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Guide to Tax-Loss Harvesting
Table of Contents
- What Is Tax-Loss Harvesting?
- How Tax-Loss Harvesting Works
- Tax-Loss Harvesting Example
- Considerations Before Using Tax-Loss Harvesting
- How to Use Tax-Loss Harvesting to Lower Your Tax Bill
- How Much Can You Write Off on Your Taxes?
- Benefits and Drawbacks of Tax-Loss Harvesting
- Creating a Tax-Loss Harvesting Strategy
Tax-loss harvesting is a strategy that enables an investor to sell assets that have dropped in value as a way to offset the capital gains tax they may owe on the profits of other investments they’ve sold.
Thus, using a tax-loss harvesting strategy enables investors to use investment losses to offset investment gains, and potentially lower the amount of taxes they owe. While a tax loss strategy — sometimes called tax-loss selling — is often used to mitigate the tax on short-term capital gains, tax-loss harvesting can also be used to offset long-term capital gains.
Of course, as with anything having to do with investing and taxes, tax-loss harvesting is not simple. In order to carry out a tax-loss harvesting strategy, investors must adhere to specific IRS rules and restrictions.
Key Points
• Tax-loss harvesting is a strategy whereby investment losses can be used to offset gains.
• Using a tax-loss strategy can be beneficial because it effectively lowers profits and potentially reduces investment taxes owed.
• When you sell investments at a profit, either long- or short-term capital gains tax apply.
• Short-term capital gains tax rates apply to investments held for a year or less; long-term capital gains rates, which are more favorable, apply to those held for over a year.
• You can only apply tax losses that have been realized, e.g., losses that result from the sale of the asset.
• IRS rules regarding this strategy are complex and may require the help of a professional.
🛈 Currently, SoFi does not provide tax loss harvesting services to members.
What Is Tax-Loss Harvesting?
Tax-loss harvesting effectively harvests losses to cancel out a commensurate amount in profit, and help investors avoid being taxed on those gains. As a basic example of how tax-loss harvesting works: If an investor sells a security for a $25,000 gain, and sells another security at a $10,000 loss, the loss could be applied so that the investor would only see a capital gain of $15,000 ($25,000 – $10,000).
This can be a valuable tax strategy for investors because you owe capital gains taxes on any profits you make from selling investments, like stocks, bonds, properties, cars, or businesses. The tax only applies when you profit from the sale and realize a profit, not for simply owning an appreciated asset.
And again, if you also realize some investment losses for the same period, those can be used to reduce the amount of your taxable gains.
Recommended: Everything You Need to Know About Taxes on Investment Income
How Tax-Loss Harvesting Works
In order to understand how tax-loss harvesting works, you first have to understand the system of capital gains taxes.
Capital Gains and Tax-Loss Harvesting
As far as the IRS is concerned, capital gains are either short term or long term:
• Short-term capital gains and losses are from the sale of an investment that an investor has held for one year or less.
• Long-term capital gains and losses are those recognized on investments sold after one year.
Understanding Short-Term Capital Gains Rates
The one-year mark is crucial, because the IRS taxes short-term investments at an investor’s marginal or ordinary income tax rate, which is typically higher than the long-term rate.
There are seven ordinary tax brackets: 10%, 12%, 22%, 24%, 32%, 35%, and 37%.
For high earners, gains can be taxed as much as 37%, plus a potential 3.8% net investment income tax (NIIT), also known as the Medicare tax. That means the taxes on those short-term gains can be as high as 40.8% — and that’s before state and local taxes are factored in.
Understanding Long-Term Capital Gains Rates
Meanwhile, the long-term capital gains taxes for an individual are simpler and lower. These rates fall into three brackets, according to the IRS: 0%, 15%, and 20%.
Here are the rates for tax year 2024 (typically filed in early 2025), as well as for tax year 2025 (usually filed in early 2026), by income and filing status.
2024 Long-Term Capital Gains Tax Rates
| Capital Gains Tax Rate | Income – Single | Married, filing separately | Head of household | Married, filing jointly |
|---|---|---|---|---|
| 0% | Up to $47,025 | Up to $47,025 | Up to $63,000 | Up to $94,050 |
| 15% | $47,026 – $518,000 | $47,026 – $291,850 | $63,001 – $551,350 | $94,051 – $583,750 |
| 20% | More than $518,000 | More than $291,850 | More than $551,350 | More than $583,750 |
2025 Long-Term Capital Gains Tax Rates
| Capital Gains Tax Rate | Income – Single | Married, filing separately | Head of household | Married, filing jointly |
|---|---|---|---|---|
| 0% | Up to $48,350 | Up to $48,350 | Up to $64,750 | Up to $96,700 |
| 15% | $48,351 – $533,400 | $48,351 – $300,000 | $64,751 – $566,700 | $96,701 – $600,050 |
| 20% | More than $533,400 | More than $300,000 | More than $566,700 | More than $600,050 |
As with all tax laws, don’t forget the fine print. As noted above, the additional 3.8% NIIT may apply to single individuals with a modified adjusted gross income (MAGI) of $200,000 or married couples filing jointly, with a MAGI of at least $250,000.
