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Feb

2024

What Is a SIMPLE 401(k) Plan & How Do You Utilize It?

By Austin Kilham | Growing Wealth, invest, Investing, Preparing for Retirement | Comments Off

The Savings Incentive Match Plan for Employees 401(k), or SIMPLE 401(k), is a simplified version of a traditional 401(k). SIMPLE plans were created so that small businesses could have a cost-efficient way to offer a retirement account to their employees.

Unlike many other workplace retirement plans, SIMPLE 401(k) plans do not require annual nondiscrimination tests to ensure that a plan is in line with IRS rules. This type of testing can be prohibitively expensive for small employers, preventing them from using other types of 401(k)s.

A SIMPLE 401(k) retirement plan is available to businesses with 100 or fewer employees including sole proprietorships, partnerships, and corporations. For small business owners or self-employed individuals, understanding how SIMPLE plans work can help decide whether it makes sense to set one up.

For employees whose employer already offers a SIMPLE 401(k), getting to know the ins and outs of the plan can help to understand the role they play in saving for retirement.

How Does a SIMPLE 401(k) Work?

A SIMPLE 401(k) functions much like a regular 401(k). Employees contribute pre-tax money directly from their paycheck and invest that money in a handful of options offered by the plan administrator.

In 2024, the SIMPLE 401(k) limits are as follows: The maximum for employee elective deferrals is $16,000 ($15,500 in 2023); employees 50 and older could make an additional “catch-up” contribution of $3,500 to boost their savings as they neared retirement.

One significant difference between traditional 401(k) plans and SIMPLE 401(k) plans is that while employer contributions are optional with a 401(k) plan, under a SIMPLE 401(k) plan they are mandatory and clearly defined. Employers must make either a matching contribution of up to 3% of each employee’s pay or make a nonelective contribution (independent of any employee contributions) of 2% of each eligible employee’s pay. The contribution must be the same for all plan participants: For example, an employer couldn’t offer himself a 3% match while offering his employees a 2% nonelective contribution.

There are other limits on how much an employer can contribute. The maximum compensation that could be used to figure out employer contributions and benefits is $345,000 for 2024 ($330,000 for 2023). So if an employer offered a 2% nonelective contribution and an employee made $355,000 a year, the maximum contribution the employer could make would be 2% of $345,000, or $6,900.

As with a regular 401(k), contributions to a SIMPLE plan grow tax-deferred — meaning an employee contributes pre-tax dollars to their plan, and doesn’t pay income tax on that money until they withdraw funds upon retirement. Typically, the tax-deferred growth means that there is more money subject to compounding interest, the returns investments earn on their returns.

Withdrawals made during retirement are subject to income tax.

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

Who Is Eligible for a SIMPLE 401(k)?

To be eligible for a SIMPLE 401(k), employers must have 100 or fewer employees. They cannot already offer these employees another retirement plan, and must offer the plan to all employees 21 years and older.

Employers must also file Form 5500 every year if they establish a plan.

For employees to be eligible, they must have received at least $5,000 in compensation from their employer in the previous calendar year. Employers cannot require that employees complete more than one year of service to qualify for the SIMPLE plan.

A SIMPLE IRA is also one of a number of retirement options for the self-employed.

What Are the Pros of a SIMPLE 401(k) Plan?

SIMPLE 401(k)s offer a number of benefits that make them attractive to employers and employees.

• Simplified rules: While large companies may have the money and staff to devote to nondiscrimination testing, smaller companies may not have the same resources. SIMPLE 401(k)s do not have these compliance rules, making them more accessible for small employers. What’s more, the straightforward benefit formula is easy for employers to administer.

• “Free money”: Employees are guaranteed employer contributions to their retirement account, whether via 3% matching contributions or 2% nonelective contributions.

• Fully-vested contributions: All contributions — those made by employees and their employers — are fully vested immediately. Employees who qualify for distributions can take money out whenever they need it. While this can be good news for employees, for employers it removes the option to incentivize workers to stay in their job longer by having their contributions vest several years into their tenure with the company.

• Loans and hardship withdrawals: While withdrawals made before age 59 ½ are subject to tax and a possible 10% early withdrawal penalty, employees can take out loans against their SIMPLE 401(k) just as they can with a traditional 401(k). These options add flexibility for individuals who need money in an emergency. It’s important to note that 401(k) loans come with strict rules for paying them back. Failing to follow these rules may result in penalties.

What Are the Cons of a SIMPLE 401(k) Plan?

While there are plenty of positives that come from offering or contributing to a SIMPLE 401(k), there are also some important downsides.

• Plan limitations: Employers cannot offer employees covered by a SIMPLE 401(k) another retirement plan.

• Lower contribution limits: For 2024, a traditional 401(k) plan allows for $23,000 annual maximum 401(k) contributions from employees, with an additional $7,500 catch-up contribution for those 50 and older. These contribution limits are considerably higher than SIMPLE plan limits, which in 2024 are $16,000 with an additional “catch-up” contribution of $3,500 for employees over age 50. This means an employee could potentially contribute an additional $7,000 in elective deferrals and $4,000 in catch-up contributions with a traditional 401(k) rather than a SIMPLE 401(k).

• Limited size: SIMPLE Plans are only available to employers with fewer than 100 employees. That means if a business grows beyond that point, they have a two-year grace period to switch from their SIMPLE plan to another option.

SIMPLE 401(k) vs SIMPLE IRA

Generally speaking, when comparing SIMPLE IRAs and SIMPLE 401(k)s, the rules are similar:

• They’re only available to businesses with 100 or fewer employees.

• Employers must either offer a 3% matching contribution or a 2% nonelective contribution.

• Employers can only make contributions on up to $345,000 in employee compensation in 2024.

• Employee contribution limits to SIMPLE IRAs are the same as their 401(k) counterparts.

• Employer and employee contributions are fully vested immediately.

There are a few differences worth mentioning:

• Whereas all employer contributions are subject to the cap for SIMPLE 401(k)s, only nonelective contributions are subject to the $345,000 compensation cap for SIMPLE IRAs. (This makes it possible that employees making more than $345,000 annually may receive higher matching contributions from a SIMPLE IRA than they would from a SIMPLE 401(k).)

• If employers make matching contributions of 3%, they may elect to limit their contribution to no less than 1% for two out of every five years.

• SIMPLE IRAs do not allow employees to take out loans from their account for any reason.

• There are no minimum age requirements for SIMPLE IRA contributions.

The Takeaway

SIMPLE 401(k) plans can be especially attractive for self-employed individuals or small business owners, as they have many of the same benefits of a traditional 401(k) plan — including tax-deferred contributions and loan options — but without the administrative compliance costs that come with a regular 401(k) plan.

SIMPLE 401(k) plans can be especially attractive for self-employed individuals or small business owners.

