InvestHL Archives

Dec

2025

Strike Price, Explained: Definition and Examples

Strike Price: What It Means for Options Trading

By Rebecca Lake | Growing Wealth, invest, Investing | Comments Off

Editor's Note: Options are not suitable for all investors. Options involve risks, including substantial risk of loss and the possibility an investor may lose the entire amount invested in a short period of time. Please see the Characteristics and Risks of Standardized Options.

Table of Contents

What Is a Strike Price?
Examples of Strike Price in Options Trading
Moneyness
How Is Strike Price Determined?
How Do You Choose a Strike Price?
What Happens When an Option Hits the Strike Price?
FAQ

In options trading, a strike price represents the price at which an option purchaser can buy or sell an option’s underlying asset. An option strike price can also be referred to as an exercise price or a grant price, as it comes into play when a trader is exercising the option contract they’ve purchased.

A strike price can determine how much or how little an investor stands to gain by exercising an option contract, and can also inform the value of the option. Trading options can potentially generate higher rewards, though it can entail taking more risk than investing in individual stocks. Understanding strike prices is key to developing a successful options trading strategy.

Key Points

• Strike price is the price at which an option holder can buy or sell the underlying asset through the option.

• The strike price helps determine the value of an option and the potential gain for the trader.

• Strike prices are set when options contracts are written and can vary for different contracts.

• There are different types of options, including calls and puts, each of which will have a set strike price.

• Understanding strike price is crucial for developing a successful options trading strategy.

What Is a Strike Price?

An option is a contract that gives the owner or buyer of the option the right, though not the obligation, to buy or sell a particular security on or before a specific date, at a predetermined price. In options trading terminology, this price is called the strike price or the exercise price.

Strike prices are commonly used in derivatives trading. A derivative draws its value from an underlying investment. In the case of options contracts, this can be a stock, bond, commodity, or other type of security or index.

Further, options contracts can trade European-style or American-style. With European-style options, investors can only exercise them on their expiration date. American-style options can be exercised any time up to and upon the expiration date. This in itself doesn’t affect strike price for options contracts.

In options trading, there are two basic types of options: calls and puts. With either type of option, the strike price is set at the time the options contract is written. This strike price determines the price at which the underlying asset would be bought or sold if the option is exercised.

Calls

A call option conveys the right (though not the obligation) to a purchaser to buy shares of an underlying stock or other security at a set strike price. Call option writers are obligated to sell the shares if the option is exercised.

Puts

A put option conveys the right (though not the obligation) to a purchaser to sell shares of an underlying stock or other security at a set strike price. This is one way that investors can short a stock. Put option writers are obligated to buy the shares if the option is exercised.

Examples of Strike Price in Options Trading

Having an example to follow can make it easier to understand the concept of strike prices and how they may affect the value of an option contract. When trading options, traders must select the strike price and length of time they’ll have before exercising an option.

The following examples illustrate how strike price works when trading call or put options.

Buying a Call

Call options, again, give a purchaser the right, but not the obligation, to purchase a security at a specific price. At the same time, the seller of the call option must sell shares to the investor exercising the option at the strike price.

Let’s say you hold a call option to purchase 100 shares of XYZ stock at $50 per share (the strike price). You believe the stock’s price, currently trading at $45, will increase over time. This belief eventually pans out as the stock rises to $70 per share thanks to a promising quarterly earnings call. At this point, you could exercise your option to buy shares of the stock at the $50 strike price. The call option seller would have to sell those shares to you at that price.

The upside here is that you’re purchasing the stock at a discount, relative to its actual market price. You could then turn around and sell the shares you purchased for $50 each at the new higher price point of $70 each. This allows you to collect a $20 per share profit, less the premium you paid to purchase the call contract and any trading fees owed to your brokerage (or online brokerage).

Keep in mind, however, that if the price of the underlying stock remains below the strike price, the option will expire worthless, and you will lose the premium you paid for the option.

Buying a Put

Put options give purchasers the right, but not the obligation, to sell a security at a specific strike price. The seller of a put option has an obligation to buy shares from a trader who exercises the option.

So, assume that you hold a put option to sell 100 shares of XYZ stock at $50 per share (the strike price). You believe that the stock’s price, currently at $55, is going to decline in the next few months. The stock’s price drops to $40 per share so you decide to exercise the option. This allows you to make a profit of $10 per share (minus the premium paid per share and any fees), since you’re selling the shares at the $50 strike price, rather than their current lower market price.

But again, if the price of the stock remains above the strike price the option will expire with no value and you would lose the premium you paid upfront.

Writing a Covered Call

A covered call is an options trading strategy that can be useful when an investor believes the price of stock they own may remain neutral or rise slightly. This strategy involves doing two things:

• Writing a call option for a security

• Owning an equivalent number of shares of that same security

Writing (or selling) covered calls is a way to potentially generate income from the premiums traders pay to purchase the call option. Premiums paid by a call option buyer are nonrefundable, even if they choose not to exercise the option later.

The premium from a covered call may also offer a degree of downside protection if the stock price falls slightly (though losses would still be substantial if the price dropped significantly)..

So, say you own 100 shares of XYZ stock, currently trading at $25 per share. You write a call option for 100 shares of that same stock with a strike price of $30. You then collect the premium from the investor who buys the option.

One of two things can happen at this point: If the stock’s price rises slightly, but remains below the $30 stock price, then the option will expire worthless. You still keep the premium for writing it and you still own your shares of stock.

On the other hand, assume the stock’s price shoots up to $35. The purchaser exercises the option, meaning you must sell them those 100 shares. You still collect the premium, but your profit from selling those shares is capped at $5 per share, given the $30 strike price.

Investors should always consider the potential tradeoffs of writing covered calls, since they could cap upside potential. Covered calls are generally suitable for investors who would be comfortable selling their shares, if needed.

