Investing Archives

Mar

2025

The 5498 Tax Form Explained

By Rebecca Lake | invest, Investing, Preparing for Retirement | Comments Off

IRS Form 5498 is used to report IRA contributions to the IRS. The financial institution (often referred to as the trustee or custodian) that manages your IRA should send a 5498 tax form to the IRS on your behalf each year that you make contributions. They’ll send a copy of the form to you as well.

This form is designed to be informational for taxpayers and you don’t need to file a copy of it with your tax return. However, it’s helpful to know how to read IRS Form 5498 if you’re using it to keep track of your annual IRA contributions.

Key Points

• IRS Form 5498 reports IRA contributions, rollovers, conversions, and recharacterizations to the IRS.

• IRA custodians or trustees must file Form 5498 with the IRS by May 31 following the contribution year.

• For taxpayers, the form is informational only, and does not need to be filed with their tax returns.

• Taxpayers should receive a copy of Form 5498 from their IRA custodian and keep it for their records.

• IRS contribution amounts listed on the 5498 form should be compared with the contribution amounts the taxpayer reported on their tax return, and if there are any mistakes, a corrected form should be requested.

What Is IRS Form 5498?

IRS Form 5498, IRA Contribution Information is an official tax form that’s used to report individual retirement account contributions to the IRS. This form is issued by your IRA trustee or custodian and is sent directly to the IRS each year that you make contributions to your account.

You’ll also receive a copy of your Form 5498 in the mail, but the form is purely informational. You won’t need to file it with your federal or state tax returns. However, it’s a good idea to keep a copy of it with your tax records for the year.

💡 Need a refresher? Check out our guide: What Is an IRA?

What Does Form 5498 Cover?

A 5498 tax form is used to report information about the annual contributions you make to your IRAs, including traditional IRAs, Roth IRAs, SIMPLE IRAs, and SEP IRAs. You should get one form from each IRA custodian that you have accounts with. You may also be issued a Form 5498 for certain other transactions that are IRA-related, such as rollovers and required minimum distributions (RMDs).

Your IRA custodian or trustee must file Form 5498 with the IRS by May 31 following the year in which the contributions were made.

IRA Contributions

The 5498 tax form is used to report IRA contributions. The information is recorded in different boxes on the form, depending on the type of contribution it is.

• Box 1: IRA contributions

• Box 8: SEP IRA contributions

• Box 9: SIMPLE IRA contributions

• Box 10: Roth IRA contributions

When you receive your 5498 tax form, it’s a good idea to compare the contribution amounts listed there to the amounts you reported on your tax return. If you spot any errors, you can reach out to your IRA custodian to request a corrected form.

Form 5498 records both deductible and non-deductible IRA contributions. If you’re using a Roth IRA to save for retirement, for example, tax deduction rules don’t allow you to write off those contributions. But you’ll still get a 5498 tax form showing what you contributed for the year.

Type of IRA

As mentioned, Form 5498 reports contributions to different types of IRAs. So, you may receive this form if you make contributions to any of the following:

• Traditional IRA

• Roth IRA

• SEP IRA (Simplified Employee Pension)

• SIMPLE IRA

Box 7 of Form 5498 will identify the plan type that contributions are being reported for. You won’t see any contributions to other types of retirement plans, such as a 401(k) or 403(b), listed here.

Contributions to taxable accounts are not reported on Form 5498 either.

Conversions, Rollovers, and Recharacterizations

If you convert traditional IRA assets to a Roth account, roll over funds from one account to another, or recharacterize IRA contributions — which is the transfer of contributions plus any earnings from one IRA to another — you can expect to receive a Form 5498 reporting those transactions.

Here’s where those amounts will be listed on your form:

• Box 2: Rollover contributions

• Box 3: Roth IRA conversion amount

• Box 4: Recharacterized contributions

You’ll also see information about the fair market value (FMV) of the account listed in Box 5. If applicable, Box 6 notes any life insurance cost included in Box 1.

In terms of the difference between a rollover IRA vs. traditional IRA, a rollover is simply the movement of money from one retirement account to another. For instance, you might roll money from a 401(k) into a traditional IRA if you change jobs. Or you could roll assets from one traditional IRA to another if you switch to a new IRA custodian.

Withdrawal/Distribution Info

Form 5498 is primarily used for reporting contributions to IRAs, but it is also used for listing RMDs. If you have a traditional IRA, you must begin taking RMDs at age 73 (assuming you turn 72 after December 31, 2022). The amount you’re required to withdraw is determined by your age, life expectancy, and account value.

RMD information is included on in these boxes on Form 5498:

• Box 11: Only checked if an RMD is required

• Box 12a: RMD date

• Box 12b: RMD amount

Even if taking RMDs on an IRA is years away for you, it’s important to know what’s required. If you fail to take required minimum distributions on time each year, you may incur a tax penalty equivalent to 25% of the amount that you were supposed to withdraw. (The penalty might be reduced to 10% if you make a timely correction.)

Distributions from other types of retirement accounts such as pension plans are reported on Form 1099-R. Similar to the Form 5498, the IRS gets a copy so it’s important to make sure the withdrawals you’re reporting on your taxes match up.

Who Needs to File a 5498 Tax Form?

Your IRA custodian or trustee is required to submit a Form 5498 to the IRS on your behalf if you have a qualifying IRA transaction for the year. Again, that includes IRA contributions, IRA rollovers, recharacterizations, conversions, and required minimum distributions.

