Investing Archives

Dec

2025

Guide to Self-Directed IRAs (SDIRA)

By Austin Kilham | Growing Wealth, invest, Investing | Comments Off

Table of Contents

What Is a Self-Directed IRA (SDIRA)?
How Do Self-Directed IRAs Work?
Pros and Cons of Self-Directed IRAs
4 Steps to Opening a Self-Directed IRA
FAQ

A self-directed IRA, or SDIRA, is a type of individual retirement account that allows the account holder to invest in securities other than stocks, bonds, and mutual funds: e.g., real estate, private equity, precious metals, and other alternative assets.

Nonetheless, self-directed IRAs are still subject to basic IRA rules, like annual contribution limits and withdrawal restrictions. SDIRAs are available as regular tax-deferred IRAs as well as Roth IRAs.

The main difference is that a custodian administers a self-directed IRA, but the account holder manages their investments and assumes the risk in doing so.

Key Points

• A self-directed IRA (SDIRA) allows individuals to buy, sell, and hold alternative assets, including real estate, cryptocurrency, and precious metals, which conventional IRAs don’t permit.

• Nonetheless, SDIRAs are subject to ordinary IRA withdrawal rules, tax structures, and annual contribution limits.

• Account holders of SDIRAs research and manage their investments independently, thus increasing their responsibility and potential risk exposure.

• While SDIRAs may offer potential returns, they also carry higher fees and risks, particularly due to the illiquidity of many alternative investments.

• Opening a SDIRA requires finding an approved custodian, selecting investments, completing transactions through a reputable dealer, and planning for less liquid transactions.

What Is a Self-Directed IRA (SDIRA)?

Self-directed IRAs and self-directed Roth IRAs allow account holders to buy and sell a wider variety of investments than regular traditional IRAs and Roth IRAs. Experienced investors who are familiar with sophisticated or risky investments may be more comfortable managing a SDIRA, compared with less experienced investors.

While a custodian or a trustee administers the SDIRA, the account holder typically manages the portfolio themselves, taking on the risk and responsibility for researching investments and due diligence. Because these accounts are not as heavily regulated, they may see a higher incidence of fraud.

These accounts may also come with higher fees than regular IRAs, which can cut into the size of the investor’s retirement nest egg over time.

What Assets Can You Put in a Self-Directed IRA or a Self-Directed Roth IRA?

Individuals can hold a number of unique alternative investments in their SDIRA, including but not limited to:

• Real estate and land

• Cryptocurrency

• Precious metals

• Mineral, oil, and gas rights

• Water rights

• LLC membership interest

• Tax liens

• Foreign currency

• Startups through crowdfunding platforms

Recommended: Types of Alternative Investments

Types of SDIRAs

There are specific kinds of SDIRAs customized for certain types of retirement savers looking for certain types of investments.

Self-directed SEP IRAs

Simplified Employee Pension IRAs (SEP IRAs) are for small business owners or those who are self-employed, and who can make contributions that are tax deductible for themselves and any eligible employees they might have. Using a self-directed SEP IRA gives them the flexibility to invest in alternative investments.

Self-directed SIMPLE IRAs

A Savings Incentive Match Plan IRA (or SIMPLE IRA) is a tax-deferred retirement plan for employers and employees of small businesses. Both the employer and the employees can make contributions to this plan. It allows for some alternative kinds of investments.

Self-directed Precious Metal IRAs

Similarly, there are self-directed IRAs for those who would like to invest in precious metals like gold. However, be aware that some precious metal IRAs may charge higher fees than the market price for precious metals.

Recommended: SIMPLE IRA vs Traditional

How Do Self-Directed IRAs Work?

Aside from their ability to hold alternative investments, SDIRAs work much like their conventional IRA counterparts. SDIRAs are tax-advantaged retirement accounts, and they can come in two flavors: traditional SDIRAs and Roth SDIRAs. But investors learning toward an online IRA generally need to find a qualified custodian to set up a SDIRA.

Traditional IRA Contributions and Withdrawal Rules

IRA contributions to traditional accounts goes in before taxes, which reduces investors’ taxable income, lowering their income tax bill in the year they make the contribution. For 2025, individuals can contribute up to $7,000 in total across accounts. Those age 50 and up can make an extra $1,000 catch-up contribution for a total of $8,000. For 2026, individuals can contribute a total of up to $7,500 across accounts. Those age 50 and up can make an additional contribution of $1,100 for a total of $8,600. Investments inside the account grow tax-deferred.

It’s important to pay close attention to self-directed IRA rules, particularly rules for IRA withdrawals. Account holders who make withdrawals before age 59 ½ may owe taxes and a possible 10% early withdrawal penalty. Traditional SDIRA account holders must begin making required minimum distributions (RMDs) after age 73.

Roth IRA Contributions and Withdrawal Rules

Roth SDIRAs have the same contribution limits as traditional SDIRAs. However, retirement savers contribute to Roths with after-tax dollars. Investments inside the account grow tax-free, and withdrawals after age 59 ½ aren’t subject to income tax.

Roth accounts are also not subject to RMD rules. As long as an individual has had the account for at least five years (according to the five-year rule), they can withdraw Roth contributions at any time without penalty, though earnings may be subject to tax if withdrawn before age 59 ½.

There are also rules restricting who can contribute to a Roth IRA, based on their income. In 2025, Roth eligibility begins phasing out at $150,000 for single people, and $236,000 for people who are married and file their taxes jointly. In 2026, Roth eligibility starts to phase out at $153,000 for single filers, and $242,000 for for piople who are married and filing jointly.

Individuals can maintain both traditional and Roth IRA accounts, however, contribution limits are cumulative across accounts, and cannot exceed $7,000, or $8,000 for those 50 and over, in 2025, and $7,500 or $8,600 for those 50 and over, in 2026.

Pros and Cons of Self-Directed IRAs

Self-directed IRAs offer unique perks for the right investor. However, those interested must weigh those benefits against potential drawbacks.

Benefits of Self-Directed IRAs

• Tax advantages

As noted above, self-directed IRAs offer the same tax advantages as ordinary IRA accounts (along with the same rules and restrictions).

• Diversification

A SDIRA also allows investors to branch out into different types of investments to which they might otherwise not have access. This allows investors to seek out potentially higher returns and diversify their portfolios beyond the offerings in traditional IRAs.

Alternative investments have the potential to offer higher returns than investors might achieve with conventional stock market investments. However, these opportunities come at the price of higher risk.

• Potential risk management

Also, investors’ ability to hold a broader spectrum of investments that may help them manage risks, such as inflation risk or longevity risk (the chance an investor will run out of money before they die). For example, some SDIRAs allow investors to hold gold, a traditional hedge against inflation.

Drawbacks of Self-Directed IRAs

While there are some advantages to using SDIRAs, these must be weighed against their disadvantages.

• Liquidity

For starters, investments like stocks and shares of ETFs are highly liquid. Investors who need their money quickly can sell them in a relatively short period of time, usually a matter of days.

However, some of the investments available in SDIRAs are illiquid. For example, real estate and real assets like precious metals may take quite a bit of time to sell. Individuals who need to sell these assets quickly may find themselves in a situation in which they must accept less than they believe the asset is worth.

