How to Buy Treasury Bills, Bonds, and Notes

Investors can buy Treasury bills, bonds, and notes a few ways, including through TreasuryDirect, through a broker or bank, or even through an ETF or mutual fund. Treasury bills, bonds, and notes are stable, profitable, and less-risky investments that can be a key part of a diverse investment portfolio. Learning how to purchase Treasuries may be important, regardless of your experience level with fixed-income investments.

With the full faith and credit of the US government behind them, these government-issued securities are among the least-risky investment options out there. We’ll explore the principles of buying Treasury bills, bonds, and notes in this article.

Key Points

•   Treasury bills, bonds, and notes can be purchased through TreasuryDirect, banks, or brokers.

•   These securities are backed by the full faith and credit of the U.S. government, making them low-risk investments.

•   Investors can also buy Treasury securities indirectly through ETFs or mutual funds.

•   TreasuryDirect allows direct purchases without a broker, saving on transaction costs.

•   Investing in Treasury securities through ETFs and mutual funds offers ease and diversification.

How Can You Buy US Treasuries?

Both individual and institutional investors can invest in U.S. Treasury bonds through a variety of methods. Getting them straight from the US Department of the Treasury through their web portal, TreasuryDirect, is one of the easiest ways to do so.

With the use of this platform, investors can purchase Treasury bills, bonds, and notes straight from the government. Alternatively, investors can purchase Treasuries via a financial institution or brokerage house. Treasury securities are accessible through a number of brokerages, which also offer a variety of services and choices to help investors make purchases.

Investors can also purchase Treasury assets indirectly through mutual funds, exchange-traded funds (ETFs), or investment vehicles dedicated to Treasury securities. This allows investors to have diversified exposure to Treasuries in a single investment instrument.

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1. Direct through TreasuryDirect

The U.S. Department of the Treasury offers an online platform called TreasuryDirect for investors who want direct access to U.S. Treasury securities. People can take part in Treasury auctions, which are public sales of recently issued securities, through TreasuryDirect.

Pros

•   Buying Treasury securities directly from TreasuryDirect can save transaction costs by eliminating the need for a brokerage middleman.

•   With capabilities like managing maturing securities and reinvesting interest, investors can easily manage their Treasury holdings through the site.

Cons

•   A less user-friendly interface than an online broker.

•   Less customer service in comparison to brokerage firms.

Purchasing Limits

Purchase restrictions may apply, limiting the quantity of Treasury securities that a person can acquire in a given period of time. The minimum amount that you can purchase of any given Treasury Bill, Note, Bond, TIPS, or FRNs is $100. Additional amounts must be in multiples of $100. The maximum amount of Treasury bills that you can buy in a single auction is $10 million if the bids are noncompetitive, or 35% of the offering amount for competitive bids.

2. Broker or Bank

Investors can buy U.S. Treasury bonds through banks or brokerage houses, which provide access to secondary market transactions as well as primary market Treasury auctions.

Pros

•   Banks and brokers offer extra support and services, such as financial advice, research tools, and customer help.

•   Certain brokerage houses give investors access to the primary and secondary markets, giving them a wide selection of Treasury securities and investing choices.

Cons

•   Transaction fees and costs associated with utilizing a bank or broker may increase the total cost of investing in Treasuries.

Purchasing Limits

Purchasing restrictions may apply, depending on the bank’s or brokerage company’s specific policies.

3. ETFs and Mutual Funds

Investments in mutual funds or ETFs with a Treasury concentration are an option for investors who want exposure to U.S. Treasuries without having to buy individual securities directly. These investment vehicles combine money from many individual investors and use it to buy a variety of Treasury securities.

Pros

•   The ease of use and accessibility of ETFs and mutual funds, which provide investors with a diverse portfolio of Treasuries with a single investment, is one of their main benefits.

•   These funds usually offer expert supervision and management.

•   Mutual funds and ETFs also provide liquidity, enabling investors to purchase and sell shares on the secondary market at any time during the trading day.

Cons

•   Particularly for long-term investors, expense ratios and management fees associated with mutual funds and ETFs can gradually reduce returns.

•   The costs of purchasing and selling securities inside the fund, such as brokerage commissions and bid-ask gaps, are also indirectly paid for by investors.

•   While mutual funds and ETFs provide diversification and relatively low risk, they carry some risk of market volatility and possible losses.