Moneyness

Moneyness describes an option’s strike price relative to its market price. There are three ways to measure the moneyness of an option:

In the Money

Options are in the money when they have intrinsic value. A call option is in the money when the market price of the underlying security is above the strike price. A put option is in the money when the market price of the underlying security is below the strike price.

At the Money

An option is at the money when its market price and strike price are the same (or nearly the same).

Out of the Money

An out-of-the-money option has no intrinsic value. A call option is out of the money if the market price of the underlying security is below the strike price. A put option is out of the money when the market price of the underlying security is above the strike price.

Understanding moneyness is important for deciding when to exercise options and when they may be at risk of expiring worthless.

How Is Strike Price Determined?

The strike price of an option contract is set when the contract is written. Strike prices may be determined by the exchange they’re traded on (like the Chicago Board Options Exchange, or CBOE). For listed options, strike prices are set by the exchange at standardized intervals based on the underlying asset’s market price.

A writer may issue multiple strike prices for the same underlying security so traders can choose the level they want. For example, you might see five option contracts for the same stock with strike prices of $90, $92.50, $95, $97.50 and $100. This allows investors an opportunity to select varying strike prices when purchasing calls or put options for the same stock.

Note, however, that writing calls that aren’t covered entails significant risk and can result in substantial losses. Both individual and institutional investors can write options, but there is significant risk involved — particularly when the calls they write aren’t covered.

How Do You Choose a Strike Price?

When deciding which options contracts to buy, strike price is an important consideration. Stock volatility and the passage of time can affect an option’s moneyness and your potential losses or profits should you exercise the option.

As you compare strike prices for call or put options, consider:

• Your personal risk tolerance

• Where the underlying asset is trading, relative to the option’s strike price

• How long you have to exercise the option

You may also consider using various options trading strategies to manage risk. That may include using covered calls as well as long calls, long puts, short puts, married puts, and others. Learning more about how to trade options can help you apply these strategies to pursue potential profits while potentially managing risk exposure, given the high risk of options trading.

What Happens When an Option Hits the Strike Price?

When the price of an option’s underlying asset is equal to or near the strike price it’s considered at the money. This means it has no intrinsic value as the strike price and market price are the same. There’s typically no incentive for an investor to exercise an option that’s at the money at expiration as there’s nothing to be gained from either a call or put option. In this scenario, the option may expire worthless.

If you’re the purchaser of an option that expires worthless, you would lose the money you paid for the premium to buy the contract. If you’re the writer of the option, you would profit from the premium charged to the contract buyer.

The Takeaway

Strike price is a critical concept for investors to know, especially if they’re trading or otherwise dealing with options as a part of their investing strategy. In an options contract, the strike price simply refers to the set price at which the purchaser can buy or sell the underlying security. Again, options can be high risk and fairly high-level, and may not be appropriate for all investors.

SoFi’s options trading platform offers qualified investors the flexibility to pursue income generation, manage risk, and use advanced trading strategies. Investors may buy put and call options or sell covered calls and cash-secured puts to speculate on the price movements of stocks, all through a simple, intuitive interface.

With SoFi Invest® online options trading, there are no contract fees and no commissions. Plus, SoFi offers educational support — including in-app coaching resources, real-time pricing, and other tools to help you make informed decisions, based on your tolerance for risk.

Explore SoFi’s user-friendly options trading platform.

FAQ

What is a strike price in options trading?

The strike price, also known as the exercise price or grant price, is the predetermined price at which an investor can buy or sell the underlying asset of an option contract. This price is set when the options contract is written. It’s a critical factor that helps determine the value of the option and an investor’s potential gain or loss upon exercising the contract.

How does the strike price work for call and put options?

For call options, the strike price is the price at which the purchaser has the right, but not the obligation, to buy the underlying security if the market price moves in their favor. For put options, the strike price is the price at which the purchaser has the right, but not the obligation, to sell the underlying security if the market price moves favorably.

Note that writers of options contracts are obligated to buy or sell the underlying security at the strike price if a purchaser chooses to buy or sell the underlying security.

What are the three measures of an option’s “moneyness”?

Moneyness describes an option’s strike price relative to its market price. An option that is in the money (ITM) has intrinsic value. A call is ITM if its market price is above the strike price; a put is ITM if its market price is below the strike price.

An option that is out of the money (OTM) has no intrinsic value. A call is OTM if the market price is below the strike price; a put is OTM if the market price is above the strike price.

An option is at the money (ATM) if the market price and strike price are the same.

Photo credit: iStock/Paul Bradbury

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

SOIN-Q325-033

Dec

2025

A pink question mark is shown to illustrate questions people have about what 401(k) benchmarking is and how it works.

What Is 401(k) Plan Benchmarking?

By Mike Zaccardi, CMT, CFA | Growing Wealth, invest, Investing, Preparing for Retirement | Comments Off

Table of Contents

How 401(k) Benchmarking Works
The Importance of 401(k) Plan Benchmarking
How to Benchmark Your 401(k) Plan: 3 Steps
FAQ

Benchmarking a 401(k) retirement plan refers to how a company assesses their plan’s design, fees, and services to ensure they meet industry and ERISA (Employee Retirement Income Security Act) standards.

Benchmarking 401(k) plans is important for a few reasons. First, the company offering the plan needs to be confident that they are acting in the best interests of employees who participate in the 401(k) plan. And because acting in the best interests of plan participants is part of an employer’s fiduciary duty, benchmarking can help reduce an employer’s liability if fiduciary standards aren’t met.

If a company’s plan isn’t meeting industry benchmarks, it may be wise for an employer to change plan providers. Learn more about how benchmarking works and why it’s important.

Key Points

• Benchmarking evaluates 401(k) plan design, fees, and services to meet ERISA standards.