You don’t need to file this form with your tax return. However, you will need to report the appropriate information relating to IRA contributions you made, rollovers, RMDs, conversions, or recharacterizations on your tax return.

Different Kinds of 5498 Tax Forms

There’s more than one version of Form 5498 that you might receive, depending on what kind of accounts you’re funding during the year. In addition to the 5498 tax form for IRA contributions, you may also be issued either of the following:

• Form 5498-ESA: This form is issued if you make contributions to a Coverdell Education Savings Account (ESA) on behalf of an eligible student. Distributions from a Coverdell ESA are reported on Form 1099-Q.

• Form 5498-SA: This form 5498-SA is used to report contributions to Health Savings Accounts (HSAs), Archer Medical Savings Accounts (MSAs), and Medicare Advantage MSAs.

Form 5498 Due Date

The Form 5498 due date is generally May 31 of each year. So, for IRA contributions made in 2023, for instance, IRA trustees or custodians had until May 31, 2024 to send 5498 tax forms to the IRS.

You should also get a copy of the form, but if you don’t and you believe you should have, contact your IRA custodian or trustee to ask where it is. Remember, if you didn’t make any IRA contributions for the year or complete any other qualifying transactions, such as a recharacterization or rollover, you won’t get a Form 5498.

Entering a 5498 on a Tax Return

You don’t need to enter information from Form 5498 on your tax return. In fact, because of the timing when these forms are sent out, you should have already filed your return by the time you receive the 5498.

You will, however, need to enter your IRA contributions on your tax return. If you contributed to a traditional IRA, some or all of those contributions may be tax-deductible. Contributions to both traditional and Roth IRAs may qualify you for the Retirement Saver’s Credit, assuming that you’re within the accepted income threshold for your filing status.

You’ll also need to report contributions to SIMPLE IRAs and SEP IRAs on your tax return.

The Takeaway

Starting an IRA online can help you build wealth for retirement and potentially enjoy some tax breaks. A traditional IRA allows for tax-deductible contributions, while a Roth IRA allows you to take tax-free distributions in retirement. If you contribute to either type of IRA, or if you contribute to a SEP IRA or a SIMPLE IRA, you should get a Form 5498 each year. The form is informational only, and you are not required to file it with your taxes. Your IRA custodian will send a copy of the form to the IRS.

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 build your nest egg with a SoFi IRA.

FAQ

Do I have to report Form 5498 on my tax return?

No, you do not have to include or report Form 5498 on your tax return. The 5498 tax form you receive from your IRA trustee or custodian is informational only. The IRA custodian is required to send the form to the IRS.

What is the purpose of Form 5498?

Form 5498 is used to report IRA contributions to the IRS. IRA custodians are required to send this information to the IRS on behalf of each account owner who makes IRA contributions. The form is purely informational for taxpayers.

Who must file Form 5498?

IRA custodians, not individual taxpayers, are required to file a 5498 tax form with the IRS. If you get a Form 5498 in the mail, that means a copy of the form has also been sent to the IRS on your behalf.

About the author

Rebecca Lake

Rebecca Lake has been a finance writer for nearly a decade, specializing in personal finance, investing, and small business. She is a contributor at Forbes Advisor, SmartAsset, Investopedia, The Balance, MyBankTracker, MoneyRates and CreditCards.com. Read full bio.

Photo credit: iStock/shih-wei

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.

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

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

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

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Mar

2025

A Guide to Financial Securities Licenses

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

Before someone can sell securities or offer financial advice they must first obtain the appropriate securities license. The Financial Industry Regulatory Authority (FINRA) is the organization that sets the requirements, oversees the process for earning an investments license, and administers most of the tests.

If you’re considering a career in the financial services industry it’s important to understand how securities licensing and registration works. Investors may also benefit from understanding what the various FINRA licenses signify when selecting an advisor.

Key Points

• Securities licenses are required for individuals to sell securities and offer financial advice.

• The Financial Industry Regulatory Authority (FINRA) sets the requirements and administers most of the tests for earning securities licenses.

• Different licenses allow financial professionals to offer a range of financial products and services to clients.

• The North American Securities Administrators Association (NASAA) is responsible for licensing investment advisor firms and enforcing state securities law.

• Some common FINRA licenses include Series 6, Series 7, Series 3, Series 63, Series 65, and Series 66, each with its own specific focus and requirements.

What Is a Securities License and Who Needs Them?

A securities license is a license that allows financial professionals to sell securities and/or offer financial advice. The type of license someone holds can determine the range of financial products and services they have authorization to offer to clients. Someone who holds one or more securities or investments licenses is a registered financial professional.

FINRA is the non-governmental agency responsible for overseeing the activities of registered financial professionals. That includes individuals who hold FINRA licenses to sell securities or offer advisory services. Individual investors do not need a license to buy and sell stocks.

Under FINRA rules, anyone who’s associated with a brokerage firm and engages in that firm’s securities business must have a license.

Some specific examples of individuals who might need to have a license from FINRA include:

• Registered Investment Advisors (RIAs)

• Financial advisors who want to sell mutual funds, annuities, and other investment packages on a commission-basis

• Investment bankers

• Fee-only financial advisors who only charge for the services they provide

• Stockbrokers and commodities or futures traders

• Advisors who oversee separately managed accounts

• Individuals who want to play an advisory or consulting role in mergers and acquisitions

• IPO underwriters

The North American Securities Administrators Association (NASAA) represents state securities regulators in the United States, Canada, and Mexico. This organization is responsible for licensing investment advisor firms and securities firms at the state level, registering certain securities offered to investors, and enforcing state securities law.

