used to fund a Roth IRA for the student.
10. Consider Bonds and T-Bills
When deciding how to invest $1,000, individuals may want to explore lower-risk investments, such as savings bonds and T-bills.
The Stability of Government Bonds
Savings bonds are issued by the federal government, and they are generally considered to be one of the least-risky investment options. Individuals are essentially guaranteed to get back the amount they invested in them. They buy these bonds for their face value and the bonds pay interest over a specific period of time. When the bonds mature, the individual gets their principal back.
A Treasury bill is a short-term debt obligation — similar to a loan — issued by the U.S. government. T-bills typically mature in one year or less, and at that point a person gets back the amount they invested plus interest.
Making Your Investments Work Harder
Choosing how to invest requires some research and careful consideration. And monitoring investments regularly could help an individual make sure they are satisfied with them. If an investment option isn’t working, they can always make a change.
When to Pivot Your Investment Strategy
Reasons to pivot or change an investment strategy include a change in financial goals (maybe an individual wants to start saving for a house, for instance), a change in financial situation (perhaps job loss — or landing a new job with a higher salary), or a major life event (like getting married or having a baby). These can all be times for an individual to reevaluate strategy and decide whether they need to switch it up to meet their new priorities.
It might also be time to pivot to a new strategy if there are changes in the market or investments aren’t performing the way an investor hoped they would.
A person’s appetite for risk and/or investment timeline may change as well. For example, as they get closer to retirement, they may want to be more conservative with their investments and pivot to lower-risk options.
The Takeaway
There are many different ways to invest $1,000, including investing in the market, contributing to a retirement account, or launching a passive income strategy. An individual could consider different options to help determine what works best for their current financial situation and priorities.
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).
¹Opening and funding an Active Invest account gives you the opportunity to get up to $3,000 in the stock of your choice.
FAQ
What is the safest investment with the highest return?
There is no single safe investment with a guaranteed highest return. An investor should consider their own personal risk tolerance, investing timeline, and goals when choosing an investment. However, generally speaking, lower-risk investment options could include savings bonds and T-bills that are backed by the federal government, give an investor back the principal they invested, and pay interest.
Where should I put $1,000 right now?
Where to put $1,000 right now is up to you and depends on your personal situation, investing timeline, risk tolerance, and financial goals. However, some options to potentially consider include starting an emergency fund if you don’t yet have one, putting the money in a retirement account like a 401(k) or IRA to save for your future, or investing in a 529 plan for your child’s education.
What is the smartest thing to do with a lump sum of money?
What you choose to do with a lump sum of money depends on your financial goals and personal circumstances. Some potential options include using the money to pay off debt, start an emergency fund, or put into a retirement account.
INVESTMENTS ARE NOT FDIC INSURED • ARE NOT BANK GUARANTEED • MAY LOSE VALUE
SoFi Invest is a trade name used by SoFi Wealth LLC and SoFi Securities LLC offering investment products and services. Robo investing and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser. Brokerage and self-directed investing products offered through SoFi Securities LLC, Member FINRA/SIPC.
For disclosures on SoFi Invest platforms visit SoFi.com/legal. For a full listing of the fees associated with Sofi Invest please view our fee schedule.
Investment Risk: Diversification can help reduce some investment risk. It cannot guarantee profit, or fully protect in a down market.
Mutual Funds (MFs): Investors should carefully consider the information contained in the prospectus, which contains the Fund’s investment objectives, risks, charges, expenses, and other relevant information. You may obtain a prospectus from the Fund company’s website or clicking the prospectus link on the fund's respective page at sofi.com. You may also contact customer service at: 1.855.456.7634. Please read the prospectus carefully prior to investing.Mutual Funds must be bought and sold at NAV (Net Asset Value); unless otherwise noted in the prospectus, trades are only done once per day after the markets close. Investment returns are subject to risk, include the risk of loss. Shares may be worth more or less their original value when redeemed. The diversification of a mutual fund will not protect against loss. A mutual fund may not achieve its stated investment objective. Rebalancing and other activities within the fund may be subject to tax consequences.
