Sep
23
2025
What Happens When a Public Company Goes Private?

What Happens When A Company Goes Private?

By | Growing Wealth, invest, Investing | Comments Off on What Happens When A Company Goes Private?

While there are plenty of benefits to going public, there are also some downsides to being listed on a major stock exchange. Public companies must abide by strict government compliance and corporate government statutes and answer to shareholders and regulatory bodies. Plus they’re subject to the whims of the broader stock market on a regular basis.

So, public companies can opt to go private and delist from a public stock exchange. What happens when a public company goes private? Here’s what you need to know about that process.

Key Points

•   When a company transitions from public to private, it is delisted from stock exchanges and its shares are no longer publicly traded.

•   This change means the company is exempt from the Sarbanes-Oxley Act and other stringent public compliance requirements.

•   Going private can reduce financial and pricing stability due to decreased liquidity and fewer financing options.

•   The process involves a buyout through a tender offer, often funded by private equity and requiring shareholder approval.

•   Privatization allows for more autonomous control over business decisions and operations by reducing public and governmental scrutiny.

What Is Going Private?

When a company goes from public to private, the company is delisted from a stock exchange and its shareholders can no longer trade their shares in a public market. It also means that a private company no longer has to abide by the Sarbanes-Oxley Act of 2002. That legislation required publicly-traded companies to accommodate expansive and costly regulatory requirements, especially in the compliance risk management and financial reporting areas. (The legislation was created by lawmakers to help protect investors from fraudulent financial practices by corporations.)

Going private may also mean less pricing and financial stability, as private company shares typically have less liquidity than a public company traded on a stock exchange. That can leave a private company with fewer financing options to fund operations.

Going private also changes the way a company operates. Without public shareholders to satisfy, the company’s founders or owners can control both the firm’s business decisions and any shares of private stock. Private companies can consolidate power among one or a few owners. That can lead to quicker business decisions and a clear path to take advantage of new business opportunities.

By definition, a private company, or a company that has been “privatized”, may be owned by an individual or a group of individuals (i.e., a consortium) that also has a specific number of shareholders.

Unlike traditional stocks, investors in a private company do not purchase shares through a stock broker or through an online investment platform. Instead, investors purchase private equity shares from the company itself or from existing shareholders.

What Is Privatization?

Privatization is the opposite of an initial public offering. It’s the process by which a company goes from being a publicly traded company to being a private one. A private company may still offer shares of stock, but those shares aren’t available on public market exchanges. There’s no need to satisfy public shareholders and the company has less governmental oversight into its governance and documents.

(Note that privatization is also a term used to describe when a public or government organization switches to ownership by a private, non-governmental group.)

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What Happens if You Own Shares of a Company That Goes Private?

If shareholders approve a tender offer to take a public company private, they’ll each receive a payment for the number of shares that they’re giving up. Typically, private investors pay a premium that exceeds the current share price and shareholders receive that money in exchange for giving up ownership in the company.

This is the opposite of IPO investing, in which the public buys stock in a newly listed company, and private owners have a chance to cash out.

💡 Recommended: Partner Buyout Financing

Why a Company May Go Private

Likely the biggest reason why a company would choose to go private are the costs associated with being a public company (largely to accommodate regulatory demands from local, state, and federal governments).

Those costs may include the following potential corporate budget challenges:

•   The legal, accounting, and compliance costs needed to accommodate company financial filings and associated corporate governance oversight obligations.

•   The costs needed to pay compliance, investor relations, and other staffing needs – or the hiring of third-party specialty firms to handle these obligations.

•   The costs associated with paying strict attention to company share price – a public company always has to keep its eye on maximizing its stock performance and on keeping shareholders satisfied with the firm’s stock performance.

In addition, going private enables companies to free up management and staff to turn their attention to firm financial growth, instead of regulatory and compliance issues or shareholder concerns. Some public companies struggle to invest for the long-term because they’re worried about meeting short-term targets to keep their stock price up.

Going private also enables companies to keep critical financial and operational data away out of the public record — and the hands of competitors. Privatization could also help companies avoid lawsuits from shareholders and curb some litigation risk.

How to Take a Company Private

Typically, companies that go private work with either a private-equity group or a private-equity firm pooling funds to “buy out” a public company’s entire amount of publicly-traded stock. This typically requires a group of investors since, in most cases, it takes an enormous amount of financial capital to buy out a company with hundreds of millions (or even billions) of dollars linked to its publicly-traded stock.

Often a consortium of private equity investors gets help financing with a privatization campaign from an investment bank or other large financial institution. The fund usually comes in the form of a massive loan — with interest — that the consortium can use to buy out a public company’s shares.

With the funding needed to close the deal on hand, the private equity consortium makes a tender offer to purchase all outstanding shares in the public company, which existing shareholders vote on. If approved, existing shareholders sell their stock to the private investors who become the new owners of the company.

The goal is that the private investors will take the gains accrued through stronger company revenues and rejuvenated stock, to pay down the investment banking loan, pay off any investment banking fees accrued, and begin managing the income and capital gains garnered from their investment in the company. While this can take some time, the process of going private is much less intensive than the IPO process.

Company executives, meanwhile, can focus on growing the company. In many instances, newly-minted private companies may roll out a new business plan and prospectus that firm executives can share with potential shareholders, hopefully bringing more capital into the company. Sometimes private owners will plan to IPO the business again in the future.

💡 Quick Tip: Keen to invest in an initial public offering, or IPO? Be sure to check with your brokerage about what’s required. Typically IPO stock is available only to eligible investors.

Pros and Cons of Going Private

Taking a company private has both benefits and drawbacks for the company.

The Pros

In addition to lower costs, there are several other advantages to delisting a company.

•   Establishing privacy. When a company goes public, it relinquishes the right to keep the company private. By taking a company private, it makes it easier to operate outside of the public eye.