Purchasing Limits

ETFs usually have no minimum investment limits, making them widely accessible. There may be minimum initial investment restrictions for mutual funds, which could prevent certain individuals from participating. Ongoing mutual fund contributions, however, are frequently flexible, enabling investors to gradually make lower installments.

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Portfolio Considerations When Buying Treasuries

When incorporating U.S. Treasuries into a portfolio, investors should consider several key factors to optimize their investment strategy. Due to their low correlation with other asset classes, treasuries are essential for offering stability and diversification within a portfolio. They are frequently seen as a safe haven investment, especially in volatile markets or uncertain economic times – though it’s important to remember that no investment is completely safe.

Using Treasury bill (T-bill) and Treasury bond (T-bond) ladders is one way to optimize the returns on Treasuries. Buying Treasury bills with staggered maturities — typically a few weeks to a year — is known as a T-bill ladder. Because T-bills mature on a regular basis, this strategy offers investors a consistent flow of income and liquidity, allowing them to reinvest the proceeds or access cash as needed. T-bond ladders, on the other hand, are a way to spread out interest rate risk and keep exposure to longer-term rates by buying Treasury bonds with different maturities.

Investing in a group of Treasury-focused ETFs with staggered durations is known as an ETF ladder. ETF ladders enable investors to manage interest rate risk and take advantage of a variety of yields.

Whichever strategy is chosen, adding Treasuries to a portfolio can offer a good balance between risk and return, especially for investors who prioritize income generation and capital protection.

The Takeaway

Investment funds, brokers, and TreasuryDirect are a few of the ways to buy U.S. Treasury securities. Additionally, by combining ETF ladders with effective portfolio management techniques like T-bond and T-bill ladders, investors can maximize the contribution of Treasuries to their investment portfolios.

Investors wanting to optimize returns on their investments might reduce risk by diversifying across a range of Treasury securities and maturities. Securities are a low risk investment that can be a great way to diversify one’s portfolio.

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FAQ

How do I buy Treasury notes and bonds?

A few of the most common ways that investors can buy Treasuries is through TreasuryDirect.gov, a bank, broker, or dealer.

Do you pay taxes on T-Bills?

Interest from Treasury bills (T-bills) is subject to federal income taxes, but not state or local taxes.

What happens when a T-Bill matures?

When a Treasury bill matures, you are paid its face value. You can hold a bill until it matures or sell it before it matures.


Photo credit: iStock/kate_sept2004

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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.
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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.


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

How to Find an Old 401(k)

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.

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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.

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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.

Ready to invest for your retirement? It’s easy to get started when you open a traditional or Roth IRA with SoFi. SoFi doesn’t charge commissions, but other fees apply (full fee disclosure here).

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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.


Photo credit: iStock/svetikd

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.

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.

Claw Promotion: Customer must fund their Active Invest account with at least $25 within 30 days of opening the account. Probability of customer receiving $1,000 is 0.028%. See full terms and conditions.

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How Much Should I Contribute to My 401(k)?

Once you set up your retirement plan at work, the next natural question is: How much to contribute to a 401(k)? While there’s no ironclad answer for how much to save in your employer-sponsored plan, there are some important guidelines that can help you set aside the amount that’s right for you, such as the tax implications, your employer match (if there is one), the stage of your career, your own retirement goals, and more.

Here’s what you need to think about when deciding how much to contribute to your 401(k).

Key Points

•   Determining the right 401(k) contribution involves considering tax implications, employer matches, career stage, and personal retirement goals.

•   The 2024 contribution limit for a 401(k) is $23,000, with a $7,500 catch-up for those 50+.

•   Early career contributions might be lower, but capturing any employer match is beneficial.

•   Mid-career individuals should aim to increase their contributions annually, even by small percentages.

•   Approaching retirement, maximizing contributions and utilizing catch-up provisions can significantly impact savings.

401(k) Contribution Limits for 2024

Like most tax-advantaged retirement plans, 401(k) plans come with caps on how much you can contribute. The IRS puts restrictions on the amount that you, the employee, can save in your 401(k); plus there is a cap on total employee-plus-employer contributions.

For tax year 2024, the contribution limit is $23,000, with an additional $7,500 catch-up provision for those 50 and older, for a total of $30,500. The combined employer-plus-employee contribution limit for 2024 is $69,000 ($76,500 with the catch-up amount).

Those limits are up from tax year 2023. The 401(k) contribution limit in 2023 is $22,500, with an additional $7,500 catch-up provision for those 50 and older, for a total of $30,000. The combined employer-plus-employee contribution limit for 2023 is $66,000 ($73,500 with the catch-up amount).

