Dec

2025

How to Invest Your 401(k)

By Samuel Becker | Growing Wealth, invest, Preparing for Retirement | No Comments

Utilizing your 401(k) retirement account can seem daunting to beginner investors, but there are numerous strategies and tactics you can use to improve returns. Before any of that happens, though, investors will want to be sure to sign up for a 401(k) retirement account through your employer, which is often as simple as filling out a form.

As for the rest? Investing in your 401(k) doesn’t have to be complicated. From understanding your investment options and choosing your portfolio, to common mistakes to avoid, read on to get into the nitty-gritty.

How to Invest Your 401(k)

Investing in your 401(k) can often be as simple as making some basic investment choices. But it’s also good to know exactly how the account works.

As a refresher, a 401(k) is a type of tax-deferred retirement account sponsored by your employer. If you work for a non-profit, a school district, or the government instead of a company, your retirement plan might be a 403(b) or a 457(b) plan. All of these plans are employer-sponsored, meaning they pick the plan — and most of the information here applies to all three types of accounts.

You and your employer can both contribute to a 401(k). Many employers match employee contributions to some degree, and some may even contribute a portion of company profits to employees’ accounts (that’s known as a 401(k) profit-sharing plan).

Contributions are capped by the IRS: For the 2025 tax year, the maximum amount an individual might contribute to a 401(k) is $23,500, with an additional $7,500 in catch-up contributions allowed for people aged 50 and over. Those aged 60 to 63 may contribute up to an additional $11,250 instead of $7,500, thanks to SECURE 2.0. The total amount that might be contributed to a 401(k), including matching funds and other contributions from an employer, is $70,000 (or $77,500 for people aged 50 and older, and $81,250 for those aged 60 to 63).

For the 2026 tax year, the maximum amount an individual could contribute to a 401(k) is $24,500, with an extra $8,000 in catch-up contributions allowed for people aged 50 and over. And those aged 60 to 63 may again contribute an additional $11,250 instead of $8,000 in 2026. The total amount that might be contributed to a 401(k), including matching funds and other contributions from an employer, is $72,000 (or $80,000 for people aged 50 and older, and $83,250 for those aged 60 to 63).

With all of that in mind, here are some things to remember as you start to invest in your 401(k), or look for ways to improve your returns.

Assess Your Goals

Investors should really take the time to assess their overall investment goals, and think about how their 401(k) fits into achieving those goals. Each investor will have different goals, and that means they’ll be willing to take different risks and be on different timelines as to when they want to reach those goals.

Again, this will vary from investor to investor, but before making any moves, it can be helpful to think more deeply about goals. Talking to a financial professional may be helpful, too.

Determine Your Risk Tolerance

Every investment comes with risk. The key is assessing your comfort level with risk now, and going forward. Whether you’re picking a target date fund or making your own mix of investments, you’ll want to allocate your money based on your needs and risk tolerance.

One rule of thumb when it comes to retirement investments is that the younger you are, the more risk you might be able to handle. The thinking goes that you will have more time to recover from market drops to allow riskier investments to pay off.

On the other hand, people closer to retirement may choose to adjust their investments. There, the goal would be to minimize risk, so that the savings they will soon need would not be overly impacted by a market downturn.

Look at Diversification

Diversification is critical when building a portfolio, so investors should keep an eye on what’s in their portfolio. An individual employee may not have a whole lot of say as to what exactly is going into their 401(k) investment mix, but you’ll want to keep an eye on things and stay abreast of the way that your portfolio manager is diversifying for you.

Target-Date Funds

A target-date fund is a mutual fund with a passive mix of investments aimed at a “target” retirement date. The mix of assets (stocks and bonds) typically becomes more conservative as your target retirement date nears. For people who prefer a hands-off approach, these funds might be a good investment option.

Something to keep in mind is that you don’t necessarily have to pick the target date based on when you actually plan to retire. If you feel the mix of assets is too aggressive, you might choose to select an earlier retirement year to take less risk.

Factors to Consider

Additionally, there are many factors investors will need to consider as it relates to their 401(k), such as their time horizon, expenses, and contribution levels.

• Time horizon: How long do you plan to invest? Investors will want to keep long-term returns in mind, and their investment mix and other choices can have an impact on their returns.

• Expenses: Investments often have expense ratios or other fees that can eat into returns, which is another thing to keep in mind.

• Contribution levels: The more you save for retirement and the earlier you start saving, the better off you’ll likely be in retirement. If you’re lucky enough to have an employer that matches your contributions, at a minimum you’ll probably want to take full advantage of your employer match.

Remember: Maximizing your 401(k) tends to benefit you in the long run. 401(k) employer contributions vary, so it makes sense to find out how matching works at your company, and then contribute at least enough to get that “free money.”

401(k) Investing: Things to Keep In Mind

There are a couple of other things that investors may want to try and keep in mind in regard to their 401(k), such as leaving old accounts open, and over-investing in specific funds.

Putting Everything into a Money Market Fund

A money market fund is a mutual fund made up of relatively low-risk, short-term securities. It’s a tempting move, because it feels like you don’t risk losing money. You’ll want to gauge whether your investing returns are outpacing inflation, accordingly. That may be the case if your money is only being invested in a money market fund — in fact, that may be the default if employees don’t make investment selections for their portfolio. You’ll need to check with your plan provider to find out.

Leaving Old 401(k)s Open

When you leave your current employer, it’s often a good idea to roll over your 401(k) into a traditional or Roth IRA. Most 401(k) accounts have fees associated with them. While typically an employer will pay those fees while you work for them, once you’re no longer with the company, many will stop paying them for you.

By moving your money into an account of your choosing, you have more control over the fees you pay. You’ll also generally have a broader range of investment choices.

The Takeaway

Investing in a 401(k) retirement savings account is fairly simple, especially since you can set it up through your employer. Whether you are typically a hands-on investor or prefer a hands-off approach, you can get your 401(k) contributions up and running — and start saving money for your future.

If you have an old 401(k), as noted above, you might want to consider doing a rollover to an IRA account so you can better manage your savings in one place.

Prepare for your retirement with an individual retirement account (IRA). It’s easy to get started when you open a traditional or Roth IRA with SoFi. Whether you prefer a hands-on self-directed IRA through SoFi Securities or an automated robo IRA with SoFi Wealth, you can build a portfolio to help support your long-term goals while gaining access to tax-advantaged savings strategies.

Help grow 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

Can I invest my 401(k) on my own?

It may be possible to invest in your 401(k) on your own, as some employers offer a self-directed plan option, which gives investors more choice and say over their portfolio.

Is it possible to make my 401(k) grow faster?