• Cost

SDIRAs may also carry higher fees. Individuals who hold regular IRA accounts may not have to pay management or investment fees. However, SDIRA holders may have to pay fees associated with holding the account and with the purchase and maintenance of certain assets.

• Risks

Finally, SDIRAs place a lot of responsibility in the hands of their account holders. Investors must research investments themselves and perform due diligence to make sure that whatever they’re buying is legitimate and matches their risk tolerance.

What’s more, investors must make sure the assets they hold meet IRS rules. Running afoul of these rules can be costly, in some cases causing investors to pay taxes and penalties.

Here’s a look at the pros and cons of SDIRAs at a glance:

Pros	Cons
Tax-advantaged growth. Contributions to traditional accounts are tax deductible. Investments grow tax-deferred in traditional accounts and tax-free in Roth accounts.	Not liquid. Selling alternative investments may be slow and difficult.
Same contribution limits as regular IRAs. In 2025, individuals can contribute up to $7,000 a year, or $8,000 for those age 50 and up; in 2026, they can contribute $7,500, or $8,600 for those age 50 and up.	Higher fees. Individuals may be on the hook for account fees and fees associated with alternative investments.
Potential for higher returns. Alternative investments may offer higher returns than those available in the stock market.	Increased responsibility. Investors must research investments carefully themselves and ensure they stay within rules for approved IRA investments.
Diversification. SDIRAs offer investors the ability to invest in assets beyond the stock and bond markets.	Higher risk. Alternative investments tend to be riskier than more traditional investments.

4 Steps to Opening a Self-Directed IRA

Investors who want to open an SDIRA will need to take the following steps:

1. Find a custodian or trustee.

This can be a bank, trust company, or another IRS-approved entity. You’ll need to follow their requirements for opening an IRA account. Some SDIRAs specialize in certain asset classes, so look for a custodian that allows you to invest in the asset classes in which you’re interested.

2. Choose investments.

Decide which investments you want to hold in your SDIRA. Perform necessary research and due diligence.

3. Complete the transaction.

Find a reputable dealer from which your custodian can purchase the assets, and ask them to complete the sale.

4. Plan withdrawals carefully.

Because alternative assets have less liquidity than other types of investments, you may need to plan sales well in advance of needing retirement income or meeting any required minimum distributions.

The Takeaway

There are advantages and disadvantages to self-directed IRAs. Benefits include the fact that you can make alternative types of investments you might not otherwise be able to. That could help you diversify your portfolio and potentially increase your returns.

If you’re opening your first IRA account, you’re likely best served with a traditional or Roth IRA. Because of the risk and responsibility involved in using an SDIRA, only experienced investors should consider these accounts.

Prepare for your retirement with an individual retirement account (IRA). It’s easy to get started when you open a traditional or Roth IRA with SoFi. Whether you prefer a hands-on self-directed IRA through SoFi Securities or an automated robo IRA with SoFi Wealth, you can build a portfolio to help support your long-term goals while gaining access to tax-advantaged savings strategies.

Help build your nest egg with a SoFi IRA.

FAQ

Are self-directed IRAs a good idea?

However, there are drawbacks to SDIRAs, including higher risk because alternative investments tend to be riskier, and potentially higher fees for maintenance of investments in the plan and account fees. In addition, investors need to research the investments themselves and follow the IRS rules carefully to make sure they comply. Finally, many alternative investments are not liquid, which means they could take longer and be more difficult to sell.

Can you set up a self-directed IRA yourself?

To set up a self-directed IRA, find a custodian or trustee such as a bank or trust company to open an account, research and choose your investments, find a reputable dealer for the investments you’d like to make, and have your custodian complete the transactions.

How much money can you put in a self-directed IRA?

For tax year 2025, you can contribute up to $7,000 to a traditional or Roth self-directed IRA, plus an additional $1,000 if you’re 50 or older. For tax year 2026, you can contribute up to $7,500, or $8,600 if you are 50 or older.

Photo credit: iStock/Andres Victorero

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.

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

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.

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

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.

An investor should consider the investment objectives, risks, charges, and expenses of the Fund carefully before investing. This and other important information are contained in the Fund’s prospectus. For a current prospectus, please click the Prospectus link on the Fund’s respective page. The prospectus should be read carefully prior to investing.
Alternative investments, including funds that invest in alternative investments, are risky and may not be suitable for all investors. Alternative investments often employ leveraging and other speculative practices that increase an investor's risk of loss to include complete loss of investment, often charge high fees, and can be highly illiquid and volatile. Alternative investments may lack diversification, involve complex tax structures and have delays in reporting important tax information. Registered and unregistered alternative investments are not subject to the same regulatory requirements as mutual funds.
Please note that Interval Funds are illiquid instruments, hence the ability to trade on your timeline may be restricted. Investors should review the fee schedule for Interval Funds via the prospectus.

CRYPTOCURRENCY AND OTHER DIGITAL ASSETS ARE NOT FDIC INSURED • ARE NOT BANK GUARANTEED • MAY LOSE VALUE

Cryptocurrency and other digital assets are highly speculative, involve significant risk, and may result in the complete loss of value. Cryptocurrency and other digital assets are not deposits, are not insured by the FDIC or SIPC, are not bank guaranteed, and may lose value.

All cryptocurrency transactions, once submitted to the blockchain, are final and irreversible. SoFi is not responsible for any failure or delay in processing a transaction resulting from factors beyond its reasonable control, including blockchain network congestion, protocol or network operations, or incorrect address information. Availability of specific digital assets, features, and services is subject to change and may be limited by applicable law and regulation.

SoFi Crypto products and services are offered by SoFi Bank, N.A., a national bank regulated by the Office of the Comptroller of the Currency. SoFi Bank does not provide investment, tax, or legal advice. Please refer to the SoFi Crypto account agreement for additional terms and conditions.

SOIN-Q325-097
CN-Q425-3236452-24

Dec

2025

Guide to Investing in Your 30s

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

Turning 30 can bring a shift in the way you approach your finances. Investing in your 30s can look very different from the way you invest in your 20s or 40s, based on your goals, strategies, and needs.

At this stage in life you may be working on paying off the remainder of your student loan debt while focusing on saving. Your financial priorities may revolve around buying a home and starting a family. At the same time, you may be hoping to add investing for retirement into the mix (or increase the amount you’re already investing) as you approach your peak earning years.

Finding ways to make these goals and needs fit together is what financial planning in your 30s is all about. Knowing how to invest your money as a 30-something can help you start building wealth for the decades to come.

Key Points

• In your 30s, set specific, measurable, and actionable financial goals, such as contributing 10% of income to a 401(k) and aiming for a net worth of two times your annual salary by 40.

• Embracing a balanced level of risk that you feel comfortable with, is one tip for investing in your 30s. The longer you have to invest, generally the more risk you may be able to take.

• Diversifying investment portfolios across different assets such as stocks, bonds, and cash, for example, can help spread out risk.

• Leverage tax-advantaged accounts like 401(k)s and IRAs for retirement savings, and taxable accounts for flexibility and additional contributions.

• Prioritize building an emergency fund, achieving short-term goals, and paying off debt, while also saving for the future.