Some of the requirements and rules associated with a SIMPLE 401(k) plan might be unattractive to some employers, however, including the fact that the IRS prohibits employers from offering other types of retirement plans to employees who are covered by a SIMPLE 401(k).

There are many answers to the question of which retirement savings plan is right for you or your business. Beyond traditional 401(k) and SIMPLE (401)k plans, there are traditional, Roth, SIMPLE and SEP IRAs, among other options.

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

Who is a SIMPLE IRA best for?

A SIMPLE IRA may be a good option for small business owners with no more than 100 employees who want to offer a retirement savings plan to their employees. These plans tend to be fairly simple to set up and administer compared to some other plans. A SIMPLE IRA allows employers to contribute to their own and their employees’ retirement savings.

What is the 2 year rule for SIMPLE IRAs?

The 2-year rule says that during the first two years an individual participates in a SIMPLE IRA plan, they can only transfer money to another SIMPLE IRA. After the two years are up, they can make tax-free rollovers to other non-Roth IRAs or to another employer-sponsored retirement plan.

Does money grow in a SIMPLE IRA?

Money may grow tax-deferred in a SIMPLE IRA until distributions are taken from the plan in retirement. Withdrawals can be made without penalty at age 59 ½.

What happens to my SIMPLE IRA if I quit my job?

If you have participated in the SIMPLE IRA plan for at least two years, you can make a tax-free rollover to another non-Roth IRA or to a new employer’s workplace retirement plan. However, if you’ve participated in the plan for less than two years, you can only transfer your money to another SIMPLE IRA.

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.

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

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

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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Feb

2024

Unlocking the Potential of Private Company Investments

By Samuel Becker | Growing Wealth, invest, Investing | Comments Off

Investing in a private company means acquiring equity in a company that doesn’t sell shares on public stock markets. Broadly speaking, there are two types of companies: public and private. And while you are likely more familiar with public-company investments — stocks traded on stock exchanges — there are also investment opportunities to be had with private companies.

There can be benefits that come with investing in privately held companies. Depending on your current circumstances, risk tolerance, and financial goals, you will likely approach the types of companies you consider investing in differently. And it’s important to understand that there are significant risks involved, and develop your expectations accordingly.

Understanding Private Companies

A private company is one that has not or does not sell shares of itself on public exchanges. Conversely, a public company has undergone an initial public offering (IPO), which means that it has publicly issued stock in hopes of raising more capital and making more shares available for purchase by the public.

As a general rule of thumb, until a company has an IPO, it’s considered private.

Classification of Private Companies

Again, private companies are those that are not publicly traded.

Unlike the world of public investing, private investing happens off of Wall Street and takes place anywhere new, buzzy ventures are cropping up.

Public companies, especially ones that are bigger, are more easily bought and sold on the stock market, and individuals are able to invest in them. These companies are also regulated by organizations like the Securities and Exchange Commission (SEC).

The SEC is a government body that makes sure these businesses stay accountable to their investors and shareholders, and it requires publicly traded companies to share how they are doing, based on their revenue and other financial metrics.

In contrast, a privately held company is owned by either a small number of shareholders or employees and does not trade its shares on the stock market. Instead, company shares are owned, traded, or exchanged in private.

The landscape of investing in private companies can sometimes be mystifying, in part because private stock transactions happen behind closed doors. But even though private companies may be less visible than their public counterparts, they still play an important role in the economy and can be a worthwhile investment.

Investing in a private company can also be incredibly risky, and it’s important to understand some of the pros and cons of investing in this landscape.

The Growth Journey: Startups to Unicorns

Generally speaking, the goal of a startup (a small business with aims to grow quickly and possibly go public) is to become a “unicorn.” A “unicorn” company is a private company that’s valued at more than $1 billion. Very few companies become unicorns, and for investors, a primary goal is to find and invest in companies that will become unicorns.

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Strategic Pathways to Private Investments

There are several ways to invest in private companies, though not all of them will be available to every investor.

Early Stage Investments and Angel Investing

Early-stage investing, often called “angel investing,” involves making an investment in a very small-stage company in exchange for ownership of that company. This tends to be the riskiest stage to invest, as companies at this stage are small, young, and often unproven.

Joining Private Equity Firms

Investors can also get involved in private company investing through private equity. Private equity firms invest in private companies, like angel investors, in hopes that the equity they acquire will one day be much more valuable. Again, this is likely not an option for the average investor, as private equity is usually an area reserved for high-net-worth individuals.

💡 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.

Investing in Pre-IPO Companies

Some investors attempt to invest in companies before they go public to take advantage of any post-IPO spikes in share value. There are a few ways to invest in pre-IPO companies.

Leveraging Pre-IPO Investing Platforms

There are certain platforms that allow investors to make investments in pre-IPO companies. An internet search will yield some of them. Those platforms tend to work in one of a few ways, usually by offering investors access to specialized brokers who work with private equity firms, or by directly connecting investors with companies, allowing them to make direct purchases of stock.

You’ll need to dig in and do your own research into these platforms if this is a route you plan to pursue, but also know that there are significant risks with these types of investments.

The Accredited Investor’s Guide

For some private company investments, investors will need to be “accredited.” An accredited investor is an individual or entity that meets certain criteria, and can thus invest in hedge funds, private equity, and more.

Qualifications and Opportunities

For individuals to qualify as accredited investors, the SEC says that they need to have a net worth of more than $1 million (excluding primary residence), and income of more than $200,000 individually, or $300,000 with a spouse or partner for the prior two years.

There are also professional criteria which may be met, which includes being an investment professional in good standing and holding certain licenses. There are a few other potential qualifications, but those are the most broad.

Exclusive Markets for the Accredited Investor

Becoming an accredited investor basically means that you can invest in markets shut off from other investors. This includes private companies, and private equity. Effectively, being “accredited” comes along with the assumption that the investor has enough capital to be able to make riskier investments, and that they’re likely sophisticated enough to be able to know their way around private markets.

The Pros and Cons of Private Company Investments

There are pros and cons to investing in private companies that investors should be aware of.

Advantages of Private Market Engagement

Because private companies are often smaller businesses, they may offer investors an opportunity to get more involved behind the scenes. This might mean that an investor could play a role in operational decisions and have a more integrated relationship with the business than they could if they were investing in a large, public company.

In an ideal scenario, if you invest in a private company, you’ll get in earlier than you would when a company goes public. (Note: This is the ideal scenario.) And getting in early can potentially produce impressive results — if you’ve made a sound investment decision.

Another possible benefit of investing in a private company is that there is generally less competition for equity than with a public company. This means you could end up with a bigger slice of the pie.

Investing in a private company might also mean that you are able to set up an exit provision for your investment — meaning you could set conditions under which your investment will be repaid at an agreed upon rate of return by a certain date.

Generally speaking, investing in a private company can have some strong benefits, including increased potential for financial gain and the opportunity to become more involved in the future of a business.