•   Fewer shareholders. Public companies don’t have to deal with external company sources that may make life difficult for company executives and may result in a loss of operational independence. Once a company goes private, the founders or new owners retain full control over the business and have the last word on all company decisions.

•   A private company doesn’t have to deal with financial regulators. A private company doesn’t need to file financial disclosures with the U.S. Securities and Exchange Commission and other government regulatory bodies. While a private company may have to file an annual report with the state where it operates, the information is limited and financial information remains private.

The Cons

There are some disadvantages to taking a company private.

•   Capital funding challenges. When a company goes private, it loses the ability to raise funds through the publicly-traded financial markets, which can be an easy and efficient way to boost company revenues. Yet by privatizing the company, publicly-funded capital is no longer an option. Such companies may have to borrow funds from a bank or private lender, or sell stock based on a state’s specific regulatory requirements.

•   The owner may have more legal liability. Private companies, especially sole proprietorships or general partnerships, aren’t protected from legal actions or creditors. If a private company is successfully sued in court, the court can garnish the business owner’s personal assets if necessary.

•   More powerful shareholders. While there are not as many shareholders at a private company, new owners, such as venture capitalists or private equity funds, may have strong feelings about the operational business decisions, and as owners, they may have more power over seeing their wishes carried out.

The Takeaway

Going private can be an advantage for companies that want more control at the executive level, and no longer want their shares listed on a public exchange. However, taking a company private may impact the company’s bottom line as corporate financing options thin out when public shareholders can no longer buy the company’s stock.

If a company you own stock in goes private, you will no longer own shares in that company or be able to buy them through a traditional broker. For investors, having different types of assets in an investment portfolio may be helpful in case something happens to or changes with one of them.

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.

FAQ

Is it good for a public company to go private?

Going private can have benefits for a public company, including lower costs related to legal, accounting, and compliance obligations, as well as costs associated with maximizing stock performance and keeping shareholders happy. In addition, going private may allow a company’s staff to focus more fully on financial growth, and keep critical company data out of the public record (and the hands of competitors).

However, there are potential drawbacks as well. For instance, a company may face capital funding challenges once it goes private since it can no longer raise funds through publicly-traded financial markets.

What happens to my private shares when a company goes public?

Once a company goes public (typically done through a process called an IPO, or initial public offering), your private shares become public shares, and they become worth the public trading price of the shares.

How long does it take for a public company to be private?

How long it takes for a public company to become private depends on the time it takes to complete the steps involved. For instance, the company has to buy out all of its publicly-traded stock; it usually works with a group of private investors to do this since the process is costly. Once they have the founding secured, a tender offer is made to purchase all outstanding shares in the public company, which the existing shareholders vote on. If that is approved, the shareholders sell their stock to the owners of the company. How long all this takes generally depends on the company and the specific situation.

Photo credit: iStock/Olezzo

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

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

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

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

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

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

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

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Sep
23
2025
A Walkthrough of What Leverage Trading Is

Understanding Leverage Trading

By | Growing Wealth, invest, Investing | Comments Off on Understanding Leverage Trading

Editor's Note: Options are not suitable for all investors. 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. Please see the Characteristics and Risks of Standardized Options.

Using leverage is a common trading strategy whereby qualified investors borrow cash to increase their trading power. Thus, investors can leverage a small amount of capital to get exposure to a much bigger position.

For example, a leverage ratio of 20:1 means a $1 investment can buy $20 worth of an asset.

To use leverage, qualified traders must open a margin account with a brokerage in order to place bigger bets, and potentially earn higher returns on their initial capital. (The terms leverage and margin are often used interchangeably.)

However, leveraged trading also significantly increases a trader’s risk of losses. If the asset moves in the wrong direction, the trader not only suffers a loss but must repay the amount borrowed, plus interest and fees.

This is one reason that only experienced investors qualify for margin accounts and leverage trading opportunities.

Key Points

•   Leverage trading is a high-risk strategy that involves using borrowed funds to amplify buying power to seek potentially higher returns.

•   To use leverage, traders must qualify to open a margin account. Leverage trading or trading on margin are often used interchangeably.

•   By using a small amount of capital to place bigger bets, traders may see bigger returns. Risks include the potential to lose more than the initial investment.

•   Not all securities are eligible for leverage; rules vary by broker and security type.

•   Leverage is typically reserved for qualified investors, due to its high risk.

What Is Leverage Trading?

In both business and finance, the term leverage refers to the use of debt to power an expansion or purchase securities. With leverage trading, traders can use a margin account to borrow funds in order to take bigger positions with assets like stocks, derivatives, and foreign currencies (forex).

A margin account allows qualified traders to borrow from a brokerage to purchase securities that are worth more than the cash they have on hand. In this case, the cash or securities already in the trader’s account act as collateral.

What Is Margin, How Does It Work?

Leverage and margin are related but different concepts. For example, a trader can use margin to increase their leverage. Margin is the tool, and leverage is the force behind the tool, which can be used to potentially increase returns (or losses).

Not all investors can open a margin account, however, and different brokerages may have different margin requirements.
To start, an investor must complete a margin agreement with their brokerage, and remain compliant with a number of industry rules. For example, most margin accounts require a $2,000 minimum deposit (the minimum margin).

Once the margin feature is added to the investor’s account, that part of their account falls under the rules of FINRA, the Federal Reserve Board, the Securities and Exchange Commission (SEC), and exchanges such as the NYSE, as well as the policies of the brokerage itself.

Margin rules for equity trades, for example, require that the investor maintain 50% of the value of a trade in their margin account (per the Fed’s Regulation T) — a 2:1 ratio. The margin requirements for other securities, like forex and futures contracts, are much lower and allow for higher leverage (e.g., 3% to 15%).

Which Securities Are Eligible for Margin?

Not all securities can be bought using leverage, however. Industry rules dictate that equities known as penny stocks, as well as Initial Public Offering (IPO) stocks, and other volatile and illiquid securities, are not marginable.

