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Exploring Different Types of Investments

You probably have things you want to do with your money down the road: buy a house, save for retirement, fund college for your kids, maybe even go on a trip or do a remodel. Are you wondering if investing can help you achieve those goals or where to start?

The good news is that it’s never too early or too late to start investing. There are a number of different ways you can put your money to work, even if finding a portfolio strategy can be daunting.

Before deciding on your investments, ask yourself what your financial goals are. Then try to build a portfolio that achieves those goals, balancing risk with return and maintaining a diverse mix of assets.

Here are the different types of investments that can help you achieve portfolio diversification.

Bond Investments

Bonds are essentially loans you make to a company or a government—federal or local—for a fixed period of time. In return for loaning them money, they promise to pay it back to you in the future and pay you interest in the meantime.

When it comes to bonds vs. stocks, the former are typically backed by the full faith and credit of the government or large companies. Because of this, they’re often considered lower risk than stocks.

However, the risk varies, and bonds are rated for their quality and credit-worthiness. Because the U.S. government is less likely to go bankrupt than an individual company, Treasury bonds are considered to be some of the least risky investments. However, they also tend to have lower returns.

Different Types of Bonds

Treasurys: These are bonds issued by the U.S. government. Treasurys can have maturities that range from one-month to 30-years, but the 10-year note is considered a benchmark for the bond market as a whole. In early 2021, Treasury Secretary Janet Yellen said a 100-year bond could make sense, although the market for it would be tiny.

Municipal bonds: Local governments or agencies can also issue their own bonds. For example, a school district or water agency might take out a bond to pay for improvements or construction and then pay it off, with interest, at whatever terms they’ve established.

Corporate bonds: Corporations also issue bonds. These are typically given a credit rating, with AAA being the highest. High-yield bonds, also known as junk bonds, tend to have higher yields but lower credit ratings.

Mortgage and asset-backed bonds: Sometimes financial institutions bundle mortgages or other assets, like student loans and car loans, and then issue bonds backed by those loans and pass on the interest.

Stock Investments

When you think of investing, you probably think of the stock market. A stock gives an investor fractional ownership of a public company in units known as shares.

Only public companies trade on the stock market; private companies are privately owned. They can sometimes still be invested in, though the process isn’t always as easy and open to as many investors.

A stock makes money in two ways: It could pay dividends if the company decides to pay out part of its profits to its shareholders, or an investor could sell the stock for more than they bought it.

Some investors are looking for steady streams of income and therefore pick stocks because of their dividend payments. Others may look at value or growth stocks, companies that are trading below their true worth or those that are experiencing revenue or earnings gains at a faster pace.

Alternative Investments

Although stocks and bonds are the more traditional assets to invest in, there are other types of investments known under the broad category of “alternatives.” These are not necessarily tied to the stock or bond market, so can provide some diversification potential.

Real Estate

Owning real estate, either directly or as part of real estate investment trust (REIT) investing or limited partnerships, gives you a tangible asset that may increase in value over time.

If you become invested in real estate outside of your own home, rent payments can be a regular source of income. However, real estate can also be risky and labor-intensive.

Commodities

A commodity is a raw material–such as oil, gold, corn or coffee. Commodities investing has a reputation for being risky and volatile. That’s because they’re heavily driven by supply and demand forces. Say for instance, there’s a bad harvest of coffee beans one year. That might help push up prices. But on the other hand, if a country discovers a major oil field, that could dramatically depress prices of the fuel.

Investors have several ways they can gain exposure to commodities. They can directly hold the physical commodity, although this option is very rare for individual investors (Imagine having to store barrels and barrels of oil).

So many investors wager on commodity markets via derivatives–financial contracts whose prices are tied to the underlying raw material. For instance, instead of buying physical bars of precious metals to invest in them, a trader might use futures contracts to make speculative bets on gold or silver. Another way that retail investors may get exposure to commodities is through ETFs that track prices of raw materials.

Private Companies

Only public companies sell shares of stock, however private companies do also look for investment at times—it typically comes in the form of private rounds of direct funding. If the company you invest in ends up increasing in value, that can pay off, but it can also be risky.

Cryptocurrency

A cryptocurrency is a kind of digital currency that uses encryption and coding techniques for security. These currencies are independent and separate from fiat currencies–like the U.S. dollar or euro–which are examples of money issued by a government or central bank.

There are a number of cryptocurrencies out there: Bitcoin was the first digital currency and is the most well-known. However, cryptocurrency prices have historically been very volatile, and the market is therefore considered to be a risky type of investment.

Overview of Investment Products

Mutual Funds

A mutual fund is an investment managed by a professional. Funds typically focus on an asset class, industry or region, and investors pay fees to the fund manager to choose investments and buy and sell them at favorable prices.

ETF

Exchange traded funds (ETFs) can appear to be similar to a mutual fund, but the main difference is that ETFs can be traded on a stock exchange, giving investors the flexibility to buy and sell throughout the day. They also come in a range of asset mixes.

Annuities

An annuity is an insurance contract that an individual pays upfront and, in turn, receives set payments later, typically during retirement.

There are fixed annuities, which guarantee a set payment, and variable annuities, which put people’s payments into investment options and pay out down the road at set intervals.

Derivatives

There are several types of derivatives but two popular ones are futures and options. Futures contracts are agreements to buy or sell something (a security or a commodity) at a fixed price in the future.