• Annual benchmarking can ensure compliance and help reduce employer liability.

• Administrative, investment, and transaction fees must be evaluated to make sure they are reasonable.

• Service quality of the plan, including customer support and investment guidance, is assessed.

• Optimizing 401(k) plan features may enhance employee retention and satisfaction.

How 401(k) Benchmarking Works

While a 401(k) plan is a convenient and popular way for participants to invest for retirement, the company offering the plan has many responsibilities to make sure that its plan is competitive. That is where 401(k) benchmarking comes into play.

An annual checkup is typically performed whereby a company assesses its plan’s design, evaluates fees, and reviews all the services offered by the plan provider. The 401(k) plan benchmarking process helps ensure that the retirement plan reduces the risk of violating ERISA rules. For the firm, a yearly review can help reduce an employer’s liability and it can save the firm money.

ERISA, the Employee Retirement Income Security Act, requires that the plan sponsor verifies that the 401(k) plan has reasonable fees. ERISA is a federal law that mandates minimum standards that retirement plans must meet. It helps protect plan participants and beneficiaries.

The Importance of 401(k) Plan Benchmarking

It is important that an employer keep its 401(k) plan up to today’s standards. Making sure the plan is optimal compared to industry averages is a key piece of retirement benchmarking. It’s also important that your employees have a quality plan to help them save and invest for retirement. Most retirement plan sponsors conduct some form of benchmarking planning, and making that a regular event — such as annually — is important so that the employer continuously complies with ERISA guidelines.

Employers have a fiduciary responsibility to ensure that fees are reasonable for services provided. ERISA also states that the primary responsibility of the plan fiduciaries is to act in the best interest of their plan participants. 401(k) benchmarking facilitates the due diligence process and reduces a firm’s liability.

How to Benchmark Your 401(k) Plan: 3 Steps

So, as an employer, how exactly do you go about benchmarking 401(k) plans? There are three key steps that plan sponsors should take so that their liability is reduced, and the employees get the best service for their money. Moreover, 401(k) benchmarking can help improve your service provider to make your plan better.

1. Assess Your 401(k) Plan Design

It’s hard to know if your retirement plan’s design is optimal. Two gauges used to figure its quality are plan asset growth and the average account balance. If workers are continuously contributing and investments are performing adequately compared to market indexes, then those are signs that the plan is well designed.

Benchmarking can also help assess if a Roth 401(k) feature should be added. Another plan feature might be to adjust the company matching contribution or vesting schedule. Optimizing these pieces of the plan can help retain workers while meeting ERISA requirements.

2. Evaluate Your 401(k) Plan Fees

A 401(k) plan has investment, administrative, and transaction fees. Benchmarking 401(k) plan fees helps ensure total costs are reasonable. It can be useful to take an “all-in” approach when assessing plan fees. That method can better compare service providers since different providers might have different terms for various fees.

But simply selecting the cheapest plan does not account for the quality and depth of services a plan renders. Additional benchmarking is needed to gauge a retirement plan’s quality. Here are the three primary types of 401(k) plan fees to assess:

• Administrative: Fees related to customer service, recordkeeping, and any legal services.

• Investment: Amounts charged to plan participants and expenses related to investment funds.

• Transaction: Fees involved with money movements such as loans, 401(k) withdrawals, and advisory costs.

3. Evaluate Your 401(k) Provider’s Services

There are many variables to analyze when it comes to 401(k) benchmarking of services. A lot can depend on what your employees prefer. Reviewing the sponsor’s service model, technology, and execution of duties is important.

Also, think about it from the point of view of the plan participants: Is there good customer service available? What about the quality of investment guidance? Evaluating services is a key piece of 401(k) plan benchmarking. A solid service offering helps employees make the most out of investing in a 401(k) account.

The Takeaway

Investing for retirement is more important than ever as individuals live longer and pension plans are becoming a relic of the past. With today’s technology, and clear rules outlined by ERISA, it may be easier for workers to take advantage of high-quality 401(k) plans to help them save and invest for the long term.

For the company offering the plan, establishing a retirement benchmarking process is crucial to keeping pace with the best 401(k) plans. Reviewing a plan’s design, costs, and services helps workers have confidence that their employer is working in their best interests. Benchmarking can also protect employers.

If your company already has a 401(k) plan that you contribute to as an employee, you might also consider other individual retirement accounts to open. You can learn more about various options available, such as IRAs. There are different types of IRAs, including traditional and Roth IRAs. You may want to explore them as an option to help reach your retirement savings 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).

Help build your nest egg with a SoFi IRA.

🛈 While SoFi does not offer 401(k) plans at this time, we do offer a range of individual retirement accounts (IRAs).

FAQ

How often should a 401(k) be benchmarked?

It’s considered a best practice to benchmark a 401(k) annually to make sure the plan complies with ERISA (Employee Retirement Income Security Act) guidelines. Making sure that the plan’s fees are reasonable and acting in the best interests of plan participants is part of an employer’s fiduciary duty. Benchmarking facilitates the due diligence process and reduces an employer’s liability if fiduciary standards aren’t met.

How do I benchmark my 401(k) fees?

To benchmark your 401(k) fees, take an “all-in” approach by calculating the service provider fees plus the investment expenses for the plan. This helps you compare your plan’s fees to fees charged by other service providers. In addition, assess the plan’s quality by looking at administrative fees (fees related to customer service and recordkeeping, for instance), investment fees (expenses related to investment funds and amounts charged to participants in the plan), and transaction fees (fees related to moving money, such as withdrawals or loans).

Why is 401(k) benchmarking important?

The process of 401(k) benchmarking is important for making sure a 401(k) plan is a quality plan and that it is in compliance with ERISA rules. An employer has a fiduciary duty to act in the best interest of their employees, and ensuring that a 401(k) plan has reasonable fees is part of that due diligence. Benchmarking can also help protect an employer and reduce their liability.