401(k) Contribution Limits 2024 vs 2023

2024

2023

Basic contribution $23,000 $22,500
Catch-up contribution $7,500 $7,500
Total + catch-up $30,500 $30,000
Employer + Employee maximum contribution $69,000 $66,000
Employer + employee max + catch-up $76,500 $73,500



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How Much Should You Put Toward a 401(k)?

Next you may be thinking, now I know the retirement contribution limits, but how much should I contribute to my 401(k)? Here are some guidelines to keep in mind as you’re deciding on your contribution amount.

When You’re Starting Out in Your Career

At this stage, you may be starting out with a lower salary and you also likely have commitments to pay for, like rent, food, and maybe student loans. So you may decide to contribute a smaller amount to your 401(k). If you can, however, contribute enough to get the employer match, if your employer offers one.

Here’s how it works: Some employers offer a matching contribution, where they “match” part of the amount you’re saving and add that to your 401(k) account. A common employer match might be 50% up to the first 6% you save.

In that scenario, let’s say your salary is $100,000 and your employer matches 50% of the first 6% you contribute to your 401(k). If you contribute up to the matching amount, you get the full employer contribution. It’s essentially “free” money, as they say.

To give an example, if you contribute 6% of your $100,000 salary to your 401(k), that’s $6,000 per year. Your employer’s match of 50% of that first 6%, or $6,000, comes to $3,000 for a total of $9,000.

As You Move Up in Your Career

At this stage of life you likely have a lot of financial obligations such as a mortgage, car payments, and possibly child care. It may be tough to also save for retirement, but it’s important not to fall behind. Try to contribute a little more to your 401(k) each year if you can — even 1% more annually can make a difference.

That means if you’re contributing 6% this year, next year contribute 7%. And the year after that bump up your contribution to 8%, and so on until you reach the maximum amount you can contribute. Some 401(k) plans have an auto escalation option that will automate the extra savings for you, to make the process even easier and more seamless. Check your plan to see if it has such a feature.

As You Get Closer to Retirement

Once you reach age 50, you’ll likely want to figure out how much you might need for retirement so you have a specific goal to aim for. To help reach your goal, consider maxing out your 401(k) at this time and also make catch-up contributions if necessary.

Maxing out your 401(k) means contributing the full amount allowed. For 2024, that’s $23,000 for those 49 and under. If, at 50, you haven’t been contributing as much as you wish you had in previous years, you can also contribute the catch-up contribution of $7,500. So you’d be saving $30,500 for retirement in your 401(k) in 2024. With the potential of compounding returns, maxing out your 401(k) until you reach full retirement age of 67 could go a long way to helping you achieve financial security in retirement.

The Impact of Contributing More Over Time

The earlier you start saving for retirement, the more time your money will potentially have to grow, thanks to the power of compounding returns, as mentioned above.

In addition, by increasing your 401(k) contributions each year, even by just 1% annually, the savings could really add up. For instance, consider a 35-year-old making $60,000 who contributes 1% more each year until their full retirement age of 67. Assuming a 5.5% annual return and a modest regular increase in salary, they could potentially save more than an additional $85,000 for retirement.

That’s just an example, but you get the idea. Increasing your savings even by a modest amount over the years may be a powerful tool in helping you realize your retirement goals.

💡 Quick Tip: Did you know that opening a brokerage account typically doesn’t come with any setup costs? Often, the only requirement to open a brokerage account — aside from providing personal details — is making an initial deposit.

Factors That May Impact Your Decision

In addition to the general ideas above for the different stages of your life and career, it’s also wise to think about taxes, your employer contribution, your own goals, and more when deciding how much to contribute to your 401(k).

1. The Tax Effect

The key fact to remember about 401(k) plans is that they are tax-deferred accounts, and they are considered qualified retirement plans under ERISA (Employment Retirement Income Security Act) rules.

That means: The money you set aside is typically deducted from your paycheck pre-tax, and it grows in the account tax free — but you pay taxes on any money you withdraw. (In most cases, you’ll withdraw the money for retirement expenses, but there are some cases where you might have to take an early 401(k) withdrawal. In either case, you’ll owe taxes on those distributions.)

The tax implications are important here because the money you contribute effectively reduces your taxable income for that year, and potentially lowers your tax bill.

Let’s imagine that you’re earning $100,000 per year, and you’re able to save the full $23,000 allowed by the IRS for 2024. Your taxable income would be reduced from $100,000 to $77,000, thus putting you in a lower tax bracket.