Meanwhile, in options trading, buyers have the right, but not the obligation, to buy an asset at a set price on a later date.

Investment Account Options

An investor can put money into different types of investment accounts, each with their own benefits. The type of account can impact what kinds of returns an investor sees, as well as when and how they can withdraw their money.

401(k)

A 401(k) is a retirement account provided by your employer. You can often put money into a 401(k) account via a simple payroll deduction, and in a traditional 401(k), your contribution isn’t taxed as income. Many employers will also match your contributions to a certain point. The IRS puts caps on how much you can contribute to a 401(k) annually.

IRA

IRA stands for “individual retirement account”—so it isn’t tied to an employer. There are IRS guidelines for IRAs, but, essentially, they’re retirement accounts for individuals. IRAs allow people to set aside money pre-tax for retirement without needing an employer-backed 401(k).

Roth v. Traditional

Both 401(k) plans and IRAs come in two forms: Roth or traditional. A traditional account typically means contributions are tax-deductible and future withdrawals are taxed as ordinary income.

A Roth account essentially allows you to make qualified withdrawals down the road without paying tax on them, but all contributions now are made with post-tax income.

Brokerage Accounts

A brokerage account is a taxed account through which you can buy most of the investments discussed here: stocks, bonds, ETFs. Some brokerage firms charge fees on the trades you make, while others offer free trading but send your orders to third parties to execute–a practice known as payment for order flow. Investors can be taxed on any realized gains.

You might also consider enlisting the help of a wealth manager or financial advisor who can provide financial planning and advice, and then manage your portfolio and wealth. Typically, these advisors are paid a fee based on the assets they manage.

There are even a number of investment options out there not listed here—like buying into a venture capital firm if you’re a high-net-worth individual or putting funding into your own business.

The Takeaway

It might still seem overwhelming to figure out what kinds of investments will help you achieve your goals. There are different investment strategies and finding the right one can depend on where you are in your career, what your financial goals are and how far away retirement is.

SoFi Invest® allows investors to create a portfolio free of commissions. Users can trade stocks, ETFs or fractional shares–slices of stocks.

Get started with as little as $1 on SoFi Invest today.



SoFi Invest®
The information provided is not meant to provide investment or financial advice. Investment decisions should be based on an individual’s specific financial needs, goals and risk profile. SoFi can’t guarantee future financial performance. Advisory services offered through SoFi Wealth, LLC. SoFi Securities, LLC, member FINRA / SIPC . The umbrella term “SoFi Invest” refers to the three investment and trading platforms operated by Social Finance, Inc. and its affiliates (described below). Individual customer accounts may be subject to the terms applicable to one or more of the platforms below.
1) Automated Investing—The Automated Investing platform is owned by SoFi Wealth LLC, an SEC Registered Investment Advisor (“Sofi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC, an affiliated SEC registered broker dealer and member FINRA/SIPC, (“Sofi Securities).
2) Active Investing—The Active Investing platform is owned by SoFi Securities LLC. Clearing and custody of all securities are provided by APEX Clearing Corporation.
3) Digital Assets—The Digital Assets platform is owned by SoFi Digital Assets, LLC, a FinCEN registered Money Service Business.
For additional disclosures related to the SoFi Invest platforms described above, including state licensure of Sofi Digital Assets, LLC, http://www.sofi.com/legal.

Crypto: Bitcoin and other cryptocurrencies aren’t endorsed or guaranteed by any government, are volatile, and involve a high degree of risk. Consumer protection and securities laws don’t regulate cryptocurrencies to the same degree as traditional brokerage and investment products. Research and knowledge are essential prerequisites before engaging with any cryptocurrency. US regulators, including FINRA , the SEC , and the CFPB , have issued public advisories concerning digital asset risk. Cryptocurrency purchases should not be made with funds drawn from financial products including student loans, personal loans, mortgage refinancing, savings, retirement funds or traditional investments.
Investment Risk: Diversification can help reduce some investment risk. It cannot guarantee profit, or fully protect in a down market.
IPOs: Investing early in IPO stock involves substantial risk of loss. The decision to invest should always be made as part of a comprehensive financial plan taking individual circumstances and risk appetites into account.
Advice—Advisory services are offered through SoFi Wealth, LLC an SEC-registered Investment adviser. Information about SoFi Wealth’s advisory operations, services, and fees is set forth in SoFi Wealth’s current Form ADV Part 2 (Brochure), a copy of which is available upon request and at www.adviserinfo.sec.gov.
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Using a Personal Cash Flow Statement

If you’re often surprised when you open up your credit card and bank statements and see how much money you spent, or you worry that your cash outflow may be exceeding your cash inflow, there could be a simple solution: A personal cash flow statement.

Creating a personal cash flow statement can give you a clear picture of your monthly cash inflow (money you earn) and your monthly cash outflow (money you spend) to determine if you have a positive or negative net cash flow.

And while it may sound intimidating, creating a personal cash flow statement is relatively simple. All you need to get started is to gather up your bank statements and bills for one month (or more). Then, it’s a matter of some basic calculations.

Once you have your personal financial statement, you’ll know where you currently stand. You’ll also be able to use your personal financial statement to help you create a budget and goals for increasing your net worth.

Here’s how to start getting your financial life back into balance.

What Is a Personal Cash Flow Statement?