To make your 401(k) grow faster, you can look at increasing your contributions (up to a specified limit), or changing your investment mix. But note that many investments with higher growth potential tend to have higher associated risks.

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

External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.

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

Dec

2025

How to Make Changes to Your 401(k) Contributions

By AJ Smith | Growing Wealth, invest, Investing, Preparing for Retirement | Comments Off

Whether you just set up your 401(k) plan or you established one long ago, you may want to change the amount of your contributions — or even how they’re invested. Fortunately, it’s usually a fairly straightforward process to change 401(k) contributions.

How often can you change your 401(k) contributions? You may be able to make changes at any time, depending on your plan. After all, the point of a 401(k) plan is to help you save for your retirement. So it’s important to keep an eye on your account and your investments within the account, to make sure that you’re saving and investing according to your goals.

Learn how to maximize your 401(k), change your 401(k) contributions, and save for retirement.

Key Points

• Adjusting 401(k) contributions can usually be done at any time, depending on the specific plan rules.

• Employers may match contributions up to a certain percentage, enhancing the value of saving.

• Changes in financial circumstances or salary increases can justify modifying contribution amounts.

• Rebalancing investment allocations periodically is crucial to maintain desired risk levels.

• Automatic contribution increases can be set up to progressively enhance retirement savings.

Purpose of a 401(k)

A 401(k) is a retirement account that a company may offer to its employees. In some cases, enrollment in the employer’s 401(k) is automatic; in other cases it’s not. Be sure to check, so that you can take advantage of this savings opportunity.

Employees may contribute a portion of their paycheck to their 401(k) account, and employers might also contribute to each employee’s account (again, depending on the plan).

The employer’s portion is called the company’s “match” or matching funds. Typically, an employer might match up to a certain percentage of what the employee saves. One common matching plan is when a company matches 50 cents for every dollar saved, up to 6% of the employee’s total contributions. Terms vary, so it’s best to ask your Human Resources representative what the match is.

The money a participant contributes to their 401(k) plan is technically called an “elective salary deferral” because it’s optional, not required, and those deductions are not included in an employee’s taxable income. That’s why 401(k) and similar accounts (like a 403(b) and most IRAs) are often called tax-deferred accounts: You don’t pay taxes on the money you’ve saved until you withdraw the money in retirement.

This tax benefit can be significant. Every dollar you save reduces your taxable income, which may result in a lower tax bill in some cases.

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Can You Change Your 401(k) Contribution at Any Time?

While the opportunity to make changes to some employee benefits, like health insurance, are generally only offered once a year during so-called open enrollment periods, many 401(k) plans allow participants to change the amount of their 401(k) contributions at any point. According to Department of Labor guidelines, an employer must allow plan participants to change investments at least quarterly (sometimes more often, if company stock or other high-risk investments are offered by the plan).

These are some of the reasons you may want to change 401(k) contribution amounts.

The Ability to Save More

You may have gotten a raise, or experienced a change in your financial circumstances, and wish to increase the percentage of your savings. Contributions to these plans are typically expressed as a percentage of your annual salary. For example, if you earn $75,000 per year, and your contribution rate is 10%, you would save a total of $7,500 per year. If you got a raise to $80,000 and now wish to contribute 12%, you would save a total of $9,600 per year.

To Get the Match

As discussed above, some 401(k) plans offer a savings match from the employer. In most cases, the match is a set percentage of the employee’s contribution. If you started your 401(k) at a point when you couldn’t get the full match, you may want to increase your contributions to get the full employer match.

Rebalancing Your Asset Allocation

If you’ve held the account for a while, say a year or more, the original allocation of your investments — i.e. the balance between equities, cash, and fixed income investments — may have shifted. Restoring the original balance of your investments may be a priority, if your strategy and risk tolerance haven’t changed.

Changing Your Asset Allocation

You also might want to shift the asset allocation because your financial strategy has become more aggressive (i.e. tilting toward stocks) or more conservative (tilting toward cash and fixed income).

Setting Up Automatic Increases

Some plans offer participants the option of automatically increasing their contribution rate every year, typically up to a certain percentage (e.g. 15%), and not to exceed the maximum contribution levels. The IRS contribution limit for 401(k) plans for 2025 is $23,500 for participants under age 50. Those 50 and older can save an extra $7,500 in “catch-up contributions,” for a total of $31,000. In addition for 2025, those aged 60 to 63 may contribute up to an additional $11,250, instead of $7,500.

For 2026, the contribution limit is $24,500 for participants under age 50. Those 50 and older can save an extra $8,000 in “catch-up contributions,” for a total of $32,500. In addition for 2025, those aged 60 to 63 may contribute up to an additional $11,250, instead of $8,000.

Setting up automatic increases allows you to save more in your 401(k) each year without having to think about it; this can be beneficial for overcoming the inertia common among some savers.

How to Change 401(k) Contributions: 3 Steps

Again, the 401(k) plan provider will be able to advise participants on how often they can make changes to their contributions, and what the process will look like. For employees unsure of who the plan provider is, the company’s human resource department can point them in the right direction.

In some cases, participants can change their contributions directly through their plan provider’s website. Generally, the process of making changes to a 401(k) looks like this:

Step 1:

The employee contacts their 401(k) provider to discuss how to change contributions for their particular 401(k) plan.

Step 2:

The employee considers how much of their paycheck they want to contribute to their 401(k) moving forward, taking their company’s 401(k) match into consideration, and ideally contributing at least that much. The employee might also change their asset allocation, depending on plan rules.

Step 3:

The participant fills out any forms (online or via paperwork) to confirm their new contribution.

Often, these steps can take just a few minutes, using your plan sponsor’s website.

Why Contribute to a 401(k)? 3 Good Reasons

Contributing to a 401(k) plan is an important way to save for retirement. The funds in a 401(k) are invested, generally in mutual funds, exchange-traded funds (ETFs), or target date funds — which can offer the potential for growth over time. Typically there are about eight to 12 investment options in most 401(k) plans.

But perhaps the three best reasons to contribute to a 401(k) plan are the opportunity to save automatically via regular payroll deductions; the potentially lower tax bill; and the ability to get “free money” from your employer match, if it’s offered.

Low-stress Saving

For many people, this type of investment is easy because you can choose how much of your salary to contribute each pay period, and deductions happen automatically. You don’t have to think about your savings, your contributions are taken directly from each paycheck, so it helps to build your nest egg over time.

Lower Taxable Income

Another benefit is the potential for savings during tax season. Since the contributions an employee makes to their 401(k) plan over the course of the year aren’t included in their taxable income, that can lower their overall taxable income. This, in turn, may result in an individual falling into a lower tax bracket and paying less income tax for that year.