2. Your Earning Situation

One rule-of-thumb is to save at least 10% of your annual income for retirement. So if you earn $100,000, you’d aim to set aside at least $10,000. But 10% is only a general guideline. In some cases, depending on your income and other factors, 10% may not be enough to get you on track for a secure retirement, and you may want to aim for more than that to make sure your savings will last given the cost of living longer.

For instance, consider the following:

•   Are you the sole or primary household earner?

•   Are you saving for your retirement alone, or for your spouse’s/partner’s retirement as well?

•   When do you and your spouse/partner want to retire?

If you are the primary earner, and the amount you’re saving is meant to cover retirement for two, that’s a different equation than if you were covering just your own retirement. In this case, you might want to save more than 10%.

However, if you’re not the primary earner and/or your spouse also has a retirement account, setting aside 10% might be adequate. For example, if the two of you are each saving 10%, for a combined 20% of your gross income, that may be sufficient for your retirement needs.

All of this should be considered in light of when you hope to retire, as that deadline would also impact how much you might save as well as how much you might need to spend.

3. Your Retirement Goals

What sort of retirement do you envision for yourself? Even if you’re years away from retirement, it’s a good idea to sit down and imagine what your later years might look like. These retirement dreams and goals can inform the amount you want to save.

Goals may include thoughts of travel, moving to another country, starting your own small business, offering financial help to your family, leaving a legacy, and more.

You may also want to consider health factors, as health costs and the need for long-term care can be a big expense as you age.

4. Do You Have Debt?

It can be hard to prioritize saving if you have debt. You may want to pay off your debt as quickly as possible, then turn your attention toward saving for the future.

The reality is, though, that debt and savings are both priorities and need to be balanced. It’s not ideal to put one above the other, but rather to find ways to keep saving even small amounts as you work to get out of debt.

Then, as you pay down the money you owe — whether from credit cards or student loans or another source — you can take the cash that frees up and add that to your savings.

The Takeaway

Many people wonder how much to contribute to a 401(k). There are a number of factors that will influence your decision. First, there are the contribution limits imposed by the IRS. In 2024, the maximum contribution you can make to your 401(k) is $23,000, plus an additional $7,500 catch-up contribution if you’re 50 and up.

While few people can start their 401(k) journey by saving quite that much, it’s wise, if possible, to contribute enough to get your employer’s match early in your career, then bump up your contribution amounts at the midpoint of your career, and max out your contributions as you draw closer to retirement, if you can.

Another option is follow a common guideline and save 10% of your income beginning as soon as you can swing it. From there, you can work up to saving the max. And remember, you don’t have to limit your savings to your 401(k). You may also be able to save in other retirement vehicles, like a traditional IRA or Roth IRA.

Of course, a main determination of the amount you need to save is what your goals are for the future. By contemplating what you want and need to spend money on now, and the quality of life you’d like when you’re older, you can make the decisions that are best for you.

Ready to invest for your retirement? It’s easy to get started when you open a traditional or Roth IRA with SoFi. SoFi doesn’t charge commissions, but other fees apply (full fee disclosure here).

Help grow your nest egg with a SoFi IRA.

FAQ

How much should I contribute to my 401(k) per paycheck?

If you can, try to contribute at least enough of each paycheck to get your employer’s matching funds, if they offer a match. So if your employer matches 6% of your contributions, aim to contribute at least 6% of each paycheck.

What percent should I put in my 401(k)?

A common rule of thumb is to contribute at least 10% of your income to your 401(k) to help reach your retirement goals. Just keep in mind the annual 401(k) contribution limits so you don’t exceed them. For 2024, those limits are $23,000, plus an additional $7,500 for those 50 and up

Is 10% too much to contribute to 401(k)? What about 20%?

Contributing at least 10% to your 401(k) is a common rule of thumb to help save for retirement. If you are able to contribute 20%, it can make sense to do so. Just be sure not to exceed the annual 401(k) contribution limits of $23,000, plus an additional $7,500 for those 50 and older for 2024. The contribution limits may change each year, so be sure to check annually.


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.

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.

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.

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What is a Secondary Offering?

An Introduction to Secondary Offerings

You may be familiar with the phrase “initial public offering,” or IPO, when a new company makes its shares available on a public exchange. The term secondary offering can refer to a couple of things: One is when investors sell their IPO shares on the secondary market to other investors. Another is when companies seek to raise more cash in a follow-on offering some time after the IPO.