Generally, stocks and exchange-traded funds (ETFs) that are worth more than $3 per share, as well as mutual funds and certain types of bonds, are eligible for leverage trades using margin. Check with your broker, as rules can vary by jurisdiction.

Margin can be used to trade many derivatives like options and futures, but this type of leverage trading can be risky.

Forex options trading, for example, allows traders to take a larger position using very small amounts of cash. While there is no standard amount of margin in the forex market, it is common for traders to post 1% margin, which allows them to trade $100,000 of notional currency for every $1,000 posted — a ratio of 100:1.

Leverage Risks and Rewards

Leverage trading can only be successful if the return on an investment is higher than the cost to borrow money, which you must repay with interest and fees.

Leverage trading can significantly increase potential earnings, but it is also very risky because you can lose more than the entire amount of your investment. For that reason leverage is usually only available to experienced traders.

What Is Pattern Day Trading?

Pattern day trading is a type of trading style that typically requires a much higher initial margin amount. Someone would be flagged as a pattern day trader if they make four or more day trades during a period of five business days — and if those trades amount to more than 6% of their overall trading activity.

Day trading refers to those who buy and sell a single security within one day. It’s a high-risk strategy that some traders employ to profit from very short-term price movements.

Once a trader is identified as a pattern day trader, per FINRA rules, they must keep a minimum of $25,000 in cash and/or equity in their margin account.

FINRA established the Pattern Day Trader Rule to limit risk-taking among day traders, by requiring firms to impose these restrictions.

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History of Leverage Trading

The use of leverage has a long history in the world of trading and finance.

Ancient Uses of Leverage

There is evidence that a form of leverage trading first emerged in ancient civilizations, often through the exchange of commodities. Traders could put down a small amount of money as a deposit on a share of a future crop or herd of cattle, for example.

Another more rudimentary form of leverage enabled merchants to raise money for an expedition from investors, who would invest smaller amounts with the hope of greater profits from the expedition, assuming the trip was successful.

Over the centuries, the use of leverage became more sophisticated, enabling the creation of various types of derivatives, including futures contracts.

Leverage in the 20th-Century

Over time leverage ratios became quite high, and they were not well regulated until the stock market crash of 1929. That event forced a reassessment of restrictions around the use of leverage.

For a period of time starting in the mid-20th century, leveraged buyouts became a popular business acquisition strategy. As it sounds, leveraged buyouts involve the use of borrowed capital to buy out an existing company, and then use different strategies to turn it around and make a profit.

Leveraged buyouts are still a common private equity strategy, but they can often fail.

Today, thanks to advances in technology and stronger regulations, allowable leverage ratios and rules governing margin accounts are subject to greater oversight.

How Leverage Works in Trading

Leverage trading consists of a trader borrowing money from a broker using margin, then using the borrowed funds along with their own money to enter into trades.

The key to understanding how using leverage can potentially help generate higher returns, but also greater losses, is that the margin funds are a fixed liability.

Suppose a trader starts with $50, and borrows $50 to buy $100 worth of stock. Whether the stock’s value goes up or down from there, the trader is on the hook to repay the $50, plus interest and any related fees, to the broker.


💡 Quick Tip: One of the advantages of using a margin account, if you qualify, is that a margin loan gives you the ability to buy more securities. Be sure to understand the terms of the margin account, though, as buying on margin includes the risk of bigger losses.

Example of Leverage Trading

Using the above example, suppose the stock appreciates by 10%, for a total of $110, and the trader closes out the position. They return the $50 they borrowed, and keep the remaining $60. That equates to a $10 gain on their $50 of capital, and a 20% return — double the return of the underlying stock, before fees and expenses.

Now, consider what happens if the stock declines in value by 10%. The trader closes out the position and receives $90, but has to give the broker back the $50 they borrowed, plus interest and fees. They are left with $40, a loss of $10, plus the margin expenses, which is a 20% loss or more.

Understanding Leverage Ratio

Leverage is often expressed as a ratio. For example, a leverage ratio of 2:1 is generally the rule for using margin for equity trades. If you have $50, you can buy $100 worth of stock.

In the case of other types of securities, the leverage ratio can be much higher. A leverage ratio of 20 means a $1,000 investment would allow you to open a trading position of $20,000; 50:1 would allow you to take a position of $50,000.

Maximum Leverage

Brokers have limits on how much they’ll lend traders based on the amount of funds the trader has in their account, their own regulations, and government regulations around leverage trading. If you’re considering using leverage, be sure to understand the rules.

•   Stocks. Thanks to the Federal Reserve Board’s Regulation T, plus a FINRA rule governing margin trades in brokerage accounts, the maximum you can borrow is 50% for an equity trade.

•   Forex. The foreign currency market tends to allow greater amounts of leverage. In some cases, as high as 100:1 in the U.S.

•   Commodities. Commodities rules around maximum leverage and leverage ratios can fluctuate based on the underlying asset.

Pros and Cons of Leveraged Trading

On the surface, leverage may sound like a powerful tool for investors — which it can be. But leverage can be a double-edged sword: Leverage can add to buying power and potentially increase returns, but it can also magnify losses, and put an investor in the hole.

Pros

Using leverage can increase your trading power, sometimes to a large degree. It’s important to know the rules, as leverage ratios vary according to the securities you’re trading, the jurisdiction you’re in, and sometimes your broker’s discretion.

If you meet the criteria for using leverage or opening a margin account to trade, it’s relatively easy to access the funds and open bigger positions. Sometimes, placing that bigger bet can pay off with a much higher return than you would have gotten if you invested just the capital you had on hand.

Cons

Just as using leverage can amplify gains, it can amplify losses — in some cases to the point where you lose your initial investment, you must repay the money you borrowed, and you may owe fees and interest on top of that.

For that reason, many brokers require investors to meet certain criteria before they can open a margin account and place leveraged trades.