Photo credit: iStock/MicroStockHub

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

SOIN-Q425-026

Dec

2025

A man sits at a table outside, smiling, looking at his investments on a tablet.

Capital Markets Explained

By Colin Dodds | Growing Wealth, invest, Investing | Comments Off

Table of Contents

What Are Capital Markets?
What Is the Main Purpose of Capital Markets?
What Are the Types of Capital Markets?
Capital Markets vs. Financial Markets vs. Money Markets
Real-world Examples of Capital Markets
The Takeaway
FAQ

A capital market is an exchange or platform where individuals, institutions, governments, and other entities come together to buy and sell securities. Well-known capital markets typically include the stock, bond, and commodities markets.

Capital markets generally facilitate the trading of longer-term securities vs. money markets, where investors can buy short-term debt. Capital markets today may or may not have specific geographical locations, as most capital markets conduct business electronically.

Key Points

• Capital markets refers to platforms that enable entities to sell securities to raise funds for various purposes, and where investors can buy those instruments.

• Examples of well-known capital markets include the stock market, bond market, commodities market, forex market, and more.

• Capital markets can have physical locations in financial capitals such as Tokyo, London, or New York, but most securities trading is done electronically.

• Capital markets are a critical part of the global economy, as they make it possible for money to change hands with relative ease.

• Primary markets are where securities are issued for the first time, and secondary markets are where they’re traded subsequently.

What Are Capital Markets?

Capital markets perform a key economic role. They bring together those who need to sell securities and those who wish to buy them, thereby facilitating the movement of capital around the world. Capital markets include a wide range of securities markets where funds can be traded between companies, governments, institutions, and individuals for myriad reasons (like investing online).

Established capital markets include stock and bond markets, and commodities. Capital markets and money markets are distinct, though: money markets are where short-term debt is traded. Most capital markets are located in the world’s financial centers, such as London, New York, Singapore, and Hong Kong.

What Is the Main Purpose of Capital Markets?

As noted, the main purpose of capital markets is to bring buyers and sellers together, specifically, for those who want to transact in securities markets. This means that they’re a meeting place for organizations or entities (governments, companies, etc.) that need money to get it from those who are willing to lend it or buy equity (investors).

Capital markets are important to the functioning of the broader economy.

What Are the Types of Capital Markets?

There are different types of capital markets, including broad markets: primary and secondary markets.

Primary vs Secondary Market

Capital markets are commonly divided into primary and secondary markets. The primary markets are where issuers sell “new” securities, and where investors buy them.

The other side of the capital markets are the secondary markets. This is where investors buy and sell the securities that have already been issued, often through a self-directed investing account.

Stock Market vs Bond Market

Stock markets are probably the most well-known of the capital markets. They are where companies go to acquire the capital they need to grow, and where investors go to buy stocks, and find opportunities for their capital to grow.

Bond markets operate differently. For one thing, the bond market doesn’t have a central exchange. Instead, they sell over the counter (OTC). And most of the people who trade in this OTC market are professional traders, such as pension funds, investment banks, hedge funds, and asset managers.

A bond is similar to an IOU, in that investors agree to lend capital to a government, company, or other bond issuer in exchange for regular interest payments over time, and a guarantee their principal will be repaid when the bond matures.

Stock and bond markets are one way to divide up the capital markets. But there are other securities such as convertible bonds, convertible preference shares and other alternative securities that companies sell to raise capital.

Capital Markets vs. Financial Markets vs. Money Markets

Financial markets are a broader category that include both capital markets and money markets. People sometimes use all three terms interchangeably, but there are some distinctions.

Financial Markets

Financial markets, generally, are any venue in which individuals and institutions trade any financial asset, including stocks, bonds, currencies, derivatives, commodities, and alternative investments.

Capital Markets

Capital markets specifically refer to the places where companies and other entities go to raise capital. Some distinguish capital markets as the segment where investors can invest in longer-term securities, versus the short-term instruments available through money markets.

Money Markets

Capital markets are also distinct from money markets in that the money market is where investors trade short-term debt, generally less than one year. Money markets support entities that need the return from short-term debt instruments.

The key distinction between money markets and capital markets are the types of securities traded, their risk level, and duration.

Money market instruments are generally fixed-income securities, and as such can be considered lower risk than other securities traded in the capital markets.

Real-world Examples of Capital Markets

Here are a few examples of capital markets at work in the real world.

Example 1: A Company Goes Public (IPO)

Many companies will choose to conduct an initial public offering, or IPO, in an effort to raise capital in quantities that simply aren’t available through private investors. The public capital market creates the opportunity for millions of investors to buy stakes in the company.

A company will usually consider an IPO when it has grown in size and matured as an organization. From a size perspective, one common time to consider an IPO is when a unicorn company has reached a valuation of $1 billion, though many companies go public before this point.

For many companies, the day of its IPO represents the beginning of a new stage of growth. In addition to the funds raised in an IPO, the credibility and transparency of being a publicly traded company can make it easier and less expensive to borrow money in the future.

Example 2: A City Issues Bonds for a New School

To access public funding through a bond issue, a company or another entity will start by discussing its need for capital with an investment bank or banks, which will act as the underwriter. In some cases, an entity may issue bonds directly, without using an underwriter.

If the bond issuer doesn’t have a rating from a bond-rating agency, the bank will help the borrower get in touch with the right rating agencies.

Once the terms of the bond are agreed upon, and the rating assigned to it, the bank sets up meetings with institutional investors. If they respond positively, then the bonds go to the investors who agreed to buy it over the course of the meetings leading up to the issuance date.