Risks and Considerations

One of the biggest risks involved in investing in a private company is that you may have less access to information as an investor. Not only is it more challenging to get hold of data in order to understand how the company performance compares to the rest of the industry, private companies are also not held to the same standards as publicly-traded ones.

For example, because of SEC oversight, public companies are held to rigorous transparency and accounting standards. In contrast, private companies generally are not. From an investor’s standpoint, this means that you may sometimes be in the dark about how the business is doing.

In addition to this, many private companies may lack access to the capital they need to grow. And even though there may be an opportunity to set up an exit provision as an investor in a private company, unless you make such a provision, it could be a huge challenge to get out of your investment.

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

Critical Steps for Investing in Private Companies

Just like investing in the public stock exchanges, there are some steps that investors may want to follow as a sort of best-practices approach to investing in private companies.

Conducting Thorough Research

Always do your homework — or, as much research as you can before investing in a private company. As noted, this may be difficult, as there’s going to be less available information about private companies versus public ones. You also won’t be able to research charts and look at stock performance to get a sense of what a company’s future holds.

Identifying and Assessing Potential Deals

Through the research you are able to do (perhaps as a part of a private equity or hedge fund), you’ll want to do your best to zero-in on some potential investment opportunities. Like investing in stocks, you’ll be looking for companies that appear healthy, are competitive, and that you think have a good chance of surviving the years ahead.

There’s no magic formula, of course, but investors should do as much due diligence as possible.

The Transaction: Making Your First Private Investment

Depending on how you choose to invest, making your first private company investment may be as simple as hitting a button — such as on a private crowdfunding website or something similar. Or, if you’re directly investing with the company, it may be more involved. Just know that it’ll probably be a bit different than buying stocks or shares on an exchange.

Post-Investment Vigilance

As with any investment — public, or private — investors will want to keep an eye on their holdings.

Monitoring Your Investment

Monitoring your investment in a private company is not going to be the same as monitoring the stocks in your portfolio. You won’t be able to go on a financial news website and look at the day’s share prices. Instead, you’ll likely need to be in touch with the company directly (or through intermediaries), reading status reports and financial statements, and doing your best to learn how business is operating.

It’ll be a bit opaque, and the process will vary from company to company. So, keep that in mind.

Exit Strategies and Liquidity Events

When an investor “exits” an investment in a private company, it means that they sell their shares or equity and effectively “cash out.” If an investor bought in at an early stage and the company gained a lot of value over the years, the investor can “exit” with a big return. But returns vary, of course.

Liquidity events present themselves as times to exit investments, and for many private investors, the time to exit is when a company ultimately goes public and IPOs. But there may be other times that are more favorable to investors, if they present themselves.

Investment Myths Debunked

As with any type of investment, there may be myths or misunderstandings related to private company investments.

Setting Realistic Expectations

A good rule of thumb for investors is to keep their expectations in check. In all likelihood, you’re not going to stumble upon the next Mark Zuckerberg or Jeff Bezos, desperately looking for cash to fund their scrappy startup. Instead, you may be more likely to find a company that has good growth potential but no guarantee of survival. For that reason, it’s important to always keep the risks in mind, as well as what you actually expect from an investment.

Common Misconceptions

Some further misconceptions about private investing include that it’s only for the ultra-rich (not necessarily true, but may often be the case), that every investment may offer high returns (along with high risks), and that profits will come quickly. An investment may take years to ultimately pay off — if it does at all.

Ready to Invest? Questions to Ask Yourself

If you feel comfortable with the idea of investing in private companies and are ready to take the next step, be sure to know your own preferences before making any moves.

Assessing Your Risk Tolerance

Are you okay with taking on a lot of risk? Because you’ll probably need a high risk tolerance to be able to stomach private company investing. So, be sure to take stock of how much risk you can realistically handle, as the importance of knowing your risk tolerance will become abundantly clear as you progress in your investing journey.

Aligning Investments with Personal Goals

Also think about how your investments in private markets relate or mesh with your overall investing goals. That’s to say that you don’t necessarily want to invest in private companies just for the sake of investing in private companies — instead, think about how these investments fit into your larger portfolio.

The Takeaway

Investing in private companies entails buying or acquiring equity in companies that are not publicly traded, meaning you can’t buy shares on the public stock exchanges. This often involves investing in small companies with high growth potential — but not always, and not necessarily. Because this is a risky type of investing, there tends to be high potential rewards, too.

Investing in private companies is not for everyone, and there may be stipulations involved that prevent some investors from doing it. If you’re interested, it may be best to speak with a financial professional before making any moves.

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

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

FAQ

How much capital is needed to start?

There isn’t a limit to how much capital needed to invest in private companies, but to be an accredited investor, there are income and net worth limits that may apply.

What are the time commitments and expectations?

There are no hard and fast time commitments or expectations of private investors, in a general sense. But that may differ on a case by case basis, especially if an investor takes a broader role with managing a company they’re investing in.

SoFi Invest®

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

Feb

2024

Overhead shot of the desk in the office.

A Guide to Tax-Efficient Investing

By Krystal Etienne | Growing Wealth, invest, Investing, Terminology | Comments Off

As the saying goes: It’s not how much you earn, it’s how much you keep. And when you make money from your investments you need to consider the impact taxes might have on your earnings.

Fortunately, there are a range of tax-efficient investment strategies that can help minimize the bite that taxes take out of your returns.

What is tax-efficient investing, and how does it work? By understanding the tax implications of different types of accounts, as well as the types of investments you choose (e.g. stocks, bonds, mutual funds), you can determine the most tax-efficient strategies for your portfolio.

The Importance of Tax-Efficient Investing

Investing comes with an assortment of costs, and the taxes you pay on investing profits can be one of the biggest. By learning how to be a more tax-efficient investor, you may be able to keep more of what you earn.

The Impact of Taxes on Returns

Investment tax rules are complicated. Profits from many stock and bond investments are taxed at the capital gains rate; but some bonds aren’t taxed at all. Qualified dividends are taxed in one way; non-qualified dividends another. Investments in a taxable account are treated differently than those in a tax-advantaged account.

And, of course, there is the process of applying investment losses to gains in order to reduce your taxable gains — a strategy known as tax-loss harvesting.

In addition, the location of your investments — whether you hold them in a taxable account or a tax-advantaged account (where taxes can be deferred, or in some cases avoided) — also has an impact on your returns. In a similar way, you can refocus your charitable giving strategy to be tax efficient as well.

Knowing the ins and outs of investment taxes can help you establish a tax-efficient strategy that makes sense for you.

💡 Quick Tip: Investment fees are assessed in different ways, including trading costs, account management fees, and possibly broker commissions. When you set up an investment account, be sure to get the exact breakdown of your “all-in costs” so you know what you’re paying.

Types of Tax-Efficient Accounts

Investment accounts can generally be divided into two categories based on how they’re taxed: taxable and tax-advantaged.