5 Tips for Investing in Your 30s

1. Define Your Investment Goals

Setting clear financial goals in your 30s or at any age is critical. Your goals are your end points, the things that you’re saving for.

So as you consider how to invest in your 30s, think about the result you’re hoping to achieve. Focus on goals that are specific, easy to measure, and actionable.

For example, your goals for investing as a 30-something may include:

• Contributing 10% of your income to your 401(k) plan each year

• Maxing out annual contributions to an Individual Retirement Account (IRA)

• Saving three times your salary for retirement by age 40

• Achieving a net worth of two times your annual salary by age 40

These goals work because you can define them using real numbers. Say for example, you make $50,000 a year. To meet each of these goals, you’d need to:

• Contribute $5,000 to your 401(k)

• Save $7,000 in an IRA in 2025 and $7,500 in 2026

• Have $150,000 in retirement savings by age 40

• Grow your net worth to $100,000 by age 40

Setting goals this way may require you to be a little more aggressive in your financial approach. But having hard numbers to work with can help motivate you to move forward.

2. Know Your Tolerance for Risk

If there’s one important rule to remember about investing in your 30s, it’s that time is on your side.

When retirement is still several decades away, you typically have time to recover from the inevitable bouts of market volatility that you’re likely to experience. The market moves in cycles; sometimes it’s up, others it’s down. But the longer you have to invest, the more risk you can generally afford to take.

The best investments for 30 somethings are the ones that allow you to achieve your goals while taking on a level of risk with which you feel comfortable. That being said, here’s another investing rule to remember: the greater the investment risk, the greater the potential rewards.

Stocks, for example, are riskier than bonds, but of the two, stocks are likely to produce better returns over time. If you’re not sure how to choose your first stock, you may have heard that it’s easiest to buy what you know. But there’s more to investing in stocks than just that. When comparing the best stocks to buy in your 30s, think about things like:

• How profitable a particular company is and its overall financial health

• Whether you want to invest in a stock for capital appreciation (i.e. growth) or income (i.e. dividends)

• How much you’ll need to invest in a particular stock

• Whether you’re interested in short-term trading or using a buy-and-hold strategy

Past history isn’t an indicator of future performance, so don’t focus on returns alone when choosing stocks. Instead, consider what you want to get from your investments and how each type of investment can help you achieve that.

💡 Quick Tip: When people talk about investment risk, they mean the risk of losing money. Some investments are higher risk, some are lower. Be sure to bear this in mind when investing online.

3. Diversify, Diversify, Diversify

Investing in your 30s can mean taking risk but you don’t necessarily want to have 100% of your portfolio committed to just a handful of stocks. A diversified portfolio with multiple investments can help spread out the risk associated with each investment.

So why does portfolio diversification matter? It’s simple. A portfolio that’s diversified is better able to balance risk. Say, for example, you have 80% of your investments dedicated to stocks and the remaining 20% split between bonds and cash. If stocks experience increased volatility, your lower-risk investments could help smooth out losses.

Or say you want to allocate 90% of your portfolio to stocks. Rather than investing in just a few stocks, you could spread out risk by investing and picking one or more low-cost exchange-traded funds (ETFs) instead.

ETFs are similar to mutual funds, but they trade on an exchange like a stock. That means you get the benefit of liquidity and flexibility of a stock along with the exposure to a diversified collection of different assets. Your diversified portfolio might include an index ETF that tracks the performance of the S&P 500, an ETF that’s focused on growth stocks, a couple of bond ETFs, and some individual stocks.

This type of strategy allows you to be aggressive with your investments in your 30s without putting all of your eggs in one basket, so to speak. That can help with growing wealth without inviting more risk into your portfolio than you’re prepared to handle.

💡 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.

4. Leverage Tax-Advantaged and Taxable Accounts

Asset allocation, or what you decide to invest in, matters for building a diversified portfolio. But asset location is just as important.

Asset location refers to where you keep your investments. This includes tax-advantaged accounts and taxable accounts. Tax-advantaged accounts offer tax benefits to investors, such as tax-deferred growth and/or deductions for contributions. Examples of tax-advantaged accounts include:

• Workplace retirement plans, such as a 401(k)

• Traditional and Roth IRAs

• IRA CDs

• Health Savings Accounts (HSAs)

• Flexible Spending Accounts (FSAs)

• 529 College Savings Accounts

If you’re interested in investing for retirement in your 30s, your workplace plan might be the best place to start. You can defer money from your paychecks into your retirement account and may benefit from an employer-matching contribution if your company offers one. That’s free money to help you build wealth for the future.

You could also open an IRA to supplement your 401(k) or in place of one if you don’t have a plan at work. Traditional IRAs can offer a deduction for contributions while Roth IRAs allow for tax-free distributions in retirement. When opening an IRA, think about whether getting a tax break now versus in retirement would be more valuable to you.

If you’re not earning a lot in your 30s but expect to be in a higher tax bracket when you retire, then a Roth IRA could make sense. But if you’re earning more now, then you may prefer the option to deduct what you save in a traditional IRA.

You might also consider taxable accounts for investing in your 30s. With a taxable brokerage account, you don’t get any tax breaks, and you’ll owe capital gains tax on any investments you sell at a profit. But there are no contribution limits on taxable accounts as there are with 401(k)s and IRAs, so you can contribute as much as you like. And if you need money for a shorter-term goal, such as a down payment on a house, a taxable investment account doesn’t have restrictions on how much money you can withdraw and when you can withdraw it, unlike retirement accounts. So your money is easier to access.

5. Prioritize Other Financial Goals

Retirement is one of the most important financial goals to think about, but planning for it doesn’t have to sideline your other goals. Financial planning in your 30s should be more comprehensive than that, factoring in things like:

• Buying a home

• Marriage and children

• Saving for emergencies

• Saving for short-term goals

• Paying off debt

As you build out your financial plan, consider how you want to prioritize each of your goals. After all, you only have so much income to spread across them, so think about which ones need to be funded first.

That might mean creating an emergency fund, then working on shorter-term goals while also setting aside money for your child’s college education and contributing to your 401(k). And if you’re still paying off student loans or other debts, that may take priority over something like saving for college.

Looking at the bigger financial picture can help with balancing investing alongside your other goals.

The Takeaway

Your 30s are a great time to start investing and it’s important to remember that it doesn’t have to be complicated or overwhelming. Taking even small steps toward getting your money in order can help improve your financial security, both now and in the future.

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

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

FAQ

What is the best way to invest money in your 30s?

Some of the options to invest money in your 30s include participating in your employer’s 401(k) and contributing enough to get the employer match, if possible; opening an IRA and maxing out the contribution limit of $7,000 for those under age 50 in 2025, and $7,500 for those under age 50 in 2026; and diversifying your investments across different asset classes and sectors to help spread out the risk.

What is $1,000 a month invested for 30 years?

It depends how the money is invested and the rate of return on the investment. If you invest $1,000 a month for 30 years in an index fund that tracks the S&P 500, for example — where the average annual inflation-adjusted return is about 7% — you would have about $1.2 million. However, if your investment has a lower rate of return of, say, 4%, you would have about $700,000 after 30 years.