Types of FINRA Licenses

FINRA offers a number of different securities licenses. If you’re considering a career in securities trading, it’s important to understand which one or ones you might need. The appropriate license will depend on the type of securities that you want to sell, how you’ll get paid, and what (if any) other services you’ll provide to your clients.

Here’s a rundown of some of the most common FINRA licenses, what they’re used for and how to obtain one:

Series 6

FINRA offers the Series 6 Investment Company and Variable Contracts Products Representative Exam for individuals who work for investment companies and sell variable contracts products. The types of products you can sell while holding this securities license include:

• Mutual funds (closed-end funds on the initial offering only)

• Variable annuities

• Variable life insurance

• Unit investment trusts (UITs)

• Municipal fund securities, including 529 plans

Obtaining this FINRA license requires you to also pass the introductory Securities Industry Essentials (SIE) exam. This 75-question exam tests your basic knowledge of the securities industry. FINRA offers a practice test online to help you study for the SIE. You can also watch a tutorial to learn how the 50-question Series 6 exam works.

Beyond those options you may consider investing in a paid Series 6 study prep course. Series 6 courses can help you familiarize yourself with the various variable products you can sell with this license and industry best practices. You’ll need to obtain a score of at least 70 to pass both the SIE and the Series 6 exam.

Series 7

People who see stocks and other securities must take the Series 7 General Securities Representative Exam. A Series 7 investments license is typically needed to sell:

• Public offerings and/or private placements of corporate securities (i.e. stocks and bonds)

• Rights

• Stock warrants

• Mutual funds

• Money market funds

• Unit investment trusts

• Exchange-traded funds (ETFs)

• Real estate investment trusts (REITs)

• Options on mortgage-backed securities

• Government securities

• Repos and certificates of accrual on government securities

• Direct participation programs

• Venture capital

• Municipal securities

• Hedge funds

This securities license offers the widest range, in terms of what you can sell.

You’ll need to take and pass the SIE to obtain a Series 7 exam. The Series 7 exam has 125 questions in a multiple choice format and 72% is a passing score. FINRA offers a content outline you can review to get a feel for what’s included on the exam. You may also benefit from taking a study course that covers the various securities you’re authorized to sell with the Series 7 license as well as the ethical and legal responsibilities the license conveys.

Series 3

Investment professionals can earn the Series 3 license by completing the Series 3 National Commodities Futures Exam. This test focuses on the knowledge necessary to sell commodities futures. This is a National Futures Association (NFA) exam administered by FINRA. It has 120 multiple choice questions, with 70% considered a passing score.

You have to pass the Series 3 license exam to join the National Futures Association. In terms of what’s included in the exam and how to study for it, the test is divided into these subjects:

• Futures trading theory and basic functions terminology

• Futures margins, options premiums, price limits, futures settlements, delivery, exercise and assignment

• Types of orders

• Hedging strategies

• Spread trading strategies

• Option hedging

• Regulatory requirements

Neither FINRA nor the NFA offer detailed study guides or practice tests for the Series 3 securities license. But you can purchase study prep materials online.

💡 Quick Tip: How to manage potential risk factors in a self directed investment account? Doing your research and employing strategies like dollar-cost averaging and diversification may help mitigate financial risk when trading stocks.

Series 63

The Series 63 Uniform Securities Agent State Law Exam is an NASAA exam administered by FINRA. The test has 60 questions, of which you’ll need to get at least 43 correct in order to pass with a score of 72%.

You’ll need this license if you also hold a Series 6 or Series 7 license and you want to sell securities in any state. The NASAA offers a downloadable study guide that offers an overview of what’s included on the Series 63 securities license exam. Topics include:

• Regulation of investment advisors

• Regulation of broker-dealers

• Regulation of securities and issuers

• Communication with customers and prospects

• Ethical practices

Beyond that, the NASAA offers a list of suggested vendors for purchasing Series 63 exam study materials. But it doesn’t specifically endorse any of these vendors or their products for individuals who plan to obtain a Series 63 license.

Series 65

The Series 65 Uniform Investment Adviser Law Exam is another NASAA test that’s administered by FINRA. Holding this license allows you to offer services as a financial planner or a financial advisor on a fee-only basis. The exam has 130 multiple choice questions and you’ll need to get at least 92 questions correct to pass.

As with the Series 63 exam, the NASAA offers a study guide for the Series 65 exam that outlines key topics. Some of the things you’ll need to be knowledgeable about include:

• Basic economic concepts and terminology

• Characteristics of various investment vehicles, such as government securities and asset-backed securities

• Client investment recommendations and strategies

• Regulatory and ethical guidelines

You can review a list of approved vendors for Series 65 study materials on the NASAA website.

Series 66

The Series 66 Uniform Combined State Law Exam is the third NASAA exam administered by FINRA. Financial professionals who want to qualify as both securities agents and investment adviser representatives take this test.

This multiple choice exam has 100 questions and you’ll need a score of 73 correct or higher to pass. If you already hold a Series 7 license, which is a co-requisite, you could choose to take the Series 66 exam in place of the Series 63 and Series 65 exams.

