Dec
18
2024
SEP Rules and Limits to Know
A SEP IRA is a type of traditional IRA that allows self-employed individuals and small business owners to save up to $57,000 annually for retirement.
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Student Loan Consolidation and Refinancing
Dec
18
2024
10 Top Monthly Dividend Stocks for December 2024
While most dividend-paying stocks do so every quarter, some companies make monthly dividend payments. Getting dividend payouts on a monthly schedule may appeal to investors, especially those relying on dividends for a steady income stream.
A dividend is a portion of a company’s earnings that it pays to shareholders on a regular basis. Many investors seek out dividend-paying stocks as a way to generate income.
Note that there are no guarantees that a company that pays dividends will continue to do so.
Key Points
• Monthly dividend stocks can provide steady income, but are less common than quarterly dividends.
• Utility and energy companies may offer consistent dividends due to steady consumer demand and limited competition.
• Dividend ETFs are passive and often track indexes of companies with a history of strong dividend growth.
• REITs pay dividends from income-generating properties and must distribute 90% of income to shareholders.
• Consider not only a dividend stock’s yield, but the long-term stability of the company and its dividend payout ratio.
What Are Monthly Dividend Stocks?
As mentioned above, dividend stocks usually pay out quarterly. However, some companies pay dividends monthly.
Stocks that pay dividends monthly may appeal to investors who want steady monthly income. Additionally, monthly dividend stocks may help investors who reinvest the payments to realize the benefit of compounding returns.
For example, through dividend reinvestment plans (DRIPs) investors can use dividend payouts to buy more shares of stock. Potentially, the more shares they own, the larger their future dividends could be.
How Does Dividend Investing Work?
Most dividends are cash payments made on a per-share basis, as approved by the company’s board of directors. For example, if Company A pays a monthly dividend of 30 cents per share, an investor with 100 shares of stock would receive $30 per month.
Some investors may utilize dividend-paying stocks as part of an income investing strategy. Retirees, for example, may seek investments that deliver a reliable income stream for their retirement. It’s also possible to reinvest the cash from dividend payouts.
A stock dividend is different from a cash dividend. Stock dividends are an increase in the number of shares investors own, reflected as a percentage. If an investor holds 100 shares of Company X, which offers a 3% stock dividend, the investor would have 103 shares after the dividend payout.
Understanding Dividend Yield
Understanding dividends is one part of an investor’s decision when choosing dividend-paying stocks. Another factor is dividend yield, which is the annual dividend amount the company pays shareholders divided by its stock price, and shown as a percentage.
If Company A pays 30 cents per share in dividends per month, that’s $3.60 per year, per share. If the share price is $50, to get the dividend yield you divide the annual dividend amount by the current share price:
$3.60 / $50 = 7.2%
The dividend yield can be useful as it can help an investor to assess the potential total return of a given stock, including possible gains or losses over a year.
But a higher or lower dividend yield isn’t necessarily better or worse, as the yield fluctuates along with the stock price. A stock’s dividend yield could be high because the share price is falling, which can be a sign that a company is struggling. Or, a high dividend yield may indicate that a company is paying out an unsustainably high dividend.
Investors will often compare a stock’s dividend yield to other companies in the same industry to determine whether a yield is attractive. Whether investing online or through a brokerage, it’s important to consider company fundamentals, risk factors, and other metrics when selecting any investment.
Top 10 Monthly Dividend Stocks by Yield
Following are some of the top-paying dividend stocks by yield.
| Company | Ticker | 12-month forward yield |
|---|---|---|
| Orchid Island Capital | ORC | 18.47% |
| ARMOUR Residential REIT, Inc. | ARR | 15.05% |
| AGNC Investment Corp. | AGNC | 14.99% |
| Dynex Capital | DX | 14.23% |
| Ellington Financial | EFC | 12.60% |
| EPR Properties | EPR | 7.67% |
| Gladstone Commercial | GOOD | 6.83% |
| Apple Hospitality REIT | APLE | 6.04% |
| LTC Properties | LTC | 6.03% |
| Realty Income Corp. | O | 5.64% |
Source: Data from Bloomberg, as of Dec. 1, 2024. Universe of stocks derived from Wilshire 5000 index. Companies have >$500M market cap and positive forward EPS.
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Types of Monthly Dividend Stocks
To invest in monthly dividend stocks, investors may want to consider companies in industries that tend to offer monthly dividend payouts. These companies usually have regular cash flow that can sustain consistent dividend payments.
Energy and Utility Companies
In the world of dividend payouts, utility and energy companies (e.g. water, gas, electricity) offer investors a certain consistency and reliability, thanks to the fact that consumer demand for utilities tends to be steady, and thus so is revenue.
Utility companies are considered a type of infrastructure investment, meaning that they provide systems that help society function. As such, these companies tend to be highly durable, offering tangible benefits to consumers and investors.
Also, many energy and utility companies may have little competition in a given region, which can add to the stability of revenue and thereby dividends.
ETFs
Just as an ordinary exchange-traded fund, or ETF, consists of a basket of securities, a dividend-paying ETF includes dividend-paying stocks or other assets. And similar to dividend-paying stocks, investors in dividend ETFs may benefit from regular monthly payouts, depending on the ETF.
Like most types of ETFs, dividend-paying funds are passive, meaning they track an index. In many cases, these ETFs seek to mirror indexes that include companies with a solid track record of dividend growth.