And in the future, when they might likely be in a lower tax bracket due to retirement, they’ll pay lower taxes when they withdraw the money from their 401(k) account.

Note: Withdrawing money from a 401(k) account before retirement age may lead to early withdrawal penalties.

Another perk of enrolling in a 401(k) plan is the notion of “free money” from one’s employer. Some companies match a portion of their employees’ contributions — often around 50 cents to $1 for each dollar that an employee contributes.

Typically, an employer might set a maximum matching limit, such as 3% to 6% of the employee’s salary.

This matching contribution is often referred to as free money because the contribution effectively increases an employee’s income without increasing their current tax bill. It’s worth noting that an employer’s match generally vests over the course of three or four years — meaning that the employer-contributed money will accrue in the account, but an employee won’t be able to keep it if they switch jobs, unless they remain with the company for that set period of time.

Setting up Recurring Contributions

When it comes to setting up a 401(k), the process varies by workplace. Some companies offer automatic enrollment to employees, automatically reducing the employee’s wages by a certain amount and diverting that money to the employee’s 401(k) plan, unless the employee chooses not to have their wages contributed.

Or, an employee can choose to enroll, but to contribute a custom amount. This type of contribution is referred to as an elective deferral.

In companies that don’t offer automatic enrollment as an option, employees will need to work with their HR department and retirement plan provider to get their 401(k) set up.

Participants need to decide how much they want to contribute and they may need to choose their investments. They can also opt to take advantage of autopilot settings, and can roll over a 401(k) from a past job into their new one.

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How Much to Save for Retirement

The Department of Labor (DOL) outlined a few best practices for investing in order to save for retirement.

It estimated that most Americans will need 70% to 90% of their preretirement income saved by retirement, in order to maintain their current standard of living. Doing that math can give plan participants an idea of how much they should be contributing to their 401(k).

Participants might also consider a few basic investment principles, such as diversifying retirement investments to reduce risk and improve return. These investment choices may evolve overtime depending on someone’s age, goals, and financial situation.

The DOL recommends that employees contribute all they can to their employer-sponsored 401(k) plan to take advantage of benefits like lower taxes, company contributions, and tax deferrals.

Adding Alternative Investments to a 401(k)

Some savers may find themselves interested in pursuing alternative investments when saving for retirement. An alternative investment takes place outside of the traditional markets of stocks, fixed-income, and cash. This method may appeal to those looking for portfolio diversification. Popular examples of alternative investments are private equity, venture capital, hedge funds, real estate, and commodities.

Self-directed 401(k)s allow participants to add alternate investments to their 401(k) portfolio. With a self-directed 401(k), the investor chooses a custodian such as a brokerage or investment firm to hold the amount of assets and execute the purchase or sale of investments on the participant’s behalf. If an employer offers a self-directed 401(k), the custodian will likely be the plan administrator.

The Takeaway

For employees looking to change 401(k) contributions, the process is often as simple as reaching out to your plan provider and confirming that you’re allowed to make a change at this time.

Some companies have rules around when and how often employees can make changes to their contributions. Once you have the go-ahead to make the change, and have considered what works best for your current financial situation and your future goals, it’s generally straightforward.

A company-sponsored 401(k) plan offers many benefits, but once you leave your job, many of those benefits — including the employer-matching program — no longer apply. At that point, you may want to consider doing a rollover of your previous 401(k) to an IRA, so you can remain in control of your money.

Easily manage your retirement savings with a SoFi IRA.

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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.

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

An investor should consider the investment objectives, risks, charges, and expenses of the Fund carefully before investing. This and other important information are contained in the Fund’s prospectus. For a current prospectus, please click the Prospectus link on the Fund’s respective page. The prospectus should be read carefully prior to investing.
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Dec

2025

Numbers and stock quotes appear on a computer screen in multiple colors.

What Are the Different Types of Stocks?

By Amanda Holden | Growing Wealth, invest, Investing | Comments Off

Table of Contents

An Overview Of Stocks
Categories of Stocks
Different Market Caps
Types of Stock Classes
Stocks By Sector
Stocks by Country
FAQ

There are numerous types of stocks, categorized by company characteristics, size, region, sector, and more. Equipped with an understanding of different stock types, an investor can start building a diversified portfolio. Though all stocks can experience volatility and potentially lose value, holding a mix of different types of shares can mitigate the risk of being too heavily invested in any one category.

Key Points

• Stocks represent ownership in publicly traded companies and have the potential to generate returns, such as through capital appreciation or dividend payments, or result in losses.

• Different stock categories include value stocks, growth stocks, common stock, preferred stocks, and various classifications based on market capitalization and sector.

• Stocks can be classified by market capitalization into categories, such as micro-cap, small-cap, mid-cap, large-cap, and mega-cap.

• Various stock sectors exist, including industrials, materials, consumer discretionary, health care, and financials, allowing for diversified portfolio creation.

• Investors can also consider international stocks, including those from developed regions like EAFE or emerging markets, to further diversify their portfolios.

An Overview Of Stocks

A stock represents a percentage of ownership in a publicly traded company. So essentially, investors can own small pieces or “shares” of companies.

Generating returns via the stock market can usually happen in one of two ways. First, the value of the stock can increase over time, something known as capital appreciation. The second is through dividend payments, where companies make cash payouts periodically to all owners of that company’s stock. Some people make investments based on a company’s ability to pay consistent dividends, or “income.” Utility and telephone companies often fit into this bucket.

When you own a stock, you hold equity (or ownership) in that company. That’s why stocks are sometimes referred to as equities. Each individual share represents an equal proportion of ownership. Owners of stocks are often referred to as stockholders or shareholders.

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Categories of Stocks

There are several ways that different stocks are categorized, which is important to know if you’re brushing up on the stock market basics. Stocks are also sometimes classified by styles of investing. These categories often have to do with how that company makes money and how the stock is valued. You may often hear this associated when discussing value vs. growth stocks.

Value Stocks

Value stocks are stocks that are considered to be trading below their actual worth, and are a key component in value investing. Investors hope that by buying companies that are priced below their “true” value, they can profit as the gap narrows over time.

Growth Stocks

Growth stocks are companies that are growing at a fast pace or those that are expected to continue growing at a faster rate than other stocks or competitors. Investors can encounter higher valuations in growth investing.

Common Stock

Common stock represents shares of ownership in a corporation. When an investor receives common shares, they are typically also granted voting rights to the company and can participate in shareholder voting processes — usually one vote for each share. For investors, it can be helpful to understand the differences between common versus preferred stock.