The study guide and the scope of what the Series 66 exam covers is similar to the Series 65 exam. So if you hold a Series 65 license already, you may have little difficulty in studying and preparing for the Series 66 exam.

The Takeaway

Earning a securities license could help to further your career if you’re interested in the financial services industry. Knowing which license you need and how to qualify for it is an important first step.

Fortunately, you don’t need to hold a FINRA license to invest for yourself. For instance, you could do some research and work at building a diversified portfolio.

Invest in what matters most to you with SoFi Active Invest. In a self-directed account provided by SoFi Securities, you can trade stocks, exchange-traded funds (ETFs), mutual funds, alternative funds, options, and more — all while paying $0 commission on every trade. Other fees may apply. Whether you want to trade after-hours or manage your portfolio using real-time stock insights and analyst ratings, you can invest your way in SoFi's easy-to-use mobile app.

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About the author

Rebecca Lake

You may also be interested in:

How Are Financial Institutions Governed?

FINRA vs the SEC

How to Choose a Financial Advisor

Photo credit: iStock/jacoblund

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

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

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

Mar

2025

Finding Your Old 401k: Here's What to Do

How to Find an Old 401(k)

By Rebecca Lake | Growing Wealth, invest, Investing, Preparing for Retirement | Comments Off

Tracking down an old 401(k) may take some time, and perhaps the quickest way to find old 401(k) money is to contact your former employer to see where the account is now. It’s possible that your lost 401(k) isn’t lost at all; instead, it’s right where you left it.

In some cases, however, employers may cash out an old 401(k) or roll it over to an IRA on behalf of a former employee. In that case, you might have to do a little more digging to find lost 401(k) funds. If you ever wished you could click on an app called “Find my 401(k),” the following strategies may be of use.

Key Points

• Contacting previous employers is a primary method for locating old 401(k) accounts.

• Old account statements can be useful for directly reaching out to 401(k) providers.

• Government agencies keep records that can help track down old 401(k) plans.

• National registries may list unclaimed retirement benefits, searchable by Social Security number.

• Recovered 401(k) funds can be rolled over into another retirement account or cashed out.

4 Ways to Track Down Lost or Forgotten 401(k) Accounts

There’s no real secret to how to find old 401(k) accounts. But the process can be a little time consuming as it may require you to search online or make a phone call or two. But it can be well worth it if you’re able to locate your old 401(k).

There are several ways to find an old 401(k) account. Here are a handful that may prove fruitful.

1. Contact Former Employers

The first place to start when trying to find old 401(k) accounts is with your previous employer.

If you had more than $5,000 in your 401(k) at the time you left your job, it’s likely that your account may still be right where you left it. In that case, you have a few options for what to do with the money:

• Leave it where it is

• Transfer your 401(k) to your current employer’s qualified plan

• Rollover the account into an Individual Retirement Account (IRA)

• Cash it out

When your plan balance is less than $5,000 your employer might require you to do a 401(k) rollover or cash it out. If you’re comfortable with the investment options offered through the plan and the fees you’ll pay, you might decide to leave it alone until you get a little closer to retirement. On the other hand, if you’d like to consolidate all of your retirement money into a single account, you may want to roll it into your current plan or into an IRA.

Cashing out your 401(k) has some downsides. You would owe taxes on the money, and likely an early withdrawal penalty as well. So you may only want to consider this option if your account holds a smaller amount of money. If you had less than $5,000 in your old 401(k), it’s possible that your employer may have rolled the money over to an IRA for you or cashed it out and mailed a check to you.

Recommended: How Does a 401(k) Rollover Work?

2. Track Down Old Statements

If you have an old account statement, you can contact your 401(k) provider directly to find out what’s happened to your lost 401(k). This might be necessary if your former employer has gone out of business and your old 401(k) plan was terminated.

When a company terminates a 401(k), the IRS requires a rollover notice to be sent to plan participants. If you’ve moved since leaving the company, the plan administrator may have outdated address information for you on file. So you may not be aware that the money was rolled over.

Either way, your plan administrator should be able to tell you which custodian now holds your lost 401(k) funds. Once you have that information, you could reach out to the custodian to determine how much money is in the account. You can then decide if you want to leave it where it is, roll it over to another retirement account, or cash it out.

3. Check With Government Agencies

Different types of retirement plans, including 401(k) plans, are required to keep certain information on file with the IRS and the Department of Labor (DOL). One key piece of information is DOL Form 5500. This form is used to collect data for employee benefit plans that are subject to federal ERISA (Employee Retirement Income Security Act) guidelines.

How does that help you find your 401(k)? The Department of Labor offers a Form 5500 search tool online that you can use to locate lost 401(k) plans. You can search by plan name or plan sponsor. If you know either one, you can look up the plan’s Form 5500, which should include contact information. From there, you can reach out to the plan sponsor to track down your lost 401(k).

4. Search National Registries

Another place to try is the National Registry of Unclaimed Retirement Benefits. This is an online database you can use to search for an unclaimed 401(k) that you may have left with a previous employer. You’ll need to enter your Social Security number to search for lost retirement account benefits.

In order for your name to come up in the search results, your former employer must have entered your name and personal information in that database. If they haven’t done so, it’s possible you may not find your account this way.

💡 Quick Tip: Want to lower your taxable income? Start saving for retirement with a traditional IRA. The money you save each year is tax deductible (and you don’t owe any taxes until you withdraw the funds, usually in retirement).

What Should I Do With Recovered Funds?