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Pros of Leverage:

•   Increases buying power

•   Potential to earn higher returns

•   Relatively easy to use, if you qualify

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Cons of Leverage:

•   Leverage funds must be repaid, with interest

•   Potential to lose more than your initial investment

•   Investors must meet specific criteria in order to use leverage or open a margin account

Types of Leverage Trading

There are a few different types of leverage trading, each with similarities and differences.

Trading on Margin

As noted, margin is money that a trader borrows from their broker to purchase securities. They use the other securities in their account as collateral for the loan.

If a leveraged trade goes down in value, a trader may be subject to a margin call. This means they will need to sell other securities to cover the loss, or deposit enough funds to meet the margin minimum. Failing that, a brokerage could sell other securities from the investor’s account.

Many brokers charge interest on margin loans. So in order for a trader to earn a profit, the security has to increase in value enough to cover the interest.

Leveraged ETFs

Some ETFs use leverage to try and increase potential gains based on the index they track. For example, there is an ETF that specifically aims to return 3x the returns that the regular S&P 500 index would get.

It’s important to note that most funds reset on a daily basis. The leveraged ETF aims to match the single day performance of the underlying index. So over the long term even if an index increases in value, a leveraged ETF might decrease in value.

Derivatives

Traders can also use leverage trading with derivatives and options contracts, although leverage in these cases looks quite different.

For example, using leverage with futures contracts is not considered a loan, exactly; it’s called a performance bond. The investor puts down a good faith deposit (the initial margin) in order to control a desired position. Once the position is open, the required or maintenance margin must be met. The terms of that contract are determined by the exchange.

Buying a single option contract lets a trader control many shares of the underlying security — generally 100 shares — for far less than the value of those 100 shares. As the underlying security increases or decreases in value, the value of the options contract changes.

Options trading is highly risky and generally recommended only for experienced traders.

Forex Leverage

Forex trading allows even more leverage than futures contracts. That said, leverage ratios vary by the type of currency pairs being traded. In addition, a broker may have different margin requirements depending on the size of the trade overall, as well as the potential volatility of the currencies involved in the trade.

Recommended: Options Trading 101

Leverage Trading Terms to Know

There are several key terms to know in order to fully understand leverage trading.

Account balance: The total amount of funds in a trader’s account that are not currently in trades.

Buying power: This is the total amount a trader has available to enter into leverage trades, including both their own capital and the amount they can borrow.

Coverage: The ratio of the amount of funds currently in leveraged trades in one’s account to the net balance in their account.

Margin Requirement: This is the amount of funds a brokerage requires a trader to have in their margin account when entering into leverage trades. If a trader incurs losses, those funds will be used to cover them. Traders can also use securities they hold in their account to cover losses.

Margin call: If a trader’s account balance falls below the margin requirement, the broker will issue a margin call. This is a warning telling the trader they have to either add more funds to their account or close out some of their positions to meet the minimum margin requirement. The broker does this to make sure the trader has sufficient funds in their account to cover potential losses.

Used margin: When an investor enters into trades, some of their account balance is held by the broker as collateral in case it needs to be used to cover losses. That amount will only be available for the trader to use after they close out some of their positions.

Usable margin: This is the money in one’s account that is currently available to put into new trades.

Open position: When a trader is currently holding an asset they are in an open position. For instance, if a trader owns 100 shares of XYZ stock, they have an open position on the stock until they sell it.

Close position: The total value of an investment at the time the trader closes it out.

Stop-loss: Traders can set a price at which their asset will automatically be sold in order to prevent further losses if its value is decreasing. This is very useful if a trader wants to hold positions overnight or if a stock is very volatile.

Tips for Helping to Manage the Risks of Leveraged Trading

Experience and skill can help you manage the risk factors inherent in leveraged trades, and a couple of basic protective strategies may help.

Hedge Your Bets

It might be possible to hedge against potential losses by taking an offsetting position to the leverage trade.

Limit Potential Loss of Capital

One rule of thumb suggests that traders limit their loss of capital to no more than 3% of the actual cash portion of the trade. While it’s difficult to know the exact risk level involved in a particular trade, it’s wise to observe certain limits to protect from loss.

Decide Whether Leverage Trading Is Right for You

Although there is potential for significant earnings using leverage trading, there is no guarantee of any earnings, and there is also potential for significant loss. For this reason leverage trading is often said to be best left to experienced traders.

If an investor wants to try leverage trading it’s important for them to assess their financial situation, figure out how much they’re willing to risk, and conduct detailed analysis of the securities they are looking to trade.

Setting up a stop-loss order may help decrease the risk of losses, and traders can also set up a take-profit order to automatically take profits on a position when it reaches a certain amount.

The Takeaway

Leveraged trading is a popular strategy for investors looking to increase their potential profits. By using borrowed funds it’s possible to take much bigger positions, and possibly see bigger wins. But using leverage, or trading on margin, is very risky because you can lose more than you have (the money you borrow has to be repaid in full, plus interest).

If you’re an experienced trader and have the risk tolerance to try out trading on margin, consider enabling a SoFi margin account. With a SoFi margin account, experienced investors can take advantage of more investment opportunities, and potentially increase returns. That said, margin trading is a high-risk endeavor, and using margin loans can amplify losses as well as gains.


Get one of the most competitive margin loan rates with SoFi, 10.50%*

FAQ

How much leverage is too high?

Knowing how much you can afford to lose is an important calculation when making leveraged trades. In addition, the amount of leverage available to you will also be restricted by existing regulations or brokerage rules. And remember, if a trade goes south, your broker can liquidate existing assets to cover your losses and any margin.

What is the safest way to use leverage in trading?

Investing always involves risk, and the use of leverage is a high-risk endeavor. When using leverage it’s wise to know your limits, both financially and in terms of your skill as an investor. It’s also important to maintain a clear understanding of the regulations around the use of margin.