“Cash flow” is a term commonly used by businesses to detail the amount of money flowing in and out of a company.

Companies can use cash flow statements to determine how well the company is generating cash to pay its debts and operating expenses.

Just like the ones used by companies, tracking your own cash flow can provide you with a snapshot of your financial condition.

You might learn, for example, that you have less leftover at the end of each month than you thought, or that you are indeed going backwards.

Once you have the numbers down in black and white, you can then make any needed changes, such as reducing costs and expenditures, increasing income, and making sure that your spending is in line with your goals.

So, how do you set up a personal finance cash flow statement?

It might seem overwhelming to get started, but these steps can simplify the process.

Listing all Your Sources of Income

A good first step when creating a personal cash flow statement is to get out all of your pay stubs, bank statements, credit card statements, and bills.

Next, you’ll want to start listing any and all sources of income–the inflow.

Cash inflows generally include: salaries, anything you make from side hustles, interest from savings accounts, income from a rental property, dividends from investments, and capital gains from the sale of financial securities like stocks and bonds.

Since a cash flow statement is designed to give a snapshot into the overall flow of where your money is coming from and where it is going, you might want to avoid listing money in accounts that aren’t available for spending.

For example, you may not want to list dividends and capital gains from investment accounts if they are being automatically reinvested, or are part of a retirement account from which you aren’t actively taking withdrawals.

Since income can vary from one month to the next, you might choose to tally inflow for the last three or six in order to come up with an average.

Once you’ve collected and listed all of your income for the month, you can then calculate the total inflow.

Listing all of Your Expenses

Now that you know how much money is coming in each month, you’ll want to use those same statements and bills, as well as any statements for any debts (such as mortgage, auto loan, or student loans) to list how much was spent during the month.

Again, if your spending tends to fluctuate quite a bit from month to month you may want to track it for several months and come up with an average.

To create a complete picture of how much of your money is flowing out each month, you’ll want to include necessities like food and gas, and also discretionary expenses, such as trips to the nail salon or your monthly streaming services.

Small expenses can add up quickly, so it’s wise to be precise.

Once you’ve compiled all of your expenses, you can calculate the total and come up with your total outflow for the month.

Determining Your Net Cash Flow

To calculate your net cash flow, all you need to do is subtract your monthly outflow from your monthly inflow. The result is your net cash flow.

A positive number means you have a surplus, while a negative means you have a deficit in your budget.

A positive cash flow is desirable, of course, since it can provide more flexibility, and can allow you to decide how to best use the surplus.

There are a variety of options. You could choose to save for an upcoming expense, make additional contributions to your retirement fund, create or add to an emergency fund, or, if your savings are in good shape, consider a splurging on something fun.

A negative cash flow can signal that you are living a more expensive life than your income can support. In the future, maintaining this habit could lead to additional debt.

It’s also possible to have net neutral cash flow (all money coming in and going out is fairly equal).

In that case, you may still want to jigger things around if you are not already putting the annual maximum into your retirement fund and/or you don’t have a comfortable emergency cushion.

The Difference Between a Personal Cash Flow Statement and a Budget

A personal cash flow statement provides a comprehensive look at what is currently coming in and going out of your bank accounts each month.

A cash flow statement tells you where you are.

A personal budget, on the other hand, helps you to get where you want to go by giving you a spending plan that is based on your income.

A budget can provide you with some general spending guidelines, such as how much you should spend on groceries, entertainment and clothing each month so that you don’t exceed your income–and end up with a negative net flow.

Creating a budget can also be a good opportunity to check in with your financial goals.

For example, are you on track for saving for retirement? Do you want to amp up your emergency fund?

Are you interested in tackling the credit card debt that has been spiraling due to high interest rates?

Perhaps you want to work toward paying off your student loans.

Whatever your goal, a well-crafted budget could serve as a roadmap to help you get there.

Using Your Personal Financial Statement to Create a Simple Budget

Because a cash flow statement provides a comprehensive look at your overall spending habits, it can be a great jumping off point to set up a simple budget.

When you’re ready to create a budget, there are a variety of resources online, from apps, like SoFi Relay®, to spreadsheet templates and printable worksheets .

A good first step in creating a budget is to organize all of your monthly expenses into categories.

Spending categories typically include necessities, such as rent or mortgage, transportation (like car expenses or public transportation costs), food, cell phone, healthcare/insurance, life insurance, childcare, and any debts (credit cards/ loans).

You’ll also need to list nonessential spending, such as cable television, streaming services, concert and movie tickets, restaurants, clothing, etc.

You may also want to include monthly contributions to a retirement plan and personal savings into the expense category as well.

And, if you don’t have emergency savings in place that could cover at least three to six months of living expenses, consider putting that on the spending list as well, so you can start putting some money towards it each month.

Once you have a sense of your monthly earnings and spending, you may want to see how your numbers line up with general budgeting guidelines. Financial counselors sometimes recommend the 50/30/20 model, which looks like this:

•  50% of money goes towards necessities such as a home, car, cell phone, or utility bills.
•  30% goes towards your wants, such as entertainment and dining out.
•  20% goes towards your savings goals, such as a retirement plan, a downpayment on a home, emergency fund, or investments.

Improving Your Net Cash Flow

If your net cash flow is not where you want it or, worse, dipping into negative territory, a budget can help bring these numbers into balance.