REITs
Real estate investment trusts (REITs) offer investors a way to buy shares in certain types of income-generating properties without the headache of having to manage these properties themselves.
REITs pay out dividends because they receive steady cash flow through rent payments and sometimes profits from the sale of a property. Also, these companies are legally required to pay at least 90% of their income to shareholders through dividends. Some REITs will pay dividends monthly.
Note: REIT payouts are ordinary dividends, i.e. they’re taxed as income, not at the more favorable capital gains rate.
Ways to Evaluate Monthly Dividend Stocks
Investors may want to analyze several criteria to determine the dividend stocks ideal for a wealth-building strategy. Here are a few things investors can consider when looking for the highest dividend stocks:
Dividend Payout Ratio
Investors will also factor in a stock’s dividend payout ratio when making investment decisions. This ratio expresses the percentage of income that a company pays to shareholders.
The dividend payout ratio is calculated by dividing a company’s total dividends paid by its net income.
Investors can also calculate the dividend payout ratio on a per share basis, dividing dividends per share by earnings per share.
The dividend payout ratio can help determine if the dividend payments a company distributes make sense in the context of its earnings. Like dividend yield, a high dividend payout ratio may be good, especially if investors want a company to pay more of its profits to investors. However, an extremely high ratio can be difficult to sustain.
If a stock is of interest, it may help to check out the company’s dividend payout ratios over an extended period and compare it to comparable companies in the same industry.
Company Stability
Investors may also wish to focus on stable, well-run companies with a reputation for paying consistent or rising dividends for years. Dividend aristocrats – companies that have paid and increased their dividends for at least 25 years – and blue chip stocks are examples of relatively stable companies that are attractive to dividend-focused investors.
These companies, however, do not always have the highest dividend yields. Nor do these companies pay monthly dividends; most companies will pay dividends quarterly.
Furthermore, keep in mind a company’s future prospects, not just its past success, when shopping for high-dividend stocks.
Tax Implications
Dividends also have specific tax implications that investors should know.
• A qualified dividend qualifies for the capital gains tax rate, which is typically more favorable than an investor’s marginal tax rate.
• An ordinary dividend is taxed at an individual’s income tax rate, which is typically higher than the capital gains rate.
Investors will receive a Form DIV-1099 when $10 or more in dividend income is paid out during the year. If the dividends are in a tax-advantaged account, an IRA, 401(k), etc., the money will grow tax-free until it’s withdrawn.
Recommended: Ordinary vs Qualified Dividends
Pros and Cons of Investing in Monthly Dividend Stocks
While dividend stocks offer some advantages, they also come with some risks and disadvantages investors must bear in mind.
Pros
• Passive income. As noted above, investing in dividend stocks can provide a source of passive income (although dividends can be cut at any time).
• The ability to reinvest. Dividend stocks allow for reinvestment (using dividend payments to buy more stocks, thus compounding returns). Steady dividends may also allow investors who reinvest the gains to buy stocks at a lower price while the market is down — similar to using a dollar-cost averaging strategy.
Additionally, the stocks of mature companies that pay dividends also may be less vulnerable to market fluctuations than a start-up or growth stock.
• Potential income during a downturn. Another plus for those who choose dividend stocks is that they may receive dividend payments even if the market falls. That can help insulate investors during tough economic times.
Recommended: Pros & Cons of Quarterly vs. Monthly Dividends
Cons
• Dividends are not guaranteed. A company can decide to suspend or cut its dividends at any time. It could be that the company is truly in trouble or that it simply needs the money for a new project or acquisition. This may be especially true for monthly dividend stocks; many REITs that pay monthly dividends suspended or cut dividends during the Covid-19 pandemic.
Either way, if the public sees the dividend cut as a negative sign, the share price could fall. And if that happens, an investor could suffer a double loss.
• Tax inefficiency. First, a corporation must pay tax on its earnings, and then when it distributes dividends to shareholders (which are considered profit-after-tax), the shareholder also must pay tax as an individual. Owing to this tax inefficiency, sometimes referred to as a type of double taxation, some companies decide not to offer dividends and find other ways to pass along profits.
Note that this tax issue doesn’t impact REITs the same way. Entities such as REITs and Master Limited Partnerships (MLPs) pass along most of their profits to investors. In these cases, the company doesn’t owe tax on the profits it passes onto the investor.
• Limited options. Also, choosing the right dividend stock can be tricky. First, monthly dividend stocks aren’t as common as quarterly dividend payouts. And the metrics for analyzing attractive dividend stocks are quite different from those for selecting ordinary stocks.
• Dividends can drop or be cut. Last, it’s important to remember that dividends may fluctuate depending on how a company is performing, or how it chooses to distribute its profits. During a downturn, it’s possible to see lower dividends, or for a company to cut its dividend payout.