Example 3: Capital Markets in Real Estate

There are several ways that capital markets can serve or operate within the real estate sector. For instance, if a real estate developer needed to raise capital to fund a project, they could securitize it and sell shares, such shares of a real estate investment trust (REIT). Or, if a city needed to fund a project, they could sell shares of municipal bonds to raise the money to do it.

Further, there are financial instruments that are backed by real estate, such as mortgage-backed securities.

The Takeaway

The term capital markets encompasses the in-person and electronic exchanges where companies, governments, institutions, and other entities go to obtain capital from investors.

While the term financial markets is often used to indicate the means by which all types of securities and investment are traded, capital markets tends to refer to the platforms that facilitate the trading of equities and longer-term debt instruments.

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

¹Opening and funding an Active Invest account gives you the opportunity to get up to $3,000 in the stock of your choice.

FAQ

What are capital markets in simple terms?

Capital markets bring together companies and other entities that need capital for various purposes, and investors who are willing to buy the securities they offer.

What is the capital market vs the stock market?

The stock market is an important subset of capital markets. It’s where companies that issue shares of their stock can find willing investors.

What is a primary market vs a secondary market?

A primary market is where securities or certain assets are issued for public sale for the first time, and a secondary market is where those securities or assets are subsequently traded or transacted.

Who are the main participants in capital markets?

Broadly, the main participants in capital markets are issuers, or those looking to sell equity or debt for funding, and investors, who are those looking to spend or lend capital in exchange for equity. Intermediaries could also be included, and those include market makers who connect issuers and investors.

Is the foreign exchange (forex) market a capital market?

Yes, the forex market could be considered a type of capital market.

Photo credit: iStock/Ivan Pantic

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

SoFi Invest is a trade name used by SoFi Wealth LLC and SoFi Securities LLC offering investment products and services. Robo investing and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser. Brokerage and self-directed investing products offered through SoFi Securities LLC, Member FINRA/SIPC.

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SOIN-Q425-047

Dec

2025

How to Save for Retirement at 30

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

Table of Contents

5 Ways to Start Saving for Retirement at 30
FAQ

Learning how to save for retirement at 30 is an ideal time to start because you may have a steady salary and access to a workplace retirement plan. It can also be complicated: You may have more expenses and new choices to think about.

The main reason to start saving for retirement in your 30s, though, is that time is on your side. Setting aside even a small amount on a regular basis can help grow your nest egg over time.

While an employer-sponsored plan can make saving easier, you can also set up and manage a retirement plan using an IRA.

Key Points

• Saving for retirement at 30 is crucial because this is when time is on your side, and can help your nest egg grow.

• At the same time, the onset of adult financial responsibilities may make it hard to set aside money for the future.

• If you have access to a workplace retirement plan, like a 401(k), this can get you started. Setting aside even small amounts on a steady basis can add up over time.

• Even without a 401(k), it’s possible to open your own IRA and start saving and investing now.

• Remember that saving for retirement comes with certain tax advantages that may be useful in the present and down the road.

5 Ways to Start Saving for Retirement at 30

You can set yourself on a path to healthy retirement savings by using the following strategies. First up, putting money into a designated retirement plan.

1. Contribute to a Workplace Account or an IRA

Saving in tax-advantaged retirement accounts available through work, such as a 401(k), is one of the best things you can do to start saving for retirement.

• Annual contributions

Your 401(k) allows you to contribute up to $23,500 a year in 2025, and $24,500 in 2026. Contributions come directly from your paycheck as pre-tax dollars, which lowers your taxable income in the year you make them.

Regular, automatic contributions, coupled with the benefits of compounding returns, can help your savings grow. Starting a 401(k) at 30 gives you a few decades for your funds to grow over time.

• Employer matching funds

Also, many 401(k)s allow employers to contribute to your retirement, and many will offer matching funds as part of your compensation package. Aim to save at least as much as is required to receive your employer’s match.

Work toward maxing out your 401(k) contributions, especially as your salary grows over time.

• Investing your 401(k)

Many workplace plans offer pre-set portfolios, like target-date funds, as well as a wide selection of other investments.

In some cases, your employer may select a basic option for you. It’s important to check so that you can make the best choice for your financial goals. You may be able to invest online directly through the plan sponsor.

You can access the funds penalty-free once you reach age 59 ½, but you will owe taxes on the money at that time.

Recommended: How to Invest Your 401(k)

2. Open an IRA

An IRA is a retirement account that anyone with earned income can open. If you don’t have a 401(k) at work, you can open an IRA, which will give you access to a tax-advantaged account to save for retirement.

Even if you already have a 401(k), opening an IRA can be a good way to save even more, though you may not be able to deduct your contributions. The contribution limit for an IRA 2025 is $7,000 per year, and the limit is $7,500 per year in 2026.

IRAs come in two different types: traditional and Roth IRAs. If you don’t have a 401(k), you can make contributions to a traditional IRA with pre-tax dollars. Like a 401(k), money in these accounts grows tax-deferred, and you’ll pay the taxes on it when you make withdrawals in retirement.

If you meet certain income restrictions, you may be able to contribute to a Roth IRA instead or in addition to these tax-deferred accounts. With a Roth, you make the contributions with after-tax dollars, but your money will grow tax-free inside the account, and you do not have to pay taxes when you make withdrawals.

3. Plan Your Asset Allocation

Diversification is a strategy whereby you spread your money across different asset classes. To minimize risk from a decline in one type of asset, it typically makes sense to create a diversified portfolio, including a mix of asset classes, such as stocks, bonds and other assets.

Understanding Mutual Funds

Owing to the difficulty of researching, choosing, and managing multiple securities, most retirement savers choose to invest in mutual funds or exchange-traded funds (ETFs) within their retirement plans. These funds are a type of pooled investment that holds hundreds of different securities.

For example, if you buy shares in an ETF that tracks the S&P 500 index, you’ll be investing in the 500 stocks included in that index.