The key is to look closely at each one of your spending categories and see if you can find some ways to trim back.

The easiest way to change your spending habits is to trim some of your nonessential expenditures. If you’re paying for cable but mostly watch streaming services, for example, you could score some real savings by getting rid of that cable bill.

Not taking as many trips to the mall or cooking (instead of getting takeout) more often could start adding up to a big difference.

Living on a budget may also require looking at the bigger picture and finding places for more significant savings.

For example, maybe rent eats up 50% of your income and it’d be better to move to a less costly apartment. Or, you might want to consider trading in an expensive car lease for a less pricey or pre-owned model.

There may also be opportunities to lower some of your recurring expenses by finding a better deal or negotiating with your service providers.

You may also want to look into any ways you might be able to change the other side of the equation–the inflow.

Some options might include asking for a raise, or finding an additional income stream through some sort of side hustle.

The Takeaway

One of the most important steps towards achieving financial wellness is cash flow management–i.e., making sure that your cash outflow is not exceeding your cash inflow.

Creating a simple cash flow statement for yourself can be an extremely useful tool.

For one reason, it can show you exactly where you stand. For another, a personal cash flow statement can help you create a budget that can bring the inflow and outflow of money into a healthier balance.

Creating–and sticking with–a budget that creates a positive net cash flow, and also allows for monthly saving (for retirement, a future purchase, or a rainy day) can help you build financial security and future wealth.

If you need help with tracking your spending, a SoFi Money® cash management account may be a good option for you.

With SoFi Money, you can see your weekly spending on your dashboard, which can help you stay on top of your spending and make sure you are on track with your budget.

Check out everything a SoFi Money cash management account has to offer today!



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Third Party Brand Mentions: No brands or products mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third party trademarks referenced herein are property of their respective owners.
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The information provided is not meant to provide investment or financial advice. Investment decisions should be based on an individual’s specific financial needs, goals and risk profile. SoFi can’t guarantee future financial performance. Advisory services offered through SoFi Wealth, LLC. SoFi Securities, LLC, member FINRA / SIPC . The umbrella term “SoFi Invest” refers to the three investment and trading platforms operated by Social Finance, Inc. and its affiliates (described below). Individual customer accounts may be subject to the terms applicable to one or more of the platforms below.

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HSA for Retirement: Rules, Benefits, and Getting Started

If you have a high-deductible health plan, chances are you’re eligible to save money for medical expenses in a tax-free health savings account (HSA). You might already know that, and perhaps you’re currently contributing pre-tax dollars to your HSA. But did you know that HSAs can be used for more than just out-of-pocket medical expenses?

An HSA can be a useful vehicle for boosting your retirement savings, especially if you’re young, healthy, and rarely visit the doctor. HSAs provide an additional means for accumulating tax-advantaged savings for retirement, beyond traditional retirement plans like an IRA and a 401(k) plan.

What Is an HSA?

A Health Savings Account is a type of tax-advantaged savings account for individuals with a high-deductible health care plan—defined by the IRS as any plan with a deductible of at least $1,400 for an individual or $2,800 for a family.

Anyone who fits the criteria is eligible to open an HSA and save pre-tax dollars: up to $3,550 a year for individuals and up to $7,100 for families for the 2020 tax year. If you’re 55 or older at the end of the tax year, you can contribute an additional $1,000.

HSA Bank calculator

An employer can also make a matching contribution into your HSA, though total employer and employee contributions can’t exceed the annual limits. You can then withdraw funds in your HSA to pay for qualified medical and dental health care expenses, including copays for office visits, diagnostic tests, supplies and equipment, over-the-counter medications and menstrual care products as of 2019. Unlike flexible spending accounts (FSA), the money in an HSA doesn’t have to be used by the end of the year. Any money in that account remains yours to access, year after year.

Before age 65, there is a 20% penalty for withdrawing funds from an HSA for non-medical expenses, on top of ordinary income tax. After age 65, HSA holders can also make non-medical withdrawals on their account, though ordinary income tax applies.

3 Reasons to Use an HSA for Retirement

Though they aren’t specifically designed to be used in retirement planning, it’s possible to use an HSA for retirement as a supplement to other income or assets. Because you can leave the money you contribute in your account until you need it for qualified medical expenses, the funds could be used for long-term care, for example. Or if you remain healthy, you could tap your HSA in retirement to pay for everyday living expenses.

There are several advantages to including an HSA alongside a 401(k), Individual Retirement Account, and other retirement savings vehicles. An HSA can yield a triple tax benefit since contributions are tax-deductible, they grow tax-deferred, and once you withdraw those funds for qualified medical expenses, distributions are tax-free. If you’re focused on minimizing tax liability as much as possible prior to and during retirement, an HSA can help with that.

Using an HSA for retirement could make sense if you’ve maxed out contributions to other retirement plans and you’re also investing money in a taxable brokerage account. An HSA can help create a well-rounded, diversified portfolio for building wealth over the long term. Here’s a closer look at the top three reasons to consider using HSA for retirement.

1. It Will Lower Your Taxable Income

You may not be able to make contributions to an HSA in retirement, but you can score a tax break by doing so during your working years. The money an individual contributes to an HSA is deposited pre-tax, ultimately lowering their taxable income. Furthermore, any employer contributions to an HSA are also excluded from a person’s gross income.
The money you’ve deposited in an HSA earns interest and contributions are withdrawn tax-free, provided the funds are used for qualified medical expenses. In comparison, with a Roth IRA or 401(k), account holders are taxed either when they contribute or when they take a distribution. Using HSA for retirement could help you balance out your tax liability.