Taxable Accounts

In order to understand tax-deferred and tax-exempt accounts, it helps to first understand taxable accounts, e.g. brokerage accounts. A taxable brokerage account has no special tax benefits, and profits from the securities in these accounts may be taxed according to capital gains rules (unless other rules apply).

Taxable accounts can be opened in the name of an individual or trust, or as a joint account. Money that is deposited into the investment account is post-tax, i.e. income taxes have already been paid or will be paid on those funds (similar to the money you’d put into a checking or savings accounts).

Taxes come into play when you sell investments in the account and make a profit. You may owe taxes on the gains you realize from those investments, as well as earned interest and dividends.

With some securities, like individual stocks, the length of time you’ve held an investment can impact your tax bill. Other investments may generate income or gains that require a different tax treatment.

For example:

• Capital gains. The tax on an investment gain is called capital gains tax. If an investor buys a stock for $40 and sells it for $50, the $10 is a “realized” gain and will be subject to either short- or long-term capital gains tax, depending on how long the investor held the investment.

The short-term capital gains rate applies when you’ve held an investment for a year or less, and it’s based on the investor’s personal income tax bracket and filing status — up to 37%.

The long-term capital gains rate, which is generally 0%, 15%, or 20% (depending on your income), applies when you’ve held an investment for more than a year.

• Interest. Interest that’s generated by an investment, such as a bond, is typically taxed as ordinary income. In some cases, bonds may be free from state or local taxes (e.g. Treasuries, some municipal bonds).

But if you sell a bond or bond fund at a profit, short- or long-term capital gains tax could apply.

• Dividends. Dividends are distributions that may be paid to investors who hold certain dividend stocks. Dividends are generally paid in cash, out of profits and earnings from a corporation — and can be taxed as short- or long-term capital gains within a taxable account.

Recommended: How Do Dividends Work?

But the terms are different when it comes to tax-advantaged accounts.

Tax-Advantaged Accounts

Tax-advantaged accounts fall into two categories, and are generally used for long-term retirement savings.

Tax-Deferred Retirement Accounts

A 401(k), 403(b), traditional IRA, SEP IRA, and Simple IRA fall under the tax-deferred umbrella, a tax structure typical of retirement accounts. They’re considered tax efficient for a couple of reasons.

• Pre-tax contributions. First, the money you contribute to a tax-deferred account is not subject to income tax; you owe taxes when you withdraw the funds later, e.g. in retirement. Thus the tax is deferred.

This means the amount you contribute to a tax-deferred account for a given year can be deducted from your taxable income, potentially reducing your tax bill for that year.

Speaking hypothetically: If your taxable income for a given year is $100,000, and you’ve contributed $5,000 to a traditional IRA or SEP IRA, you would deduct that contribution and your taxable income would be $95,000. You wouldn’t pay taxes on the money until you withdrew that funds later, likely in retirement.

• Tax-free growth. The money in a tax-deferred retirement account (e.g. a traditional IRA) grows tax free. Thus you don’t incur any taxes until the money is withdrawn.

• Potentially lower taxes. By deducting the contribution from your taxable income now, you may avoid paying taxes at your highest marginal tax rate. The idea is that investors’ effective (average) tax rate might be lower in retirement than their highest marginal tax rate while they’re working.

Tax-Exempt Accounts

Typically known as Roth accounts — e.g. a Roth IRA or a Roth 401(k) — allow savers to deposit money that’s already been taxed. These funds, plus any gains, then grow tax free, and qualified withdrawals are also tax free in retirement.

Because contributions to Roth accounts are made post-tax, there is also more flexibility on when the money can be withdrawn. You can withdraw the amount of your contributions tax and penalty free at any time. However earnings on those investments may incur a penalty for early withdrawal, with some exceptions.

Recommended: What Is the Roth IRA 5-Year Rule?

Tax Benefits of College Savings Plans

529 College Savings Plans are a special type of tax-exempt account. The contributions and earnings in these accounts can be withdrawn tax free for qualified education expenses. In some cases you may be able to deduct your contributions from your state taxes, but the rules vary from state to state.

While you can invest the money in these accounts, they are limited in scope so aren’t generally considered one of the broader investment account categories.

Tax-Efficient Accounts Summary

As a quick summary, here are the main account types, their tax structure, and what that means for the types of investments you might hold in each.

• Generally you want to hold more tax-efficient investments in a taxable account.

• Conversely, you may want to hold investments that can have a greater tax impact in tax-deferred and tax-exempt accounts, where investments can grow tax free.

Types of Accounts	When Taxes Apply	Investment Implications
Taxable (e.g. brokerage or investment account)	Investors deposit post-tax funds and owe taxes on profits from securities they sell, and from interest and dividends.	Investments with a lower tax impact make sense in a taxable account (e.g. long-term stocks, municipal and Treasury bonds).
Tax-deferred (e.g. 401(k), 403(b), traditional, SEP, and Simple IRAs)	Investors contribute pre-tax money, but owe taxes on withdrawals.	Investments grow tax free until funds are withdrawn, giving investors more tax flexibility when choosing securities.
Tax-exempt (e.g. Roth 401(k), Roth IRA)	Investors deposit post-tax funds, and don’t owe taxes on withdrawals.	These accounts offer the most tax flexibility as investments grow tax free and investors withdraw the money tax free.

The Tradeoffs of Tax-Free Growth

Because of the advantages tax-deferred accounts offer investors, there are restrictions around contribution limits and the timing (and sometimes the purpose) of withdrawals. Taxable accounts are generally free of such restrictions.

• Contribution limits. The IRS has contribution limits for how much you can save each year in most tax-advantaged accounts. Be sure to know the rules for these accounts, as penalties can apply when you exceed the contribution limits.

• Income limits. In order to contribute to a Roth IRA, your income must fall below certain limits. (These caps don’t apply to Roth 401(k) accounts, however.)

• Penalties for early withdrawals. For 401(k) plans and traditional as well as Roth IRAs, there is a 10% penalty if you withdraw money before age 59 ½, with some exceptions.

• Required withdrawals. Some accounts, such as traditional, SEP, and Simple IRAs require that you withdraw a minimum amount each year after age 72 (or 73 if you turned 72 after Dec. 31, 2022). These are known as required minimum distributions (RMDs).

The rules governing RMDs are complicated, and these required withdrawals can have a significant impact on your taxable income, so you may want to consult a professional in order to plan this part of your retirement tax plan.

When choosing the location of different investments, be sure to understand the rules and restrictions governing tax-advantaged accounts.

Choosing Tax-Efficient Investments

Next, it is helpful to know that some securities are more tax efficient in their construction, so you can choose the best investments for the type of account that you have.

For example, ETFs are considered to be more tax efficient than mutual funds because they don’t trigger as many taxable events. Investors can trade ETFs shares directly, while mutual fund trades require the fund sponsor to act as a middle man, activating a tax liability.