• Share price appreciation may be limited. Gains in the share price of some dividend stocks can be limited, as many dividend-paying companies are typically not in a rapid growth phase.
|
Pros and Cons of Monthly Dividend Stocks |
|
|---|---|
| Pros | Cons |
| Provide passive income | Dividend payments are not guaranteed |
| Dividend reinvestment can lead to compound returns | Selecting monthly dividend stocks can be tricky/td> |
| Investors may earn a return even when the stock price goes down | Dividends may be cut or reduced during a downturn |
| Qualified dividends have preferential tax treatment | Some companies view dividends as tax inefficient |
| Share price appreciation may be limited compared to growth stocks | |
Things to Avoid When Investing in Monthly Dividend Stocks
When investing in monthly dividend stocks, there are a few things to avoid:
• Avoid investing in a company that pays a monthly dividend solely to pay a monthly dividend. Many companies pay monthly dividends, but not all are suitable investments. Do your research and only invest in companies that you believe will be successful in the future.
• Avoid investing in a company or industry that you don’t understand. If you don’t understand how a company makes money, you should hesitate to invest in it.
• Avoid investing all of your money in monthly dividend stocks. Diversify your portfolio by investing in other types of stocks, bonds, funds, and other securities.
The Takeaway
Dividend-paying stocks can be desirable. They can add to your income, or offer the potential for reinvestment via dividend reinvestment plans or other strategies you pursue. Monthly dividend stocks offer the potential for steady income, but they are less common than stocks that pay on a quarterly basis.
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).
FAQ
How do monthly dividend stocks work?
A monthly dividend stock is a stock that pays out dividends every month instead of the more common quarterly basis. This can provide investors with a steadier stream of income, which can be particularly helpful if you rely on dividends for living expenses.
How can you get stocks that pay monthly dividends?
To invest in stocks that pay monthly dividends, you need to research financial websites and publications to find companies that pay dividends monthly. There are not many monthly dividend stocks, especially compared with stocks that pay quarterly dividends.
How can you determine the stocks that pay the highest monthly dividends?
Investors use metrics like the dividend yield and dividend payout ratio to determine the stocks that might be most desirable. However, stocks that pay the highest monthly dividends can change over time, and it’s important to consider other methods of assessing a stock, since a higher dividend isn’t always a sign of company health.
SoFi Invest® INVESTMENTS ARE NOT FDIC INSURED • ARE NOT BANK GUARANTEED • MAY LOSE VALUE
SoFi Invest encompasses two distinct companies, with various products and services offered to investors as described below:
Individual customer accounts may be subject to the terms applicable to one or more of these platforms.
1) Automated Investing and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser (“SoFi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC.
2) Active Investing and brokerage services are provided by SoFi Securities LLC, Member FINRA (www.finra.org)/SIPC(www.sipc.org). Clearing and custody of all securities are provided by APEX Clearing Corporation.
For additional disclosures related to the SoFi Invest platforms described above please visit SoFi.com/legal.
Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform.
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 email customer service at https://sofi.app.link/investchat. Please read the prospectus carefully prior to investing.
Shares of ETFs must be bought and sold at market price, which can vary significantly from the Fund’s net asset value (NAV). Investment returns are subject to market volatility and shares may be worth more or less their original value when redeemed. The diversification of an ETF will not protect against loss. An ETF may not achieve its stated investment objective. Rebalancing and other activities within the fund may be subject to tax consequences.
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.
Investment Risk: Diversification can help reduce some investment risk. It cannot guarantee profit, or fully protect in a down market.
Disclaimer: The projections or other information regarding the likelihood of various investment outcomes are hypothetical in nature, do not reflect actual investment results, and are not guarantees of future results.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
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.
SOIN-Q324-045
Read moreDec
18
2024
Understanding 401(k) Contribution Limits: 2024-2025
Participating in a 401(k) through your employer can be a good way to contribute to and save for your retirement. One important thing to know is that there are limits on how much you can contribute each year and the amount typically changes, as per guidelines from the IRS.
Read on to find out about the 401(k) contribution limit for 2024 and 2025.
Overview of 401(k) Contribution Limits
The IRS reviews and often adjusts annual 401(k) contribution limits. The amount you can contribute to your 401(k) is increasing in 2025.
Changes in Contribution Limits for 2025
In 2025, you can contribute up to $23,500 in your 401(k) (up from $23,000 in 2024). If you’re age 50 or older, you can contribute an additional $7,500 to your 401(k) plan for a grand total of $31,000 in annual contributions for 2025. Also in 2025, those aged 60 to 63 may contribute an additional $11,250 instead of $7,500, thanks to SECURE 2.0.
Yearly Contribution Limits Explained
The IRS reviews the annual contribution limits for 401(k)s, typically in the fall of each year, and adjusts them when necessary to account for inflation. The IRS changed the yearly 401(k) contribution limits (also known as elective deferral limits) for 2024 and 2025.
2024 Contribution Limits
For 2024, the IRS is raising the 401(k) contribution limit once again. You may contribute up to $23,000 to your 401(k) in 2024. However, the catch-up contribution limit for older employees is not changing in 2024; instead it will remain at the 2023 level. That means those age 50 and up may contribute an additional $7,500 to their 401(k) for 2024, for a total of $30,500.
2025 Contribution Limits
For 2025, the IRS is raising the 401(k) contribution limit once again. You may contribute up to $23,500 to your 401(k) in 2025. However, the catch-up contribution limit for older employees is not changing in 2025; instead it will remain at the 2024 level. That means those age 50 and up may contribute an additional $7,500 to their 401(k) for 2025, for a total of $31,000. And in 2025, those aged 60 to 63 may contribute an additional $11,250 instead of $7,500, thanks to SECURE 2.0.