2. You Can Save Extra Money for Health Care After Retirement

Unlike Flexible Spending Accounts that allow individuals to save pre-tax money for health care costs but require them to use it the same calendar year, there is no “use it or lose it” rule with an HSA. If you don’t use the money in your HSA, the funds will be available the following year. There is no time limit on spending the money.

Because the money is allowed to accumulate, using an HSA for retirement can be a good way to stockpile money to pay for health care, nursing care, and long-term costs (all of which are qualified expenses) if needed. While Americans can enroll in Medicare starting at age 65, most long-term chronic health care needs and services aren’t covered under Medicare. Having an HSA to tap into during retirement can be a good way to pay for those unexpected out-of-pocket medical expenses.

3. You Can Boost Your Retirement Savings

Beyond paying for medical expenses, HSAs can be used to save for retirement. Unlike a Roth IRA, there are no income limits on saving money in an HSA. Some plans even allow you to invest your HSA savings, much like you would invest in a 401(k). This can further augment your retirement savings because any interest, dividends, or capital gains you earn from an HSA are nontaxable. Plus, in retirement, there are no required minimum distributions from an HSA account—you can withdraw money only when you want or need to.

Some specialists warn that saving for retirement with an HSA really only works if you’re currently young and healthy, rarely have to pay health care costs, or can easily pay for them out of your own pocket.

But if that is the case, come retirement (after age 65) you’ll be able to use HSA savings to pay for both medical and non-medical expenses. While funds withdrawn to cover medical fees won’t be taxed, you can expect to pay ordinary income tax on non-medical withdrawals.

HSA Contribution Limits

As you are planning contributing to an HSA—whether for immediate and short-term medical expenses, or to help supplement retirement savings—it’s important to take note of HSA contribution limits. If your employer makes a contribution to your account on your behalf, your total contributions for the year can’t exceed the annual contribution limit.

2020 HSA Contribution Limits:

•  $3,550 for individual coverage
•  $7,100 for family coverage
•  Individuals over age 50 can contribute an additional $1,000 over the annual limit

2021 HSA Contribution Limits

•  $3,600 for individual coverage
•  $7,200 for family coverage
•  Individuals over age 50 can contribute an additional $1,000 over the annual limit

As with an IRA, you have until the tax filing deadline to make a contribution for the current tax year. So if you wanted to contribute money to an HSA for 2020, you’d have until April 15, 2021 to do so.

Another caveat: Once you enroll in or become eligible for Medicare Part A benefits, you can no longer contribute money to an HSA.

How to Invest Your HSA for Retirement

An HSA is more than just a savings account. It’s also an opportunity to invest your contributions in the market to grow them over time. Similar to a 401(k) or IRA, it’s important to invest your HSA assets in a way that reflects your goals and risk tolerance.

It’s also helpful to consider the other ways you’re investing money to make sure you’re keeping your portfolio diversified. Diversification is important for managing risk. From an investment perspective, an HSA is just one part of the puzzle and they all need to fit together so you can make your overall financial plan work.

Using an HSA for Retirement FAQs

These are some common questions you might have if you’re considering using your HSA to help save for retirement.

Can HSA Be Used for Retirement?

HSAs are not specifically designed to be a retirement planning vehicle, but you can use an HSA for retirement, since the money accumulates in your account until you withdraw it tax-free for qualified medical expenses. You could also use your HSA funds to pay for other retirement expenses after age 65—you’ll just have to pay income tax on those withdrawals.

What Happens to an HSA When You Retire?

An HSA doesn’t go away when you retire; instead, the money remains available to you until you need to use it. As long as withdrawals pay for qualified medical expenses, you’ll pay no taxes or penalties on the withdrawals. And your invested contributions can continue to grow as long as they remain in the account.

One advantage of using an HSA for retirement versus an IRA or 401(k) is that there are no required minimum distributions. In other words, you won’t be penalized for leaving money in your HSA. Though there is a 20% penalty for using the money for non-medical expenses before age 65.

How Much Should I Have in HSA at Retirement?

The answer to this question ultimately depends on how much you expect to spend on healthcare in retirement, how much you contribute each year, and how many years you have to contribute money to your plan. Say, for example, that you’re 35 years old and making contributions to an HSA for retirement for the first time. You plan to make the full $3,550 contribution allowed for individual coverage for the next 30 years.

Assuming a 5% rate of return and $250 in medical spending each year, you’d have just over $230,000 saved in your HSA at age 65. Using an HSA Bank calculator to play around with the numbers can give you a better idea of how much you could have in your HSA for retirement if you’re saving consistently.

When Can I Use My HSA Funds?

Technically, your HSA funds are available to you at any time. So if you have to pick up a prescription or make an unscheduled visit to the doctor, you could tap into your HSA to pay for any out of pocket costs not covered by insurance. But if you’re interested in using an HSA in retirement, it’s better to leave the money alone as much as possible so that it has more opportunity to grow over time.

The Takeaway

A health savings account can be a valuable tool in your current budget, to help pay for out-of-pocket medical costs, tax-free. But it can also be used to accumulate savings (and interest) tax-free, to be used on medical and non-medical expenses in retirement.