When companies seek to raise additional capital after an IPO through a secondary offering, there are two types: dilutive and non-dilutive. Secondary offerings can have a significant impact on stock prices, so it’s beneficial for investors to understand how they work. Let’s dive into the details.

Key Points

•   Secondary offerings occur when a company or its shareholders sell additional shares after an initial public offering (IPO).

•   These offerings can be dilutive, issuing new shares, or non-dilutive, selling existing shares.

•   Dilutive offerings decrease existing shareholders’ ownership percentage, potentially lowering the stock’s value.

•   Non-dilutive offerings involve shareholders selling their shares, not affecting the company’s share count.

•   Understanding the type of secondary offering is crucial for investors assessing potential impacts on stock value.

What Are Offerings In Stock?

When a company begins selling shares of stocks, bonds, or other securities to the public, it’s called an offering.

Usually people talk about buying stocks during initial public offerings, or IPOs, but there are other types of offerings companies can make to raise cash.

A company may have later offerings, post-IPO, which are called seasoned offerings or follow-on public offerings (FPO) in which the company sells new shares on the market or by issuing a convertible note offering. These are low-interest notes that can be converted into shares, often within five to 10 years.

Any of these can also be called a secondary offering or secondary stock offering.

Companies may make these offerings if they need cash, are looking to expand their business, want to acquire another company — or their stock is performing well and they want to stoke investor demand with a limited additional supply of new shares.

Primary vs Secondary Offerings

The difference between primary and secondary offerings is pretty straightforward, but there are different types of secondary offerings.

A primary offering is to raise capital. Companies issue new shares to investors in exchange for cash that’s used to fund business operations, make acquisitions, and other corporate aims.

In a secondary stock offering, investors who own those IPO shares can buy and sell their shares directly from and to each other. Or a company may decide to issue new shares. Here’s what that can look like.

Recommended: Shares vs. Stocks: What’s the Difference?

What Is a Secondary Offering, What Are the Different Types?

There are a couple of different types of secondary offerings, so it’s important to distinguish between them.

The main definition of a secondary offering refers to investors who buy and sell IPO shares amongst each other. In this case, the cash is exchanged between investors, as noted above.

Sometimes a company needs to raise more capital and may hold what’s known as a follow-on, or seasoned equity offering. This is referred to as a type of secondary offering as well.

Sometimes, in this type of secondary offering, shareholders such as the CEO and founders sell a portion of their shares on the secondary market for private or personal reasons. If the shares are sold by individuals, the money goes to those sellers.

If the shares come from the company, the money raised from the sale goes to the company. There are two types of shares that can be offered here: dilutive and non-dilutive.

💡 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.

Types of Secondary Offerings

It’s important for investors to understand the difference between dilutive and non-dilutive shares as they can have different impacts on the value of the stock.

Dilutive Secondary Offerings

A dilutive offering involves the creation of additional shares by the company, which in turn reduces the amount of ownership that preexisting shareholders have. As the name implies, the offering has a dilutive effect. Investors often have a negative sentiment toward dilutive offerings.

The company’s board of directors must approve of the increase in floating stock shares. The float of a stock is the number of shares available for trade.

Non-Dilutive Secondary Offerings

With non-dilutive offerings, no additional shares are created. A non-dilutive offering is often made by major shareholders selling their existing shares. This doesn’t have any effect on the company itself, except perhaps the investor’s perception about why the shareholders are selling.

This type of offering can also be beneficial because it allows more individuals and institutions to invest, which can increase the stock’s liquidity since there are more people buying and selling.

Examples of Secondary Offerings

Many companies make secondary offerings following their IPOs.

Google made a secondary offering in 2005 after its IPO in 2004. During the IPO, the company had a share price of $85 and raised $2 billion. During the secondary offering, the share price was $295 and the company raised $4 billion.

Then there’s Rocket Fuel, a company that made a secondary offering of 5 million shares in 2013. Existing shareholders sold 3 million shares and the company sold 2 million, all at a price of $34 per share. Just one month after the secondary offering, the value of the shares had gone up nearly 30%, to $44.

Why Make a Secondary Offering?

Similar to an IPO, a secondary offering helps companies raise money so they can expand their operations. This can be a quick way for companies to raise significant funds fairly efficiently.

Companies may also hold a second offering between their IPO and the end of their stock’s lock-up period, which is a time when large shareholders are not allowed to sell shares. After the lock-up period, a stock’s price often falls when these shareholders sell off some of their shares. By holding a secondary offering before the end of the lock-up period, additional investors can benefit from the success of an IPO.