Is 30 too late to start investing?

No, 30 is not too late to start investing. In fact, it’s a good time to start. The earlier you begin investing, the more time your money has to grow. If you start at age 30 and retire at age 65, for instance, your money will potentially have 35 years to compound and grow. That stretch of years also helps you ride out ups and downs in the stock market.

About the author

Rebecca Lake

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

Photo credit: iStock/katleho Seisa

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.

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.

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.

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

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.
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.

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

SOIN-Q325-085
CN-Q425-3236452-58

Dec

2025

Putting an IRA in a Trust: What You Need to Know

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

While it’s not possible to put an individual retirement account (IRA) in a trust while you’re alive, you can name a trust to be the beneficiary of your IRA assets after you die. This can be done with traditional IRAs as well as Roth IRAs, SEP, and SIMPLE IRAs.

Trusts are an estate-planning tool that can be useful for passing on assets to others after your death. Assets you can transfer to a trust include investments like stocks and bonds, real estate, bank accounts, and antiques — but not IRA accounts, per se.

Rather, the trust would become a beneficiary of the IRA, and assets within the IRA would transfer to the trust after your death, with instructions about how and when those assets should be distributed.

Key Points

• You can effectively put an IRA in a trust after you die by naming the trust as the beneficiary of the IRA.

• Naming a trust as the beneficiary of an IRA allows you, the IRA owner, to manage how and when assets will be distributed after your death.

• This arrangement can be used for any type of IRA: traditional, Roth, SEP, or SIMPLE.

• Setting up a trust as an IRA beneficiary requires that you establish a trust, identify a trustee, and name the trust beneficiaries, who will then inherit the IRA assets.

• Benefits include greater control over how IRA assets are distributed; drawbacks include the cost and time involved in setting up a trust.

What Is an IRA?

To recap what an IRA is, it’s an individual retirement account that allows you to save and invest on a tax-advantaged basis.

You can open an IRA at brokerages, banks, and other financial institutions that offer them. There are different types of IRAs you can fund; each with its own set of restrictions:

• Traditional IRA: A traditional IRA typically allows you to make tax-deductible contributions. Withdrawals are taxed at your ordinary income tax rate.

• Roth IRA: Roth IRAs do not allow for deductible contributions. However, qualified withdrawals are tax free.

• SEP and SIMPLE IRAs: SEP and SIMPLE IRAs are designed for small business owners and self-employed individuals. Similar to traditional IRAs, these plans are tax-deferred, but generally have higher contribution limits.

How much can you put in an IRA? The IRS determines how much you can contribute to an IRA each year. The maximum contribution for tax year 2025 is $7,000; an additional $1,000 catch-up contribution is allowed for people aged 50 or older. For tax year 2026, the maximum contribution is $7,500, plus an additional $1,100 catch-up contribution for those aged 50 or older.

Anyone with earned income can contribute to a traditional or a Roth IRA. There are some rules to know, however:

• The amount of traditional IRA contributions you can deduct, if any, is based on your income and filing status and whether you (or your spouse, if married) are covered by an employer’s retirement plan.

• The amount of Roth IRA contributions you can make each year is determined by your income and tax filing status. If your income is too high, you may be ineligible to contribute to a Roth IRA.

The assets in any of these types of IRAs could be transferred to a trust upon your death, as long as you name the trust the beneficiary of the IRA account.

Inherited IRAs

Before deciding whether to transfer your IRA assets to a trust upon your death, you may want to consider the rules for inherited IRAs. Leaving the funds in the IRA to be inherited by a beneficiary such as your spouse, child, or grandchild is also an option, rather than going to the trouble of setting up a trust.

Inherited IRA rules can be complicated, however. When it comes to IRAs, there are two types of beneficiaries: designated and non-designated. Designated includes people, such as a spouse, child, or friend. Non-designated beneficiaries are entities like estates, charities, and trusts.

Depending on the beneficiary’s relationship to you at the time of your death, as well as your age, different rules will apply to how IRA funds can be accessed and distributed. For example, all inherited IRAs obey a set of IRS rules pertaining to the distribution of funds. But when you set up a trust as the beneficiary for an IRA, the funds can be distributed according to parameters that you have established.

How Does a Trust Work?

A trust is a legal entity you can establish for the protection and distribution of assets after you die. State law determines the process for creating one, but generally here’s how a trust works:

• You create the trust document on paper, either by yourself or with the help of an estate planning attorney.

• You name a trustee who will manage trust assets on behalf of the individuals or entities you name as beneficiaries.

• Once the trust is created, you typically can transfer assets to the trust and control of the trustee. With an IRA, you would name the trust as the beneficiary of the IRA assets.

• The assets are transferred to the trust upon your death, and the trustee oversees the distribution of the funds to the beneficiaries of the trust.

• In many cases, the assets in a trust are not subject to probate after you pass. This can streamline the transfer of assets, and also ensure some privacy.

More Facts About Trusts

• A trustee is a fiduciary, meaning they’re obligated to act in the best interests of you and the trust’s beneficiaries. The trustee has an ethical duty to manage the trust assets according to the terms you spelled out in the trust document.

• There are different types of trusts you can consider, but generally they can be classified as revocable or irrevocable: A revocable trust can be altered or canceled, while an irrevocable trust is permanent.

• In estate planning, a trust is separate from a person’s will. A will is a legal document you can use to specify how you’d like assets to be distributed after your death or name a guardian for minor children.

Can an IRA Be Put in a Trust?

An IRA can be put in a trust, but it cannot be transferred to a trust during your lifetime. You can, however, establish a trust and name it as the beneficiary of your IRA.

Naming a trust as the beneficiary of your IRA assets can give you more control over how and when the funds are distributed.

Making a trust the beneficiary to your IRA may be as simple as updating your beneficiary elections with the company that holds your account, assuming the trust has already been created. Your brokerage account may allow you to make a change to your beneficiary designation online or require you to mail in a new beneficiary election form.

What Happens When You Put an IRA in a Trust?

When you name a trust as the beneficiary of an IRA, funds in the IRA account are directed into the trust once you pass away. IRA funds can then be distributed among the trust’s beneficiaries, according to the conditions you set.

Moving an IRA to a trust would not affect the beneficiary designations for any other retirement accounts you might have, such as a 401(k).

Reasons Someone Might Put Their IRA in a Trust

There are different scenarios in which it might make sense to name a trust as your IRA beneficiary, versus passing it on to your heirs directly. You might choose to do so if you:

• Want to set specific conditions or restrictions on when beneficiaries can access IRA assets.

• Are interested in creating a legacy of giving through your estate plan and have named one or more charities as trust beneficiaries.

• Want to protect IRA assets from creditors.

• Need to set up a trust for a special needs beneficiary.

Control is often the biggest reason for naming a trust as an IRA beneficiary. For example, say one of your children is a spendthrift. If you were to name them as beneficiary to your IRA, then they’d have free access to that money once you pass away.

Instead, you could name the trust as beneficiary, with a stipulation that your child is only able to withdraw a certain amount of money from the IRA each year, or only for a certain purpose (e.g., their education). Or you could specify that the IRA assets should only be released to them when they reach a certain age.