It’s never too early—or too late—to start saving for retirement, and when you open an investment account with SoFi Invest®, you can begin investing with as little as $1. Or check out other retirement accounts, like a traditional or Roth IRA.

Ready to take the next steps in saving for retirement? Open a SoFi Invest account today.


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The information provided is not meant to provide investment or financial advice. Investment decisions should be based on an individual’s specific financial needs, goals and risk profile. SoFi can’t guarantee future financial performance. Advisory services offered through SoFi Wealth, LLC. SoFi Securities, LLC, member FINRA / SIPC . The umbrella term “SoFi Invest” refers to the three investment and trading platforms operated by Social Finance, Inc. and its affiliates (described below). Individual customer accounts may be subject to the terms applicable to one or more of the platforms below.
1) Automated Investing—The Automated Investing platform is owned by SoFi Wealth LLC, an SEC Registered Investment Advisor (“Sofi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC, an affiliated SEC registered broker dealer and member FINRA/SIPC, (“Sofi Securities).
2) Active Investing—The Active Investing platform is owned by SoFi Securities LLC. Clearing and custody of all securities are provided by APEX Clearing Corporation.
3) Digital Assets—The Digital Assets platform is owned by SoFi Digital Assets, LLC, a FinCEN registered Money Service Business.
For additional disclosures related to the SoFi Invest platforms described above, including state licensure of Sofi Digital Assets, LLC, http://www.sofi.com/legal.

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.
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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Why Saving Money is Important

You’ve probably heard that you should be saving money each month. It’s one of those things that’s just supposed to be good for you, like eating broccoli or flossing before you go to bed.

But why is it important to save money?

And, if you’re already stretched covering your current expenses, and possibly also paying back debt (such as student loans), you may wonder, why even bother to try saving?

The answer is that everyone has to start somewhere, and even just putting aside a little bit every month is well worthwhile.

That’s because having savings can decrease worry (since you have back-up should a sudden expense come up), help you reach your goals (such as making a large purchase or downpayment on home), and also help you earn money without doing anything at all (yes, money can do that).

Understanding why saving is important—and learning how to make it happen—might be the fuel you need to get started.

Reasons Why Saving Money is Important

It can be hard to get motivated to save money just because it’s the “responsible” thing to do. But you may see the appeal once you understand the huge advantages that saving offers. Here are a few.

Peace of Mind

If money is tight, you may find yourself worrying how you will pay the rent or other critical bills if an extra unexpected expense were to suddenly come up, as they often do.

Financial experts generally recommend building up an emergency fund of at least three months worth of living expenses to prepare for any financial surprises.

Having this contingency fund in your back pocket can provide the sense of security that comes with knowing you can get through a rough spot without hardship.

Avoiding Debt

Saving is beneficial for non-emergencies too. Say you are hoping to be able to afford a major expense in the future, such as a wedding, vacation, home renovation, or sending a kid to college.

You could finance these big-ticket items with debt, whether through high-interest credit cards, loans, or a home equity line of credit.

However, borrowing generally means that you’ll be paying more than you borrowed thanks to interest that accrues.

If you save up for your dream in advance, you can side-step debt, which can help save a significant amount of cash in the long run.

Expanding Your Options

Generally, the more money you have saved, the more control you can have over your life.

If you’re unhappy with where you live, for instance, having some savings can open up the possibility of moving to a more desirable location, or putting a downpayment on a new home.

If you dislike your job, having a cushion of savings might afford you the option of leaving that job even before you have another one lined up.

Money certainly does not solve all problems, but having savings can give you a little bit of breathing room and allow you to take positive steps in your life.

Getting Your Money to Work For You

Another big incentive to save is the power of compound interest.

Compound interest means you earn a return not just on the amount you originally put away, but also on the interest that accumulates.

Over time, that means you can end up with much more than you started with. And the earlier you start saving, the more your money grows, since compound interest is able to work its magic over a longer time horizon.

For example, a person who starts putting $100 per month towards retirement at age 25 will wind up putting $12,000 more of their money into their retirement fund by age 65 than the person who started saving $100 per month at age 35.

But because of compound interest (and assuming a 7% annual rate of return), the person who started at 25 will wind up with over $120,000 more at age 65 (way more than the extra $12,000 they invested). Please note that this is a hypothetical scenario and does not represent an actual investment. All investing involves risk.

How to Get Started with Saving

If you’re convinced that saving is the right move, how do you actually do it? The key is to make a budget and make sticking to it easy.

This doesn’t have to be intimidating. The key is to get familiar with what you spend, what you earn, and what your goals are.

Here are some steps you could take to help get started.

Figuring Out What You’re Saving For

Is it a long-term goal, like retirement or your kids’ college tuition? A short-term goal, like an emergency fund? Or a medium-term goal, like a wedding or home renovation? It can help to get a sense of how much you need to stash away and by when.

The point of this is twofold: First, you can divide the amount you need by the months left until your deadline to get a clear picture of how much you’ll need to save each month.

Second, you will know where to put your money. If your goal is less than a couple of years away, you may want to keep your savings in a high-yield savings account, cash management account, online savings account, or money market account.

These options can help you earn more interest than a standard savings account but still allow you to access your money when you need it.

If your goal is in the distant future, you might want to invest the money in a retirement account, 529 college savings plan, or brokerage account so that it has the chance to grow over time.