If you do manage to recover an old 401(k) account and its assets, you’ll have some options as to what to do with it. In many cases, it might be a good idea to roll it over into another retirement account to try and stay on track with your retirement savings.

Another important point to consider: If you’ve changed jobs multiple times, it’s possible that you could have more than one “lost” 401(k) — and taken together, that money could make a surprising difference to your nest egg.

Last, if you were lucky to have an employer that offered a matching 401(k) contribution, your missing account (or accounts) may have more money in them than you think. For example, a common employer match is 50%, up to the first 6% of your salary. If you don’t make an effort to find old 401(k) accounts, you’re missing out on that “free money” as well.

But if you’re unsure of what to do, it may be worth speaking with a financial professional for guidance.

Further, if you’re not able to find lost 401(k) accounts you still have plenty of options for retirement savings. Contributing to your current employer’s 401(k) allows you to set aside money on a tax-deferred basis. And you might be able to grow your money faster with an employer matching contribution.

What if you’re self-employed? In that case, you could choose to open a solo or individual 401(k). This type of 401(k) plan is designed for business owners who have no employees or only employ their spouses. These plans follow the same contribution and withdrawal rules as traditional employer-sponsored 401(k) plans, though special contribution rules apply if you’re self-employed.

The Takeaway

There are several ways to try and find an old 401(k) account, but for most people, the best place to start is by contacting your old employers to see if they can help you. From there, you can also try reaching out to government agencies, tracking down old statements, or even searching through databases to see what you can find.

Saving for retirement is important for most people who are trying to reach their financial goals – as such, if you have money or assets in a retirement account, it may be worthwhile to try and track it down. Again, it may be worth consulting with a financial professional if you need help.

Help grow your nest egg with a SoFi IRA.

FAQ

Is it possible to lose your 401(k)?

It’s possible to lose money from your 401(k) if you’re cashing it out and taking a big tax hit or your investments suffer losses. But simply changing jobs doesn’t mean your old 401(k) is gone for good. It does, however, mean that you may need to spend time locating it if it’s been a while since you changed jobs.

Do I need my social security number to find an old 401(k)?

Generally, yes, you’ll need your Social Security number to find a lost 401(k) account. This is because your Social Security number is used to verify your identity and ensure that the plan you’re inquiring about actually belongs to you.

What happens to an unclaimed 401(k)?

Unclaimed 401(k) accounts may be liquidated or converted to cash if enough time passes, and that cash could be transferred to a state government, where it will be held as unclaimed property.

Can a financial advisor find old 401(k) accounts?

A financial advisor may be able to help, but the simplest way to find old 401(k) accounts is contacting your former employer. It’s possible your money may still be in your old plan and if not, your previous employer or plan administrator may be able to tell you where it’s been moved to.

About the author

Rebecca Lake

You may also be interested in:

How to Roll Over Your 401(k): Knowing Your Options

What Happens to Your 401(k) When You Leave Your Job?

Guide to Transferring 401(k) to a New Job

Photo credit: iStock/svetikd

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

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

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

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

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Mar

2025

What Is an Equal-Weighted Index? How to Calculate It

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

An equal-weight index gives each constituent in a market index the same weight versus a market-cap-weighted or price-weighted index, where bigger companies (or those trading at higher prices) hold a larger share of the index.

Equal weighting strives to equalize the impact of each company’s performance on the overall index. Traditional market-cap weighting tends to give bigger companies more influence over outcomes. Equal-weight investing is a smart beta strategy that may appeal to certain types of investors more than others.

Key Points

• An equal-weighted index assigns the same weight to each component, regardless of market capitalization.

• Calculation involves dividing the total number of components into 100 to find the weight per component.

• Rebalancing is necessary to maintain equal weighting, typically done quarterly or annually.

• Performance can differ significantly from market-cap weighted indexes due to equal representation.

• Potential benefits include increased diversification and reduced concentration risk in larger stocks.

What Is an Equal-Weighted Index?

A stock market index tracks the performance of a specific group of stocks or a particular sector of the market. For example, the S&P 500 Composite Stock Price Index tracks the movements of 500 companies that are recognized as leaders within their respective industries.

Stock market indexes are often price-weighted or capitalization-weighted.

• In a price-weighted index, the stocks that have the highest share price carry the most weight. In a capitalization-weighted index, the stocks with the highest market capitalization carry the most weight.

• Market capitalization represents the value of a company as measured by multiplying the current share price by the total number of outstanding shares.

While some investors may wish to invest in stocks, others may be interested in mutual funds or index funds, which are like a container holding many stocks.

How Equal Weighting Works

An equal-weighted index is a stock market index that gives equal value to all the stocks that are included in it. In other words, each stock in the index has the same importance when determining the index’s value, regardless of whether the company is large or small, or how much shares are trading for.

An equally weighted index essentially puts all of the stocks included in the index on a level playing field when determining the value of the index. With a price-weighted or capitalization-weighted index, on the other hand, higher-priced stocks and larger companies tend to dominate the index’s makeup — and thereby dictate or influence the overall performance of that index.

This in turn influences the performance of corresponding index funds, which track that particular index. Because index funds mirror a benchmark index, they are considered a form of passive investing.

Most exchange-traded funds (ETFs) are passive funds that also track an index. Now there are a growing number of actively managed ETFs. While equal-weight ETFs are considered a smart beta strategy, they aren’t fully passive or active in the traditional sense. These funds do track an index, but some active management is required to rebalance the fund and keep the constituents equally weighted.