You may want to invest in stock mutual funds or ETFs, bond mutual funds or ETFs, or hybrid funds that include some of each type of asset.

Understanding Asset Allocation

Your asset allocation refers to the proportion of each asset class that you hold. Your asset allocation will reflect your goals, risk tolerance, and time horizon. Given the relatively long period until your retirement, you might consider a relatively aggressive portfolio consisting mostly of stocks in your retirement account.

Stocks typically provide the most potential for growth, but they also fluctuate more than some other asset classes, and they can be risky. Since you have three decades or more before you retire, you have time to ride out the natural ups and downs of the market.

Bonds tend to be less volatile than stocks but also offer lower returns, and may balance out the riskier equity allocation. As you approach retirement, you may consider rebalancing your asset allocation to include more conservative investments to help protect the income you will need to draw upon soon.

Target-date funds are a type of mutual fund that automatically readjusts your portfolio as you near your target date, often the year in which you wish to retire.

4. Diversify Within Asset Classes

Just as a portfolio with different types of assets offers some downside protection, so too, does diversification within those asset classes. If you invest the entire stock portion of your portfolio shares in just one fund and the share price drops, the value of your entire portfolio drops as well.

Now imagine that you own shares in 500 different companies. When one stock fares poorly, it will have a relatively small effect on the rest of your portfolio. Diversification helps limit the negative effects that any asset class, sector, or company could have on your portfolio.

You can further diversify your portfolio by including companies from different sectors and of all sizes from different parts of the globe. This same idea is true for other asset classes. For example, you could hold funds with a mix of government and corporate bonds, and the corporate bonds could represent companies from various sectors and locations.

5. Don’t Cash Out Your 401(k) When You Get a New Job

If you’re only in your 30s, it’s likely that you’ll change jobs a couple of times or more, over the course of your career. When you change jobs, you’ll have a number of options for what to do with the 401(k) you hold with your previous employer.

One of these options is to cash out your 401(k). But this is typically not a great idea from a personal finance perspective. If you take a lump sum payment and you’re younger than 59 ½, you will owe income taxes on the withdrawal, and also a 10% early withdrawal penalty. What’s more, your money will no longer be working for you in a tax-advantaged account, potentially setting you back in your retirement savings goals.

A better option is to roll over your 401(k) into another tax-advantaged retirement account, such as your new employer’s plan, if they offer one, without paying income taxes. Or you can roll your 401(k) into an IRA without paying taxes. IRA accounts offer the added benefit of additional investment options, and they may have lower fees than your 401(k).

6. Protect Your Earnings with Disability Insurance

An injury or an illness that keeps you from going to work can hamper your retirement savings plan. However, disability insurance can help cover a portion of your lost income — usually between 50% and 70% — for a period of time.

Most employers offer some sort of short-term disability insurance, with a benefit period of three to six months. Some employers may offer long-term policies that cover periods of five, 10, or 20 years, or even through retirement age.

Check with your employer to see if you are covered by a disability policy and whether it provides enough coverage for your needs. If your employer’s plan falls short, or you don’t have access to one, you might consider purchasing a policy on your own.

The Takeaway

The earlier you can start saving for retirement the better. A long time horizon gives you the opportunity to take advantage of compounding growth for a longer period of time, which can help you increase the amount you’re able to save. Pay attention to the fees you’re paying on investments, which can eat away at returns over time.

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

Is starting to save for retirement in your 30s too late?

Not at all. Being in your 30s is often the best time to start, because you may have a steady salary and access to a workplace retirement plan. Even if you don’t, you can still set up your own retirement plan using an IRA. Setting aside money on a regular basis can build a nest egg over time, because time is what helps money to grow.

How much should a 30-year-old have saved for retirement?

One rule of thumb is to aim to save an amount that’s equivalent to your salary. But that’s just a benchmark. It’s far more important to start saving even small amounts, but on a regular basis, using automatic transfers.

Can I save for retirement if I have debt?

Being in debt makes it harder to save for the future, no doubt. And while it’s difficult to save when you’re paying down bills, saving even a little bit can make a big difference to your nest egg over time.

Photo credit: iStock/AJ_Watt

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

SoFi Invest is a trade name used by SoFi Wealth LLC and SoFi Securities LLC offering investment products and services. Robo investing and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser. Brokerage and self-directed investing products offered through SoFi Securities LLC, Member FINRA/SIPC.

For disclosures on SoFi Invest platforms visit SoFi.com/legal. For a full listing of the fees associated with Sofi Invest please view our fee schedule.

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

Mutual Funds (MFs): Investors should carefully consider the information contained in the prospectus, which contains the Fund’s investment objectives, risks, charges, expenses, and other relevant information. You may obtain a prospectus from the Fund company’s website or clicking the prospectus link on the fund's respective page at sofi.com. You may also contact customer service at: 1.855.456.7634. Please read the prospectus carefully prior to investing.Mutual Funds must be bought and sold at NAV (Net Asset Value); unless otherwise noted in the prospectus, trades are only done once per day after the markets close. Investment returns are subject to risk, include the risk of loss. Shares may be worth more or less their original value when redeemed. The diversification of a mutual fund will not protect against loss. A mutual fund may not achieve its stated investment objective. Rebalancing and other activities within the fund may be subject to tax consequences.

Exchange Traded Funds (ETFs): Investors should carefully consider the information contained in the prospectus, which contains the Fund’s investment objectives, risks, charges, expenses, and other relevant information. You may obtain a prospectus from the Fund company’s website or by emailing customer service at [email protected]. Please read the prospectus carefully prior to investing.

Investment Risk: Diversification can help reduce some investment risk. It cannot guarantee profit, or fully protect in a down market.