Also, long-term capital gains from sales of collectibles (e.g., coins, antiques, fine art) are taxed at a rate of 28%. This is separate from regular capital gains tax, not in addition to it. However, NIIT may apply here as well.
Short-term gains on collectibles are taxed at the ordinary income tax rate, as above.
Recommended: Is Automated Tax Loss Harvesting a Good Idea?
Rules of Tax-Loss Harvesting
Given that investors selling off profitable investments can face a stiff tax bill, that’s when they may want to look at what else is in their portfolios. Inevitably, there are likely to be a handful of other assets such as stocks, bonds, real estate, or different types of investments that lost value for one reason or another.
While tax-loss harvesting is typically done at the end of the year, investors can use this strategy any time, as long as they follow the rule that long-term losses apply to long-term gains first, and short-term losses to short-term gains first.
Bear in mind that although a capital loss technically happens whenever an asset loses value, it’s considered an “unrealized loss” in that it doesn’t exist in the eyes of the IRS until an investor actually sells the asset and realizes the loss.
The loss at the time of the sale can be used to count against any capital gains made in a calendar year. Given the high taxes associated with short-term capital gains, it’s a strategy that has many investors selling out of losing positions at the end of the year.
Tax-Loss Harvesting Example
If you’re wondering how tax-loss harvesting works, here’s an example. Let’s say an investor is in the top income tax bracket for capital gains. If they sell investments and realize a long-term capital gain, they would be subject to the top 20% tax rate; short-term capital gains would be taxed at their marginal income tax rate of 37%.
Now, let’s imagine they have the following long- and short-term gains and losses, from securities they sold and those they haven’t:
Securities sold:
• Stock A, held for over a year: Sold, with a long-term gain of $175,000
• Mutual Fund A, held for less than a year: Sold, with a short-term gain of $125,000
Securities not sold:
• Mutual Fund B: an unrealized long-term gain of $200,000
• Stock B: an unrealized long-term loss of $150,000
• Mutual Fund C: an unrealized short-term loss of $80,000
The potential tax liability from selling Stock A and Mutual Fund A, without tax-loss harvesting, would look like this:
• Tax without harvesting:
($175,000 x 20%) + ($125,000 x 37%) = $35,000 + $46,250 = $81,250
But if the investor harvested losses by selling Stock B and Mutual Fund C (remember: long-term losses apply to long-term gains first, and short-term losses to short-term gains first), the tax picture would change considerably:
• Tax with harvesting:
(($175,000 – $150,000) x 20%) + (($125,000 – $80,000) x 37%) = $5,000 + $16,650 = $21,650
Note how the tax-loss harvesting strategy not only reduces the investor’s tax bill, but potentially frees up some money to be reinvested in similar securities (restrictions may apply there; see information on the wash sale rule below).
💡 Quick Tip: It’s smart to invest in a range of assets so that you’re not overly reliant on any one company or market to do well. For example, by investing in different sectors you can add diversification to your portfolio, which may help mitigate some risk factors over time.
Considerations Before Using Tax-Loss Harvesting
As with any investment strategy, it makes sense to think through a decision to sell just for the sake of the tax benefit because there can be other ramifications in terms of your long-term financial plan.
The Wash Sale Rule
For example, if an investor sells losing stocks or other securities they still believe in, or that still play an important role in their overall financial plan, then they may find themselves in a bind. That’s because a tax regulation called the wash sale rule prohibits investors from receiving the benefit of the tax loss if they buy back the same investment too soon after selling it.
Under the IRS wash sale rule, investors must wait 30 days before buying a security or another asset that’s “substantially identical” to the one they just sold. If they do buy an investment that’s the same or substantially identical, then they can’t claim the tax loss.
For an investment that’s seen losses, that 30-day moratorium could mean missing out on growth — and the risk of buying it again later for a higher price.
Matching Losses With Gains
A point that bears repeating: Investors must also pay attention to which securities they sell, in order to execute a tax-loss strategy successfully. Under IRS rules, like goes with like. So, long-term losses must be applied to long-term gains first, and the same goes for short-term losses and short-term gains. After that, any remaining net loss can be applied to either type of gain.