Preferred Stocks

Preferred stocks make regular dividend payments, but holders of preferred shares often have zero or limited voting rights. If a company becomes financially insolvent however, preferred stockholders have a claim on assets before common shareholders do.

Exchange-traded Funds (ETFs)

Exchange-traded funds, or ETFs, group multiple securities into a single share. For instance, a stock ETF will hold numerous companies, while a bond ETF can hold many individual bonds, whether it’s a collection of Treasurys or high-yield debt. ETFs are popular because of the cheap, instant diversification they offer.

There are many types of ETFs, too, including low-cost ETFs, and ETFs with their holdings concentrated in certain sectors.

Initial Public Offerings (IPOs)

An initial public offering (IPO) is the process of a private company listing and debuting on a public stock exchange. Investors can buy IPO shares on their first day of trading.

Special Purpose Acquisition Companies (SPACs)

SPACs are shell companies that go public on the stock exchange, and then try to find a private operating business to purchase.

Real Estate Investment Trusts (REITs)

REITs are companies that own and operate real estate, usually focusing on one type of property, such as warehouses, hotels or office buildings. There are pros & cons to investing in REITs. For example, one pro is that they tend to pay consistent dividends. Cons include sensitivity to interest rates, and taxed dividends.

Blue Chip Stocks

Blue chip stocks are stocks that large, well-established companies issue and usually have a long-standing history of growth. They’re generally considered to be financially sound, and may be considered lower-risk than other stocks.

Cyclical and Noncyclical Stocks

Cyclical investing concerns making stock selections surrounding economic changes, and cyclical stocks are those that may see their performance closely align with larger economic shifts. Noncyclical stocks, on the other hand, do not see their performance tied to larger economic changes.

Defensive Stocks

Defensive stocks may be used as a part of a defensive investing strategy, and usually involves investing in stocks that may be seen as lower-risk. This can include blue-chip stocks, or stocks from sectors like utilities and consumer staples.

Penny Stocks

Penny stocks are low-priced stocks that generally trade for less than $5 per share, and many trade for less than $1. They’re usually risky, and highly-speculative stocks.

Income Stocks

Income stocks are a category of stocks that tend to offer regular, steady income to investors. That income generally comes in the form of dividends.

Environmental, Social, and Corporate Governance (ESG)

ESG stocks are those that may have certain non-financial criteria that appeal to certain investors. ESG stocks are shares of companies that are socially and environmentally responsible, though there is no universally-shared or accepted set of ESG criteria.

Different Market Caps

The sizes of stocks are classified by the market capitalization of the company’s publicly traded stock. Market cap is calculated by multiplying the stock price by the total number of outstanding shares.

Generally speaking, larger companies tend to be older, more established, and have greater international exposure, so a higher percentage of a large-cap company’s revenue comes from overseas. Meanwhile, smaller-cap stocks tend to be newer, less established and more domestically oriented. Smaller-cap companies can be riskier but also offer more growth potential.

Similarly, if you’re interested in buying mid-cap stocks, that generally means you’re investing in mid-sized companies.

stock market caps

While the market-caps that determine which companies are small or large can shift, here’s a breakdown that gives some rough parameters.

Micro-Cap: $50 million to $300 million

Small-Cap: $300 million to $2 billion

Mid-Cap: $2 billion to $10 billion

Large-Cap: $10 billion or higher

Mega-Cap: $200 billion or higher

Types of Stock Classes

There are also stock classes that investors should be aware of, and those generally involve Class A, Class B, and Class C shares, which all may be issued by the same company. The specifics of each category will vary from company to company, too.

For some rough guidelines, though, Class A shares tend to have more voting power and higher priority for dividends. Class B shares may have lesser voting power than Class A shares, but no preferential treatment for dividends. Class C shares are often given to employees as a part of a compensation package, and may have associated trading restrictions.

💡 Quick Tip: What makes a robo advisor effective? Typically these automated investing services offer automatic deposits, a diversified portfolio of low-cost ETFs, and automatic rebalancing — all of which are designed to help you reach a specific goal. They can be less flexible and cost more than some other options, however.

Stocks By Sector

stock sectors

Additionally, stocks are often grouped by the industry that that company works within. According to the Global Industry Classification Standard (GICS), there are 11 recognized sectors, with numerous industries within those sectors. They include (but are not limited to):

Energy: Energy equipment and services, oil, gas, and consumable fuels. If you want to invest in energy stocks, this is the category to look at.

Materials: Chemicals, construction materials, containers and packaging, metals and mining

Industrials: Aerospace and defense, building products, machinery, construction and engineering, electrical equipment, industrial conglomerates

Consumer Discretionary: Automobiles, automobile components, household durables, leisure products

Consumer Staples: Food products, beverage, tobacco, household products

Health Care: Health care equipment and services, pharmaceuticals, biotechnology, life sciences

Financials: Banks, insurance, consumer finance, capital markets, financial services

Information Technology: IT services, software, communications equipment

Communication Services: Diversified telecommunication services, media, entertainment

Utilities: Electric utilities, gas utilities, water utilities, independent power and renewable electricity producers

Real Estate: Real estate management and development, various REITs (retail, residential, office, etc.)

Again, these categories can be helpful to investors looking to diversify their portfolios. If you want to add some real estate stocks, or even invest in tech stocks, sector investing may be something to research further.

Note, too, that there may be other categories or sectors of stocks not listed above, such as retail stocks.

Stocks by Country

Different overseas stocks can be classified by the country or region in which they’re headquartered, even if the company’s operations are global. Individuals looking to invest in international stocks have found that they can do so easily with ETFs, which hold numerous foreign companies within a single share.

Regions that are commonly used in the world of stock investing are:

EAFE is an acronym which stands for Europe, Australasia, and the Far East. Investors may see this used when making investment choices, as the MSCI EAFE is a common index used for international stock funds. These countries are all “developed” nations, which means they have established financial markets, stable political climates, and mature economies.

Emerging-market stocks, which stocks with companies based out of countries whose economies are described as developing. Brazil, Russia, Mexico, China, and India are just a few emerging markets. Emerging markets may be riskier to invest in but may pose an opportunity for high rates of growth.

The Takeaway

There are numerous types of stocks on the market, and it can be important for investors to understand the differences between them. The stock market can be volatile and prone to dramatic declines, but in order to shield themselves from the risks, investors often create diversified portfolios by stocking their holdings through various different stock types.

Diversification is easier to do if an investor understands the different types of stocks that exist in the U.S. equity market. From mega-cap stocks to ETFs to emerging-market companies, there are a myriad of investing opportunities in the equity market.