💡 Quick Tip: Did you know that opening a brokerage account typically doesn’t come with any setup costs? Often, the only requirement to open a brokerage account — aside from providing personal details — is making an initial deposit.
Employer Contributions and Catch-Up Provisions
One of the factors that makes a 401(k) a good vehicle for saving for retirement is that an employer may also contribute to the plan on your behalf.
And for older employees, the opportunity to make catch-up contributions to help save for retirement can be especially helpful.
Understanding Employer Match Limits
Your employer can make matching contributions to your 401(k) in addition to the funds you contribute. Matching funds may be based on the amount you choose to contribute.
For example, your employer might offer matching funds if you contribute 5% or more of your salary, as an incentive to get you to save. It’s a good idea to save at least the minimum amount to receive an employer’s match. If you don’t, you could be giving up free money.
There is an overall limit on how much you and your employer can contribute to your 401(k) plan each year. The combined limit for employer plus employee contributions in 2024 for those under age 50 cannot exceed 100% of your income or $69,000, whichever is lower. The 2025 combined limit is 100% of your income or $70,000, whichever is lower.
Catch-Up Contributions for Older Investors
If you are over the age of 50, your retirement contribution limit increases. The 401(k) catch-up contribution lets you fill in gaps in your retirement savings as you get closer to retirement. In 2024 and 2025, you can make up to $7,500 in catch-up contributions. Also, in 2025, those aged 60 to 63 can contribute an extra $11,250, instead of $7,500.
Roth 401(k) vs Traditional 401(k) Limits
In addition to traditional 401(k)s, there are other types of employer-sponsored retirement accounts, such as a Roth 401(k). The main difference between a traditional 401(k) and a Roth 401(k) is that contributions to a Roth 401(k) are made after-tax, while contributions to a traditional 401(k) are made with pre-tax dollars. Money grows inside a Roth 401(k) account tax-free and is not subject to income tax when you withdraw it.
Like a traditional 401(k), a Roth 401(k) has contribution limits.
Understanding Roth 401(k) Limits
Employee contribution limits for Roth 401(k)s are $23,000 for 2024, and $23,500 for 2025, the same as traditional 401(k)s. Roth 401(k) catch-up contribution limits for those 50 and up are $7,500 in 2024 and 2025— also the same as catch-up contribution limits for traditional 401(k)s. And just like a traditional 401(k), in 2025, those aged 60 to 63 may contribute an additional $11,250 instead of $7,500, thanks to SECURE 2.0.
Comparing Traditional 401(k) Limits
Here’s a side-by-side comparison of traditional 401(k) contribution limits for 2024 and 2025.
| Traditional 401(k) | 2024 | 2025 |
|---|---|---|
| Employee contribution limit | $23,000 | $23,500 |
| Catch-up contribution limit | $7,500 | $7,500 |
| SECURE 2.0 higher catch-up contribution limit for those aged 60 to 63 | N/A | $11,500 |
| Combined employee and employer contribution limit | $69,000 ($76,500 with catch-up) |
$70,000 ($77,500 with standard catchup; $81,250 with SECURE 2.0 catch-up) |
Managing Multiple 401(k) Plans
You may have multiple 401(k) plans, including some with previous employers. In that case, the same yearly contribution limits still apply.
Contribution Limits with Multiple Employers
Even if you have 401(k) plans with multiple employers, you must abide by the same annual contribution limits across all your plans. So, for 2024, the maximum you can contribute to all your 401(k) plans is $23,000, and for 2025, the maximum amount you can contribute is $23,500. You can split these total amounts across the different plans, or contribute them to just one plan.
After-Tax 401(k) Contribution Rules
Some 401(k) plans allow for after-tax contributions. What this means is that as long as you haven’t reached the maximum combined limit of your plan — which is $69,000 in 2024 and $70,000 in 2025 — you can make after-tax contributions up to the maximum combined limit.
For instance, if you contribute $23,000 to your 401(k) in 2024, and your employer contributes $5,000 through an employer match, you can contribute an additional $41,000 in after-tax dollars, if your plan allows it, to reach the $69,000 maximum.
Excess Contributions and Their Implications
Figuring out how much you want to contribute to your 401(k) can be tricky. And you’re not allowed to go over the contribution limits or you may face penalties.
Handling Over-Contribution
If you contribute too much to your 401(k), you could be charged a 10% fine. You might also owe income tax on the excess amount.
Fortunately, many 401(k) plans have automatic cut-offs in place to help you avoid excess contributions. However, if you change jobs or you have more than one 401(k) plan, you might accidentally contribute too much. If you realize you’ve done this, you have until April 15 to request that the excess contributions be returned to you, along with any earnings those contributions made while they were in your 401(k). You can report excess contributions when you file your taxes using form 1099-R.
Strategies to Avoid Excess Contributions
To avoid making excess 401(k) contributions:
• Check the maximum contribution limits each year.
• If you get a raise, reassess your contribution amount to make sure you’re not exceeding it.
• If you have more than one 401(k) plan, review your contributions across all of your plans to make sure you’re not exceeding the maximum contribution limits.
Maximizing Your 401(k) Contributions
When you have a 401(k), you’ll want to get the most out of it to help you save for retirement. Here’s how.
Ideal Contribution Strategies
To maximize your 401(k):
• Start contributing to the plan as soon as you can. The earlier you start saving, the more time your money has to grow.