How to Use Net Losses
The difference between capital gains and capital losses is called a net capital gain. If losses exceed gains, that’s a net capital loss.
• If an investor has an overall net capital loss for the year, they can deduct up to $3,000 against other kinds of income — including their salary and interest income.
• Any excess net capital loss can be carried over to subsequent years (known as the tax-loss carryforward rule) and deducted against capital gains, and up to $3,000 of other kinds of income — depending on the circumstances.
• For those who are married filing separately, the annual net capital loss deduction limit is only $1,500.
How to Use Tax-Loss Harvesting to Lower Your Tax Bill
When an investor has a diversified portfolio, every year will likely bring investments that thrive and others that lose money, so there can be a number of different ways to use tax-loss harvesting to lower your tax bill. The most common way, addressed above, is to apply capital losses to capital gains, thereby reducing the amount of tax owed. Here are some other strategies:
Tax-Loss Harvesting When the Market Is Down
For investors looking to invest when the market is down, capital losses can be easy to find. In those cases, some investors can use tax-loss harvesting to diminish the pain of losing money. But over long periods of time, the stock markets have generally gone up. Thus, the opportunity cost of selling out of depressed investments can turn out to be greater than the tax benefit.
It also bears remembering that many trades come with trading fees and other administrative costs, all of which should be factored in before selling stocks to improve one’s tax position at the end of the year.
Tax-Loss Harvesting for Liquidity
There are years when investors need access to capital. It may be for the purchase of a dream home, to invest in a business, or because of unforeseen circumstances. When an investor wants to cash out of the markets, the benefits of tax-loss harvesting can really shine.
In this instance, an investor could face bigger capital-gains taxes, so it makes sense to be strategic about which investments — winners and losers — to sell by year’s end, and minimize any tax burden.
Tax-Loss Harvesting to Rebalance a Portfolio
The potential benefits of maintaining a diversified portfolio are widely known. And to keep that portfolio properly diversified in line with their goals and risk tolerance, investors may want to rebalance their portfolio on a regular basis.
That’s partly because different investments have different returns and losses over time. As a result, an investor could end up with more tech stocks and fewer energy stocks, for example, or more government bonds than small-cap stocks than they intended.
Other possible reasons for rebalancing are if an investor’s goals change, or if they’re drawing closer to one of their long-term goals and want to take on less risk.
That’s why investors check their investments on a regular basis and do a tune-up, selling some stocks and buying others to stay in line with the original plan. This tune-up, or rebalancing, is an opportunity to do some tax-loss harvesting.
How Much Can You Write Off on Your Taxes?
If capital losses exceed capital gains, under IRS rules investors can then deduct a portion of the net losses from their ordinary income to reduce their personal tax liability. Investors can deduct the lesser of $3,000 ($1,500 if married filing separately), or the total net loss shown on line 21 of Schedule D (Form 1040).
In addition, any capital losses over $3,000 can be carried forward to future tax years, where investors can use capital losses to reduce future capital gains. This is known as a tax loss carryforward. So in effect, you can carry forward tax losses indefinitely.
To figure out how to record a tax loss carryforward, you can use the Capital Loss Carryover Worksheet found on the IRS’ Instructions for Schedule D (Form 1040).
Benefits and Drawbacks of Tax-Loss Harvesting
While tax-loss harvesting can offer investors some advantages, it comes with some potential downsides as well.
Benefits of Tax-Loss Harvesting
Obviously the main point of tax-loss harvesting is to reduce the amount of capital gains tax on profits after you sell a security.
Another potential benefit is being able to literally cut some of your losses, when you sell underperforming securities.
Tax-loss harvesting, when done with an eye toward an investor’s portfolio as a whole, can help with balancing or rebalancing (or perhaps resetting) their asset allocation.
As noted above, investors often sell off assets when they need cash. Using a tax-loss harvesting strategy can help do so in a tax-efficient way.
Drawbacks of Tax-Loss Harvesting
While selling underperforming assets may make sense, it’s important to vet these choices as you don’t want to miss out on the gains that might come if the asset bounces back.
Another of the potential risks of tax-loss harvesting is that if it’s done carelessly it can leave a portfolio imbalanced. It might be wise to replace the securities sold with similar ones, in order to maintain the risk-return profile. (Just don’t run afoul of the wash-sale rule.)