Things to Consider Before Putting an IRA in a Trust

Before setting up a trust for an IRA, it’s important to consider whether it actually makes sense for your situation.

Here are some questions to weigh:

• What are the goals of the trust, and specifically for the IRA assets?

• Will you transfer other assets to the trust as well?

• Which type of trust should you open?

• Who will benefit from the trust itself?

• What are the tax implications for beneficiaries?

• Who is the best choice to act as executor?

It’s also important to factor in the cost of setting up and maintaining a trust. Doing it yourself could save you the expense of hiring an attorney, but that might not be an option if you have a complex estate.

Once the trust is created, there may be additional costs including any fees the executor is entitled to collect.

How Can You Put an IRA in a Trust?

As mentioned, you cannot transfer an IRA into a trust during your lifetime. To plan for a trust to be the beneficiary of an IRA, you’ll need to take the following steps.

1. Open an IRA

If you don’t already have a retirement account, opening an IRA is a good place to start. That’s easy to do, as many brokerages allow you to set up a traditional, Roth, SEP or SIMPLE IRA online. When deciding where to open an IRA, pay attention to:

• The range of investment options offered

• What you might pay in fees

• How easily you’ll be able to access and manage your account (i.e., website, mobile app, etc.)

You can open an IRA with money from a savings account or rollover funds from another retirement account.

Recommended: A Beginner’s Guide to Opening an IRA

2. Establish a Trust

Once you have an IRA, you’ll need a trust to name as its beneficiary. You could create a simple living trust yourself using an online software program. Remember that the rules governing trusts vary depending on the state.

If you have a more complicated estate, you might want to work with an attorney.

Here are some of the key steps to establishing a trust:

• Select the trust type. As mentioned, there are different types of trusts to choose from. If you’re unsure which one might be right for you, it may be helpful to talk to a professional.

• Choose a trustee. Your trustee should be someone you can rely on to manage trust assets ethically. It’s possible to name yourself as the trustee in your lifetime, with one or more successor trustees to follow you.

• Decide which assets to transfer. An IRA isn’t the only thing you might transfer to a trust. You’ll want to take some time to decide what other assets you’d like to include.

• Set the rules. Again, you have control over what happens to trust assets. So as you create the trust you’ll need to decide what conditions, if any, to place on when beneficiaries can gain access to those assets.

3. Name Trust Beneficiaries

You’ll need to decide who to name as beneficiaries for the trust. Individuals you might name include:

• Your spouse

• Children

• Siblings

• Other relatives or family members

• Charities or nonprofit organizations

Remember, these are the people who benefit from the trust directly. When naming beneficiaries, you can further specify which trust assets they will or won’t have access to, including IRA funds.

4. Fund the Trust

After creating the trust, you’ll need to fund it. Funding a trust simply means transferring assets into it.

Depending on the type of trust, you might choose to place real estate, land, antiques, collectibles, bank accounts, or investments under the control of the executor. Remember that once assets are transferred to an irrevocable trust you can’t change your mind later.

5. Name the Trust as Your IRA Beneficiary

Once you’ve established the trust and arranged to fund it, the final step is naming it as a beneficiary on your IRA account. Again, that might be as simple as logging in to your brokerage account to update your beneficiary choices. If you’re not sure how to change your IRA beneficiary to a trust, you can reach out to your brokerage for help.

Tax and Withdrawal Rules for Trust IRAs

When IRA money is held inside a trust, withdrawals may be taxable according to the type of trust it is. If money from IRA assets is distributed to beneficiaries of the trust, they’re responsible for paying any taxes due.

That said, in some cases the trust can assume responsibility for paying taxes on distributions, including elective and required minimum distributions, when required.

For example, say you set up a trust to hold your IRA assets, and specify that a beneficiary cannot receive distributions until age 30. In that scenario, the trust could take distributions from the IRA to pay expenses for the beneficiary and pay any tax owed on those distributions.

Qualified distributions from Roth IRAs are always tax free. IRA withdrawal rules dictate that early or non-qualified withdrawals from a traditional or Roth IRA can trigger a 10% tax penalty. Income tax may also be due on early distributions, unless an exception or exclusion applies. Unlike 401(k)s, IRAs do not allow for loans.

Pros and Cons of Putting an IRA in a Trust

If you have a trust already, then naming it as beneficiary of your IRA may not be that difficult. However, it’s important to consider what kind of advantages you may gain by setting up a trust if you don’t have one yet.
On the pro side, putting an IRA in a trust gives you more control over how your heirs use that money. It can also make it easier to create financial security for a special needs beneficiary. It can protect the assets from creditors.

However, it’s important to consider the cost and the level of effort required to set up a trust for an IRA. A trust may not be necessary if you don’t have a lot of other assets or wealth to pass on.

Pros	Cons
• Allows for greater control of trust assets, including IRA funds. • Can protect assets from creditors. • May make financial planning easier when you have a special needs beneficiary.	• Setting up a trust for an IRA can be time-consuming and potentially costly. • IRA funds only transfer to the trust once you pass away. • May not be necessary if you have a simple estate.

Pros

Cons

• Allows for greater control of trust assets, including IRA funds.

• Can protect assets from creditors.

• May make financial planning easier when you have a special needs beneficiary.

• Setting up a trust for an IRA can be time-consuming and potentially costly.

• IRA funds only transfer to the trust once you pass away.

• May not be necessary if you have a simple estate.

The Takeaway

If you have assets in any type of IRA account (traditional, Roth, SEP, or SIMPLE), you can set up a trust so that the assets in the IRA can be transferred to the trust upon your death — and then distributed to beneficiaries according to your wishes.

Just as funding an IRA can help you save for retirement, bequeathing your IRA to a trust can protect your assets and perhaps add to the financial security of the person(s) who later inherits those funds.

Easily manage your retirement savings with a SoFi IRA.

FAQ

What happens to an IRA in a trust?

When an IRA is placed in a trust, what really happens is that the trust becomes the beneficiary of the IRA. After your death, the assets are then managed by a trustee according to the direction of the trust creator. The beneficiaries of the trust can access IRA assets, but only according to the instructions specified by the trust document. Beneficiaries of the trust can include spouses, children, or other family members, as well as charities and nonprofits.

Why put an IRA in a trust?

Naming a trust as the beneficiary of an IRA could be the right move if you’d like to have more control over how your beneficiaries access those assets. You may also set up a trust for an IRA if you have a special needs beneficiary, you want to protect those assets from creditors, or you want all of your estate assets to be held in the same place.

How is an IRA taxed in a trust?

IRA tax rules still apply when assets are held in a trust. The difference is that the trust, not the trust beneficiaries, are responsible for any resulting tax liability associated with earnings from IRA assets. Once the trust distributes income from an IRA to beneficiaries, they become responsible for paying any taxes owed on earnings.