Examples of Equal-Weight Funds

Equal-weight exchange-traded funds (ETFs) have grown more common as an increasing number of investors show interest in equal-weight funds. Equal weight falls under the umbrella of smart-beta strategies, which refers to any non-market-capitalization strategy.

The term “smart beta” doesn’t mean a particular strategy is better or more effective than others.

Equal-weight funds, for example, are designed to shift the weight of an index and its corresponding funds away from big-cap players, which can unduly influence the performance of the index/fund. And while an equal-weight strategy may have improved fund performance in some instances, the results are not consistent.

Here is a list of some of the top five equal-weight ETFs by assets under management (AUM):

1. Invesco S&P 500 Equal Weight ETF (RSP )

2. SPDR S&P Biotech (XBI )

3. SPDR S&P Oil and Gas Exploration and Production (XOP )

4. SPDR S&P Global Natural Resources ETF (GNR )

5. First Trust Cloud Computing ETF (SKYY )

How to Calculate Equal-Weighted Index

To calculate equal weighted index, you need to know two things:

• The share price of each stock that’s included in the index

• Total number of stocks included in the index

If you’re calculating an equally weighted index value for an index that has five stocks in it, each one would be weighted 20%, regardless of its stock price or market capitalization. To find an equal-weighted index value, you would simply add the share price of each stock together, then multiply it by the weight.

So for example, say an index has five stocks priced at $100, $50, $75, $90 and $85. Each one would be weighted at 20%.

Following the formula, you would add each stock’s price together for a total of $400. You’d then multiply that by the 20% weighting to arrive at an equal-weighted value of 80.

As fund turnover occurs and new assets are exchanged for old ones, or as share prices fluctuate, the equally weighted index value must be recalculated.

The equally weighted index formula can be used to determine the value of a particular index. You may want to do this when determining which index ETF to invest in or whether it makes sense to keep a particular index mutual fund in your portfolio.

Advantages of Using an Equally Weighted Index

An index investing strategy might be preferable if you lean toward more conservative investments or you simply want exposure to a broad market index without concentrating on a handful of stocks. That’s something you’re less likely to get with mutual funds or ETFs that follow a price-weighted or capitalization-weighted index.

Here are some of the reasons to consider an equal-weighted index approach:

• An equal-weight strategy can increase diversification in your portfolio while potentially minimizing exposure to risk.

• It’s relatively easy to construct an equally weighted portfolio using index mutual funds and ETFs.

• It may appeal to value investors, since there’s less room for overpriced stocks to be overweighted and undervalued stocks to be underweighted.

• Equal-weighted index funds may potentially generate better or more incremental returns over time compared to price-weighted or capitalization-weighted index funds, but there are no guarantees.

Disadvantages of Using Equally Weighted Index

While there are some pros to using an equal weighted approach, it may not always be the best choice depending on your investment goals. In terms of potential drawbacks, there are two big considerations to keep in mind:

• Equal-weighted index funds or ETFs that have a higher turnover rate may carry higher expenses for investors.

There is typically a constant buying and selling of assets that goes on behind the scenes to keep an equal-weighted mutual fund or ETF in balance.

Higher turnover ratios, or, how often assets in the fund are swapped in and out, can lead to higher expense ratios if a fund requires more active management. The expense ratio is the price you pay to own a mutual fund or ETF annually, expressed as a percentage of the fund’s assets. The higher the expense ratio, the more of your returns you hand back each year to cover the cost of owning a particular fund.

• Equal-weighted indexes can also be problematic in bear market environments, which are characterized by an overall 20% decline in stock prices. During a recession, cap-weighted funds may outperform equal-weighted funds if the fund is being carried by a few stable, larger companies.

◦ Conversely, an equal-weighted index or fund may miss out on some of the gains when markets are strong and bigger companies outperform.

Advantages	Disadvantages
Can further diversify a portfolio	Will typically have higher costs
Constructing an equal-weight portfolio is straightforward	May see outsize declines in bear markets
Equal-weight strategies may appeal to value investors	May not realize full market gains
Equal-weight strategies may perform better than traditional strategies, but there are no guarantees

The Takeaway

In an equal-weight index, each stock counts equally toward the index’s value, regardless of whether the company is large or small, or what shares are currently trading for. The same is true of any corresponding fund.

There are advantages to investing in an equal-weight index fund over a capitalization-weighted index or price-weighted index. For example, equal-weighted indexes may generate better or more consistent returns. Investing in an equal-weight index may be appealing to investors who prefer a value investing strategy or who want to diversify their portfolio to minimize risk.

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

FAQ

How do equal-weight ETFs work?

Like an equal-weight index, an equal-weight ETF holds the same proportion of each of its constituents, which in theory may equalize the impact of different companies’ performance.

When should you buy equal-weighted ETFs?

If you’d like to invest in a certain sector, but you don’t want to be riding the coattails of the biggest companies in that sector because you see the value in other players, you may want to consider an equal-weight ETF.

What is the equally weighted index return?

The return of an equally weighted index would be captured by the performance of an investment in a corresponding index fund or ETF. So if you invest $100 in Equal Weight Fund A, which tracks an equal weight index, and the fund goes up or down by 5%, you would see a 5% gain or loss.