Here’s a list of some tax-efficient investments:

• ETFs: These are similar to mutual funds but more tax efficient due to their construction. Also, most ETFs are passive and track an index, and thus tend to be more tax efficient than their actively managed counterparts (this is also true of index mutual funds versus actively managed funds).

• Treasury bonds: Investors will not pay state or local taxes on interest earned via U.S. Treasury securities, including Treasury bonds. Investors do owe federal tax on Treasury bond interest.

• Municipal bonds: These are bonds issued by local governments, often to fund municipal buildings or projects. Interest is generally exempt from federal taxes, and state or local taxes if the investor lives within that municipality.

• Stocks that do not pay dividends: When you sell a non-dividend-paying stock at a profit, you’ll likely be taxed at the long-term capital gains rate, assuming you’ve held it longer than a year. That’s likely lower than the tax you’d pay on ordinary dividends, which are generally taxed as income at your ordinary tax rate.

• Index funds vs. actively managed funds: Generally speaking, index funds (which are passively managed) have less churn, and lower capital gains. Actively managed funds are the opposite, and may incur higher taxes as a result.

Note that actively trading stocks can have additional tax implications because more frequent trades, specifically those that fall into the short-term capital gain category, incur a higher tax rate on gains.

Typically, tax consequences will vary from person to person. A tax professional can help navigate your specific tax questions.

Estate Planning and Charitable Giving

Another important aspect of tax-efficient investing is adjusting your estate plan and establishing a strategy for charitable bequests. Because both these areas — inheritances and philanthropy — can be extremely complex taxwise, it may be wise to consult with a professional.

Taxes and Estate Planning

There are a number of ways to structure inheritances in a tax-efficient manner, including the use of gifts, trusts, and other vehicles. With a sophisticated estate-planning strategy, taxes can be minimized for the donor as well as the receiver.

For example, while there is a federal estate tax, there is no federal inheritance tax. And only six states tax your inheritance as of 2024 (Iowa, Kentucky, Maryland, Nebraska, New Jersey, Pennsylvania). Iowa is phasing out their inheritance tax for deaths after 2025.

Yet your heirs may owe capital gains if you bequeath assets that then appreciate. But if you leave stock to your heirs, they can enjoy a step-up in cost basis based on when they inherited the stock, so they’d be taxed on gains from that time, not from the original price at purchase.

Tax Benefits of Charitable Contributions

Tax-efficient charitable giving is possible using a variety of strategies and accounts. For example a charitable remainder trust can reduce the donor’s taxable income, provide a charity with a substantial gift, while also creating tax-free income for the donor.

This is only one example of how charitable gifts can be structured as a win-win on the tax front. Understanding all the options may benefit from professional guidance.

💡 Quick Tip: Newbie investors may be tempted to buy into the market based on recent news headlines or other types of hype. That’s rarely a good idea. Making good choices shouldn’t stem from strong emotions, but a solid investment strategy.

Advanced Tax-Efficient Strategies

It may also be possible to minimize taxes by incorporating a few more strategies as you manage your investments.

Asset Location Considerations

As noted above, one method for minimizing the tax impact on your investments is through the careful practice of asset location. A well-considered combination of taxable, tax-deferred, and tax-exempt accounts can help mitigate the impact of taxes on your investment earnings.

For example, with some investment accounts — such as IRAs and 401(k)s — your tax bracket can have a substantial impact on the tax you’ll pay on withdrawals. Having alternate investments to pull from until your tax bracket is more favorable is a smart move to avoid that excess tax.

Also, with multiple investment accounts, you could potentially pull tax-free retirement income from a Roth IRA, assuming you’re at least 59 ½ and have held the account for at least five years (also known as the 5-year rule). and leave your company-sponsored 401(k) to grow until RMDs kick in.

Having a variety of investments spread across account types gives you an abundance of options for many aspects of your financial plan.

• Need to cover a sudden large expense? Long-term capital gains are taxed at a significantly lower rate than short-term capital gains, so consider using those funds first.

• Want to help with tuition costs for a loved one? A 529 can cover qualified education costs at any time, without incurring taxes or a penalty.

• Planning to leave your heirs an inheritance? Roth IRAs are tax free and transferrable. And because your Roth IRA does not have required distributions (as a traditional IRA would), you can allow the account to grow until you pass it on to your heir(s).

Tax-Loss Harvesting

Within taxable accounts, there may be an additional way to minimize some of the tax bill created by selling profitable investments: tax-loss harvesting. This advanced move involves reducing the taxes from an investment gain with an investment loss.

For example, an investor wants to sell a few investments and the sale would result in $2,000 in capital gains. Tax-loss harvesting rules allow them to sell investments with $2,000 in total capital losses, effectively canceling out the gains. In this scenario, no capital gains taxes would be due for the year.

Note that even though the investor sold the investment at a loss, the “wash sale” rule prevents them from buying back the same investment within 30 days after those losses are realized. This rule prevents people from abusing the ability to deduct capital gain losses, and applies to trades made by the investor, the investor’s spouse, or a company that the investor controls.

Because this strategy involves the forced sale of an investment, many investors choose to replace it with a similar — but not too similar — investment. For example, an investor that sells an S&P 500 index fund to lock in losses could replace it with a similar U.S. stock market fund.

Tax-Loss Carryover

Tax-loss harvesting rules also allow an investor to claim some of that capital loss on their income taxes, further reducing their annual income and potentially minimizing their overall income tax rate. This can be done with up to $3,000 in realized investment losses, or $1,500 if you’re married but filing separately.

Should your capital losses exceed the federal $3,000 max claim limit ($1,500 if you’re married and filing separately), you have the option to carry that loss forward and claim any amounts excess of that $3,000 on your taxes for the following year.

For example, if you have a total of $5,000 in capital losses for this year, by law you can only claim $3,000 of those losses on your taxes. However, due to tax-loss carryover, you are able to claim the remaining $2,000 as a loss on your taxes the following year, in addition to any capital gains losses you happen to experience during that year. This in turn lowers your capital gains income and the amount you may owe in taxes.

Roth IRA Conversions

It’s also possible in some cases to convert a traditional IRA to a Roth IRA. This is a complicated strategy, with pluses and minuses on the tax front.

• By converting funds from a traditional IRA to a Roth, you will immediately owe taxes on the amount you convert. The conversion amount could also push you into a higher tax bracket; meaning, you’d potentially owe more in taxes.

• Unlike funding a standard Roth IRA, there is no income limit for doing a Roth conversion, nor is there a cap on how much can be converted.

• Once the conversion is complete, you would reap the benefits of tax-free withdrawals from the Roth IRA in retirement.

• According to the 5-year rule, if you’re under age 59 ½ the funds that you convert to a Roth IRA must remain in your account for at least five years or you could be subject to a 10% early withdrawal penalty.