Can you lose more than you invest with leverage?

Yes. The biggest risk with using leverage is that you can lose more than the total amount of your initial investment.

Why is leverage not recommended for beginners?

All forms of leverage are complex and highly regulated, and demand a certain level of sophistication. For the most part, only experienced investors should use leverage.

Photo credit: iStock/ljubaphoto

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

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

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

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

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

Utilizing a margin loan is generally considered more appropriate for experienced investors as there are additional costs and risks associated. It is possible to lose more than your initial investment when using margin. Please see SoFi.com/wealth/assets/documents/brokerage-margin-disclosure-statement.pdf for detailed disclosure information.

Third Party Trademarks: Certified Financial Planner Board of Standards Center for Financial Planning, Inc. owns and licenses the certification marks CFP®, CERTIFIED FINANCIAL PLANNER®

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

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.

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

Mutual Funds (MFs): 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 clicking the prospectus link on the fund's respective page at sofi.com. You may also contact customer service at: 1.855.456.7634. Please read the prospectus carefully prior to investing.Mutual Funds must be bought and sold at NAV (Net Asset Value); unless otherwise noted in the prospectus, trades are only done once per day after the markets close. Investment returns are subject to risk, include the risk of loss. Shares may be worth more or less their original value when redeemed. The diversification of a mutual fund will not protect against loss. A mutual fund may not achieve its stated investment objective. Rebalancing and other activities within the fund may be subject to tax consequences.

S&P 500 Index: The S&P 500 Index is a market-capitalization-weighted index of 500 leading publicly traded companies in the U.S. It is not an investment product, but a measure of U.S. equity performance. Historical performance of the S&P 500 Index does not guarantee similar results in the future. The historical return of the S&P 500 Index shown does not include the reinvestment of dividends or account for investment fees, expenses, or taxes, which would reduce actual returns.
Fund Fees
If you invest in Exchange Traded Funds (ETFs) through SoFi Invest (either by buying them yourself or via investing in SoFi Invest’s automated investments, formerly SoFi Wealth), these funds will have their own management fees. These fees are not paid directly by you, but rather by the fund itself. these fees do reduce the fund’s returns. Check out each fund’s prospectus for details. SoFi Invest does not receive sales commissions, 12b-1 fees, or other fees from ETFs for investing such funds on behalf of advisory clients, though if SoFi Invest creates its own funds, it could earn management fees there.
SoFi Invest may waive all, or part of any of these fees, permanently or for a period of time, at its sole discretion for any reason. Fees are subject to change at any time. The current fee schedule will always be available in your Account Documents section of SoFi Invest.

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.

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23
2025

What Happens If a Stock Goes to Zero?

By | Growing Wealth, invest, Investing, Terminology | Comments Off on What Happens If a Stock Goes to Zero?

Stocks can lose all of their value, or fall all the way to zero. When that happens, they’re effectively worthless, and in all likelihood, the company will declare bankruptcy. It’s possible that investors lose their investment, in that case.

Sometimes when a stock goes down in value it can present an investment opportunity, but in other cases the stock could fall to zero and never recover. In the latter case, it may benefit investors to sell before the stock price falls all the way down to zero.

Key Points

•   A stock reaching zero means total loss of investment value, leaving shareholders with nothing.

•   Shares may be delisted from stock exchanges if prices fall below specific thresholds.

•   Companies typically file for bankruptcy protection before stock hits zero.

•   Margin trading or short selling can result in additional financial losses for investors beyond the initial investment.

•   Shareholders often receive no compensation during the liquidation of company assets.

What Causes a Stock to Fall to Zero?

When a stock falls to zero, it doesn’t mean that the company is worth nothing. Some companies with very low stock values are still earning money or possess assets. And, some investors buy penny stocks that have extremely low prices.

What happens to a company when stock prices fall to zero? If a company continuously spends more money than it earns, and investors sell off the stock, ultimately, that can lead to the company going bankrupt. Most companies file for either Chapter 7 or Chapter 11 bankruptcy before their stock reaches $0.00.

Chapter 7 Bankruptcy

With a Chapter 7 bankruptcy filing, the company must sell off its assets until it can repay lenders and creditors. The order that stakeholders get paid is: creditors, bondholders, preferred stockholders, common stockholders.

This means that if the asset sale doesn’t bring in enough money to pay everyone, it’s likely that common shareholders won’t receive a dime. In this case, stockholders lose all the money they had invested in that stock.

Under Chapter 7, stock trading and all business activities must be put on hold.

Chapter 11 Bankruptcy

Under a Chapter 11 bankruptcy, the company negotiates loan terms with its creditors in order to avoid selling off assets. With Chapter 11, companies can still conduct business and their stock can be traded.

Once a company files for Chapter 11, it is likely that the stock will continue to fall, since many investors won’t have much faith in the business. Sometimes shares are canceled with a Chapter 11 filing. In that case, investors lose all the money they had put into the stock.

Even if a company files for bankruptcy before its stock falls to zero, their attempts to salvage the business may ultimately fail and the stock could become worthless. However, it can take a strong team and business model to go public and get listed on stock exchanges in the first place, so some bankrupt companies may have the potential to make a comeback.

Some companies with very low stock prices get acquired by larger companies before their stock falls to zero. Even a company with a low stock might have a promising product or service that a larger company is able to sell successfully. One example of this is when Alphabet acquired FitBit in 2021.


💡 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.

What Happens to a Company When Stock Prices Fall to Zero?

Some stock exchanges delist stocks if they fall below a certain level. For example, the New York Stock Exchange will remove a stock if its share price falls below $1 for 30 days in a row.

And, as mentioned above, if a company files for Chapter 7 bankruptcy, its stock will be delisted temporarily. Fortunately, it is not possible for a stock’s price to go into the negative territory — under zero dollars in value, that is.