It’s important for investors to look into why a company is making a secondary offering before deciding whether to invest, as this can affect the price of the stock in both the short and long term.

How to Trade Secondary Offerings

Most companies that file secondary offerings choose to do so soon after the end of the lock-up period after their IPO. When a company wants to make a secondary offering, they file it for approval with the SEC.

Investors can find out about the latest secondary offerings in a few ways. The SEC has a database of secondary offerings called the EDGAR database, where investors can find out about them. Investors can also look to the NASDAQ list of secondary offerings made by companies listed on the NASDAQ stock exchange. Companies filing secondary offerings tend to get covered in the media and also put out press releases with details about the offering.

How Do Stock Prices React to a Secondary Offering?

The basic concept of supply and demand dictates that if there is more of something available, its price will likely decrease. This is sometimes what occurs during a secondary offering, but not always.

If more shares are created, the price of the shares may fall — especially with dilutive offerings because they can decrease the earnings per share of the stock.

The price of stocks can also decrease during a secondary offering because the company issues the offered shares at a discounted price to incentivize investors to buy. The decrease in value can last a while because any investors who buy-in at the discounted price can sell at a slight increase and make a profit.

If a company creates new shares and sells them at market value with a discount to account for the amount of dilution, this generally results in the least amount of price volatility.

Although a secondary offering often results in a decline in stock price, that isn’t always the case. Non-dilutive offerings are viewed more positively, as they don’t affect the stock’s earnings per share or shareholders’ amount of ownership. Also, it can be seen as a good sign for the long-term value of the stock if a company is investing in growth and acquisitions.

Many secondary offerings don’t have any restrictions, but some may require a lock-up period similar to an IPO, during which investors aren’t allowed to sell their shares.

For Investors, Green or Experienced

Now the difference between a primary offering and the different types of secondary offerings makes more sense. A primary offering is when a new company goes public and makes its shares available on a public exchange — this is part of how companies raise capital.

A secondary offering is when IPO investors subsequently sell their shares on the secondary market to other investors. In this case the company doesn’t issue new shares, and they don’t raise more cash from this type of secondary stock offering. However, companies can seek to raise more cash in a follow-on offering some time after the IPO — which is also called a secondary offering. There are two types, dilutive and non-dilutive secondary offerings, which can impact the stock price overall.

Whether you’re curious about exploring IPOs, or interested in traditional stocks and exchange-traded funds (ETFs), you can get started by opening an account on the SoFi Invest® brokerage platform. On SoFi Invest, eligible SoFi members have the opportunity to trade IPO shares, and there are no account minimums for those with an Active Investing account. As with any investment, it's wise to consider your overall portfolio goals in order to assess whether IPO investing is right for you, given the risks of volatility and loss.

For a limited time, opening and funding an Active Invest account gives you the opportunity to get up to $1,000 in the stock of your choice.

Need help getting an account set up? SoFi has a team of professional advisors available to help at any time.

FAQ

Is a secondary offering good for stock?

A secondary stock offering can be good for the stock price, particularly if the shares offered are non-dilutive. Dilutive shares, which reduce the value of existing shares, may not be good for the stock price in the short-term — although prices may recover.

What is the difference between a primary and secondary offering?

A primary offering is to raise capital, typically during an IPO. In a secondary offering, investors with IPO shares can trade their shares directly with each other. Or a company may decide to issue new shares in a follow-on offering to raise more cash.

Can you sell a secondary offering stock?

Yes, you can sell stock from a secondary offering, whether you’ve bought it from an IPO investor selling their shares, or from the company during a follow-on offering.

How do you sell on secondary?

To sell stock on a secondary market, shareholders need to find a buyer through whatever method they deem most efficient (there are platforms that can facilitate this), come to an agreement regarding price, and execute a trade.

What is the purpose of a secondary listing?

In general, the purpose of a secondary listing is to raise more capital, and to expand a customer’s investor base.

What are the risks of buying from a secondary market?

Buying from a secondary market means that an investor is purchasing securities from any public stock exchange. As such, the risks of buying on the secondary market are the same as buying any stock – there’s market risks, credit risks, and numerous other risks baked into the securities.

What are the benefits of secondary markets to investors?

Secondary markets give investors access to publicly traded securities, and for shareholders, open up liquidity for their holdings, as there’s a market full of potential buyers. Overall, secondary markets facilitate trading and thus, create liquidity.