Last, it’s possible to incur excessive trading fees that can make a tax-loss harvesting strategy less efficient.
| Pros of Tax-Loss Harvesting | Cons of Tax-Loss Harvesting |
|---|---|
| Can lower capital gains taxes | Investor might lose out if the security rebounds |
| Can help with rebalancing a portfolio | If done incorrectly, can leave a portfolio imbalanced |
| Can make a liquidity event more tax efficient | Selling assets can add to transaction fees |
Creating a Tax-Loss Harvesting Strategy
Interested investors may want to create their own tax-loss harvesting strategy, given the appeal of a lower tax bill. An effective tax-loss harvesting strategy requires a great deal of skill and planning.
It’s important to take into account current capital gains rates, both short and long term. Investors would be wise to also weigh their current asset allocation before they attempt to harvest losses that could leave their portfolios imbalanced.
All in all, any strategy should reflect your long-term goals and aims. While saving money on taxes is important, it’s not the only rationale to rely on for any investment strategy.
The Takeaway
Tax loss harvesting, or selling underperforming stocks and then potentially getting a tax reduction by applying the loss to other investment gains, can be a helpful part of a tax-efficient investing strategy.
There are many reasons an investor might want to do tax-loss harvesting, including when the market is down, when they need liquidity, or when they are rebalancing their portfolio. It’s an individual decision, with many considerations for each investor — including what their ultimate financial goals might be.
FAQ
Is tax-loss harvesting really worth it?
When done carefully, with an eye toward tax efficiency as well as other longer-term goals, tax-loss harvesting can help investors save money that they can invest for the long term.
Does tax-loss harvesting reduce taxable income?
Yes, it can. The point of tax-loss harvesting is to reduce income from investment gains (profits). But also when net losses exceed gains for a given year, the strategy can reduce your taxable income by $3,000 per year going forward.
Can you write off 100% of investment losses?
It depends. Investment losses can be used to offset a commensurate amount in gains, thereby potentially lowering your capital gains tax bill. If there are still net losses that cannot be applied to gains, up to $3,000 per year can be applied to reduce your ordinary income. Net loss amounts in excess of $3,000 would have to be carried forward to future tax years.
SoFi Invest® INVESTMENTS ARE NOT FDIC INSURED • ARE NOT BANK GUARANTEED • MAY LOSE VALUE
SoFi Invest encompasses two distinct companies, with various products and services offered to investors as described below:
Individual customer accounts may be subject to the terms applicable to one or more of these platforms.
1) Automated Investing and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser (“SoFi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC.
2) Active Investing and brokerage services are provided by SoFi Securities LLC, Member FINRA (www.finra.org)/SIPC(www.sipc.org). Clearing and custody of all securities are provided by APEX Clearing Corporation.
For additional disclosures related to the SoFi Invest platforms described above please visit SoFi.com/legal.
Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform.
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.
Exchange Traded Funds (ETFs): Investors should carefully consider the information contained in the prospectus, which contains the Fund’s investment objectives, risks, charges, expenses, and other relevant information. You may obtain a prospectus from the Fund company’s website or by email customer service at https://sofi.app.link/investchat. Please read the prospectus carefully prior to investing.
Shares of ETFs must be bought and sold at market price, which can vary significantly from the Fund’s net asset value (NAV). Investment returns are subject to market volatility and shares may be worth more or less their original value when redeemed. The diversification of an ETF will not protect against loss. An ETF may not achieve its stated investment objective. Rebalancing and other activities within the fund may be subject to tax consequences.
Disclaimer: The projections or other information regarding the likelihood of various investment outcomes are hypothetical in nature, do not reflect actual investment results, and are not guarantees of future results.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
SOIN-Q424-090
Read moreJan
03
2025
What Is the CBOE?
The CBOE is CBOE Global Markets, the world’s largest options trading exchange. While you may already be familiar with the New York Stock Exchange and Nasdaq, those are only two of the exchanges investors use to trade securities.
In addition to the option trading exchange, CBOE has also created one of the most popular volatility indices in the world.
Learn more about CBOE and what it does.
What Is the CBOE Options Exchange?
CBOE, or CBOE Global Markets, Inc., is a global exchange operator founded in 1973 and headquartered in Chicago. Investors often turn to CBOE to buy and sell both derivatives and equities. In addition, the holding company facilitates trading over a diverse array of products in various asset classes, many of which it introduced to the market.
The organization also includes several subsidiaries, such as The Options Institute (an educational resource), Hanweck Associates LLC (a real-time analytics company), and The Options Clearing Corporation or OCC (a central clearinghouse for listed options).
The group has global branches in Canada, England, the Netherlands, Hong Kong, Singapore, Australia, Japan, and the Philippines.
CBOE is also a public company with a stock traded on the cboe exchange.
What Does CBOE Stand For?
Originally known as the Chicago Board Options Exchange, the company changed its name to CBOE in 2017.
💡 Quick Tip: All investments come with some degree of risk — and some are riskier than others. Before investing online, decide on your investment goals and how much risk you want to take.