• Contribute at least enough to get the employer match on your 401(k). If you don’t, you are essentially passing up free money.
• Keep track of all your 401(k) plans to make sure you don‘t exceed the annual contribution limits. And if you have a 401(k) from a previous employer, you might want to do a 401(k) rollover to potentially get more out of the plan.
Balancing 401(k) with Other Retirement Plans
Along with your 401(k), you can open other types of retirement accounts to help you save for your golden years. For instance, consider opening a tax-advantaged IRA online. You can save up to $7,000 in both 2024 and 2025 in a traditional or Roth IRA, plus an extra $1,000 each year if you are over age 50 — and that’s in addition to what you can save in your 401(k).
Having more than one type of retirement plan could potentially help you reach your financial goals faster. Not only can you put away more money for your retirement, an IRA typically gives you more investing options that a 401(k) does, making it more flexible. It can also assist you with diversifying your portfolio to help manage risk and potentially help grow your retirement savings.
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).
FAQ
What is the maximum 401(k) contribution for 2024?
The maximum 401(k) contribution limit for 2024 is $23,000. Those aged 50 and up may contribute an additional $7,500 in 2024.
Are 401(k) contribution limits changing in 2025?
Yes, 401(k) contribution limits are changing in 2025. The 401(k) contribution limit in 2025 is $23,500. Individuals who are 50 and older can contribute an additional $7,500 to their 401(k) in 2025. Another change for 2025: Those aged 60 to 63 may contribute an extra $11,250, instead of $7,500, thanks to SECURE 2.0.
Can I contribute 100% of my salary to a 401(k)?
If you make less than $23,000 in 2024 and less than $23,500 in 2025, you may be able to contribute 100% of your salary to a 401(k). However, your specific 401(k) plan may limit the amount you can contribute.
You should also note that there is an overall limit on how much you and your employer can contribute to your 401(k) plan each year. The combined limit for employer plus employee contribution in 2024 cannot exceed 100% of your income or is $69,000, whichever is lower. The 2025 combined limit is 100% of your income or $70,000, whichever is lower.
Is there a salary cap for 401(k) contributions?
Yes, there are income limit rules for 401(k) contributions. The amount of compensation eligible for 401(k) contributions in 2024 is $345,000, and in 2025 it’s $350,000. Anything above that amount of compensation is not eligible for contribution. What this means is that while you can contribute up to the maximum employee contribution, which is $23,000 in 2024 and $23,500 in 2025, your employer can only match up to the income limit.
What happens if I exceed the 401(k) max?
If you contribute too much to your 401(k), you could be charged a 10% penalty. You might also owe income tax on the excess amount. If you realize you’ve exceeded the 401(k) maximum, you have until April 15 to request that the excess contributions be returned to you, along with any earnings the contributions made while they were in your 401(k). You can report excess contributions on form 1099-R when you file your taxes.
How much can I contribute to a 401(k) if I’m 50 years of age or older?
If you are 50 or older, you can contribute up to $30,500 in your 401(k) in 2024, and up to $31,000 in 2025. This includes an additional $7,500 each year in catch-up contributions. And if you are aged 60 to 63, you may contribute an extra $11,250 in 2025, instead of $7,500, thanks to SECURE 2.0.
SoFi Invest® INVESTMENTS ARE NOT FDIC INSURED • ARE NOT BANK GUARANTEED • MAY LOSE VALUE
SoFi Invest encompasses two distinct companies, with various products and services offered to investors as described below:
Individual customer accounts may be subject to the terms applicable to one or more of these platforms.
1) Automated Investing and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser (“SoFi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC.
2) Active Investing and brokerage services are provided by SoFi Securities LLC, Member FINRA (www.finra.org)/SIPC(www.sipc.org). Clearing and custody of all securities are provided by APEX Clearing Corporation.
For additional disclosures related to the SoFi Invest platforms described above please visit SoFi.com/legal.
Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform.
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 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.
SOIN-Q424-093
Read moreDec
18
2024
How Timeshare Financing Works for Vacation Property
Many of us would love to own a vacation home, but the added expense is not always doable. Because we can’t all own multiple properties, vacation timeshares continue to be a popular choice for solo travelers, couples, and families who want more space, amenities, and “a place to call home” at their locale of choice.
We’ll give you an honest rundown of how timeshares work, their pros and cons, and a few financing options.
Key Points
• Timeshares offer a shared vacation property, providing a cost-effective alternative to owning a vacation home.
• Various types of timeshare ownership exist, including deeded and non-deeded, with different use periods.
• High-interest rates often accompany timeshare financing, but alternatives like home equity and personal loans may offer better terms.
• Timeshares can be transferred to heirs or gifted, but selling them may result in financial loss.
• Renting out a timeshare depends on the agreement, requiring a check of specific terms.
What Is a Timeshare?
A timeshare is a way for multiple unrelated purchasers to acquire a fractional share of a vacation property, which they take turns using. They share costs, which can make timeshares far cheaper than buying a vacation home of one’s own.
Timeshares are a popular way to vacation. In fact, nearly 10 million U.S. households own at least one timeshare, according to the American Resort Development Association (ARDA). The average price of a timeshare transaction is $23,940. This figure can vary widely depending on the location, size, and quality of the property, the length of stay,
How Do Timeshares Work?