Final Thoughts on Tax-Efficient Investing

Given the impact of investment taxes on your returns, it makes sense to consider all the various means of tax-efficient investing. After all, not only are investment taxes an immediate cost to you, that money can’t be invested for further growth.

Key Strategies Recap

Once you understand the tax rules that govern different types of investment accounts, as well as the tax implications of your investment choices, you’ll be able to create a strategy that minimizes taxes on your investment income for the long term. Ideally, investors should consider having a combination of tax-deferred, tax-exempt, and taxable accounts to increase their tax diversification. To recap:

• A taxable account (e.g. a standard brokerage account) is flexible. It allows you to invest regardless of your income, age, or other parameters. You can buy and sell securities, and deposit and withdraw money at any time. That said, there are no special tax benefits to these accounts.

• A tax-deferred account (e.g. 401(k), traditional IRA, SEP IRA, Simple IRA) is more restrictive, but offers tax benefits. You can deduct your contributions from your taxable income, potentially lowering your tax bill, and your investments grow tax free in the account. Your contributions are capped according to IRS rules, however, and you will owe taxes when you withdraw the money.

• A tax-exempt account (e.g. a Roth IRA or Roth 401(k)) is the most restrictive, with income limits as well as contributions limits. But because you deposit money post-tax, and the money grows tax free in the account, you don’t owe taxes when you withdraw the money in retirement.

Further Learning in Tax-Smart Investing

Being smart about tax planning applies to the present, to educational expenses, to the future (in terms of taxes you could owe in retirement), and to your estate plan and your heirs as well. Maximizing your tax-efficient strategies across the board can make a significant difference over time.

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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.

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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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.
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.

SOIN1023137

Feb

2024

How Much Does a Paralegal Make a Year?

By Emily Greenhill Pierce | Building Your Career, Life & Career, money | Comments Off

The median annual salary for a paralegal is $59,200, according to the latest figures from the Bureau of Labor Statistics. But depending on where you live, your area of expertise, and your level of experience, you could make upwards of $121,110 or more a year.

A career as a paralegal can be a fulfilling choice for those interested in the law. While the job can be demanding and the hours sometimes long, it can also provide professional satisfaction and a chance to help others in your community.

What Are Paralegals?

A paralegal works under the supervision of a lawyer and performs supportive legal tasks. Administrative duties require a knowledge of the law, but you don’t have to have a law degree or a law license.

Paralegals are often responsible for the following tasks:

• Draft motions and pleadings for an attorney and file it with the court.

• Research cases. Paralegals research current and old legal cases to help discover relative precedents and understand past rulings.

• Interview clients and witnesses involved in a case.

• Communicate with clients throughout the phases of the legal process.

• Collect documents, client testimonials, and expert witnesses on behalf of the attorney.

• Draft reports and legal documents for cases.

• Factcheck legal filings and documents for accuracy.

• Gather supporting documents that a lawyer may use or file with the court.

• Coordinate cases, including their schedules and deadlines.

• Assist and support lawyers during trials.

Being a paralegal is not a job for antisocial people, as it typically involves being a liaison between clients, attorneys, investigators, witnesses, and court officials.

💡 Quick Tip: We love a good spreadsheet, but not everyone feels the same. An online budget planner can give you the same insight into your budgeting and spending at a glance, without the extra effort.

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How Much Do Starting Paralegals Make?

Whether they’re fresh out of school or have been working for several years, paralegals can be paid hourly or earn a yearly salary. A typical rate for a brand-new paralegal is $19.20 an hour or $55,332 a year.

An entry-level salary or hourly rate for a paralegal varies by work environment. Smaller firms and nonprofits tend to pay less, while bigger corporate law firms may offer more competitive pay.

Paralegals can specialize in certain areas, including litigation, real estate, divorce, intellectual property, immigration, and bankruptcy. Honing your skills in a particular area of the law could help position you for higher-paying opportunities.

No matter the size of your salary, it helps to keep a close eye on your finances and the progress you’re making toward your financial goals. Online tools like a money tracker app can help you create a budget, monitor your credit score, and more.

Recommended: Is a $100,000 Salary Good?

What Is the Average Paralegal Salary by State?

Like most jobs, the amount of money you can earn as a paralegal is impacted by geography. As the chart below shows, salaries in this field can fluctuate from state to state.

The Median Salary by State for a Paralegal in 2022

State	Median Salary
Alabama	$48,620
Alaska	$61,490
Arizona	$59,050
Arkansas	n/a
California	$69,790
Colorado	$65,010
Connecticut	$63,490
Delaware	$59,660
District of Columbia	$87,610
Florida	$52,190
Georgia	$51,420
Hawaii	$58,630
Idaho	$48,500
Illinois	$60,370
Indiana	$47,710
Iowa	$52,660
Kansas	$48,490
Kentucky	$48,810
Louisiana	$50,310
Maine	$54,710
Maryland	$58,760
Massachusetts	$63,360
Michigan	$58,780
Minnesota	$60,380
Mississippi	$43,590
Missouri	$55,410
Montana	$55,270
Nebraska	$50,610
Nevada	$61,180
New Hampshire	$50,960
New Jersey	$61,040
New Mexico	$48,320
New York	$62,730
North Carolina	$51,340
North Dakota	$48,740
Ohio	$50,580
Oklahoma	$48,490
Oregon	$63,980
Pennsylvania	$62,080
Rhode Island	n/a
South Carolina	$48,190
South Dakota	$54,100
Tennessee	$48,420
Texas	$56,310
Utah	$52,820
Vermont	$60,560
Virginia	$59,500
Washington	$69,260
West Virginia	$47,990
Wisconsin	$49,970
Wyoming	$52,000

Source: Bureau of Labor Statistics

Paralegal Job Considerations for Pay and Benefits

Thinking about becoming a paralegal? Consider the following:

• Areas of interest. Paralegals can work in any number of specialties: corporate law, patent law, health care, and more. Thinking about which field best suits your interest can help guide your training and job search.

• Career goals. Is career advancement and an annual pay raise important to you? Is having a flexible schedule a priority? Discuss your options with a hiring manager before accepting a position.

• Benefits. Many full-time and part-time paralegals are eligible for benefits, including, health, vision, and dental insurance, a 401(k), tuition assistance, and paid time off.

• Time and energy commitment. Some areas of law, like litigation, are more stressful than others and may require longer working hours.

Recommended: How to Create a Budget in 5 Steps

Pros and Cons of Being a Paralegal

Ultimately, deciding if becoming a paralegal is a good fit depends on your interests, skills, and goals. Like any profession, working as a paralegal has its positives and negatives:

Pros:

• Salary. Paralegals stand to earn excellent pay, especially if they train for specific roles. A courtroom presentation specialist, for instance, may earn between $67,500 and $125,000 a year.

• Job outlook. Paralegals are in high demand. According to the Bureau of Labor Statistics, jobs in the field are projected to grow 4% from 2022 to 2032.