History of the Chicago Board of Options Exchange
Founded in 1973, CBOE represented the first U.S. market for traders who want to buy and sell exchange-listed options. This was a significant step for the options market, helping it become what it is today.
In 1975, the CBOE introduced automated price reporting and trading along with The Options Clearing Corporation (OCC).
Other developments followed in the market as well. For example, CBOE added “put” options in 1977. And by 1983, the market began creating options on broad-based indices using the S&P 100 (OEX) and the S&P 500 (SPX).
In 1993, the CBOE created its own market volatility index called the CBOE Volatility Index (VIX). In 2015, it formed The Options Institute. With this, CBOE had an educational branch that could bring investors information about options.
CBOE continues its educational initiatives. The Options Institute even schedules monthly classes and events to help with outreach, and it offers online tools such as an options calculator and a trade maximizer.
From 1990 on, Cboe began creating unique trading products. Notable introductions include LEAPS (Long-Term Equity Anticipation Securities) launched in 1990; Flexible Exchange (FLEX) options in 1993; short-term options known as Weeklys in 2005; and an electronic S&P options contract called SPXpm in 2011.
Understanding What the CBOE Options Exchange Does
The CBOE Options Exchange serves as a trading platform, similar to the New York Stock Exchange or Nasdaq. It has a history of creating its own tradable products, including options contracts, futures, and more. Cboe also has acquired market models or created new markets in the past, such as the first pan-European multilateral trading facility (MTF) and the institutional foreign exchange (FX) market.
The CBOE’s specialization in options is essential, but it’s also complicated. Options contracts don’t work the same as stocks or exchange-traded funds (ETFs). They’re financial derivatives tied to an underlying asset, like a stock or future, but they have a set expiration date dictating when investors must settle or exercise the contract.That’s where the OCC comes in.
The OCC settles these financial trades by taking the place of a guarantor. Essentially, as a clearinghouse, the OCC acts as an intermediary for buyers and sellers. It functions based on foundational risk management and clears transactions. Under the Security and Exchange Commission (SEC) and Commodity Futures Trading Commission (CFTC), it provides clearing and settlement services for various trading options. It also acts in a central counterparty capacity for securities lending transactions.
Recommended: How to Trade Options
CBOE Products
Cboe offers a variety of tradable products across multiple markets, including many that it created.
For example, CBOE offers a range of put and call options on thousands of publicly traded stocks, (ETFs), and exchange-traded notes (ETNs). Investors use these tradable products for specific strategies, like hedging.
Or, they use them to gain income by selling cash-secured puts or covered calls. These options strategies give investors flexibility in terms of how much added yield they want and gives them the ability to adjust their stock exposures.
Investors have the CBOE options marketplace and other alternative venues, including the electronic communication network (ECN), the FX market, and the MTF.
💡 Quick Tip: Options can be a cost-efficient way to place certain trades, because you typically purchase options contracts, not the underlying security. That said, options trading can be risky, and best done by those who are not entirely new to investing.
CBOE and Volatility
The CBOE’s Volatility Index (VIX) gauges market volatility of U.S. equities. It also tracks the metric on a global scale and for the S&P 500. That opens up an opportunity for many traders. Traders, both international and global, use the VIX Index to get a foothold in the large U.S. market or global equities, whether it’s trading or simply exposing themselves to it.
In late 2021, CBOE Global Markets extended global trading hours (GTH) on CBOE Options Exchange for its VIX options and S&P 500 Index options (SPX) to almost 24 hours per business day, five days a week. They did this with the intention to give further access to global participants to trade U.S. index options products exclusive to CBOE. These products are based on both the SPX and VIX indices.
This move allowed CBOE to meet growth in investor demand. These investors want to manage their risk more efficiently, and the extended GTH could help them to do so. With it, they can react in real-time to global macroeconomics events and adjust their positions accordingly.
Essentially, they can track popular market sentiment and choose the best stocks according to the VIX’s movements.
Recommended: How to Use the Fear and Greed Index to Your Advantage
The Takeaway
While CBOE makes efforts to educate and open the market to a broader range of investors, options trading is a risky strategy.
Investors should recognize that while there’s potentially upside in options investing there’s usually also a risk when it comes to the options’ liquidity, and premium costs can devour an investor’s profits. That means it’s not the best choice for those looking for a safer investment.
While some investors may want further guidance and less risk, for other investors, options trading may be appealing. Investors should fully understand options trading before implementing it.
Ready to invest in your goals? It’s easy to get started when you open an investment account with SoFi Invest. You can invest in stocks, exchange-traded funds (ETFs), mutual funds, alternative funds, and more. SoFi doesn’t charge commissions, but other fees apply (full fee disclosure here).