Sticking to a Budget

You don’t really know where your money is going unless you track it. That’s why for a month or two, you may want to take note of all your daily and monthly expenses.

Next, you’ll want to tally up your net monthly income, meaning what goes into your account after taxes and deductions.

The difference between your monthly income and your expenses is what you have left over to save. If there’s not enough left over, you can work on finding ways to cut spending or increase your income.

Putting Savings on Autopilot

If you’re manually putting cash away every month, it can be easy to fall behind.

For one thing, you may forget to move money into savings regularly amid your busy schedule. And, unless you protect the money in advance by transferring it to a different account, you may accidentally spend it.

One way to avoid this is to set up automated savings through your bank account or retirement plan.

If you’re putting away the amount you identified you need for your goal, you may get there without even thinking about it.

The Takeaway

Saving money is highly important–it can provide peace of mind, open up options that improve your quality of life, increase your wealth due to compound interest, and may even allow you to retire early.

Many people earn wealth through a combination of working and savvy saving.

Looking to save for a future goal (like buying a car or making downpayment on a home?) Consider signing up for a SoFi Money® cash management account.

With SoFi Money Vaults, you can separate your spending from your savings while still earning competitive interest on all your money.

Vaults also allow you to track your savings progress and set up recurring monthly deposits (which could help you reach your savings goal faster). Plus, there are no account or minimum balance fees.

Check out everything a SoFi Money cash management account has to offer today!



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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SoFi Money is a cash management account, which is a brokerage product, offered by SoFi Securities LLC, member FINRA / SIPC .
Neither SoFi nor its affiliates is a bank. SoFi has partnered with Allpoint to provide consumers with ATM access at any of the 55,000+ ATMs within the Allpoint network. Consumers will not be charged a fee when using an in-network ATM, however, third party fees incurred when using out-of-network ATMs are not subject to reimbursement. SoFi’s ATM policies are subject to change at our discretion at any time.

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Rollover IRA vs. Traditional IRA: What’s the Difference?

When it comes to retirement savings, one of the building blocks of many strategies is the individual retirement account, or IRA. An IRA is a retirement plan that allows individuals to save money in a tax-advantaged way. In some cases, an individual might open a traditional IRA, and in others, they might have investments from a previous retirement plan that they need to roll over into a rollover IRA.

When it comes to a traditional IRA vs. rollover IRA, there are many similarities— but also a few differences worth noting.

What Is a Traditional IRA?

To understand the difference between a rollover IRA vs. traditional IRA, it helps to understand some IRA basics.

From the moment you open a traditional IRA, your contributions to the account are typically tax deductible, so your savings will grow tax-free until you make withdrawals in retirement. This is advantageous to some retirees: Upon retiring, it’s likely one might be in a lower income tax bracket than when they were employed. Given that, the money they withdraw will be taxed at a lower rate than it would have when they contributed.

What is a Rollover IRA?

A rollover IRA is an IRA account created with money that’s being rolled over from a qualified retirement plan. Generally, rollover IRAs happen when someone leaves a job with an employer-sponsored plan, such as a 401(k) or 403(b), and they roll the assets from that plan into a rollover IRA.

In a rollover IRA, like a traditional IRA, your savings grow tax-free until you withdraw the money in retirement. There are several advantages to rolling your employer-sponsored retirement plan into an IRA, vs. into a 401(k) with a new employer:

•  IRAs may charge lower fees than 401(k) providers.
•  IRAs may offer more investment options than an employer-sponsored retirement account.
•  You may be able to consolidate several retirement accounts into one rollover IRA, simplifying management of your investments.
•  IRAs offer the ability to withdraw money early for certain eligible expenses, such as purchasing your first home or paying for higher education. In these cases, while you’ll pay income taxes on the money you withdraw, you won’t owe any early withdrawal penalty.

There are also some rollover IRA rules that may feel like disadvantages to putting your money into an IRA instead of leaving it in an employer-sponsored plan:

•  While you can borrow money from your 401(k) and pay it back over time, you cannot take a loan from an IRA account.
•  Certain investments that were offered in your 401(k) plan may not be available in the IRA account.
•  There may be negative tax implications to rolling over company stock.
•  An IRA requires that you start taking Required Minimum Distributions (RMDs) from the account at age 72 (or age 70 ½ if you turn 70 ½ in 2019 or earlier), even if you’re still working, whereas you may be able to delay your RMDs from an employer-sponsored account if you’re still working.
•  The money in an employer plan is protected from creditors and judgments, whereas the money in an IRA may not be, depending on your state.