• Variety of work. On any given day, a paralegal may juggle a number of cases and assorted tasks — from paperwork to writing motions to speaking with witnesses.

• Stimulating work. Creative problem-solving skills and analytical reasoning are put to use every day as a paralegal. The job also requires staying up-to-date on new and changing laws.

• No law school. Becoming a paralegal requires much less education than is demanded of lawyers. A bachelor’s degree in any field and completing an accredited paralegal program are often all that’s needed.

Cons:

• Long hours. Paralegals often work more than the traditional 40-hour week. As deadlines and court dates approach, you may find yourself working late nights and weekends.

• High stress. In addition to assisting lawyers with complex legal issues, paralegals may work closely with demanding clients.

• Lack of autonomy. When you’re a paralegal, you work directly under and are supervised by a licensed attorney. And since you are not certificated to practice law, you cannot advise your clients on legal matters or represent them in court.

💡 Quick Tip: Income, expenses, and life circumstances can change. Consider reviewing your budget a few times a year and making any adjustments if needed.

The Takeaway

While the hours can be long and the environment sometimes stressful, being a paralegal can provide you with an opportunity to help others, stay intellectually stimulated, and earn a good salary. While the average paralegal salary is around $59,200 a year, you may be able to earn more depending on your experience, specialty, and location.

FAQ

What is the highest-paying paralegal job?

One of the highest-paying paralegal jobs is a courtroom presentation specialist, which typically pays between $67,500 and $125,000 a year.

Do Paralegals make 100k a year?

Depending on how much experience you have, your area of expertise, and your employer, you could make $100,000 or more a year as a paralegal.

How much do paralegals make starting out?

When they’re just starting out, a paralegal earns an average of $19.20 an hour or $55,332 a year.

Photo credit: iStock/sturti

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*Terms and conditions apply. This offer is only available to new SoFi users without existing SoFi accounts. It is non-transferable. One offer per person. To receive the rewards points offer, you must successfully complete setting up Credit Score Monitoring. Rewards points may only be redeemed towards active SoFi accounts, such as your SoFi Checking or Savings account, subject to program terms that may be found here: SoFi Member Rewards Terms and Conditions. SoFi reserves the right to modify or discontinue this offer at any time without notice.

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

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

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

SORL1023014

Feb

2024

How Much Does a Personal Trainer Make a Year?

By Emily Greenhill Pierce | Building Your Career, Life & Career, relay | Comments Off

A personal trainer earns an average of $67,012 a year, according to the latest data from Salary.com. However, salaries typically fall somewhere between $48,347 and $82,320.

How much you can make as a personal trainer depends on several factors, including where you live, who you work for, your training experience, and your areas of expertise. Let’s unpack this.

What Are Personal Trainers?

A personal trainer develops customized exercise programs for clients based on individual skill levels, health goals, physical limitations, and other considerations. These professionals work with clients of all ages and skill levels to improve strength, flexibility, and endurance; complete workouts safely and without injury; support them on their weight loss journey; and more.

Trainers are often paid hourly, but they may earn a yearly salary if they work for a gym or high-end client. How much money a personal trainer makes depends on the range of services and level of attention they provide — in general, the more, the better.

It also helps if you have good people skills, as you’ll be working closely with clients. (Not much of a people person? You may want to look into jobs for introverts instead.)

💡 Quick Tip: When you have questions about what you can and can’t afford, a spending tracker app can show you the answer. With no guilt trip or hourly fee.

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How Much Do Starting Personal Trainers Make an Hour?

The average entry-level wage for a personal trainer in the United States is $29 per hour, or $61,104 a year, according to ZipRecruiter. But depending on a host of factors, personal trainers can earn anywhere from $11.06 to $51.92 an hour.

So is it possible to make $100,000 a year or more as a personal trainer? Short answer: yes. A six-figure income may be attainable once you gain enough experience and establish a steady client base. But keep in mind that those things often take time to develop.

Recommended: What Is Competitive Pay?

What Is a Personal Trainer’s Yearly Salary by State?

Location can play a major factor in a personal trainer’s income. A professional who’s established in their career may earn an average of $67,012, but as the chart below shows, take-home pay can vary significantly from state to state.

The Average Personal Trainer Salary by State

State	Median Salary for a Personal Trainer
Alabama	$53,023
Alaska	$59,756
Arizona	$54,514
Arkansas	$45,525
California	$61,037
Colorado	$57,837
Connecticut	$53,361
Delaware	$66,789
Florida	$43,714
Georgia	$49,394
Hawaii	$57,813
Idaho	$58,505
Illinois	$53,350
Indiana	$55,666
Iowa	$53,072
Kansas	$49,804
Kentucky	$47,885
Louisiana	$48,567
Maine	$59,455
Maryland	$64,637
Massachusetts	$60,291
Michigan	$47,929
Minnesota	$55,627
Mississippi	$52,898
Missouri	$51,521
Montana	$53,693
Nebraska	$63,126
Nevada	$56,502
New Hampshire	$57,587
New Jersey	$58,470
New Mexico	$55,489
New York	$64,556
North Carolina	$49,937
North Dakota	$58,914
Ohio	$54,118
Oklahoma	$61,134
Oregon	$58,939
Pennsylvania	$59,132
Rhode Island	$54,591
South Carolina	$50,988
South Dakota	$55,680
Tennessee	$51,669
Texas	$58,217
Utah	$51,630
Vermont	$63,225
Virginia	$65,639
Washington	$71,304
West Virginia	$45,668
Wisconsin	$57,762
Wyoming	$56,523

Source: ZipRecruiter

Recommended: The Highest-Paying Jobs in Every State

Personal Trainer Job Considerations for Pay and Benefits

When you’re just starting out as a personal trainer, there are many factors that may influence the direction of your career. For instance, working at an established commercial gym can offer an opportunity to gain experience, build up a client network, and receive job benefits.

If you’re more of a self-starter and prefer a degree of independence, working as a self-employed personal trainer might be the better fit. You’ll have the ability to set your own hours and hourly rate; however, you’ll also have to pay for health benefits and set money aside for retirement.

Here are some questions to ask yourself when starting a career as a personal trainer:

• How many hours are you willing to work?

• Would you rather work for someone else or be your own boss?

• Do you need health insurance benefits?

• Where do you see yourself in five to 10 years?

• What type of clients do you want (ex. senior citizens, athletes)?

• Are you willing to commute or relocate?

• What additional certifications might you need?

• What are your financial goals?

Establish what you need to earn as a personal trainer in order to cover your expenses and maintain the lifestyle you want. It can help to sit down and create a budget.

As your personal trainer career gets going, you can lean on financial tools like a money tracker app to help you monitor your spending and saving.