S&P 500 Index: The S&P 500 Index is a market-capitalization-weighted index of 500 leading publicly traded companies in the U.S. It is not an investment product, but a measure of U.S. equity performance. Historical performance of the S&P 500 Index does not guarantee similar results in the future. The historical return of the S&P 500 Index shown does not include the reinvestment of dividends or account for investment fees, expenses, or taxes, which would reduce actual returns.
Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.

Third Party Trademarks: Certified Financial Planner Board of Standards Center for Financial Planning, Inc. owns and licenses the certification marks CFP®, CERTIFIED FINANCIAL PLANNER®

SOIN-Q325-095
CN-Q425-3236452-47

Dec

2025

A couple sits at a table with a laptop and financial papers, working on their taxes together.

What Tax Bracket Am I In?

By Kelly Boyer Sagert | Budgeting & Goals, money | Comments Off

Table of Contents

What Are Tax Brackets?
How Do Tax Brackets Work?
Example of Tax Brackets
2025 Tax Brackets
Lowering Your 2025 Tax Bracket
FAQ

There are seven federal tax brackets for the 2025 tax year, ranging from 10% to 37%. As a general rule, the more you earn, the higher your tax rate. And the higher your income and tax rate, the more money you will probably owe the IRS (Internal Revenue Service) in taxes.

How much you’ll pay in federal tax on your 2025 income (due in 2026) will depend on which bracket your income falls in, as well as your tax-filing status and other factors, such as deductions.

When people look at tax charts, however, they often assume that having an income in a particular tax bracket (such as 22%) means that all of your income is taxed at that rate. Actually, tax brackets are “marginal.” This term means that only the part of your income within each range is taxed at the corresponding tax rate.

Read on to learn how to use the 2025 tax chart to figure out how much you owe, plus tips on how to lower your tax bracket.

Key Points

• There are seven federal tax brackets for the 2025 tax year, ranging from 10% to 37%.

• Tax brackets are marginal, meaning only the income within each specified range is taxed at that rate, not your entire income.

• Your tax-filing status, such as Single or Married Filing Jointly, determines the income ranges for each tax bracket.

• Taxable income is your gross income minus any applicable deductions, such as the standard deduction.

• You may be able to lower your tax bracket by increasing deductions or contributing to tax-advantaged accounts.

What Are Tax Brackets?

A tax bracket determines the range of incomes upon which a certain income tax rate is applied. America’s federal government uses a progressive tax system: Filers with lower incomes pay lower tax rates, and those with higher incomes pay higher tax rates.

There are currently seven tax brackets in the U.S. which range from 10% to 37%. However, not all of your income will necessarily be taxed at a single rate. Even if you know the answer to “What is my federal tax bracket?” you are likely to pay multiple rates.

Also note that the income levels have been adjusted in 2025 vs. 2024 to take into account the impact of inflation and other factors. So even if you made the same amount in 2025 as in 2024, you are not necessarily in the same bracket. Similarly, the IRS updated the income tax brackets for 2026, as well, which apply to taxes filed in 2027.

💡 Quick Tip: Banish bank fees. Open a new bank account with SoFi and you’ll pay no overdraft, minimum balance, or any monthly fees.

How Do Tax Brackets Work?

Whether you’re filing taxes for the first time or have been doing so for decades, you may wonder how you know what tax bracket you’re in.

While there are seven basic tax brackets, your income doesn’t necessarily get grouped into one level in which you pay that rate on all of your income. This only happens if your total income is in the lowest possible tax bracket.

Otherwise, the tax system is also graduated in such a way so that taxpayers don’t pay the same rate on every dollar earned. Instead, you pay higher rates on each dollar that exceeds a certain threshold.

• For example, if your taxable income is $50,000 for 2025, not all of it is taxed at the 22% rate that includes incomes from $48,475 to $103,350 for single filers. Some of your income will be taxed at the lower tax brackets, 10% and 12%. Below, you’ll find a specific example of how this works.

In addition to knowing which tax bracket you’re in, it’s important to be aware of standard deductions that are applied when calculating taxes. (This is separate from common payroll deductions, such as health insurance.) The standard deduction will lower your taxes owed.

For income earned in 2025, the standard deduction is $15,750. for unmarried people and for those who are married, filing separately; $31,500 for those married, filing jointly; $23,625. for heads of household. (There may be tax benefits to marriage beyond your bracket, by the way.)

There are additional deductions that may lower your taxable income, too, such as earmarking certain funds for retirement.

In addition to federal taxes, filers may also need to pay state income tax. The rate you will pay for state tax will depend on the state you live in. Some states also have brackets and a progressive rate. You may also need to pay local/city taxes.

Example of Tax Brackets

According to the 2025 tax brackets (the ones you’ll use when you file in 2026), an unmarried person earning $50,000 would pay:

• 10% on the first $11,925, or $1,192.50

• 12% on the next $36,550 ($48,475 – $11,925 = $36,550), or $4,386

• 22% on the next $1,525 ($50,000 – $48,475 = $1,525), or $335.50

Total federal tax due would be $1,192.50 + $4,386 + $335.50, or $5,914

This doesn’t take into account any deductions. Many Americans take the standard deduction (rather than itemize their deductions).

2025 Tax Brackets

Below are the tax rates for the 2026 filing season. Dollar amounts represent taxable income earned in 2025. Your taxable income is what you get when you take all of the money you’ve earned and subtract all of the tax deductions you’re eligible for.

Not sure of your filing status? This interactive IRS quiz can help you determine the correct status. If you qualify for more than one, it tells you which one will result in the lowest tax bill.