If you’ve ever been lured to a sales presentation by the promise of a free hotel stay, spa treatment, or gift card, it was probably for a vacation timeshare. As long as you sit through the sales pitch, you get your freebie. Some invitees go on to make a purchase. You can also buy a timeshare on the secondary market, taking over from a previous owner.
What you’re getting is access to a property for a set amount of time per year (usually one to two weeks) in a desirable resort location. Timeshares may be located near the beach, ski resorts, or amusement parks. You can trade weeks with other owners and sometimes even try out other properties around the country — or around the world — in a trade.
In addition to the upfront cost of the timeshare, owners pay annual maintenance fees based on the size of the property — about $1,120 on average — whether or not you use your timeshare that year. These fees, which cover the cost of upkeep and cleaning, often increase over time with the cost of living. Timeshare owners may also have to pay service charges, such as fees due at booking.
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Types of Timeshares
There are two broad categories of timeshare ownership: deeded and non-deeded. In addition, you’ll find four types of timeshare use periods: fixed week, floating week, fractional ownership, and points system.
It’s important to understand all of these terms before you commit.
Deeded Timeshare
With a deeded structure, each party owns a piece of the property, which is tied to the amount of time they can spend there. The partial owner receives a deed for the property that tells them when they are allowed to use it. For example, a property that sells timeshares in one-week increments will have 52 deeds, one for each week of the year.
Non-deeded Timeshare
Non-deeded timeshares work on a leasing system, where the developer remains the owner of the property. You can lease a property for a set period during the year, or a floating period that allows you greater flexibility. Your lease expires after a predetermined period.
Fixed-Week
Timeshares offer one of a handful of options for use periods. Fixed-week means you can use the property during the same set week each year.
Floating-Week
Floating-week agreements allow you to choose when you use the property depending on availability.
Fractional Ownership
Most timeshare owners have access to the property for one or two weeks a year. Fractional timeshares are available for five weeks per year or more. In this ownership structure, there are fewer buyers involved, usually six to 12. Each party holds an equal share of the title, and the cost of maintenance and taxes are split.
Points System
Finally, you may be able to purchase “points” that you can use in different timeshare locations at various times of the year.
Is a Timeshare a Good Investment?
Getting out of a timeshare can be difficult. Selling sometimes involves a financial loss, which means they are not necessarily a good investment. However, if you purchase a timeshare in a place that your family will want to return to for a long time — and can easily get to — you may end up spending less than you would if you were to purchase a vacation home.
Benefits of Timeshare Loans
The timeshare developer will likely offer you financing as part of their sales pitch. The main benefit of a timeshare loan is convenience. And if you’re happy to return to the same vacation spot year after year, you may save money compared to staying in hotels. Plus, for many people, it may be the only way they can afford getting a vacation home.
Drawbacks of Timeshare Loans
Developer financing offers often come with very high interest rates, especially for buyers with lower credit scores: up to 20%. And if you eventually decide to sell, you will probably lose money. That’s because timeshares tend not to gain value over time. Finally, if you’re not careful about running the numbers before you commit, you can end up paying more in annual fees than you expect.
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Financing a Timeshare
Developer financing is often proposed as the only timeshare financing option, especially if you buy while you’re on vacation. However, with a little advance planning, there are alternative options for financing timeshares. If developer financing is taken as an initial timeshare financing option, some timeshare owners may want to consider timeshare refinance in the future.
Home Equity Loan
If you have equity built up in your primary home, it may be possible for you to obtain a home equity loan from a private lender to purchase a timeshare. Home equity loans are typically used for expenses or investments that will improve the resale value of your primary residence, but they can be used for timeshare financing as well.
Home equity loans are “secured” loans, meaning they use your house as collateral. As a result, lenders will give you a lower interest rate compared to the rate on an unsecured timeshare loan offered at a developer pitch. You can learn more about the differences in our guide to secured vs. unsecured loans.
Additionally, the interest you pay on a home equity loan for a timeshare purchase may be tax-deductible as long as the timeshare meets IRS requirements, in addition to other factors. Before using a home equity loan as timeshare financing, or even to refinance timeshares, be aware of the risk you are taking on. If you fail to pay back your loan, your lender may seize your house to recoup their losses.
Personal Loan
Another option to consider for timeshare financing is obtaining a personal loan from a bank or an online lender. While interest rates for personal loans can be higher than rates for home equity loans, you’ll likely find a loan with a lower rate than those offered by the timeshare sales agent.
Additionally, with an unsecured personal loan as an option for timeshare financing, your primary residence is not at risk in the event of default.
Getting approved for a personal loan is generally a simpler process than qualifying for a home equity loan. Online lenders, in particular, offer competitive rates for personal loans and are streamlining the process as much as possible.
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The Takeaway
Timeshares offer one way to secure a place to stay in your favorite vacation destination each year — without having to buy a second home. And timeshares may save you money over time compared to the cost of a high-end hotel. However, beware of timeshare financing offered by developers. Interest rates can be as high as 20%. There are other ways to finance a timeshare that can be more affordable, including home equity loans and personal loans.
Think twice before turning to high-interest credit cards. Consider a SoFi personal loan instead. SoFi offers competitive fixed rates and same-day funding. Checking your rate takes just a minute.
FAQ
Can I rent my timeshare to someone else?