Still, if an investor short sells or uses margin trading, they may lose more than they invested. For this reason, margin trading and short selling are risky investment strategies.

Short selling is when an investor predicts that a stock is going to decrease in value. So, rather than buying the stock, they ‘bet’ that it will go down. If the stock does in fact go down, they make money.

But, if the stock ends up increasing in value, they lose money. Potentially, an investor in this scenario could lose more money than they put into the initial short sell.

Margin trading is when an investor borrows money from the brokerage firm to trade stocks. If the investor makes a trade that doesn’t go in their favor, they can end up owing the brokerage firm money.

How Low Can a Stock Go?

Stock prices can fall all the way down to zero. That means the stock loses all of its value and a shareholder’s earnings are typically worthless. In this case, the investor loses what they invested in the stock.

Reasons for a Stock Losing Value Down to Zero

There are a number of reasons that may come into play to make a stock fall to zero, including:

•   Losses in the company’s revenue or earnings, especially if the losses are persistent

•   A perception in the market that the stock is overvalued

•   Management issues, shake-ups in the company’s leadership positions, scandal, fraud — in short, anything that can make investor sentiment turn negative

For investors, these are all signs a stock is underperforming and red flags to watch out for.

Types of Stocks More Likely to Fall to Zero

What is a stock that falls to zero? Every stock comes with risks, but some are more risky than others. Besides companies on the brink of bankruptcy, there are certain types of businesses that may have a higher chance of becoming worthless.

Knowing what to look for and researching and evaluating stocks before buying is key to building a resilient portfolio. Some of these higher risk stocks might include:

Companies With Weak Business Models

Even if a stock is currently performing well, it may fall in the future if the business model is fundamentally flawed. For this reason, many investors prefer to research a company’s practices, team composition, and business model before investing in its stock.

Penny Stocks

Stocks that trade below $5 are known as penny stocks. These low price stocks tend to be very volatile, as the companies that issue them have low or no profit.

Sometimes penny stocks can even turn out to be scams.

Buying the Dip

Rather than selling stocks when the market declines, some investors believe it can be a good idea to buy while the market is low. By buying the dip, as it’s known, investors pay less for stocks.

And, since these stocks still have the potential to go up in value as the market recovers after the decline, they can be preferred by long-term investors who may have more time to let their portfolio go back up in value.

However, if a company is going bankrupt or otherwise likely to fall to zero, it’s unlikely to offer a strong return on investment.

It’s also very difficult to time the market, so a trader might buy in when they think the market has hit bottom, only to watch it continue to go down.

Generally, building a diversified portfolio can offer higher returns on average over time than trying to time the market based on shorter-term trends or dips.

Examples of Stocks That Fell to Zero

There are two particularly infamous examples of stocks that fell to zero or close to it:

Enron

In the 1990s, Enron, an energy company, hid massive losses by using accounting tricks. At one point, its stock price was over $90. In 2001, analysts and investors became suspicious and began asking questions. That same year, the company reported huge losses, and its stock plummeted to $0.26 right before it declared bankruptcy.

World Com

This telecom company falsely inflated its cash flow and net income by listing expenses as investments to hide losses. Its stock price fell from more than $60 a share to less than $1 before the company declared bankruptcy in 2002.


💡 Quick Tip: When you’re actively investing in stocks, it’s important to ask what types of fees you might have to pay. For example, brokers may charge a flat fee for trading stocks, or require some commission for every trade. Taking the time to manage investment costs can be beneficial over the long term.

How to Help Avoid Holding a Stock That’s Falling to Zero

While it’s true that the market is impossible to predict, there are some measures that investors can take to protect themselves from losses — especially in the case of a stock spiraling towards zero. Below are some common preventative investment measures.

Stop Losses

Knowing when to sell a stock is important. Investors can set up a trade to automatically sell shares if a stock reaches a specific price. This type of trade is called a stop loss. It’s a strategy that could help prevent losses in the case of an individual stock or overall market drop.

There are multiple types of stop losses, including trailing stops and hard stops. Trailing stops move the stop level up as the stock rises in value, but stay in place if the stock falls. Hard stops are fixed at a specific price and will execute if the stock falls to that price.

Limit Orders

Limit orders allow investors to set the price at which they want to buy a stock. An investor selects the price and the number of shares they wish to buy. In practice, the order only executes if the stock then hits that price.

This is one way for traders to step away without worrying that they’ll be buying in at a price they didn’t want.

Put Options

A put option is a type of order that gives traders the option to sell or short-sell a specific amount of stock at a specific price, within a certain time frame. If a stock decreases in value in this case, the trader can still sell it at a higher price than it previously held. Note that options are high risk investments for more experienced investors.

Diversifying Asset Holdings

In an effort to try to prevent bigger losses, investors may want to diversify their portfolios into a mix of non-correlated assets — dividing their holdings between assets at a higher and lower risk of fluctuating in value.

In a diversified portfolio, if one asset class decreases in value, the other types may not. Over time, the ups and downs of each asset could possibly balance the losses in each.

The Takeaway

Stocks can lose all of their value, or fall all the way to zero. When that happens, they’re effectively worthless, and in all likelihood, the company will declare bankruptcy. It’s possible that investors lose their investment, in that case.

By researching companies and setting up a portfolio according to one’s personal risk tolerance, and then keeping tabs on the assets in that portfolio to monitor their performance, it may be possible to help hedge against a stock sinking down to zero.

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).

¹Opening and funding an Active Invest account gives you the opportunity to get up to $3,000 in the stock of your choice.

FAQ

At what point does a stock become worthless?

A stock becomes worthless when it falls to zero and has no value. In this case, an investor typically loses the money they invested in the stock.

How low can a stock go before being removed?

Some stock exchanges delist stocks if they fall below a certain level. The New York Stock Exchange will remove a stock if its share price falls below $1 for 30 days in a row, for instance.

Do you owe money if a stock goes negative?