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.

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.

Investing in an Initial Public Offering (IPO) involves substantial risk, including the risk of loss. Further, there are a variety of risk factors to consider when investing in an IPO, including but not limited to, unproven management, significant debt, and lack of operating history. For a comprehensive discussion of these risks please refer to SoFi Securities’ IPO Risk Disclosure Statement. IPOs offered through SoFi Securities are not a recommendation and investors should carefully read the offering prospectus to determine whether an offering is consistent with their investment objectives, risk tolerance, and financial situation.

New offerings generally have high demand and there are a limited number of shares available for distribution to participants. Many customers may not be allocated shares and share allocations may be significantly smaller than the shares requested in the customer’s initial offer (Indication of Interest). For SoFi’s allocation procedures please refer to IPO Allocation Procedures.


Claw Promotion: Customer must fund their Active Invest account with at least $25 within 30 days of opening the account. Probability of customer receiving $1,000 is 0.028%. See full terms and conditions.

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Everything You Need to Know About Taxes on Investment Income

Everything You Need to Know About Taxes on Investment Income

There are several ways investment income is taxed: You may be familiar with capital gains taxes — the taxes imposed when one sells an asset that has gained value — but it’s important to also understand the tax implications of dividends, interest, retirement account withdrawals, and more.

In some cases, for certain types of accounts, taxes are deferred until the money is withdrawn, but in general, tax rules apply to most investments in one way or another.

Being well aware of all the tax liabilities your investments hold can minimize headaches and help you avoid a surprise bill from the IRS. Being tax savvy can also help you plan ahead for different income streams in retirement, or for your estate.

Key Points

•   Investment income is taxed through various forms including capital gains, dividends, and interest.

•   Capital gains tax applies when assets are sold for a profit, with rates depending on the holding period.

•   Dividends received from stocks are taxed either at ordinary income rates or qualified rates.

•   Interest income from investments like bonds and savings accounts is taxed at ordinary income rates.

•   The Net Investment Income Tax adds a 3.8% tax on investment income for high earners.

Types of Investment Income Tax

There are several types of investment income that can be taxed. These include:

•   Dividends

•   Capital Gains

•   Interest Income

•   Net Investment Income Tax (NIIT)

Taking a deeper look at each category can help you assess whether — and what — you may owe.

Tax on Dividends

Dividends are distributions that are sometimes paid to investors who hold a certain type of dividend-paying stock. Dividends are generally paid in cash, out of profits and earnings from a corporation.

•   Most dividends are considered ordinary (or non-qualified) dividends by default, and these payouts are taxed at the investor’s income tax rate.

•   Others, called qualified dividends because they meet certain IRS criteria, are typically taxed at a lower capital gains rate (more on that in the next section).

Generally, an investor should expect to receive form 1099-DIV from the corporation that paid them dividends, if the dividends amounted to more than $10 in a given tax year.

💡 Quick Tip: Did you know that opening a brokerage account typically doesn’t come with any setup costs? Often, the only requirement to open a brokerage account — aside from providing personal details — is making an initial deposit.

Get up to $1,000 in stock when you fund a new Active Invest account.*

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*Customer must fund their Active Invest account with at least $25 within 30 days of opening the account. Probability of customer receiving $1,000 is 0.028%. See full terms and conditions.

More About Capital Gains Tax

Capital gains are the profit an investor sees when an investment they hold gains value when they sell it. Capital gains taxes are the taxes levied on the net gain between purchase price and sell price.

For example, if you buy 100 shares of stock at $10 ($1,000 total) and the stock increases to $12 ($1,200), if you sell the stock and realize the $200 gain, you would owe taxes on that stock’s gain.

There are two types of capital gains taxes: Long-term capital gains and short-term capital gains. Short-term capital gains apply to investments held less than a year, and are taxed as ordinary income; long-term capital gains are held for longer than a year and are taxed at the capital-gains rate.

For 2023 and 2024, the long-term capital gains tax rates are typically no higher than 15% for most individuals. Some individuals may qualify for a 0% tax rate on capital gain — but only if their taxable income for the 2023 tax year is $89,250 or less (married filing jointly), or $44,625 or less for single filers and those who are married filing separately.

For the 2024 tax year, individuals may qualify for a 0% tax rate on long-term capital gains if their taxable income is $94,050 or less for those married and filing jointly, and $47,025 or less for single filers and those who are married and filing separately.