Exchange Traded Funds (ETFs): Investors should carefully consider the information contained in the prospectus, which contains the Fund’s investment objectives, risks, charges, expenses, and other relevant information. You may obtain a prospectus from the Fund company’s website or by emailing customer service at [email protected]. Please read the prospectus carefully prior to investing.
S&P 500 Index: The S&P 500 Index is a market-capitalization-weighted index of 500 leading publicly traded companies in the U.S. It is not an investment product, but a measure of U.S. equity performance. Historical performance of the S&P 500 Index does not guarantee similar results in the future. The historical return of the S&P 500 Index shown does not include the reinvestment of dividends or account for investment fees, expenses, or taxes, which would reduce actual returns.
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.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
Third Party Trademarks: Certified Financial Planner Board of Standards Center for Financial Planning, Inc. owns and licenses the certification marks CFP®, CERTIFIED FINANCIAL PLANNER®
¹Claw Promotion: Probability of Member receiving $1,000 is a probability of 0.026%; If you don’t make a selection in 45 days, you’ll no longer qualify for the promo. Customer must fund their account with a minimum of $50.00 to qualify. Probability percentage is subject to decrease. See full terms and conditions.
Both Thrift Savings Plans (TSPs) and Individual Retirement Accounts (IRAs) come in traditional and Roth versions. One of the main differences between a Roth TSP vs. Roth IRA is who can contribute. Federal employees and members of the military can save in a Roth TSP. Anyone with earned income that’s within IRS income thresholds can contribute to a Roth IRA.
In either case, your contributions are not tax-deductible, but you can make tax-free qualified withdrawals when you retire.
Key Points
• Roth TSPs are available to federal employees and military members, while Roth IRAs are accessible to anyone with earned income within IRS income thresholds.
• Contributions to both Roth TSPs and Roth IRAs are made with after-tax dollars, allowing for tax-free qualified withdrawals in retirement.
• Roth TSPs have higher annual contribution limits and allow for employer matching contributions, unlike Roth IRAs.
• Roth IRAs typically offer a broader choice of investment options than Roth TSPs.
• Choosing between a Roth TSP and Roth IRA depends on employment status, contribution capacity, and retirement goals.
What Are Roth Thrift Savings Plans (TSP)?
The Thrift Savings Plan is a retirement plan that’s designed specifically for federal employees. You’re generally eligible to contribute to a TSP if you’re covered by the Federal Employees’ Retirement System (FERS) or the Civil Service Retirement System (CSRS). Members of the military can also save for retirement in a TSP.
A Roth TSP allows you to contribute after-tax dollars. When you make qualified withdrawals in retirement, those withdrawals are not taxed. Earnings are considered qualified if:
• At least 5 years have passed since January 1 of the first year in which you began making contributions, and
• You’re 59 ½ or older, permanently disabled, or deceased.
Contributions are made through elective salary deferrals, similar to a 401(k) plan. Catch-up contributions are allowed for workers aged 50 or older. Under the SECURE 2.0 Act, a higher catch-up contribution limit applies in 2025 and 2026 for those ages 60 to 63. The IRS determines how much you can save in a Roth TSP each year. Here are the contribution limits for 2025 and 2026.
2025
2026
Elective Deferrals
$23,500
$24,500
Catch-Up Contributions
$7,500
$8,000
$11,250 for those ages 60-63
Annual Additions Limit
$70,000
$72,000
The annual additions limit is the total amount you can contribute in a calendar year. It includes employee contributions, as well as automatic and matching contributions made by your employing agency. Catch-up contributions do not count in this total.
🛈 While SoFi does not offer a Roth TSP, we do offer a Roth IRA to help members save for retirement.
What Are Roth IRAs?
A Roth IRA retirement account is an individual retirement account that allows you to contribute after-tax dollars, then make qualified withdrawals tax-free. Roth IRAs are available to individuals through brokerages, banks, and other financial institutions, rather than through employers.