Whether or not you can rent your timeshare out to others will depend on your timeshare agreement. But in many cases, your timeshare resort will allow you to rent out your allotted time at the property.
Can I sell my timeshare?
Your timeshare agreement will give you details about when and how you can sell your timeshare. In most cases, you should be able to sell, but it may be hard to do so, and you may take a financial loss.
Can I transfer ownership of my timeshare or leave it to my heirs?
You can leave ownership of a timeshare to your heirs when you die and even transfer ownership as a gift while you’re living. Once again, refer to your timeshare agreement for rules about what is possible and how to carry out a transfer.
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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.
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2024
Investing in Index Funds in a Roth IRA
An index fund is a type of mutual fund or exchange-traded fund that aims to track the performance of a specific stock index. A Roth IRA is a type of tax-advantaged investment account. Index funds are one type of investment you could hold inside a retirement plan like a Roth IRA.
Here’s a closer look at investing in index funds through a Roth IRA.
Key Points
• A Roth IRA is a tax-advantaged retirement account, while index funds are investments that can be held within such accounts.
• Investing in index funds within a Roth IRA allows for tax-free growth and withdrawals.
• Index funds provide diversification and offer the potential for long-term growth, which could make them an efficient choice for retirement savings.
• When selecting an index fund, consider factors like risk tolerance, investment goals, expense ratios, and historical performance.
• It’s important to regularly review your Roth IRA and the investments in it and make any necessary adjustments to meet your financial objectives and comply with contribution limits.
Understanding Your Investing Options in a Roth IRAs
A Roth IRA is an individual retirement account that allows you to set aside after-tax dollars for retirement. Because you’ve already paid taxes on the money you contribute to the Roth IRA, you can withdraw it tax-free in retirement, which is an attractive feature to some investors.
Roth IRAs can offer a number of different investment options, including:
• Exchange-traded funds (ETFs)
• Real estate investment trust (REIT) funds
• Bonds
Index funds, target-date funds, and REITs can feature a mix of different investments. So, you might invest in a target-date fund that has a 70% allocation to stocks, and a 30% allocation to bonds, for instance. When comparing different funds it’s important to consider the expense ratio you might pay to own it and its past performance.
Some brokerage companies that offer IRAs may also offer other investments, such as individual stocks, commodities, or even cryptocurrency. Evaluating your personal risk tolerance, investment timeline, and goals can help you decide how to invest your money if you’re opening a retirement account online like a Roth IRA.
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What Are Index Funds?
An index fund is a type of mutual fund or ETF that aims to track the performance of a specific stock index. A stock index measures a specific segment of the market. For example, the S&P 500 index tracks the 500 largest companies listed on public stock exchanges in the U.S.
Index funds typically work by investing in the same securities that are included in the index they’re trying to match. So, for example, if an index fund is using the S&P 500 as its benchmark, then its holdings would reflect the companies that are included in that index.
Index funds are a type of passively managed fund, since assets turn over less frequently. In terms of performance, index funds are not necessarily designed to beat the market but they can be more cost-friendly for investors as they often have lower expense ratios.
Long-term Benefits
Index funds offer the opportunity for long-term appreciation. Because they track the stock market, which historically has an annual return of about 7% (as measured by the S&P and adjusted for inflation), index funds may be able to get a similar rate of return over time, minus any fund fees.
Why Invest in Index Funds Through a Roth IRA?
As noted above, you can hold a range of investments in a Roth IRA, including index funds. Investing in index funds may help diversify your portfolio. Here are some of the other possible factors to consider.
Tax-free Growth and Withdrawals
Because you’ve already paid taxes on the money you contribute to a Roth IRA, you can withdraw it tax-free in retirement, as long as you are age 59 ½ and meet the five-year rule, which dictates that your account has to be open for at least five years before you start withdrawing funds. Tax free withdrawals in retirement might appeal to you if you expect to be in a higher tax bracket at that time.
Any earnings you have from index funds or other investments grow tax-free in a Roth IRA and they can be withdrawn tax-free in retirement.
Supporting Retirement Goals
Because they offer the potential for long-term growth, index funds can be part of a retirement savings strategy. An investor can choose the funds that best fit their risk tolerance and investment goals. The fees are also lower for index funds than some other types of investments, which means you can keep more of your earnings over the long term.
How to Invest in Index Funds in a Roth IRA
If you’ve decided to invest in index funds through your Roth IRA, the process for getting started is relatively simple:
1. Decide which index fund or funds you’d like to invest in (see more on that below).
2. Log into your Roth IRA account.
3. Find the fund you’d like to purchase and select “Buy.” You may be able to specify a specific dollar amount you want to spend or choose the number of shares you want to buy.
4. Review your order to make sure it is correct, then finalize it.
Tips on Choosing the Right Index Funds
While index funds operate with a similar goal of matching the performance of an underlying benchmark like the S&P 500, they don’t all work the same. There can be significant differences when it comes to things like the expense ratio, the fund’s underlying assets, its risk profile, and its overall performance.
When choosing an index fund to invest in, consider the following factors:
• Risk tolerance. How much risk are you willing to take with your investments? Knowing if you’re a conservative, moderate, or aggressive investor is important to choosing index funds that make the most sense for you. Our risk tolerance quiz can help you figure out which category you fall into.