2025 Tax Brackets For Unmarried People

According to the IRS, for tax year 2025, there is a tax rate of:

• 10% for people earning $0 to $11,925

• 12% for people earning $11,926 to $48,475

• 22% for people earning $48,476 to $103,350

• 24% for people earning $103,351 to $197,300

• 32% for people earning $197,301 to $250,525

• 35% for people earning $250,526 to $626,350

• 37% for people earning $626,351 or more

2025 Tax Brackets For Married People Who Are Filing Jointly

Tax rate of:

• 10% for people earning $0 to $23,850

• 12% for people earning $23,851 to $96,950

• 22% for people earning $96,951 to $206,700

• 24% for people earning $206,701 to $394,600

• 32% for people earning $394,601 to $501,050

• 35% for people earning $501,051 to $751,600

• 37% for people earning $751,601 or more

2025 Tax Brackets For Married People Who Are Filing Separately

Tax rate of:

• 10% for people earning $0 to $11,925

• 12% for people earning $11,926 to $48,475

• 22% for people earning $48,476 to $103,350

• 24% for people earning $103,351 to $197,300

• 32% for people earning $197,301 to $250,525

• 35% for people earning $250,526 to $375,800

• 37% for people earning $375,801 or more

2025 Tax Brackets For Heads of Household

Tax rate of:

• 10% for people earning $0 to $17,000

• 12% for people earning $17,001 to $64,850

• 22% for people earning $64,851 to $103,350

• 24% for people earning $103,351 to $197,300

• 32% for people earning $197,301 to $250,500

• 35% for people earning $250,501 to $626,350

• 37% for people earning $626,351 or more

Recommended: How Income Tax Withholding Works

Lowering Your 2025 Tax Bracket

You may be able to lower your income into another bracket (especially if your taxable income falls right on the cut-off points between two brackets) by taking tax deductions.

• Tax deductions lower how much of your income is subject to taxes. Generally, deductions lower your taxable income by the percentage of your highest federal income tax bracket. So if you fall into the 22% tax bracket, a $1,000 deduction would save you $220.

• Tax credits, such as the earned income tax credit or child tax credit, can also reduce how you pay Uncle Sam but not by putting you in a lower tax bracket.

Tax credits reduce the amount of tax you owe, giving you a dollar-for-dollar reduction of your tax liability. A tax credit valued at $1,000, for instance, lowers your total tax bill by $1,000.

Many people choose to take the standard deduction, but a tax expert can help you figure out if you’d be better off itemizing deductions, such as your mortgage interest, medical expenses, and state and local taxes.

Whether you take the standard deduction or itemize, here are some additional ways you may be able to lower your tax bracket as you think ahead and prepare for tax season:

• Delaying income. For example, if you freelance, you might consider waiting to bill for services performed near the end of 2025 until early in 2026.

• Making contributions to certain tax-advantaged accounts, such as health savings accounts and retirement funds, keeping in mind that there are annual contribution limits.

• Deducting some of your student loan interest. Depending on your income, you may be able to deduct up to $2,500 in student loan interest paid in 2025.

It can be a good idea to work with an accountant or tax advisor to see if you qualify for these and other ways to lower your tax bracket.

Recommended: 10 Personal Finance Basics

The Takeaway

The government decides how much tax you owe by dividing your taxable income into seven chunks, also known as federal tax brackets, and each chunk gets taxed at the corresponding tax rate, from 10% to 37%.

The benefit of a progressive tax system is that no matter which bracket you’re in, you won’t pay that tax rate on your entire income. If you think you might get hit with a sizable tax bill, you may want to look into changing your paycheck withholdings or, if you’re a freelancer, making quarterly estimated tax payments.

You may also want to start putting some “tax money” aside each month, so you won’t have to scramble to pay any taxes owed when you file in April. A high-yield savings account could be a good option for this purpose.

Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with eligible direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their paycheck up to two days early.

Better banking is here with SoFi, NerdWallet’s 2024 winner for Best Checking Account Overall.* Enjoy 3.60% APY on SoFi Checking and Savings with eligible direct deposit.

FAQ

Has anything changed from 2024 to 2025 tax brackets?

Yes, the IRS has adjusted tax brackets for tax year 2025 to reflect the impact of inflation and other factors.

Has anything changed from 2025 to 2026 tax brackets?

Yes, the IRS reviews and adjusts tax brackets each year, including for tax year 2026 (which is filed in 2027). This is done to help protect taxpayers from an unintentional increase in taxes as a result of inflation.

What is a marginal tax rate?

The marginal tax rate refers to the highest tax bracket that you possibly fall into. However, your effective tax rate averages the taxes you owe on all of your income earned. For this reason, your effective tax rate will likely be lower than your marginal rate.

How do deductions affect your tax bracket?

Deductions lower your taxable income. The more deductions that are taken, the more of your earnings are taxed at reduced brackets.

SoFi Checking and Savings is offered through SoFi Bank, N.A. Member FDIC. The SoFi® Bank Debit Mastercard® is issued by SoFi Bank, N.A., pursuant to license by Mastercard International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.

Annual percentage yield (APY) is variable and subject to change at any time. Rates are current as of 11/12/25. There is no minimum balance requirement. Fees may reduce earnings. Additional rates and information can be found at https://www.sofi.com/legal/banking-rate-sheet

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Although we do our best to recognize all Eligible Direct Deposits, a small number of employers, payroll providers, benefits providers, or government agencies do not designate payments as direct deposit. To ensure you're earning the APY for account holders with Eligible Direct Deposit, we encourage you to check your APY Details page the day after your Eligible Direct Deposit posts to your SoFi account. If your APY is not showing as the APY for account holders with Eligible Direct Deposit, contact us at 855-456-7634 with the details of your Eligible Direct Deposit. As long as SoFi Bank can validate those details, you will start earning the APY for account holders with Eligible Direct Deposit from the date you contact SoFi for the next 31 calendar days. You will also be eligible for the APY for account holders with Eligible Direct Deposit on future Eligible Direct Deposits, as long as SoFi Bank can validate them.

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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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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.

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

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