You’ll need to have earned income to contribute to a Roth IRA. The IRS sets the maximum annual contribution limit. Catch-up contributions are allowed if you’re 50 or older. Here’s how the limits compare for 2025 and 2026.
2025
2026
Annual Contributions
$7,000
$7,500
Catch-Up Contributions
$1,000
$1,100
The annual limit does not apply to rollover or reservist contributions. How much you can contribute to a Roth IRA is based on your income and tax filing status.
You can make the full contribution in 2025 if:
• You file single or head of household and your modified adjusted gross income (MAGI) is less than $150,000
• You’re married, file separately, did not live with your spouse during the year and your MAGI is less than $150,000
• You’re married and file jointly or are a qualifying widow(er) and your MAGI is less than $236,000
You can make a full contribution in 2026 if:
• You file single or head of household and your MAGI is less than $153,000
• You’re married, file separately, did not live with your spouse during the year, and your MAGI is less than $153,000
• You’re married and file jointly or are a qualifying widow(er) and you’re MAGI is less than $242,000
There are no required minimum distributions for Roth IRAs, so you can leave money in your account until you need it. You can also withdraw original contributions at any time, without a tax penalty.
Similarities Between Roth TSP vs Roth IRA
It’s important to open a retirement account that fits your needs. In terms of what’s similar between a Roth IRA vs. Roth TSP, they both allow you to contribute money on an after-tax basis. In other words, you pay taxes on the money that goes into the plan upfront so you can withdraw it tax-free later.
Once you reach age 59 ½, you can begin taking distributions without triggering any tax consequences. In terms of early withdrawals from a TSP vs. Roth IRA, there’s no difference. The IRS can assess a 10% early withdrawal penalty when taking money out of either account prematurely.
Both Roth IRAs and Roth TSPs are subject to the five-year rule mentioned earlier. Again, that rule dictates that at least five years must have passed since making your first contribution in order to avoid a tax penalty when making withdrawals.
TSP Roth vs. Roth IRA Similarities
Funded with…
After-tax dollars
Contributions are…
Not tax-deductible
Qualified withdrawals are…
Tax-free
Differences Between Roth TSP vs. Roth IRA
While they do have some things in common, there are some notable differences between a Roth IRA vs. TSP.
First, the TSP is an employer-sponsored plan, while an IRA is not. If you don’t work for the federal government you wouldn’t have access to a Roth TSP, but you could still open a Roth IRA and contribute to it.
Next, Roth TSPs have much higher annual contribution limits and catch-up contribution limits. They also allow for employer matching contributions, something you won’t get with a Roth IRA. Your ability to contribute to a TSP is not limited by your income either.
While Roth IRAs allow you to withdraw original contributions at any time without a tax penalty, that’s not the case for Roth TSPs.
TSP Roth vs. Roth IRA Differences
Contribution limits…
Are higher for Roth TSPs
Matching contributions…
Only apply for Roth TSPs
Contribution withdrawals…
Only Roth IRAs allow you to withdraw original contributions at anytime without a tax penalty
Roth TSP vs. Roth IRA: The Pros
There are several types of retirement plans that can offer tax advantages, including both Roth TSP and Roth IRA accounts. In terms of the pros, the main benefits of choosing either of these accounts lies in the ability to withdraw money when you retire tax-free.
If you expect to be in a higher tax bracket when you retire, Roth TSP or Roth IRA withdrawals won’t increase your tax liabilities. That’s a good thing if the value of your investments within either account has risen significantly since you first began making contributions.
Roth TSPs may help you save a decent amount of money for retirement if you’re able to max out your plan each year. The addition of employer matching contributions is another benefit, since that’s essentially “free” money. You don’t get that with Roth IRAs, but these accounts can still be a good way to save if you don’t have access to a retirement plan at work.