About the author

Rebecca Lake

Photo credit: iStock/Milan Markovic

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

SOIN0123007
CN-Q425-3236452-39

Dec

2025

Capital Gains Tax Rates and Rules for 2025 and 2026

By Carla Tardi | Growing Wealth, invest, Investing | No Comments

Table of Contents

What Is Capital Gains Tax?
Capital Gains Tax Rates Today
Capital Gains Tax Rates for Tax Year 2025
Short-Term Capital Gains Tax Rates for Tax Year 2025
Short-Term Capital Gains Tax Rates for Tax Year 2026
Tips for Lowering Capital Gains Taxes
Tax-Loss Harvesting
How US Capital Gains Taxes Compare
FAQ

What Is Capital Gains Tax?

Capital gains are the profits investors may see from selling investments and other assets, like stocks, bonds, properties, vehicles, and so on. Capital gains tax doesn’t apply when you own these assets — it only applies when you profit from selling them, and the gain has to be reported to the IRS.

Short-term capital gains (from assets you’ve held for a year or less) are taxed at a higher marginal income tax rate. Long-term capital gains, which apply to assets you’ve held for more than a year, are taxed at the lower capital gains rate.

Other factors can affect an investor’s tax rate on gains, including: which asset you’re selling, your annual income, as well as your filing status. Capital gains tax rates typically change every year. Here, we’ll cover 2025 capital gains tax rates (for returns filed in 2026), and 2026 rates (for returns filed in 2027). Investment gains may also be subject to state and local taxes, as well.

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Key Points

• Capital gains tax is levied on the profit (capital gains) you make from selling investments or assets like stocks and properties.

• Gains are classified as either short-term (from assets held for one year or less) or long-term (from assets held for more than a year).

• Short-term gains are taxed at a higher marginal income tax rate compared to the lower long-term capital gains rate.

• Investments held within tax-advantaged retirement accounts, such as an IRA or 401(k), are generally not subject to capital gains tax as the money grows, though withdrawals may be subject to income tax.

• Holding an investment for more than a year to qualify for the long-term rate, and utilizing strategies like tax-loss harvesting (selling investments at a loss to offset capital gains) can help lower your overall capital gains tax liability.

Capital Gains Tax Rates Today

Capital gains and losses result from selling assets. Capital gains occur when the asset is sold for more than its purchase price. A capital loss is when an investor sells an asset for less than its original value.

How long you hold an investment before selling it can make a big difference in how much you pay in taxes.

When you profit from an asset after owning it for a year or less, it’s considered a short-term capital gain. If you profit from it after owning it for at least a year, it’s a long-term capital gain.

Capital gains tax applies to investments that are sold when you’re investing online or through a traditional taxable brokerage; again, appreciated assets are not taxed until they’re sold. Gains may also be subject to state and local tax.

With a tax-deferred retirement account, such as an IRA or 401(k), you don’t pay any capital gains; you do owe income tax on withdrawals, however.

Other Capital Gains Tax Rules

Certain investments are subject to capital gains even if you don’t sell those securities. For example, a dividend-paying stock can produce a taxable gain because dividends are a type of income.

Taxes on qualified dividends are paid at long-term capital gains rates. Taxes on ordinary dividends are taxed at the marginal income tax rate, the same as short-term gains. Because the long-term capital gains tax rate is lower than the marginal income tax rate, qualified dividends are generally preferred vs. ordinary dividends.

Again, if divided-paying investments are held in a tax-advantaged account, those dividends are also tax deferred.

Capital Gains Tax Rates for Tax Year 2025

Long-term capital gains taxes for an individual are simpler and lower than for married couples. These rates apply to gains from an asset sold after one year, and fall into three brackets: 0%, 15%, and 20%.

Long-Term Capital Gains Rates, 2025

The following table shows the long-term capital-gains tax rates, by income bracket and filing status, for the 2025 tax year, according to the IRS.

Capital Gains Tax Rate	Single	Married, Filing Jointly	Married, Filing Separately	Head of Household
0%	Up to $48,350	Up to $96,700	Up to $48,350	Up to $64,750
15%	$48,351 to $533,400	$96,701 to $600,050	$48,351 to $300,000	$64,751 – $566,700
20%	Over $533,401	Over $600,051	Over $300,001	Over $566,701

Long-Term Capital Gains Tax Rates, 2026

The following table shows the long-term capital gains tax rates for the 2026 tax year by income and filing status, according to the IRS.

Capital Gains Tax Rate	Single	Married, Filing Jointly	Married, Filing Separately	Head of Household
0%	Up to $49,450	Up to $98,900	Up to $49,450	Up to $66,200
15%	$49,451 to $545,500	$98,901 to $613,700	$49,451 to $306,850	$66,201 to $579,600
20%	Over $545,500	Over $613,700	Over $306,850	Over $579,600

Recommended: Stock Market Basics

Short-Term Capital Gains Tax Rates for Tax Year 2025

The short-term capital gains are taxed as regular income at the “marginal rate,” so the rates are based on the federal income tax bracket you’re in.

The Internal Revenue Service (IRS) changes these numbers every year to adjust for inflation. You may learn your tax bracket by going to the IRS website, or asking your accountant.

2025 Short-Term Capital Gains Tax Rates

Here’s a table that shows the federal income tax brackets for the 2025 tax year, which are used for short-term gains, for tax returns that are usually filed in 2026, according to the IRS.

Marginal Rate	Single filers	Married, filing jointly	Head of household	Married, filing separately
10%	$0 to $11,925	$0 to $23,850	Up to $17,000	$0 to $11,925
12%	$11,926 to $48,475	$23,851 to $96,950	$17,001 to $64,850	$11,926 to $48,475
22%	$48,476 to $103,350	$96,951 to $206,700	$64,851 to $103,350	$48,476 to $103,350
24%	$103,351 to $197,300	$206,701 to $394,600	$103,351 to $197,300	$103,351 to $197,300
32%	$197,301 to $250,525	$394,601 to $501,050	$197,301 to $250,500	$197,301 to $250,525
35%	$250,526 to $626,350	$501,051 to $751,600	$250,501 to $626,350	$250,526 to $375,800
37%	Over $626,350	Over $751,600	Over $626,350	Over $375,800

Short-Term Capital Gains Tax Rates for Tax Year 2026

This table shows the federal marginal income tax rates for tax year 2026, which apply to short-term capital gains (for tax returns that are usually filed in 2027).

Marginal Rate	Single filers	Income Married, filing jointly	Head of household	Married, filing separately
10%	$0 to $12,400	$0 to $24,800	$0 to $17,700	$0 to $12,400
12%	$12,401 to $50,400	$24,801 to $100,800	$17,701 to $67,450	$12,401 to $50,400
22%	$50,401 to $105,700	$100,801 to $211,400	$67,451 to $105,700	$50,401 to $105,700
24%	$105,701 to $201,775	$211,401 to $403,550	$105,701 to $201,750	$105,701 to $201,775
32%	$201,776 to $256,225	$403,551 to $512,450	$201,751 to $256,200	$201,776 to $256,225
35%	$256,226 to $640,600	$512,451 to $768,700	$256,201 to $640,600	$256,226 to $384,350
37%	Over $640,600	Over $768,700	Over $640,600	Over $384,350

Tips for Lowering Capital Gains Taxes

Hanging onto an investment for more than a year can lower your capital gains taxes significantly.

Capital gains taxes also don’t apply to tax-advantaged accounts like 401(k) plans, 529 college savings accounts, or when you open an IRA. So selling investments within these accounts won’t generate capital gains taxes.