No. A stock price can’t go negative, or, that is, fall below zero. So an investor does not owe anyone money. They will, however, usually lose whatever money they invested in the stock if the stock falls to zero, especially as the company may declare bankruptcy.

Image credit: iStock/MicroStockHub

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

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

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

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

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

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.

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

Fund Fees
If you invest in Exchange Traded Funds (ETFs) through SoFi Invest (either by buying them yourself or via investing in SoFi Invest’s automated investments, formerly SoFi Wealth), these funds will have their own management fees. These fees are not paid directly by you, but rather by the fund itself. these fees do reduce the fund’s returns. Check out each fund’s prospectus for details. SoFi Invest does not receive sales commissions, 12b-1 fees, or other fees from ETFs for investing such funds on behalf of advisory clients, though if SoFi Invest creates its own funds, it could earn management fees there.
SoFi Invest may waive all, or part of any of these fees, permanently or for a period of time, at its sole discretion for any reason. Fees are subject to change at any time. The current fee schedule will always be available in your Account Documents section of SoFi Invest.

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.

Utilizing a margin loan is generally considered more appropriate for experienced investors as there are additional costs and risks associated. It is possible to lose more than your initial investment when using margin. Please see SoFi.com/wealth/assets/documents/brokerage-margin-disclosure-statement.pdf for detailed disclosure information.

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.

External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.

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23
2025
Can You Have Multiple IRAs?

Can You Have Multiple IRAs?

By | Growing Wealth, invest, Investing, Preparing for Retirement | Comments Off on Can You Have Multiple IRAs?

In theory, there’s no limit to how many individual retirement accounts (IRAs) one person can have. A retirement saver could potentially maintain more than one traditional IRA, Roth IRA, rollover IRA, or simplified employee pension (SEP) IRA in order to gain certain tax advantages now, and potentially down the road.

That said, the rules governing these different IRA accounts vary considerably, and combining many IRAs — without running afoul of contribution limits or creating tax issues — can be difficult.

How Many Roth and Traditional IRAs Can You Have?

As mentioned above, you may open any number of individual retirement accounts (IRAs). The Internal Revenue Service (IRS) does not limit the number of IRAs you can have and will not penalize you for having multiple IRAs in your name, as long as you follow the rules and contribution limits for each account.

One or more IRAs could work in tandem with a 401(k) workplace retirement plan. For instance, you might put part of each paycheck into a 401(k) plan at work while also maxing out your traditional IRA contributions every year. There might be restrictions, though, about the amount you can deduct.

An individual’s annual contribution limit — for traditional and Roth IRAs combined — is $7,000 ($8,000 for savers ages 50 or older) for the 2025 tax year. For tax year 2026, the limit is $7,500 ($8,600 for those ages 50 or older).

Recommended: What is an IRA?

Types of IRA

The two main account types are the traditional IRA and the Roth IRA. Again, your traditional IRA withdrawals are taxed at your ordinary income tax rate in retirement while Roth IRA money can be withdrawn tax-free.

With a traditional IRA, contributions can provide tax deductions when the money is deposited. Qualified distributions are taxed as ordinary income in retirement. Funds distributed before the account holder reaches age 59 ½ are usually subject to an added 10% tax.

Roth IRA contributions do not qualify for a deduction when deposited. However, when the account holder reaches age 59 ½, the money may be withdrawn tax-free. As with traditional IRAs, you can have multiple Roth IRAs.

There is a third type of IRA, the SEP IRA. These IRAs have higher contribution limits: up to $70,000 for tax year 2025 and $72,000 for tax year 2026, or 25% of compensation, whichever is less. But because these are employer-funded plans, they follow a different set of rules.

If you are self-employed and contributing to a SEP IRA on your own behalf, or if you work for a company with a SEP plan, you may or may not have the option of making traditional IRA contributions — but you could likely contribute to a Roth in addition to the SEP.

You may want to consult with a professional so you don’t over-contribute — or contribute less than you could have — or miss out on any of the potential tax benefits.

Advantages and Disadvantages of Multiple IRAs

Whether it makes sense for you to have multiple IRAs can depend on many factors, including your investment goals, financial situation, marital status, and career plans.

Advantages

Here are some of the chief advantages of maintaining more than one IRA:

•   Tax management. Traditional IRAs and Roth IRAs are taxed differently, as mentioned above. Also, traditional IRAs are subject to required minimum distributions (RMDs), which can increase your taxable income in retirement, while Roth IRAs are not. Having money in both types of IRA could make your retirement investing more tax-efficient.

•   Diversification. Diversification can help manage investment risk. Holding money in multiple IRAs, each with a different investment strategy, could help you create a diversified portfolio.

   Diversification may also benefit you from a tax perspective if you keep less tax-efficient investments in a traditional IRA and more tax-efficient ones in a Roth IRA.

•   Access. Traditional IRAs do not permit early withdrawals before age 59 ½ without triggering a tax penalty. You can, however, withdraw your original contributions from a Roth IRA at any time without owing income tax or penalties on those distributions. Having one IRA of each type could make it less expensive for you to withdraw money early if needed. This is possible whether investing online or not.

•   Avoiding RMDs. Traditional IRAs are subject to RMD rules, which dictate that you must begin taking minimum IRA distributions at age 72. If you don’t, the IRS can levy a steep tax penalty. Roth IRAs aren’t subject to RMD rules, so they could help you hang on to more assets as you age.

Disadvantages

Opening and funding multiple IRAs isn’t always an optimal strategy. Here are some disadvantages that may make you reconsider having several IRAs:

•   Contribution limits. The IRS caps the amount you can contribute in a given year. For 2024, your total contributions to all your IRAs cannot exceed $7,000 (or $8,000 if you’re 50 or older). For 2025, your total contributions to all your IRAs cannot exceed $7,000 (or $8,000 if you’re 50 or older). For 2026, your total contributions to all your IRAs cannot exceed $7,500 (or $8,600 if you’re 50 or older). So having multiple IRAs doesn’t give you an edge in saving up for retirement.