Ready to invest in your goals? It’s easy to get started when you open an investment account with SoFi Invest®. You can trade stocks, ETFs, or options through self-directed investing with SoFi Securities, or simply automate your investments with a robo advisor from SoFi Wealth. You'll gain access to alternative investments and upcoming IPOs, and can plan for retirement with a tax-advantaged IRA. With SoFi, you can manage all your investments, all in one place.

Take a step toward reaching your financial goals with SoFi Invest.

FAQ

What are the benefits of investing in different types of stocks?

Investing in different types of stocks can be beneficial to investors as it can diversify their portfolio, which may help reduce investing risk as the market fluctuates.

What is the riskiest type of stock?

Penny stocks are likely the riskiest type of stock, as they are shares of companies that are new, unproven, and highly volatile. While there’s a big potential upside to investing in penny stocks, the risks are significant.

What stocks are best for beginners?

While it’ll depend on the individual investor, beginner investors may want to look at investing in blue chip stocks, ETFs, or other stocks that have either built-in diversification, or a long track record of viability, which can be a sign of lower associated risks.

What are the risks and opportunities of investing in emerging markets?

Emerging markets can be volatile or unstable, and there may be political, monetary, and economic risks that investors are unaware of in those markets.

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.

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

Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.

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

Investing in an Initial Public Offering (IPO) involves substantial risk, including the risk of loss. Further, there are a variety of risk factors to consider when investing in an IPO, including but not limited to, unproven management, significant debt, and lack of operating history. For a comprehensive discussion of these risks please refer to SoFi Securities’ IPO Risk Disclosure Statement. This should not be considered a recommendation to participate in IPOs and investors should carefully read the offering prospectus to determine whether an offering is consistent with their investment objectives, risk tolerance, and financial situation. New offerings generally have high demand and there are a limited number of shares available for distribution to participants. Many customers may not be allocated shares and share allocations may be significantly smaller than the shares requested in the customer’s initial offer (Indication of Interest). For more information on the allocation process please visit IPO Allocation Procedures.

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.

SOIN-Q425-036

Dec

2025

Roth IRA Explained

By AJ Smith | Budgeting & Goals, invest, Terminology | No Comments

Table of Contents

What Is a Roth IRA and How Does It Work?
Roth IRA Contributions
Tax Treatment
Contribution Limits
Tax-Free Withdrawals
Advantages of a Roth IRA
Disadvantages of a Roth IRA
Roth IRA Withdrawal Rules
Roth IRA Investments
Is a Roth IRA Right for You?
FAQ

A Roth IRA is an individual retirement account that allows you to contribute after-tax dollars and then withdraw your money tax-free in retirement. A Roth IRA is different from a traditional IRA in which you contribute pre-tax dollars but owe tax on the money you withdraw in retirement.

A Roth IRA can be a valuable way to help save for retirement over the long-term with the potential for tax-free growth. Read on to learn how Roth IRAs work, the rules about contributions and withdrawals, and how to determine whether a Roth IRA is right for you — just think of it as Roth IRA information for beginners and non-beginners alike.

Key Points

• A Roth IRA is a retirement savings account that offers tax-free growth and tax-free withdrawals in retirement.

• Contributions to a Roth IRA are made with after-tax dollars, and qualified withdrawals are not subject to income tax.

• Roth IRAs have income limits for eligibility, and contribution limits that vary based on age and income.

• Unlike traditional IRAs, Roth IRAs do not entail required minimum distributions (RMDs) during the account holder’s lifetime.

• Roth IRAs can be a valuable tool for long-term retirement savings, especially for individuals who expect to be in a higher tax bracket in the future.

What Is a Roth IRA?

A Roth IRA is a retirement account that provides individuals with a way to save on their own for their golden years.

You can open a Roth IRA at most banks, online banks, or brokerages. Once you’ve set up your Roth account, you can start making contributions to it. Then you can invest those contributions in the investment vehicles offered by the bank or brokerage where you have your account.

What differentiates a Roth IRA from a traditional IRA is that you make after-tax contributions to a Roth. Because you pay the taxes upfront, the earnings in a Roth grow tax free. When you retire, the withdrawals you take from your Roth will also be tax free, including the earnings in the account.

With a traditional IRA, you make pre-tax contributions to the account, which you can deduct from your income tax, but you pay taxes on the money, including the earnings, when you withdraw it in retirement.

Roth IRA Contributions

There are several rules regarding Roth IRA contributions, and it’s important to be aware of them. First, to contribute to a Roth IRA, you must have earned income. If you don’t earn income for a certain year, you can’t contribute to your Roth that year.

Second, Roth IRAs have annual contribution limits (see more on that below). If you earn less than the Roth IRA contribution limit for the year, you can only deposit up to the amount of money you made. For instance, if you earn $5,000 in 2025, that is the maximum amount you can contribute to your Roth IRA for that year.

In addition, there are income restrictions regarding Roth IRA contributions.

In 2025, single filers with a modified adjusted gross income (MAGI) of:

• less than $150,000 can contribute the full amount to a Roth

• $150,000 to $165,000 to contribute a reduced amount

• $165,000 or more can’t contribute to a Roth

In 2025, married filers with a MAGI of:

• less than $236,000 can contribute the full amount to a Roth

• $236,000 to $246,000 can contribute a reduced amount

• $246,000 or more can’t contribute to a Roth

In 2026, single filers with a MAGI of:

• less than $153,000 can contribute the full amount to a Roth

• $153,000 to $168,000 can contribute a reduced amount

• $168,000 or more can’t contribute to a Roth

In 2026, married joint filers with a MAGI of:

• less than $242,000 can contribute the full amount

• $242,000 to $252,000 can contribute a reduced amount

• $252,000 or more can’t contribute to a Roth.

Tax Treatment

Contributions to a Roth IRA are made with after-tax dollars — meaning you pay taxes on the money before contributing it to your Roth. You can’t take your contributions as income tax deductions as you can with a traditional IRA, but you can withdraw your contributions at any time with no taxes or penalties. Once you reach age 59 ½ or older, you can withdraw your earnings, along with your contributions, tax-free.

If you expect to be in a higher tax bracket in retirement, or if you want to maximize your savings in retirement and not have to pay taxes on your withdrawals then, a Roth IRA may make sense for you.

Contribution Limits

As mentioned, Roth IRAs have annual contribution limits, which are the same as traditional IRA contribution limits.

For 2025, the annual IRA contribution limit is $7,000 for individuals under age 50, and $8,000 for those 50 and up. The extra $1,000 is called a catch-up contribution for those closer to retirement. For 2026, the contribution limit is $7,500 for those under age 50, and $8,600 for those 50 and up, including a $1,100 catch-up contribution.