• Your goals. What specifically, are you hoping to get out of your investment? Are you saving for the long term and aiming for it to grow over time? Are you putting away money for retirement? Determining exactly what you want to do with your investment will help you decide what type of index funds to invest in.
• Broad vs. specialized fund. Broad funds attempt to mimic the performance of a stock market as a whole, while a specialized fund like a small cap index fund, for example, targets companies with a smaller market capitalization. A specialized fund can be riskier because you’re invested in one type of asset, while a broad fund can provide some diversification, although like any investment, there are still risks involved.
• Performance history. A fund’s performance history can help you see how the fund has handled different market conditions. Look to see how it has consistently performed relative to the benchmark it tracks. You can also compare its performance to other index funds in the same category.
• Expense ratios. These ratios represent the annual cost of managing an index fund. They’re expressed as a percentage of your total investment. Keep in mind that a small difference in expense ratios can add up over time. With a smaller expense ratio, less of your investment goes to management costs.
Managing Your Index Funds
Even though index funds are passively managed, it’s a good idea to review them from time to time.
First, check their performance to see if they are mirroring the index they follow, minus the expense ratio. If their performance is not keeping up, you may want to consider another fund.
Also, keep an eye on fees. If you see that the fees for your index funds are growing over time, you may want to change your investment.
Managing Your Roth IRA
Similarly, with a Roth IRA, it’s wise to review your account and the investments inside it at least once a year. Monitor how well your assets are performing and see if they are on track to help you reach your goals.
You may find that you need to do some portfolio rebalancing. Based on how your assets have performed, you might have a different asset allocation than you originally started out with, as some things may have performed better than others. For instance, maybe stocks outperformed bonds. Review your asset allocation carefully and make any adjustments needed to help stay true to your risk tolerance and investment goals.
Finally, contribute to your Roth IRA each year if you can, but be sure not to over-contribute. The IRS sets the maximum limit for annual Roth IRA contributions. For 2024, the maximum limit is $7,000, or $8,000 if you’re age 50 or older. You have until the tax filing deadline to make contributions for that tax year. For 2025, the maximum limits are the same: $7,000 or $8,000 if you’re 50 or older.
It’s important to note that the limits are cumulative. If you have more than one Roth IRA, or a Roth IRA and a traditional IRA, your total contributions to all accounts cannot be greater than the limit allowed by the IRS. Unlike traditional IRA contributions, Roth IRA contributions are not tax-deductible.
Also, be aware that you’ll need to have earned income for the year to contribute to a Roth IRA, but there are limits. The IRS sets a cap on who can make a full contribution, based on their filing status and modified adjusted gross income (MAGI).
Here are the income thresholds for the 2024 and 2025 tax years:
| Filing Status | You Can Make a Full Contribution for 2024 If Your MAGI is… | You Can Make a Full Contribution for 2025 If Your MAGI is… |
|---|---|---|
| Single or Head of Household | Less than $146,000 | Less than $150,000 |
| Married Filing Jointly | Less than $230,000 | Less than $236,000 |
| Married Filing Separately and Did Not Live With Your Spouse During the Year | Less than $146,000 | Less than $150,000 |
| Qualifying Widow(er) | Less than $230,000 | Less than $236,000 |
Contribution amounts are reduced as your income increases, eventually phasing out completely. The 2024 phaseout limits are $146,000 for single filers, heads of households, and qualifying widows or widowers. The limit for couples is $230,000.
If you’re married and file separate returns but lived with your spouse during the year, you’d only be able to make a reduced contribution for 2024 if your MAGI is less than $10,000.
The 2025 phaseout limits are $150,000 for single filers, heads of households, and qualifying widows or widowers. The limit for couples is $236,000. And if you’re married and filed separate returns and lived with your spouse during the year, you can make a reduced contribution only if your MAGI is less than $10,000.
Recommended: Roth IRA Calculator
The Takeaway
A Roth IRA is a tax-advantaged account that can help you save for retirement. There are a number of different investment options to choose from when you have a Roth IRA, including target-date funds and index funds.
If you decide to invest in index funds, research different funds to find the best ones for you, and be sure to look at their performance and expense ratio, among other factors. Also, consider your risk tolerance and goals when choosing index funds to make sure that they are aligned to help you reach your financial goals.
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).
FAQ
Can I lose money investing in index funds?
It is possible to lose money investing in index funds. All investments involve risk and can lose money. However, broad index funds, such as those that use the S&P 500 as a benchmark, are diversified and hold many different types of stocks. Even if some of those stocks lose value, they may not all lose value at the same time.
Is it better to invest in index funds or individual stocks for a Roth IRA?
Which investment is best depends on an investor’s financial situation, goals, and risk tolerance. There is no one-size-fits-all answer. But in general, individual stocks can be more volatile with more potential for risk (they may also have more potential for higher returns). Broad index funds that provide significant diversification may help minimize risk and maximize returns over the long term.
Rebecca Lake
Rebecca Lake has been a finance writer for nearly a decade, specializing in personal finance, investing, and small business. She is a contributor at Forbes Advisor, SmartAsset, Investopedia, The Balance, MyBankTracker, MoneyRates and CreditCards.com. Read full bio.
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Individual customer accounts may be subject to the terms applicable to one or more of these platforms.
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Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform.
Investment Risk: Diversification can help reduce some investment risk. It cannot guarantee profit, or fully protect in a down market.
S&P 500 IndexThe 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.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.
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