About the author
Ashley Kilroy
Ashley Kilroy is a seasoned personal finance writer with 15 years of experience simplifying complex concepts for individuals seeking financial security. Her expertise has shined through in well-known publications like Rolling Stone, Forbes, SmartAsset, and Money Talks News. Read full bio.
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Photo credit: iStock/USGirl
Options involve risks, including substantial risk of loss and the possibility an investor may lose the entire amount invested in a short period of time. Before an investor begins trading options they should familiarize themselves with the Characteristics and Risks of Standardized Options . Tax considerations with options transactions are unique, investors should consult with their tax advisor to understand the impact to their taxes. INVESTMENTS ARE NOT FDIC INSURED • ARE NOT BANK GUARANTEED • MAY LOSE VALUE
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.
SoFi Invest®
SoFi Invest encompasses two distinct companies, with various products and services offered to investors as described below:
Individual customer accounts may be subject to the terms applicable to one or more of these platforms.
1) Automated Investing and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser (“SoFi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC.
2) Active Investing and brokerage services are provided by SoFi Securities LLC, Member FINRA (www.finra.org)/SIPC(www.sipc.org). Clearing and custody of all securities are provided by APEX Clearing Corporation.
For additional disclosures related to the SoFi Invest platforms described above please visit SoFi.com/legal.
Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform.
SOIN1023180
Read moreJan
03
2025
What Is the Average Stock Market Return?
Wondering how much you’ll gain by investing in stocks? It helps to look at the average stock market return for the last 10, 20, and 30 years.
Read moreDec
30
2024
The Average 401(k) Balance by Age
Table of Contents
- Average 401(k) Balance: Overview
- Average 401(k) Balance: Under Age 25
- Average 401(k) Balance: Ages 25-34
- Average 401(k) Balance: Ages 35 to 44
- Average 401(k) Balance: Ages 45 – 54
- Average 401(k) Balance: Ages 55 to 64
- Average 401(k) Balance: Ages 65 and Older
- How Much Should I Have in My 401(k)?
- Tips for Catching Up If You’re Behind
Key Points
• Establishing the habit of investing in a retirement plan early, even small amounts, may help you benefit from compounding returns.
• Aim to contribute enough to your 401(k) to get the full employer match, so you don’t leave money on the table.
• Automating contributions can make it easier to consistently build retirement funds over time.
• If you’re over 50, making catch-up contributions can boost your retirement savings.
• Paying attention to asset allocations, investment performance, and fees can help you make regular adjustments to target your goals.
What’s the Average 401(k) Balance?
The average 401(k) balance for all ages is $134,128, according to Vanguard’s How America Saves Report 2024. However, the average 401(k) balance by age of someone in their 20s is very different from the balance of someone in their 50s and 60s. That’s why it’s helpful to know how much you should have saved in your 401(k) at different ages.
Seeing what others are saving in their 20s, 30s, 40s, 50s, and beyond can be a useful way to gauge whether you’re on track with your own retirement plans and what else you can do to maximize this critical, tax-deferred form of savings.
Average and Median 401(k) Balance by Age Group
Pinning down the average 401(k) account balance can be challenging, as only a handful of sources collect information on retirement accounts, and they each have their own methods for doing so.
Vanguard is one of the largest 401(k) providers in the U.S., with nearly 5 million participants. For this review of the average and median 401(k) balance by age, we use data from Vanguard’s How America Saves Report 2024.
It’s important to look at both the average balance amounts, as well as the median amounts. Here’s why: Because there are people who save very little, as well as those who have built up very substantial balances, the average account balance only tells part of the story. Comparing the average amount with the median amount — the number in the middle of the savings curve — provides a reality check as to how other retirement savers in your age group may be doing.
| Age Group | Average 401(k) Balance | Median 401(k) Balance |
|---|---|---|
| Under 25 | $7,351 | $2,816 |
| 25-34 | $37,557 | $14,933 |
| 35-44 | $91,281 | $35,537 |
| 45-54 | $168,646 | $60,763 |
| 55-64 | $244,750 | $87,571 |
| 65+ | $272,588 | $88,488 |
Average 401(k) Balance for Ages 25 and Under
• Average 401(k) Balance: $7,351
• Median 401(k) Balance: $2,816
• Key Challenges for Savers: Because they are new to the workforce, this age group is likely to be making lower starting salaries than those who have been working for several years. They may not have the income to put towards a 401(k). In addition, debt often presents a big challenge for younger savers, many of whom may be paying down student loan debt, credit card debt, or both.