Remember that you can only contribute earned income to a Roth IRA. If you earn less than the contribution limit, you can only deposit up to the amount of money you made that year.

Calculate your IRA contributions.

Get a head start on retirement planning with SoFi’s 2024 IRA contribution calculator.

Tax-Free Withdrawals

As noted, you can make withdrawals, including earnings, tax-free from a Roth once you reach age 59 ½. And you can withdraw contributions tax-free at any time. However, there are some specific Roth IRA withdrawal rules to know about so that you can make the most of your IRA.

Qualified Distributions

Since you’ve already paid taxes on the money you contribute to your Roth IRA, you can withdraw contributions at any time without paying taxes or a 10% early withdrawal penalty. But you cannot withdraw earnings tax- and penalty-free until you reach age 59 ½.

For example, if you’re age 45 and you’ve contributed $25,000 to a Roth through your online brokerage over the last five years, and your investments have seen a 10% gain (or $2,500), you would have $27,500 in the account. But you could only withdraw up to $25,000 of your contributions tax-free, and not the $2,500 in earnings.

The 5-Year Rule

According to the 5-year rule, you can withdraw Roth IRA account earnings without owing tax or a penalty, as long as it has been five years or more since you first funded the account, and you are 59 ½ or older.

The 5-year rule applies to everyone, no matter how old they are when they want to withdraw earnings from a Roth. For example, even if you start funding a Roth when you’re 60, you still have to wait five years to take qualified withdrawals.

Non-Qualified Withdrawals

Non-qualified withdrawals of earnings from a Roth IRA depends on your age and how long you’ve been funding the account.

• If you meet the 5-year rule, but you’re under age 59 ½, you’ll owe taxes and a 10% penalty on any earnings you withdraw, except in certain cases, as noted below.

• If you don’t meet the 5-year rule, meaning you haven’t had the account for five years, and if you’re less than 59 ½ years old, in most cases you will also owe taxes and a 10% penalty.

Exceptions

You can take an early or non-qualified withdrawal prior to 59 ½ without paying a penalty or taxes in certain circumstances, including:

• For a first home. You can take out up to $10,000 to pay for buying, building, or rebuilding your first home.

• Disability. You can withdraw money if you qualify as disabled.

• Death. Your heirs or estate can withdraw money if you die.

Additionally you may be able to avoid the 10% penalty (although you’ll still generally have to pay income taxes) if you withdraw earnings for such things as:

• Medical expenses. Specifically, those that exceed 7.5% of your adjusted gross income.

• Medical insurance premiums. This applies to health insurance premiums you pay for yourself during a time in which you’re unemployed.

• Qualified higher education expenses. This includes expenses like college tuition and fees.

Advantages of a Roth IRA

Depending on an individual’s income and circumstances, a Roth IRA has a number of advantages.

• No age restriction on contributions. Roth IRA account holders can make contributions at any age as long as they have earned income for the year.

^* You can fund a Roth and a 401(k). Funding a 401(k) and a traditional IRA can sometimes be tricky, because they’re both tax-deferred accounts. But a Roth IRA is after-tax, so you can contribute to a Roth and a 401(k) at the same time and stick to the contribution limits for each account.

• Early withdrawal option. With a Roth IRA, an individual can generally withdraw money they’ve contributed at any time without tax or penalties (but not earnings). In contrast, withdrawals from a traditional IRA before age 59 ½ may be subject to a 10% penalty.

• Qualified Roth withdrawals are tax-free. Investors who have had the Roth for five years or more, and are at least 59 ½, are eligible to take tax- and penalty-free withdrawals of contributions and earnings.

• No required minimum distributions (RMDs). Unlike traditional IRAs, which require account holders to start withdrawing money at age 73, Roth IRAs do not have RMDs. That means an individual can withdraw the money as needed without fear of triggering a penalty.

Disadvantages of a Roth IRA

Roth IRAs also have some disadvantages to consider. These include:

• No tax deduction for contributions. A primary disadvantage of a Roth IRA is that your contributions are not tax deductible, as they are with a traditional IRA and other tax-deferred accounts like a 401(k).

• Higher earners often can’t contribute to a Roth. Individuals with a higher MAGI are generally excluded from Roth IRA accounts, unless they do what’s known as a backdoor Roth or a Roth conversion.

• The 5-year rule applies. The 5-year rule can make withdrawals more complicated for investors who open a Roth later in life. If you open a Roth or do a Roth conversion at age 60, for example, you must generally wait five years to take qualified withdrawals of contributions and earnings or face a penalty.

• Low annual contribution limit. The maximum amount you can contribute to a Roth IRA each year is low compared to other retirement accounts like a SEP IRA or 401(k). But, as noted above, you can combine saving in a 401(k) with saving in a Roth IRA.

Roth IRA Investments

How does a Roth IRA make money? Once you contribute money to your IRA account you can invest those funds in different assets such as mutual funds, exchange-traded funds (ETFs), stocks, and bonds. Depending on how those investments perform, you may earn money on them (however, no investment is guaranteed to earn money). And if you leave your earnings in the account, you can potentially earn money on your earnings through a process called compounding returns, in which your money keeps earning money for you.

To choose investments for your Roth IRA, consider your financial circumstances, goals, timeframe (when you will need the money), and risk tolerance level. That way you can determine which investment options are best for your situation.

Is a Roth IRA Right for You?

How do you know whether you should contribute to a Roth IRA? This checklist may help you decide.

• You might want to open a Roth IRA if you don’t have access to an employer-sponsored 401(k) plan, or if you do have a 401(k) plan but you’ve already maxed out your contribution to it. You can fund both a Roth IRA and an employer-sponsored plan.

• Because Roth contributions are taxed immediately, rather than in retirement, using a Roth IRA can make sense if you are in a lower tax bracket currently. It may also make sense to open a Roth IRA if you expect your tax bracket to be higher in retirement than it is today.

• Individuals who are in the beginning of their careers and earning less might consider contributing to a Roth IRA now, since they might not qualify under the income limits later in life.

• A Roth IRA may be helpful if you think you’ll work past the traditional retirement age, as long as your income falls within the limits. Since there is no age limit for opening a Roth and RMDs are not required, your money can potentially grow tax-free for a long period of time.

The Takeaway

A Roth IRA can be a valuable tool to help save for retirement. With a Roth, your earnings grow tax-free, and you can make qualified withdrawals tax-free. Plus, you can withdraw your contributions at any time with no taxes or penalties and you don’t have to take required minimum distributions (RMDs).