•   Overweighting. When a significant share of your asset allocation is dedicated to a single stock, security, or sector, your portfolio is overweight. This overexposure can heighten your risk profile, such that a downturn in that investment could drag down your entire portfolio. Having multiple IRAs may put you at risk of being overweight if you’re not careful about reviewing the holdings in each account.

•   Fees. Brokerages often charge various fees to maintain IRAs. Plus, within each IRA, you may have to pay additional fees for specific investments. For example, a mutual fund has an annual ownership cost signified by its expense ratio. If you’re not paying attention to each IRA’s fees, it’s possible that you could overpay and shrink your investment returns.

•   Organization. Having multiple IRAs could present an organizational burden in the form of additional paperwork or, if you manage your IRAs online, logging in to multiple brokerages or robo-advisor platforms. You may also worry about increased risk for cybercrime.

Reasons You Might Want More Than One IRA

Evaluating your investment goals can help you decide if having more than one IRA makes sense for you. But you may need extra accounts if you’re:

•   Rolling over a 401(k). When separating from your employer, you could leave your 401(k) money where it is or roll it into a traditional IRA instead. If you open a rollover IRA and already have a Roth account too, you may end up with multiple IRAs.

•   Planning a backdoor Roth. Roth IRAs offer tax-free distributions but there’s a catch: To fund one, you have to meet eligibility requirements pertaining to your income and filing status. People who are over the income limit sometimes work around it by setting up a traditional IRA and later transferring some of that money to a Roth IRA. Taxes are levied on the transferred amount. This arrangement is known as a Roth conversion or backdoor Roth.

•   Married and the sole income-earner. The IRS allows married couples who file a joint tax return to each contribute to IRAs, even when one spouse does not have taxable compensation. So if you’re the breadwinner in your relationship, you could set up an IRA for yourself and open a spousal IRA to make contributions on behalf of your spouse.

•   Self-employed or plan to be. People who are self-employed can use traditional, Roth, or SEP IRAs to save for retirement. You might end up with multiple IRAs if you were an employee who had a traditional or Roth IRA, then later went out on your own as an entrepreneur. You could then open a SEP IRA, which allows for tax-deductible contributions and a higher annual contribution limit ($70,000 in 2025, and $72,000 in 2026).

Reasons You Might Want Your IRAs With Different Companies

Whether you’re planning to open your first IRA or your fifth, it’s important to choose the right place to keep your retirement savings. You can open an IRA with a traditional broker, an online brokerage, or sometimes at your bank or credit union.

So why would you want to have your IRAs in different places? Two big reasons for that center on investment options and insurance.

Setting up IRAs at different brokerages could offer you greater exposure to a wider variety of investments. Every brokerage has its own policies on IRA assets. One brokerage might lean almost exclusively toward investing in exchange-traded funds (ETFs) or index funds, for example, while another might allow you to purchase individual stocks or bonds through your IRA.

You can also benefit from increased insurance coverage. The Securities Investor Protection Corporation (SIPC) insures Roth IRAs and other eligible investment accounts up to $500,000 per person. Under those rules, you could have a traditional IRA at one brokerage and a Roth IRA at another and they’d both be covered up to $500,000.

Note: SIPC coverage only protects you against the possibility of your brokerage failing, not against any financial losses associated with changes in the value of your investments.

How to Transfer an IRA to Another Investment Company

It’s fairly straightforward to move an IRA from one brokerage to another. First you need to set up an IRA at the new brokerage. Then you’d contact your current brokerage to initiate the transfer of some or all of your IRA funds.

You can request a trustee-to-trustee transfer, which allows your current IRA company to move the money to the new IRA on your behalf. No taxes are withheld on the transfer amount and you also avoid the risk of triggering a tax penalty.

The IRS also allows 60-day rollovers, in which you get a distribution from your existing IRA then redeposit it into your new retirement account. Taxes are withheld, so you’ll have to make that amount up when you deposit the money to your new IRA. If you fail to complete the rollover within 60 days, the IRS treats the deal as a taxable distribution.

The Takeaway

Investing in multiple IRAs is perfectly legal and, in theory, you can have an unlimited number of them. The IRS’s annual limits on contributions apply across all your accounts, however. Traditional and Roth IRAs have different tax rules and can sometimes be useful to offset each other. SEP IRAs offer the potential to save more, thanks to their higher contribution limits. Wage earners can often contribute to separate accounts for their non-working spouses, potentially doubling the amount of allowable contributions.

If you have yet to set up an IRA, getting started is easier than you might think. With SoFi Invest, you can open a traditional or Roth IRA. And you may want to consider doing a rollover IRA, where you roll over old 401(k) funds so that you can better manage all your retirement money.

SoFi makes the rollover process seamless and simple, so you don’t have to worry about transferring funds yourself, or potentially incurring a penalty. There are no rollover fees, and you can complete your 401(k) rollover without a lot of time or hassle.

Help grow your nest egg with a SoFi IRA.

FAQ

Does it make sense to have multiple IRAs?

Having more than one IRA could make sense for some people, depending on their investment strategies. When maintaining multiple IRAs, the most important thing to keep in mind are the limits on annual contributions. It’s also helpful to weigh the investment options offered and the fees you might pay to own multiple IRAs.

Can I have both a traditional and a Roth IRA?

Yes, you can have both a traditional IRA and a Roth IRA. However, your total contribution to all your IRAs cannot exceed the annual limits allowed by the IRS.

How many Roth IRAs can I have?

A person can have any number of Roth IRAs. The IRS does, however, set guidelines on who can contribute to a Roth IRA and the maximum amount you can contribute each year.

About the author

Rebecca Lake

Rebecca Lake

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


Photo credit: iStock/Prostock-Studio

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

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

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

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

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