• Tips for Savers: The good news is, that starting at age 50, the IRS allows you to start making catch-up contributions to your 401(k). For 2024, the regular contribution limit is $23,000, but individuals ages 50 and up can make an additional $7,500 in 401(k) catch-up contributions for a total of $30,500. For 2025, while those under age 50 can contribute up to $23,500, individuals who are 50 and up can create an additional $7,500 for a total of $31,000.
By starting early, even small contributions have the potential to grow over time because of the power of compounding returns.
Average 401(k) for Ages 25 to 34
• Average 401(k) Balance: $37,557
• Median 401(k) Balance: $14,933
• Key Challenges for Savers: At this stage, savers may still be repaying student loans, which can take a chunk of their paychecks. At the same time, they may also be making big — and expensive — life changes like getting married or starting a family.
• Tips for Savers: You’ve got a lot of competing financial responsibilities right now, but it’s vital to make saving for your future a priority. Contribute as much as you can to your 401(k). If possible, aim to contribute at least the amount needed to get your employer’s matching contribution, which is essentially free money. And when you get a raise or bonus at work, direct those extra funds into your 401(k) as well.
Average 401(k) for Ages 35 to 44
• Average 401(k) Balance: $91,281
• Median 401(k) Balance: $35,537
• Key Challenges for Savers: While your late 30s and early 40s may be a time when salaries range higher, it’s also typically a phase of life when there are many demands on your money. You might be buying a home, raising a family, or starting a business, and it could feel more important to focus on the ‘now’ rather than the future.
• Tips for Savers: Even if you can’t save much more at this stage than you could when you were in your early 30s, you still may be able to increase your savings rate a little. Many 401(k) plans offer the opportunity to automatically increase your contributions each year. If your plan has this feature, take advantage of it. A 1% or 2% increase in savings annually can add up over time. And because the money automatically goes directly into your 401(k), you won’t miss it.
Average 401(k) for Ages 45 to 54
• Average 401(k) Balance: $168,646
• Median 401(k) Balance: $60,763
• Key Challenges for Savers: These can be peak earning years for some individuals. However, at this stage of life, you may also be dealing with the expense of sending your kids to college and helping ailing parents financially.
• Tips for Savers: The good news is, that starting at age 50, the IRS allows you to start making catch-up contributions to your 401(k). For 2024, the regular contribution limit is $23,000, but individuals ages 50 and up can make an additional $7,500 in 401(k) catch-up contributions for a total of $30,500. While money may be tight because of family obligations, this may be the perfect moment — and the perfect incentive — to renew your commitment to retirement savings because you can save so much more.
If you max out your 401(k) contributions, you may also want to consider opening an IRA. An individual retirement account is another vehicle to help you save for your future, and depending on the type of IRA you choose, there are potential tax benefits you could take advantage of now or after you retire.
Average 401(k) for Ages 55 to 64
• Average 401(k) balance: $244,750
• Median 401(k) balance: $87,571
• Key Challenges for Savers: As retirement gets closer, this is the time to save even more for retirement than you have been. That said, you may still be paying off your children’s college debt and your mortgage, which can make it tougher to allocate money for your future.
• Tips for Savers: In your early 60s, it may be tempting to consider dipping into Social Security. At age 62, you can begin claiming Social Security retirement benefits to supplement the money in your 401(k). But starting at 62 gives you a lower monthly payout for the rest of your life. Waiting until the full retirement age, which is 66 or 67 for most people, will allow you to collect a benefit that’s approximately 30% higher than what you’d get at 62. And if you can hold off until age 70 to take Social Security, that can increase your benefit as much as 32% versus taking it at 66.
Average 401(k) for Ages 65 and Older
• Average 401(k) balance: $272,588
• Median 401(k) balance: $88,488
• Key Challenges for Savers: It’s critical to make sure that your savings and investments will last over the course of your retirement, however long that might be. You may be underestimating how much you’ll need. For instance, healthcare costs can rise in retirement since medical problems can become more serious as you get older.
• Tips for Savers: Draw up a retirement budget to determine how much you might need to live on. Be sure to include healthcare, housing, and entertainment and travel. In addition, consider saving money by downsizing to a smaller, less costly home, and continue working full-time or part-time to supplement your retirement savings. And finally, keep regularly saving in retirement accounts such as a traditional or Roth IRA, if you can.
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How Much Should I Have in My 401(k)?
The amount you should have in your 401(k) depends on a number of factors, including your age, income, financial obligations, and other investment accounts you might hold. According to Fidelity’s research on how much is needed to retire , an individual should aim to save about 15% of their income a year (including an employer match) starting at age 25.