Instead, traditional 401(k)s and IRAs are taxed when you take distributions, while qualified distributions for Roth IRAs and 529 plans are tax-free.

Single homeowners also get a tax exclusion on the first $250,000 in profit they make from the sale of their primary residence, which they need to have lived in for at least two of the past five years. The limit is $500,000 for a married couple filing jointly.

Tax-Loss Harvesting

Tax-loss harvesting is another way to potentially save money on capital gains. Tax-loss harvesting is the strategy of selling some investments at a loss to offset the tax on profits from another investment.

Using short-term losses to offset short-term gains is a way to take advantage of tax-loss harvesting — because, as discussed above, short-term gains are taxed at higher rates. IRS rules also dictate that short-term or long-term losses must be used to offset gains of the same type, unless the losses exceed the gains from the same type.

Investors can also apply losses from investments of as much as $3,000 to offset ordinary income. And because tax losses don’t expire, if only a portion of losses was used to offset income in one year, the investor can “save” those losses to offset taxes in another year. This is known as a tax-loss carryforward.

Understanding the Wash-Sale Rule

While it may be useful in some cases to sell securities in order to harvest losses, it’s important to know about something called the wash-sale rule.

Per the IRS, the wash-sale rule states that if an investor sells an investment for a loss, then buys the same or a “substantially identical” asset within 30 days before or after the sale, they cannot use the original loss to offset capital gains or ordinary income and claim the tax benefit.

The wash-sale rule sounds straightforward, but the details are complicated. If you plan to sell securities at a loss in order to claim the tax benefit, you may want to consult a professional.

How US Capital Gains Taxes Compare

Generally, capital gains tax rates affect the wealthiest taxpayers, who typically make a bigger chunk of their income from profitable investments.

Here’s a closer look at how capital gains taxes compare with other taxes, including those in other countries.

Compared to Other Taxes

The highest long-term capital gains taxes rate of 20% is lower than the highest marginal rate of 37%.

Proponents of the lower long-term capital gains tax rate say the discrepancy exists to encourage investments.

Comparison to Capital Gains Taxes in Other Countries

In 2025, the Tax Foundation listed the capital gains taxes of the 35 different European Organization for Economic Cooperation and Development (OECD) countries. The U.S. maximum rate of 20% is roughly midway on the spectrum of comparable capital gains taxes.

In comparison, Denmark had the highest top capital gains tax at a rate of 42%. Norway was second-highest at 37.8%. The Netherlands were third on the list, at 36%. In addition, the following European countries all levied higher capital gains taxes than the U.S. (listed in order from the highest to lowest rate): Finland, France, Ireland, Sweden, Spain, Latvia, Austria, Germany, Italy, Czech Republic, and Iceland.

Comparing Historical Capital Gains Tax Rates

Because short-term capital gains tax rates are the same as those for wages and salaries, they adjust when ordinary income tax rates change. As for long-term capital gains tax, Americans today are paying rates that are relatively low historically. Today’s maximum long-term capital gains tax rate of 20% started in 2013.

For comparison, the high point for long-term capital gains tax was in the 1970s, when the maximum rate was at 35%.

Going back in time, in the 1920s the maximum rate was around 12%. From the early 1940s to the late 1960s, the rate was around 25%. Maximum rates were also pretty high, at around 28%, in the late 1980s and 1990s. Then, between 2004 and 2012, they dropped to 15%.

The Takeaway

Capital gains taxes are the levies you pay from making money on investments. The IRS updates the tax rates every year to adjust for inflation.

It’s important for investors to know that capital gains tax rates can differ significantly based on whether they’ve held an investment for a year or less (for short-term gains), or more than a year (for long-term gains). An investor’s income level also determines how much they pay in capital gains taxes.

An accountant or financial advisor can suggest ways to lower your capital gains taxes as well as help you set financial goals.

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

FAQ

Why is capital gains tax important?

When investors decide how long to hold investments, it’s a complex decision. Given that long-term capital gains rates are more favorable, some investors may want to hold onto their profitable investments for at least a year to get the lower rate.

Can you pay zero capital gains tax?

If you meet certain income criteria, yes. The lowest capital gains rate of 0% applies if your taxable income for tax year 2025 is equal to or less than $94,050 (married filing jointly); $47,025 (single, married filing separately, qualifying surviving spouse); and $63,000 for head of household. For tax year 2026, the 0% rate applies if your taxable income is equal to or less than $98,900 (married, filing jointly); $49,450 (single, married filing separately, qualifying surviving spouse); $66,200 (head of household).

Can capital losses reduce personal income tax?

In some cases yes: If your capital losses for a given year exceed your capital gains, you can deduct up to $3,000 in losses from your ordinary income (married, filing jointly; $1,500 if you’re married, filing separately). Losses can be applied to future capital gains or to income, in what’s known as a tax-loss carryforward.

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

SOIN-Q425-056

Dec

2025

A smiling man in glasses checks financial information on his cell phone while also working on a laptop at his desk.

SEP IRA Contribution Limits for 2025 and 2026

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

Table of Contents

What Is a SEP IRA?
SEP IRA Contribution Limits for 2025 and 2026
Strategies for Maximizing SEP IRA Contributions
Potential Changes and Updates for Future Years
Compliance and Tax Implications
FAQ

A SEP IRA, or Simplified Employee Pension IRA, is a tax-advantaged retirement plan for people who are self-employed or run a small business. SEP IRA contribution limits determine how much you can contribute to the account each year.

The IRS sets contribution limits for SEP IRAs and adjusts them annually for inflation. SEP IRA contribution rules permit employers to make contributions to their own or their employees’ SEP accounts; employees do not contribute to a SEP.

Key Points

• SEP IRAs offer a tax-advantaged way to save for retirement, beneficial for self-employed and small business owners.

• It’s possible to contribute as much as $70,000 to a SEP IRA in 2025, an increase from the previous year, and up to $72,000 in 2026.

• Employers can contribute up to the lesser of 25% of an employee’s compensation or $70,000 to a SEP IRA in 2026, and up to $72,000 in 2026.

• Contributions to SEP IRAs are tax-deductible and must be reported on IRS Form 5498.

• Since contributions to SEP IRAs are made with pre-tax dollars, qualified withdrawals are subject to ordinary income tax.

What Is a SEP IRA?

A SEP IRA is a tax-advantaged retirement account that allows employers to make contributions on behalf of employees. Businesses of any size can establish a SEP IRA, including self-employed individuals who have no employees.

SEP IRAs are subject to the same tax treatment as traditional IRAs. Specifically, that means:

• Contributions to a SEP IRA are tax-deductible for employers or self-employed individuals

• Qualified withdrawals are subject to ordinary income tax since SEP IRAs are funded with pre-tax dollars

• Early withdrawals before age 59 ½ may be subject to taxes and penalties

• Required minimum distributions (RMDs) are required at age 73 (assuming you turn 72 after Dec. 31, 2022).

The SECURE 2.0 Act permits employers to offer employees a Roth SEP IRA option, though they’re not required to. It’s also possible to convert a traditional SEP IRA to a Roth IRA, to get tax-free retirement withdrawals. However, the account owner would have to pay tax on earnings at the time of the conversion.