The opposite of capital gains are capital losses — when an asset loses value between purchase and sale. Sometimes, investors use losses as a way to offset tax on capital gains, a strategy known as tax-loss harvesting.

Recommended: Is Automated Tax-Loss Harvesting a Good Idea?

Capital losses can also be carried forward to future years, which is another strategy that can help lower an overall capital gains tax.

Capital gains and capital losses only become taxable once an investor has actually sold an asset. Until you actually trigger a sale, any movement in your portfolio is called unrealized gains and losses. Seeing unrealized gains in your portfolio may lead you to question when the right time is to sell, and what tax implications that sale might have. Talking through scenarios with a tax advisor may help spotlight potential avenues to mitigate tax burdens.

Taxable Interest Income

Interest income on investments is taxable at an investor’s ordinary income level. This may be money generated as interest in brokerage accounts, or interest from assets such as CDs, bonds, Treasuries, and savings accounts.

One exception are investments in municipal (muni) bonds, which are exempted from federal taxes and may be exempt from state taxes if they are issued within the state you reside.

Interest income (including interest from your bank accounts) is reported on form 1099-INT from the IRS.

Tax-exempt accounts, such as a Roth IRA or 529 plan, and tax-deferred accounts, such as a 401(k) or traditional IRA, are not subject to interest taxes.

Net Investment Income Tax (NIIT)

The Net Investment Income Tax (NIIT), also sometimes referred to as the Medicare tax, is a 3.8% flat tax rate on investment income for taxpayers whose modified adjusted gross income (MAGI) is above a certain level — $200,000 for single filers; $250,000 for filers filing jointly. Per the IRS, this tax applies to investment income including, but not limited to: interest, dividends, capital gains, rental and royalty income, non-qualified annuities, and income from businesses involved in trading of financial instruments or commodities.

For taxpayers with a MAGI above the required thresholds, the tax is paid on the lesser of the taxpayer’s net investment income or the amount the taxpayer’s MAGI exceeds the MAGI threshold.

For example, if a taxpayer makes $150,000 in wages and earns $100,000 in investment income, including income from rental properties, their MAGI would be $250,000. This is $50,000 above the threshold, which means they would owe NIIT on $50,000. To calculate the exact amount the taxpayer would owe, one would take 3.8% of $50,000, or $1,900.

💡 Quick Tip: How long should you hold onto your investments? It can make a difference with your taxes. Profits from securities that you sell after a year or more are taxed at a lower capital gains rate. Learn more about investment taxes.

Tax-Efficient Investing

One way to mitigate the effects of investment income is to create a set of tax efficient investing strategies. These are strategies that may minimize the tax hit that you may experience from investments and may help you build your wealth. These strategies can include:

•   Diversifying investments to include investments in both tax-deferred and tax-exempt accounts. An example of a tax-deferred account is a 401(k); an example of a tax-exempt account is a Roth IRA. Investing in both these vehicles may be a strategy for long-term growth as well as a way to ensure that you have taxable and non-taxable income in retirement.

   Remember that accounts like traditional, SEP, and SIMPLE IRAs, as well as 401(k) plans and some other employer-sponsored accounts, are tax-deferred — meaning that you don’t pay taxes on your contributions the year you make them, but you almost always owe taxes whenever you withdraw these funds.

•   Exploring tax-efficient investments. Some examples are municipal bonds, exchange-traded funds (ETFs), Treasury bonds, and stocks that don’t pay dividends.

•   Considering tax implications of investment decisions. When selling assets, it can be helpful to keep taxes in mind. Some investors may choose to work with a tax professional to help offset taxes in the case of major capital gains or to assess different strategies that may have a lower tax hit.

The Takeaway

Investment gains, interest, dividends — almost any money you make from securities you sell — may be subject to tax. But the tax rules for different types of investment income vary, and you also need to consider the type of account the investments are in.

Underreporting or ignoring investment income can lead to tax headaches and may result in you underpaying your tax bill. That’s why it’s a good idea to keep track of your investment income, and be mindful of any profits, dividends, and interest that may need to be reported even if you didn’t sell any assets over the course of the year.

Some investors may find it helpful to work with a tax professional, who may help them see the full scope of their liabilities and become aware of potential investment strategies that might help them minimize their tax burden, especially in retirement. A tax professional should also be aware of any specific state tax rules regarding investment taxes.

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).

Invest with as little as $5 with a SoFi Active Investing account.


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.

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

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

SoFi 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.

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 [email protected]. 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.

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