About the author

Rebecca Lake

You may also be interested in:

Value-Weighted Index: Explanation and How to Calculate

Understanding The Stock Market Index

The S&P 500 Explained and Defined

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

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

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

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

¹Probability of Member receiving $1,000 is a probability of 0.026%; If you don’t make a selection in 45 days, you’ll no longer qualify for the promo. Customer must fund their account with a minimum of $50.00 to qualify. Probability percentage is subject to decrease. See full terms and conditions.

SOIN-Q424-029

Mar

2025

Guide to 529 Savings Plans vs ESAs

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

Saving for college may help minimize the need to take out student loans to pay for school. Education Savings Accounts (ESAs) and 529 plans both allow you to save on a tax-advantaged basis, but there are some key differences in how they work.

Comparing the features of Education Savings Accounts vs. 529 plans, as well as the pros and cons, can help you decide which one is right for your needs.

🛈 Currently, SoFi does not provide ESAs or 529 savings plans.

Education Savings Accounts (ESAs) vs 529 Savings Plans

Education Savings Accounts and 529 plans are both designed to help you save money for qualified education expenses. In other words, they’re accounts you can use to save money for college, as well as potentially other types of schooling.

These plans can help you avoid a situation where you’re using retirement funds for college. On some levels, they’re quite similar but there are notable differences between the two options, as well.

Similarities

When putting an ESA vs. 529 plan side by side, you’ll notice that they have some features in common. Here’s how they overlap:

• Contributions to ESA and 529 plans are generally made with after-tax dollars, and grow on a tax-free basis within these accounts.

• Withdrawals are tax-free when funds are used to pay for qualified education expenses, as defined by the IRS.

• You’re not limited to using ESA or 529 plan funds for college; both allow some flexibility in paying for elementary and secondary school expenses.

• Non-qualified withdrawals from ESAs and 529 plans may be subject to taxes and penalties, with some exceptions.

• Both plans allow you to transfer savings to another beneficiary if your student opts not to go to college or there’s money remaining after paying all of their education expenses.

• With both types of accounts, contributions are not deductible on your federal tax return.

Differences

The differences between a 529 plan vs. ESA largely center on who can contribute, contribution limits, and when funds must be used. Here’s how the two diverge:

• ESA contributions are limited by the IRS to $2,000 per child, per year, while 529 plans typically don’t have annual contribution limits.

• Income determines your ability to contribute to an ESA but doesn’t affect your eligibility to open a 529 plan.

• ESA contributions are only allowed up to the beneficiary’s 18th birthday unless they’re a special needs beneficiary.

• Remaining funds in an ESA must be withdrawn by the beneficiary’s 30th birthday unless they’re a special needs beneficiary.

• 529 plans have no age limits on who can be beneficiaries, how long you can make contributions, or when funds must be withdrawn.

• Some states allow you to deduct your 529 contributions from your state income tax, but ESA contributions are not tax deductible at the federal or state level.

	Education Savings Account	529 College Savings Plan
Income Limits	You cannot contribute to an ESA if your MAGI is over $110,000 (single filers); $220,000 (married, filing jointly)	Anyone can contribute, regardless of income
Annual Contribution Limit	$2,000 per child	None, though contributions above the annual gift tax exclusion limit may trigger the gift tax Contributions are subject to lifetime limits imposed by each state, but these are much higher, typically ranging from about $300,000 to $500,000
Eligible Beneficiaries	Students under the age of 18 or special needs students of any age	Students of all ages, including oneself, one’s spouse, children, grandchildren, or other relatives
Investment Options	May include stocks, bonds, and mutual funds	Typically limited to mutual funds
Tax Treatment of Withdrawals	Withdrawals for qualified higher education expenses are tax-free; non-qualified withdrawals may be subject to tax and a penalty on the earnings portion of the withdrawal	Withdrawals for qualified higher education expenses are tax-free; non-qualified withdrawals may be subject to tax and a penalty on the earnings portion of the withdrawal
Tax Deductions	Contributions are not tax deductible	Contributions are not deductible on federal returns; some states may allow a deduction
Qualified Expenses	Withdrawals can be used to pay for elementary, secondary, and higher education expenses, including tuition, fees, books, and equipment	Withdrawals can be used to pay for qualified higher education expenses, including tuition, fees, books, and equipment, as well as K-12 tuition, eligible apprenticeship expenses, and qualified education loan repayments
Required Distributions	All funds must be withdrawn by age 30 or rolled over to another beneficiary, unless the beneficiary is a special needs student	Funds can remain in the account indefinitely or be rolled over to another beneficiary
Financial Aid	Treated as parental assets for FAFSA purpose	Treated as parental assets for FAFSA purposes

What Is an ESA?

An Education Savings Account, now known as a Coverdell Education Savings Account (ESA), is a trust or custodial account intended for education savings. ESAs allow flexibility since you can use them to save for college but the IRS also allows withdrawals for qualified elementary and secondary school expenses.

Pros and Cons of ESAs

If you’re considering an ESA versus 529 plan, it’s important to consider the advantages and potential downsides. While ESAs offer tax benefits, there are some limitations to be aware of.

Pros:

• Tax-deferred growth. Funds in an ESA grow tax-deferred, meaning you pay no tax on the earnings in the account until you begin making withdrawals.

• Tax-free distributions. As long as the money you withdraw is used for qualified education expenses, you’ll pay no tax on ESA funds.