SEP IRA Contribution Limits for 2025 and 2026

Once you open an IRA, it’s important to be aware that the IRS determines the maximum SEP IRA contribution limits each year. For 2025, it’s possible to contribute as much as $70,000, up from the maximum limit of $69,000 in 2024. For 2026, individuals can contribute up to $72,000.

Unlike traditional or Roth IRAs, catch-up contributions are not allowed with SEP IRAs.

Here are the details on how the 2025 and 2026 SEP IRA contribution limits work.

Maximum Contribution Amounts

The SEP IRA max contribution by employers for 2025 is the lesser of the following:

• 25% of an employee’s compensation

• $70,000

And the SEP IRA maximum contribution by employers for 2026 is the lesser of:

• 25% of an employee’s compensation

• $72,000

These limits apply to employers who make contributions on behalf of employees. As noted above, employees cannot make elective salary deferrals to a SEP IRA the way they can with a traditional or Roth 401(k) plan.

If you’re self-employed your SEP IRA contribution limits for 2025 are the lesser of:

• 25% of your net self-employment earnings (see how to calculate net self-employment earnings below)

• $70,000

For 2026, SEP IRA contribution limits for self-employed individuals are the lesser of:

• 25% of your net self-employment earnings (see how to calculate net self-employment earnings below)

• $72,000

Self-employed individuals may want to compare a solo 401(k) vs SEP IRA to decide which one offers the most benefits in terms of contribution levels and tax advantages.

Calculation Methods and Factors

Whether you’re an employer or a self-employed individual dictates how you calculate the amount you can contribute to a SEP IRA.

According to SEP IRA rules, employer contributions are based on each employee’s compensation. The IRS limits the amount of compensation employers can use to calculate the SEP IRA max contribution for the year.

For 2025, employers can base their calculations on the first $350,000 of compensation, and in 2026, they can base their calculations on the first $360,000. As with the SEP IRA contribution limit, the IRS adjusts the compensation threshold annually.

In addition, contribution rates are required to be the same for all employees and the owner of the company. So if you’re a business owner who is contributing a certain amount to your own account, you must contribute funds at that same rate to your employees.

If you’re self-employed, you’ll need to calculate your net earnings from self-employment less the deductions for:

• One-half of self-employment tax

AND

• Contributions to your own SEP IRA

Net earnings from self-employment is the difference between your business income and business expenses. For 2025 and 2026, the self-employment tax rate is 15.3% of net earnings, which consists of 12.4% for Social Security and 2.9% for Medicare.

Strategies for Maximizing SEP IRA Contributions

Maximizing SEP IRA contributions comes down to understanding the annual contribution limit and the deadline for making contributions.

The IRS releases updated SEP IRA contribution limits as soon as they’re finalized to allow employers and self-employed individuals sufficient time to plan. You’ll have until the annual income tax filing deadline each year to make contributions to a SEP IRA on behalf of your eligible employees or yourself, if you’re self-employed.

Once you open an investment account like a SEP IRA, you can make monthly contributions or contribute a lump sum to meet the max SEP IRA limit for the year. If you’re self-employed, you may find it helpful to contribute something monthly and then make one larger lump sum contribution just ahead of the tax filing deadline once you’ve had a chance to calculate your net earnings from self-employment.

This strategy could mean that you miss out on some earnings from compounding returns since you’re putting in less money throughout the year. However, it may prevent you from making excess contributions to your SEP IRA, which can result in a penalty.

Recommended: What is a Self-Directed IRA?

Potential Changes and Updates for Future Years

SEP IRA contribution limits don’t stay the same each year. As noted above, the amount you contribute for 2025 increases for 2026. Staying on top of changes to the contribution limits can ensure that you don’t miss out on opportunities to maximize your SEP IRA.

Cost-of-Living Adjustments (COLAs)

Internal Revenue Code (IRC) Section 415 requires annual cost of living increases for retirement plans and IRAs. Cost-of-living adjustments are meant to help your savings rate keep pace with the inflation rate.

These COLA rules apply to:

• SEP IRAs

• SIMPLE IRAs

• Traditional and Roth IRAs

• 401(k) plans

• 403(b)plans

• 457 plans

• Profit-sharing plans

The IRC also applies COLAs to Social Security benefits to ensure that people who rely on them can maintain a similar level of purchasing power even as consumer prices rise.

Monitoring IRS Announcements

The IRS typically announces COLA limits and adjustments in November or December of the preceding year. For example, the IRS released the Internal Revenue Bulletin detailing SEP IRA contribution limits and other COLA adjustments for 2026 on November 13, 2025.

These bulletins are readily available on the IRS website. You can review the latest and past bulletins on the IRS bulletins page.

Compliance and Tax Implications

SEP IRAs are fairly easy to set up and maintain, but there are compliance rules you will need to follow. As an employer, you’re not required to make contributions to a SEP IRA for eligible employees every year, and if you are self-employed, you are not required to make yearly contributions to your own SEP. However, if you make contributions on behalf of one eligible employee, you have to make contributions on behalf of all eligible employees.

And remember, the contribution percentage you use to calculate the SEP IRA maximum for each employee, and for yourself as the business owner, must be the same.

Reporting SEP IRA Contributions

SEP IRA contributions must be reported on IRS Form 5498. If you’re using tax filing software to complete your return you should be prompted to enter your SEP IRA contributions when reporting your income. The software program will record contributions and calculate your deduction for you.

There’s one more thing to note. Contributions must be reported for the year in which they’re made to the account, regardless of which tax year the contributions are for.

Excess Contribution Penalties

The IRS treats excess SEP IRA contributions as gross income for the employee. If you make excess contributions, the employee would need to withdraw them, plus any related earnings, before the federal tax filing deadline.

If they fail to do so, the IRS can impose a 6% excise tax on excess SEP IRA contributions left in the employee’s account. The employer can also be hit with a 10% excise tax on excess nondeductible contributions.

The Takeaway

For small business owners and the self-employed, SEP IRAs can be a good way to save and invest for retirement. Just be aware that SEP IRA rules are more complicated than the rules for other types of IRAs when it comes to contributions and deductions. If you’re contributing to one of these plans for your employees, or for yourself as a self-employed business owner, it’s important to know how much you can contribute, what each year’s contribution limits are, and when contributions are due.

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FAQ

What are the maximum SEP IRA contributions for 2025 and 2026?

The SEP IRA contribution limit for 2025 tops out at $70,000, and at $72,000 for 2026. That’s the maximum amount you can contribute to a SEP account on behalf of an employee or to your own SEP IRA if you’re self-employed.

Can I contribute to both a SEP IRA and a 401(k)?

It’s possible to contribute to both a SEP IRA and a 401(k) if you’re employed by multiple businesses. The plans must be administered by separate companies, or you must work for a company that has a 401(k) and then contribute to a SEP IRA for yourself as a self-employed business owner.

Are SEP IRA contributions tax-deductible for employers?

Employers can deduct SEP IRA contributions made on behalf of employees. Contributions must be within the annual contribution limit to be deductible. Excess SEP IRA contributions are not eligible for a deduction.

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