That said, not everyone is eligible to fund a Roth IRA. You need to have earned income, and your modified adjusted gross income cannot exceed certain limits. You must fund your Roth for at least five years and be 59 ½ or older in order to make qualified withdrawals of earnings. Otherwise, you would likely owe taxes on any earnings you withdraw, and possibly a penalty.

Still, the primary advantage of a Roth IRA — being able to have an income stream in retirement that’s tax-free — may outweigh the restrictions.

Help build your nest egg with a SoFi IRA.

FAQ

Are Roth IRAs insured?

If your Roth IRA is held at an FDIC-insured bank and is invested in bank products like certificates of deposit (CDs) or money market account, those deposits are insured up to $250,000 per depositor, per institution. On the other hand, if your Roth IRA is with a brokerage that’s a member of the Securities Investor Protection Corporation (SIPC), and the brokerage fails, the SIPC provides protection up to $500,000, which includes a $250,000 limit for cash. It’s very important to note that neither FDIC or SIPC insurance protects against market losses; they only cover losses due to institutional failures or insolvency.

How much can I put in my Roth IRA monthly?

For tax year 2025, the maximum you can deposit in a Roth or traditional IRA is $7,000, or $8,000 if you’re over 50. For tax year 2026, the maximum you can contribute is $7,500, or $8,600 if you’re age 50 or older. How you divide that per month is up to you. But you cannot contribute more than the annual limit.

I opened a Roth IRA — now what?

After you open a Roth IRA, you can make contributions up to the annual limit. Then you can invest those contributions in assets offered by your IRA provider. Typically you can choose from such investment vehicles as mutual funds, exchange-traded funds, stocks and bonds.

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

SOIN-Q424-108
CN-Q425-3236452-07

Dec

2025

Savings Bonds Defined And Explained

By Walecia Konrad | Budgeting & Goals, Growing Wealth, money | Comments Off

The definition of a U.S. Savings Bond is an investment in the federal government that helps to increase your money. By purchasing a savings bond, you are essentially lending money to the government which you will get back in the future, when the bond matures, with interest. Because these financial products are backed by the federal government, they are considered to be extremely low-risk. And, in certain situations, there can be tax advantages.

Key Points

• U.S. Savings Bonds are low-risk investments that involve lending money to the government, with returns of both principal and interest upon maturity.

• Two main types of savings bonds, Series EE and Series I, offer different interest structures, with Series I bonds providing inflation protection.

• Purchasing savings bonds can be done online through TreasuryDirect, with limits on annual purchases set at $10,000 for each series.

• Investing in savings bonds has pros, such as tax advantages and no fees, but also cons, including low returns and penalties for early redemption.

• Savings bonds have a maturity period of 30 years, but can be cashed in penalty-free after five years, depending on certain conditions.

Savings Bond Definition

A savings bond is basically a loan made to the U.S. government, in exchange for which the government agrees to repay the loan at a later time, along with interest that is earned over the life of the bond.

There are two types of savings bonds available through the U.S. Treasury, the Series EE savings bond and the Series I savings bond. The Series EE bond offers a fixed-interest rate, while the Series I bond offers a combination of a fixed rate and a variable inflation rate. Both bonds are low-risk and provide interest for up to 30 years, though you may withdraw funds without penalty as long as the bond has been held for at least five years.

Investors may also invest in state or local municipal bonds that fund public projects and may be available in different term lengths.

How Do Savings Bonds Work?

Savings bonds are issued by the U.S. Treasury. You can buy one for yourself, or for someone else, even if that person is under age 18. (That’s why, when you clean out your closets, you may find a U.S. Savings Bond that was a birthday present from Grandma a long time ago.)

Basically, these savings bonds function the same way that other types of bonds work. You buy a savings bond for face value, or the principal, and the bond will then pay interest over a specific period of time.

• You can buy savings bonds electronically from the U.S. Treasury’s website, TreasuryDirect.gov . For the most part, it’s not possible to buy paper bonds anymore but should you run across one, you can still redeem them. (See below). Unlike many other types of bonds, like some high-yield bonds, you can’t sell savings bonds or hold them in brokerage accounts.

How Much Are Your Savings Bonds Worth?

If you have a savings bond that has been tucked away for a while and you are wondering what it’s worth, here are your options:

• If it’s a paper bond, log onto the Treasury Department’s website and use the calculator there to find out the value.

• If it’s an electronic bond, you will need to create (if you don’t already have one) and log onto your TreasuryDirect account.

Savings Bonds Interest Payments

For U.S. Savings Bonds, interest is earned monthly. The interest is compounded semiannually. This means that every six months, the government will apply the bond’s interest rate to grow the principal. That new, larger principal then earns interest for the next six months, when the interest is again added to the principal, and so on.

3 Different Types of Savings Bonds

There are two types of U.S. Savings Bonds available for purchase — Series EE and Series I savings bonds. Here are the differences between the two.

1. Series EE Bonds

Introduced in 1980, Series EE Bonds earn interest plus a guaranteed return of double their value when held for 20 years. These bonds continue to pay interest for 30 years.

Series EE Bonds issued after May 2005 earn a fixed rate. The current Series EE interest rate for bonds issued as of November 1, 2025 is 2.50%.

2. Series I Bonds

Series I Bonds pay a combination of two rates. The first is the original fixed interest rate. The second is an inflation-adjusted interest rate, which is calculated twice a year using the consumer price index for urban consumers (CPI-U). This adjusted rate is designed to protect bond buyers from inflation eating into the value of the investment.

When you redeem a Series I Bond, you get back the face value plus the accumulated interest. You know the fixed rate when you buy the bond. But the inflation-adjusted rate will vary depending on the CPI-U during times of adjustment.

The current composite rate for Series I Savings Bonds issued as of November 1, 2025 is 4.03%.

3. Municipal Bonds

Municipal bonds are a somewhat different savings vehicle than Series I and Series EE Bonds. Municipal Bonds are issued by a state, municipality, or country to fund capital expenditures. By offering these bonds, projects like highway or school construction can be funded.

These bonds (sometimes called “munis”) are exempt from federal taxes and the majority of local taxes. The market price of bonds will vary with the market, and they typically require a larger investment of, say, $5,000. Municipal bonds are available in different terms, ranging from relatively short (about two to five years) to longer (the typical 30-year length).

How To Buy Bonds

You can buy Series EE and I Savings Bonds directly through the United States Treasury Department online account system called TreasuryDirect, as noted above. This is a little bit different than the way you might buy other types of bonds. You can open an account at TreasuryDirect just as you would a checking or savings account at your local bank.

You can buy either an EE or I Savings Bond in any amount ranging from a $25 minimum in penny increments per year. So, if the spirit moves you, go ahead and buy a bond for $49.99. The flexible increments allow investors to dollar cost average and make other types of calculated purchases.