A Side-by-Side Comparison of Rollover IRA vs. Traditional IRA

  Rollover IRA Traditional IRA
Source of contributions Created by “rolling over” money from another account, most typically an employer-sponsored retirement plan, such as 401(k) or 403(b). For rollover amount, annual contribution limits do not apply. Created by regular contributions to the account, not in excess of the annual contribution limit, although rolled-over money can also be contributed to a traditional IRA.
Contribution limits There is no limit on the funds you roll over from another account. If you’re contributing outside of a rollover, the limit is $6,000 per year, plus an additional $1,000 if you’re 50 or older. Up to $6,000 per year, plus an additional $1,000 if you’re 50 or older.
Withdrawal rules Withdrawals before age 59½ are subject to both income taxes and an early withdrawal penalty (with certain exceptions , like for higher education expenses or the purchase of a first home). Withdrawals before age 59½ are subject to both income taxes and an early withdrawal penalty (with certain exceptions , like for higher education expenses or the purchase of a first home).
Required minimum distributions (RMDs) You’re required to withdraw a certain amount of money from this account each year once you reach age 72. You’re required to withdraw a certain amount of money from this account each year once you reach age 72.
Taxes Since contributions are from a pre-tax account, all withdrawals from this account in retirement will be taxed at ordinary income rates. If contributions are tax deductible, all withdrawals from this account in retirement will be taxed at ordinary income rates. (If contributions were non-deductible, you’ll pay taxes on only the earnings in retirement.)
Future rollover options As long as no other (non-rollover) funds have been added to the account, this money can be rolled into a future employer’s retirement plan, if the plan allows it. The money in a traditional IRA cannot be rolled into a future employer’s retirement plan.
Convertible to a Roth IRA Yes Yes

Is There a Difference Between a Traditional IRA and a Rollover IRA?

The money you roll over to a rollover IRA can later be rolled over into an employer-sponsored retirement plan, if the plan allows it. This is not true of money in a traditional IRA.

When it comes to a rollover IRA vs. traditional IRA, the only real difference is that the money in a rollover IRA was rolled over from an employer-sponsored retirement plan. Otherwise, the accounts share the same tax rules on withdrawals, required minimum distributions, and conversions to Roth IRAs.

Can You Contribute to a Rollover IRA?

You can make contributions to a rollover IRA, up to IRA contribution limits. In 2020 and 2021, individuals can contribute up to $6,000 (with an additional catch-up contribution of $1,000 if you’re 50 or older). If you do add money to your rollover IRA, however, you may not be able to roll the account into another employer’s retirement plan at a later date.

Can You Combine a Traditional IRA with a Rollover IRA?

A rollover IRA is essentially a traditional IRA that was created when money was rolled into it. Hence, you can combine two IRAs by having a direct transfer done from one account to another, or by rolling money from one IRA to the other IRA.

There’s one important aspect of the transfer or rollover process that will help prevent the money from counting as an early withdrawal or distribution to you—and that’s being timely with any transfers. With an indirect rollover, you typically have 60 days to deposit the money from the now-closed fund into the new one.

A few other key points to remember: As mentioned above, if you add non-rollover money to a rollover account, you may lose the ability to roll funds into a future employer’s retirement plan. Also keep in mind that there’s a limit of one rollover between IRAs in any 12-month period. This is strictly an IRA-to-IRA limit and does not apply to rollovers from a retirement plan to an IRA.

How to Open a Traditional or Rollover IRA Account

Opening a traditional IRA and a rollover IRA are identical processes—the only difference is the funding. Open a traditional or rollover IRA by doing the following:

•  Decide where to open your IRA. For instance, you can choose an online brokerage firm where you can choose your own investments, or you can select a robo-advisor that will offer automated recommendations based on your answers to a few basic investing questions. (There’s a small fee associated with most robo-advisors.)
•  Open an account. From the provider’s website, select the type of IRA you’d like to open—traditional or rollover, in this case—and provide a few pieces of personal information. You’ll likely need to supply your date of birth, Social Security number, and contact and employment information.
•  Fund the account. You can fund the account with a direct contribution via check or a transfer from your bank account, transferring money from another IRA, or rolling over the money from an employer-sponsored retirement plan. Contact your company plan administrator for information on how to do the latter.

The Takeaway

Both a rollover IRA or traditional IRA allow investors to put money away for retirement in a tax-advantaged way, with very little difference between the two accounts.

One of the primary questions anyone considering a rollover IRA should consider is, will you keep contributing to it? If so, that would prevent you from rolling the rollover IRA back into an employer-sponsored retirement account in the future.

Whether it’s a rollover IRA you’ve created by rolling over an employer-sponsored retirement account or a traditional IRA you’ve opened with regular contributions, either account can play a key role in your retirement game plan.

Interested in learning more about growing your savings with an IRA? Explore IRA accounts at SoFi and read about the broad range of investment options, member services and investment tools available.

Find out how to save for retirement with SoFi.


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.
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.
SoFi Invest®
The information provided is not meant to provide investment or financial advice. Investment decisions should be based on an individual’s specific financial needs, goals and risk profile. SoFi can’t guarantee future financial performance. Advisory services offered through SoFi Wealth, LLC. SoFi Securities, LLC, member FINRA / SIPC . The umbrella term “SoFi Invest” refers to the three investment and trading platforms operated by Social Finance, Inc. and its affiliates (described below). Individual customer accounts may be subject to the terms applicable to one or more of the platforms below.
1) Automated Investing—The Automated Investing platform is owned by SoFi Wealth LLC, an SEC Registered Investment Advisor (“Sofi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC, an affiliated SEC registered broker dealer and member FINRA/SIPC, (“Sofi Securities).
2) Active Investing—The Active Investing platform is owned by SoFi Securities LLC. Clearing and custody of all securities are provided by APEX Clearing Corporation.
3) Digital Assets—The Digital Assets platform is owned by SoFi Digital Assets, LLC, a FinCEN registered Money Service Business.
For additional disclosures related to the SoFi Invest platforms described above, including state licensure of Sofi Digital Assets, LLC, http://www.sofi.com/legal.

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