Roth TSP Pros
Roth IRA Pros
• Contribute money on an after-tax basis
• Contributions grow tax-free
• Qualified withdrawals are tax-free
• High annual contribution and catch-up contribution limits
• Employer matching contributions may help your savings grow faster
• Eligibility to contribute is not tied to your income
• Contribute money on an after-tax basis
• Contributions grow tax-free
• Qualified withdrawals and withdrawals of original contributions are tax-free
• Save for retirement even if you don’t have a workplace retirement plan
Roth TSP vs. Roth IRA: The Cons
While there are some advantages to saving in a Roth TSP or Roth IRA, there are also some potential downsides. For one thing, you’ll need to have a federal job (that is, work for the federal government is some capacity) in order to contribute to a Roth TSP. With a Roth IRA, your ability to make a contribution hinges on your income and filing status.
Roth TSPs are also known for offering a narrower range of investment options. If you make an in-service withdrawal from your account and you’re not age 59 ½ yet, you should be prepared to pay a tax penalty.
A Roth IRA doesn’t offer matching contributions, nor can you borrow from it. Any early withdrawals that are not qualified or don’t otherwise meet the five-year rule could be subject to tax penalties. While you might have more investment options to choose from, it’s important to be mindful of the fees you may pay.
Roth TSP Cons
Roth IRA Cons
• Must be an eligible federal employee to contribute
• Investment selection may be limited
• In-service withdrawals only allowed for financial hardship
• Early withdrawal penalty may apply
• Must be within the IRS threshold guidelines to contribute
• How much you can contribute is tied to income and filing status
• No option to take loans
• No employer matching contributions
• Early withdrawal penalty may apply
Roth TSP vs. Roth IRA: Which Is Better for Your Retirement Goals?
Selecting a retirement plan is an important decision as you want to choose an option that aligns with your needs, goals, risk tolerance, and objectives. Contributing to a Roth TSP could be wise if you’re a federal employee, since you can take advantage of higher contribution limits and employer matching contributions.
A Roth IRA, meanwhile, could make sense if you don’t have access to a retirement plan at work or you want to supplement your employer’s plan. Contributing to a retirement plan at work doesn’t bar you from also contributing to a Roth IRA, as long as you’re within the income limits set by the IRS.
The one that’s better for you may depend on where you work, how much money you’re able to contribute to retirement savings each year, and when you plan to retire. When comparing investment options for a Roth TSP vs. Roth IRA, consider the overall track record of those investments as well as the fees you might pay.
The Takeaway
Whether you choose a Roth IRA vs. Roth TSP or something else, it’s important to save for retirement early and often. Even if you can only afford to contribute small amounts to a retirement account, they can add up over time as long as you remain consistent.
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
Should I max out my TSP or Roth IRA?
If you can afford to max out your TSP, it might make sense to do so before maxing out a Roth IRA. The simple reason for that is TSPs have higher annual contribution limits and you can also get a matching contribution from your employer. If you only have a Roth IRA, then maxing it out each year can help you save the most money possible toward your retirement goals.
Is a Roth IRA better for retirement or a Roth TSP?
A Roth IRA is a good retirement savings option if you want to be able to make tax-free withdrawals later. However, a Roth TSP allows you to contribute a larger amount of money each year and your employer can also make matching contributions on your behalf.
Does a Roth TSP reduce taxable income?
Roth TSP contributions are made using after-tax dollars, so they do not reduce your taxable income for the year. You can, however, manage your tax liability by taking advantage of any deductions and credits you might be eligible for.
Photo credit: iStock/nortonrsx
INVESTMENTS ARE NOT FDIC INSURED • ARE NOT BANK GUARANTEED • MAY LOSE VALUE
SoFi Invest is a trade name used by SoFi Wealth LLC and SoFi Securities LLC offering investment products and services. Robo investing and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser. Brokerage and self-directed investing products offered through SoFi Securities LLC, Member FINRA/SIPC.
For disclosures on SoFi Invest platforms visit SoFi.com/legal. For a full listing of the fees associated with Sofi Invest please view our fee schedule.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
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.
Third Party Trademarks: Certified Financial Planner Board of Standards Center for Financial Planning, Inc. owns and licenses the certification marks CFP®, CERTIFIED FINANCIAL PLANNER®