To get a sense of how this looks at various ages, the chart below shows the average 401(k) balance by age, according to Vanguard’s research, as well as Fidelity’s rule of thumb for what your target 401(k) balance should roughly be at that age. Note that these are just guidelines, but they can give you a goal to work toward.
| Age Group | Average 401(k) Balance* | Approximate Target 401(k) Balance** |
|---|---|---|
| Under 25 | $7,351 | Less than 1x your salary |
| 25-34 | $37,557 | 1x your salary by age 30 |
| 35-44 | $91,281 | 2x your salary by age 35 3x your salary by age 40 |
| 45-54 | $168,646 | 4x your salary by age 45 6x your salary by age 50 |
| 55-64 | $244,750 | 7x your salary by 55 8x your salary by 60 |
| 65+ | $272,588 | 10x your salary by age 67 |
*Source: Vanguard’s How America Saves Report 2024
**Source: Fidelity Viewpoints: How Much Do I Need to Retire?
Tips for Catching Up If You’re Behind
If your savings aren’t where they should be for your stage of life, take a breath — there are ways to catch up. These seven strategies can help you build your nest egg.
1. Automate your savings.
Automating your 401(k) contributions ensures that the money will go directly from your paycheck into your 401(k). You may also be able to have your contribution amount automatically increased every year, which can help accelerate your savings. Check with your employer to see if this is an option with your 401(k) plan.
2. Maximize 401(k) contributions.
The more you contribute to your 401(k), the more growth you can potentially see. At the very least, aim to contribute enough to qualify for the full employer matching contribution if your company offers one.
3. Make catch-up contributions if you’re eligible.
As mentioned, once you turn age 50, you can contribute even more money to your 401(k). If you can max out the regular contributions each year, making additional catch-up contributions to your 401(k) may help you grow your account balance faster.
4. Consider opening an IRA.
If you’ve maxed out all your 401(k) contributions, you could open a traditional or Roth IRA to help save even more for retirement. For 2024, those under age 50 can contribute up to $7,000 to an IRA or up to $8,000 if they’re 50 and older.
5. Make sure you have the right asset allocations.
The younger you are, the more time you have to recover from market downturns, so you may choose to be a little more aggressive with your investments. On the other hand, if you have a low risk capacity, you may opt for more conservative investments.
Either way, you want to save and invest your money wisely. Consider using a mix of investment vehicles, such as stocks, bonds, exchange-traded funds (ETFs), and mutual funds, to help diversify your portfolio. Just be aware that investing always involves some risk.
6. Pay Attention to Fees.
Fees can erode your investment returns over time and ultimately reduce the size of your nest egg. As you choose investments for your 401(k), consider the cost of different funds. Specifically, look at the expense ratio for any mutual funds or ETFs offered by the plan. This reflects the cost of owning the fund annually, expressed as a percentage. The higher this percentage, the more you’ll pay to own the fund.
7. Conduct an Annual Financial Checkup.
It can be helpful to check in with your goals periodically to see how you’re doing. For example, you might plan an annual 401(k) checkup at year’s end to review how your investments have performed, what you contributed to the plan, and how much you’ve paid in fees. This can help you make smarter investment decisions for the upcoming year.
The Takeaway
The average and median 401(k) balances and the target amounts noted above reflect some important realities for different age groups. Some people can save more, others less — and it’s crucial to understand that many factors play into those account balances. It’s not simply a matter of how much money you have, but also the choices you make.
For instance, starting early and saving regularly can help your money grow. Contributing as much as possible to your 401(k) and getting an employer match are also smart strategies to pursue, if you’re able to. And opening an IRA or an investment account are other potential ways to help you save for the future.
With forethought and planning, you can put, and keep, your retirement goals on track.
Ready to invest in your goals? It’s easy to get started when you open an investment account with SoFi Invest. You can invest in stocks, exchange-traded funds (ETFs), mutual funds, alternative funds, and more. SoFi doesn’t charge commissions, but other fees apply (full fee disclosure here).
FAQ
What is a good 401(k) balance?
A good 401(k) balance is different for everyone and depends on their age, specific financial situation, and goals. The general rule of thumb is to have 401(k) savings that’s equivalent to your salary by age 30, three times your salary by age 40, six times your salary by age 50, 8 times your salary by age 60, and 10 times your salary by age 67.
How much do most people retire with?
According to the Federal Reserve’s most recent Survey of Consumer Finances, the average 401(k)/IRA account balance for adults ages 55 to 64 was $204,000. Keep in mind, however, that when it comes to savings, one rule of thumb, according to Fidelity, is for an individual to have 8 times their salary saved by age 60 and 10 times their salary saved by age 67.
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