Tips to Increase a Personal Trainer’s Salary

Clients can come and go for a number of reasons, but there are some things you can do as a personal trainer to keep the ones you have and attract new ones. Here are some strategies to consider:

• Listen to your clients, and be willing to adapt to their needs.

• Sharpen your motivational skills. Pay attention to other successful trainers and how they inspire their clients.

• Be empathetic. Many clients may struggle during their workouts, both physically and psychologically. Empathy can go a long way in maintaining healthy client relations.

• Go where you’re needed. Investigate niches where your expertise can be of use, be it an elderly care center, health center, or a new neighborhood gym.

• Network and market yourself. Chat up members at your gym and discuss their fitness goals. You can also promote your own fitness journey and methods on social media.

• Earn new certifications. Get certified in CPR, yoga, Pilates, and nutrition. The more you know, the more in-demand you may be.

Pros and Cons of Being a Personal Trainer

As with any job, there are pluses and minuses to working as a personal trainer. Here are some of the benefits and challenges of the field:

Pros:

• Flexible hours. You can often schedule clients when you want to.

• Professional control. You’re able to build up your business through marketing and networking, adding clients as you raise your earning goals.

• Staying physically fit. You’ll have to practice what you preach. Staying in shape is a job requirement.

• Personal satisfaction, especially when you help a client meet their goals.

Cons:

• Fluctuating income/job security. There’s no way to predict how many clients you may have month-to-month or year-to-year.

• Lack of benefits. Many personal trainers work for themselves and have to pay for their own health and dental insurance, plus save for retirement.

• Nontraditional work hours. Although you have the ability to make your own schedule, most of your working clients will likely request early morning, evening, or weekend sessions.

• Shorter career lifespan. Even the most in-shape trainer ages, and there may come a day where you struggle to physically keep up with your clients.

💡 Quick Tip: Income, expenses, and life circumstances can change. Consider reviewing your budget a few times a year and making any adjustments if needed.

The Takeaway

A personal trainer’s salary can rise and fall with the ebb and flow of clients, but there is also no limit to the amount of money you can make. Whether you are working with a few dedicated clients or creating your own global fitness brand, being a personal trainer can be a great way to earn a salary while keeping yourself and your finance goals in shape.

FAQ

What is the highest paying personal trainer job?

Personal trainers to wealthy clients and celebrities typically command lucrative salaries. The most popular fitness influencers on TikTok and Instagram, for example, can make over $1 million a year.

Do personal trainers make $100k a year?

A well-established personal trainer can make $100,000 a year with experience, marketing savvy, good time management skills, and a loyal client base.

How much do personal trainers make starting out?

The average starting wage for a personal trainer in the United States is $29 per hour, or $61,104 a year.

Photo credit: iStock/Drazen Zigic

SoFi Relay offers users the ability to connect both SoFi accounts and external accounts using Plaid, Inc.’s service. When you use the service to connect an account, you authorize SoFi to obtain account information from any external accounts as set forth in SoFi’s Terms of Use. Based on your consent SoFi will also automatically provide some financial data received from the credit bureau for your visibility, without the need of you connecting additional accounts. SoFi assumes no responsibility for the timeliness, accuracy, deletion, non-delivery or failure to store any user data, loss of user data, communications, or personalization settings. You shall confirm the accuracy of Plaid data through sources independent of SoFi. The credit score is a VantageScore® based on TransUnion® (the “Processing Agent”) data.

*Terms and conditions apply. This offer is only available to new SoFi users without existing SoFi accounts. It is non-transferable. One offer per person. To receive the rewards points offer, you must successfully complete setting up Credit Score Monitoring. Rewards points may only be redeemed towards active SoFi accounts, such as your SoFi Checking or Savings account, subject to program terms that may be found here: SoFi Member Rewards Terms and Conditions. SoFi reserves the right to modify or discontinue this offer at any time without notice.

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What Is a SIMPLE 401(k) Plan & How Do You Utilize It?

How Does a SIMPLE 401(k) Work?

Get a 1% IRA match on rollovers and contributions.

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

Who Is Eligible for a SIMPLE 401(k)?

What Are the Pros of a SIMPLE 401(k) Plan?

What Are the Cons of a SIMPLE 401(k) Plan?

SIMPLE 401(k) vs SIMPLE IRA

The Takeaway

FAQ

Who is a SIMPLE IRA best for?

What is the 2 year rule for SIMPLE IRAs?

Does money grow in a SIMPLE IRA?

What happens to my SIMPLE IRA if I quit my job?

Unlocking the Potential of Private Company Investments

Understanding Private Companies

Classification of Private Companies

The Growth Journey: Startups to Unicorns

Alternative investments, now for the rest of us.

Start trading funds that include commodities, private credit, real estate, venture capital, and more.

Strategic Pathways to Private Investments

Early Stage Investments and Angel Investing

Joining Private Equity Firms

Investing in Pre-IPO Companies

Leveraging Pre-IPO Investing Platforms

The Accredited Investor’s Guide

Qualifications and Opportunities

Exclusive Markets for the Accredited Investor

The Pros and Cons of Private Company Investments

Advantages of Private Market Engagement

Risks and Considerations

Critical Steps for Investing in Private Companies

Conducting Thorough Research

Identifying and Assessing Potential Deals

The Transaction: Making Your First Private Investment

Post-Investment Vigilance

Monitoring Your Investment

Exit Strategies and Liquidity Events

Investment Myths Debunked

Setting Realistic Expectations

Common Misconceptions

Ready to Invest? Questions to Ask Yourself

Assessing Your Risk Tolerance

Aligning Investments with Personal Goals

The Takeaway

FAQ

How much capital is needed to start?

What are the time commitments and expectations?

A Guide to Tax-Efficient Investing

The Importance of Tax-Efficient Investing

The Impact of Taxes on Returns

Types of Tax-Efficient Accounts

Taxable Accounts

Tax-Advantaged Accounts

Tax-Deferred Retirement Accounts

Tax-Exempt Accounts

Tax Benefits of College Savings Plans

Tax-Efficient Accounts Summary

The Tradeoffs of Tax-Free Growth

Choosing Tax-Efficient Investments

Estate Planning and Charitable Giving

Taxes and Estate Planning

Tax Benefits of Charitable Contributions

Advanced Tax-Efficient Strategies

Asset Location Considerations

Tax-Loss Harvesting

Tax-Loss Carryover

Roth IRA Conversions

Final Thoughts on Tax-Efficient Investing

Key Strategies Recap

Further Learning in Tax-Smart Investing

How Much Does a Paralegal Make a Year?

What Are Paralegals?

Check your score with SoFi

Track your credit score for free. Sign up and get $10.*

How Much Do Starting Paralegals Make?

What Is the Average Paralegal Salary by State?

Paralegal Job Considerations for Pay and Benefits

Pros and Cons of Being a Paralegal

The Takeaway

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

Alternative investments,
now for the rest of us.

Student Loan
Refinancing

Personal
Loans

Online
Investments