That said, there are annual maximums on how much you may purchase in savings bonds. The electronic bond maximum is $10,000 for each type. You can buy up to $5,000 in paper Series I Bonds using a tax refund you are eligible for. Paper EE Series bonds are no longer issued.

If you are due a refund and you want to buy I Bonds, be sure to file IRS form 8888 when you file your federal tax return. On that form you’ll specify how much of your refund you want to use to buy paper Series I bonds, keeping in mind the minimum purchase amount for a paper bond is $50. The IRS will then process your return and send you the bond that you indicate you want to buy.

The Pros & Cons of Investing in Savings Bonds

Here’s a look at the possible benefits and downsides of investing in savings bonds. This will help you decide if buying these bonds is the right path for you, or if you might prefer to otherwise invest your money or stash it in a high-yield bank account.

The Pros of Investing in Savings Bonds

Here are some of the upsides of investing in savings bonds:

• Low risk. U.S. Savings Bonds are one of the lower risk investments you could make. You are guaranteed to get back the entire amount you invested, known as principal. You will also receive interest if you keep the bonds until maturity.

• Tax advantages. Savings bond holders don’t pay state or local taxes on interest at any time. You don’t have to pay federal income tax on the interest until you cash in the bond.

• Education exception. Eligible taxpayers may qualify for a tax break when they use U.S. Savings Bonds to pay for qualified education expenses.

• No fees. Unlike just about every other type of security, you won’t pay a fee, markup or commission when you buy savings bonds. They’re sold at face value, directly from the Treasury, so what you pay for is what you get. If you buy a $50 bond, for example, you’ll pay $50.

• Great gift. Unlike most securities, people under age 18 may hold U.S. Savings bonds in their own names. That’s what makes them a popular birthday and graduation gift.

• Patriotic gesture. Buying a U.S. Savings Bond helps support the U.S. government. That’s something that was important and appealed to investors when these savings bonds were first introduced in 1935.

The Cons of Investing in Savings Bonds

Next, consider these potential downsides of investing in savings bonds:

• Low return. The biggest disadvantage of savings bonds is their low rate of return, as noted above. A low risk investment like this often pays low returns. You may find you can invest your money elsewhere for a higher return with only slightly higher risk.

• Purchase limit. For U.S. Savings Bonds, there’s a purchase limit per year of $10,000 in bonds for each series (meaning you can invest a total of $20,000 per year), plus a $5,000 limit for paper I bonds via tax refunds. For some individuals, this might not align with their investing goals.

• Tax liability. It’s likely you’ll have to pay federal income tax when you cash in your savings bond, unless you’ve used the proceeds for higher education payments.

• Penalty for early withdrawal. If you cash in your savings bond before five years have elapsed, you will have to pay the previous three months of interest as a fee. You are typically not allowed to cash in a bond before the one-year mark.

Here, a summary of the pros and cons of investing in savings bonds:

Pros of Savings Bonds

Cons of Savings Bonds

• Low risk

• Education exception

• Possible tax advantages

• No fees

• Great gift

• Patriotic gesture

• Low returns

• Purchase limit

• Possible tax liability

• Penalty for early withdrawal

When Do Savings Bonds Mature?

You may wonder how long it takes for a savings bond to mature. The EE and I savings bonds earn interest for 30 years, until they reach their maturity date.

How to Cash in Savings Bonds

You’ll also need to know how and when to redeem a savings bond. These bonds earn interest for 30 years, but you can cash them in penalty-free after five years.

• If you have a paper bond, you can cash it in at your bank or credit union. Bring the bond and your ID. Or go to the Treasury’s TreasuryDirect site for details on how to cash it in.

• For electronic bonds, log into your TreasuryDirect account, click on “confirm redemption,” and follow the instructions to deposit the amount to a linked checking or savings account. You will likely get the money within a few business days.

• If you inherited or found an old U.S. Savings Bond, you may be able to redeem savings bonds through the TreasuryDirect portal or via Treasury Retail Securities Services.

Early Redemption of Bonds

If you cash in a U.S. Savings Bond after one year but before five years, you’ll pay a penalty that is the equivalent of the previous three months of interest. Keep in mind that for EE bonds, if you cash in before holding for 20 years, you lose the opportunity to receive the doubled value of the bond that accrues after 20 years.

The History of US Savings Bonds

America’s savings bond program began under President Franklin Delano Roosevelt in 1935, during the Great Depression, with what were known as “baby bonds.” This started the tradition of citizens participating in government financing.

The Series E Saving Bond contributed billions of dollars to financing the World War II effort, and in the post-war years, they became a popular savings vehicle. The fact that they are guaranteed by the U.S. government generally makes them a safe place to stash cash and earn interest.

The Takeaway

U.S. Savings Bonds can be one of the safest ways to invest for the future and show your patriotism. While the interest rates are typically low, for some investors, knowing that the money is being securely held for a couple of decades can really enhance their peace of mind.

Another way to help increase your peace of mind and financial well-being is finding the right banking partner for your deposit product needs.

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Better banking is here with SoFi, NerdWallet’s 2024 winner for Best Checking Account Overall.* Enjoy 3.30% APY on SoFi Checking and Savings with eligible direct deposit.

FAQ

What is a $50 savings bond worth?

The value of a $50 savings bond will depend on how long it has been held. You can log onto the TreasuryDirect site and use the calculator there to find out the value. As an example, a $50 Series I bond issued in 2000 would be worth more than $211 today.

How long does it take for a $50 savings bond to mature?

The full maturation date of U.S. savings bonds is 30 years.

What is a savings bond?

A savings bond is a secure way of investing in the U.S. government and earning interest. Basically, when you buy a U.S. Savings Bond, you are loaning the government money, which, upon maturity, they pay back with interest.

Photo credit: iStock/AlexSecret

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Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.

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

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.

3.30% APY
Annual percentage yield (APY) is variable and subject to change at any time. Rates are current as of 12/23/25. 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

Eligible Direct Deposit means a recurring deposit of regular income to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government benefit payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Eligible Direct Deposit”) via the Automated Clearing House (“ACH”) Network every 31 calendar days.

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.

Deposits that are not from an employer, payroll, or benefits provider or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, Wise, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Eligible Direct Deposit activity. There is no minimum Eligible Direct Deposit amount required to qualify for the stated interest rate. SoFi Bank shall, in its sole discretion, assess each account holder's Eligible Direct Deposit activity to determine the applicability of rates and may request additional documentation for verification of eligibility.

See additional details at https://www.sofi.com/legal/banking-rate-sheet.
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