• Multiple uses. Money in an ESA can pay for a variety of expenses, including college tuition and fees, books and supplies, and room and board for students enrolled at least half-time. Parents of elementary and secondary school students can use the funds for private school tuition, academic tutoring, and school-mandated costs of attendance, such as uniforms or room and board.

Cons:

• Contribution limits. You can only contribute $2,000 per year to an ESA, and contributions are not tax deductible.

• Income caps. Single filers with a modified adjusted gross income exceeding $110,000 and married couples filing jointly with a MAGI over $220,000 cannot contribute to an ESA.

• Age restrictions. You can’t contribute anything to an ESA once the beneficiary turns 18, and they must withdraw all remaining funds by age 30, unless they are a special needs beneficiary. Withdrawals after the beneficiary turns 30 may be subject to taxes on earnings, but it’s possible to rollover the funds to an ESA for another beneficiary.

What Is a 529 Savings Plan?

A 529 savings plan or Qualified Tuition Program (QTP) is a tax-advantaged account that you can use to save for education expenses. All 50 states offer at least one 529 account and you don’t need to be a resident of a particular state to contribute to its plan.

In addition to 529 savings plans, some states offer 529 prepaid tuition plans. These plans allow you to “lock in” rates, offering some predictability when it’s time to pay for your child’s college tuition.

Pros and Cons of 529 Savings Plans

There may be a lot to like about 529 savings plans but like ESAs, there are also some potential downsides to consider.

Pros:

• Contribution limits. There are no IRS limits on annual contributions to a 529 plan and states can determine where to set aggregate contribution limits.

• Eligibility. One of the advantages of a 529 savings plan is that anyone can contribute, regardless of income, and there are no age restrictions on who can be a beneficiary.

• Tax benefits. Earnings grow tax-deferred and qualified withdrawals are tax-free. In some states, you may be able to deduct your contributions on your state return.

• Funds use. 529 plan funds can be used to pay for qualified college expenses, K-12 private school tuition, qualified education loan repayment, and eligible apprenticeship expenses.

Cons:

• Tax penalties. Non-qualified withdrawals are subject to a 529 withdrawal penalty and taxes.

• Tax breaks. There are no federal tax deductions or credits for 529 plan contributions and while some states offer them, they may only be available to residents.

• Investment options. Compared to ESAs, 529 education savings plans may offer fewer investment options; it’s also important to consider the investment fees you might pay.

Which Savings Plan Is Right for You?

Deciding when to start saving for college for your child is the first question to tackle; where to do it is the next. Whether you should choose an Education Savings Account vs. 529 plan may hinge on your eligibility for either plan and your ability to save.

You might choose an Education Savings Account if you…

• Are within the income thresholds allowed by the IRS

• Would like a broader range of investment options to choose from

• Are comfortable with control of the account being transferred to the beneficiary when they turn 18

On the other hand, you might prefer a 529 plan if you…

• Want to be able to contribute more than $2,000 a year to the plan

• Don’t want to be limited by age restrictions for contributions or withdrawals

• Qualify for a state tax deduction or credit for making 529 contributions

You may also lean toward a 529 if you want more options concerning how you use the funds. While you can withdraw money from a 529 to repay student debt or pay for apprenticeship fees and supplies, you can’t do that with an ESA.

If you’re shopping for an ESA or 529 plan, consider the type of investment options offered and the fees you might pay. You might start with your current brokerage to see what college savings accounts are available, if any.

The Takeaway

Saving for college early and often gives you more time to potentially see your money grow. If you’re torn between an Education Savings Account vs. 529 plan, remember that you don’t necessarily have to choose just one. You could use both to save for education expenses if you’re eligible to do so. Just remember to prioritize saving in your own retirement accounts along the way so that you’re not shortchanging your nest egg.

FAQ

Is it better to put money in a 529 or an education savings account?

One of the main advantages of a 529 savings plan is the opportunity to save more than you could with an ESA, which is limited to $2,000 per year, total, per beneficiary. In addition, some states may offer a tax deduction for contributions to a 529 plan.

What is the downside of 529 accounts?

If you take money out of your plan for anything other than qualified education expenses, you may have to pay tax on the earnings you withdraw, plus a 10% penalty, which could make a non-qualified distribution expensive.

What happens to the 529 if the child doesn’t go to college?

If you opened a 529 savings plan for your child and they decide not to go to college, you can use the funds for other types of higher education or training, including apprenticeships. You can also transfer the money to a different beneficiary. You may select yourself as the beneficiary or choose your spouse, another child, a grandparent, or another relative.

About the author

Rebecca Lake

Photo credit: iStock/kate_sept2004

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

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

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

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

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

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.

¹Probability of Member receiving $1,000 is a probability of 0.026%; If you don’t make a selection in 45 days, you’ll no longer qualify for the promo. Customer must fund their account with a minimum of $50.00 to qualify. Probability percentage is subject to decrease. See full terms and conditions.
SOIN-Q224-1854675-V1

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How do equal-weight ETFs work?

When should you buy equal-weighted ETFs?

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You may also be interested in:

Education Savings Accounts (ESAs) vs 529 Savings Plans

Similarities

Differences

What Is an ESA?

Pros and Cons of ESAs

What Is a 529 Savings Plan?

Pros and Cons of 529 Savings Plans

Which Savings Plan Is Right for You?

The Takeaway

FAQ

Is it better to put money in a 529 or an education savings account?

What is the downside of 529 accounts?

What happens to the 529 if the child doesn’t go to college?

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