Investing Archives

Sep

2025

What Happens to a 401k When You Leave Your Job?

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

By Austin Kilham | invest, Investing, Money & Life, Preparing for Retirement | Comments Off

Table of Contents

A Quick 401(k) Overview
What Happens to Your 401(k) When You Quit?
How Long Do You Have to Move Your 401(k)?
Next Steps for Your 401(k) After Leaving a Job
FAQ

There are many important decisions to make when starting a new job, including what to do with your old 401(k) account. Depending on the balance of the old account and the benefits offered at your new job, you may have several options, including keeping it where it is, rolling it over into a brand new account, or cashing it out.

A 401(k) may be an excellent way for workers to build a retirement fund, as it allows them to save for retirement on a tax-advantaged basis, and many employers offer matching contributions.

Key Points

When leaving a job, you have options for your 401(k) account, including leaving it with your former employer, rolling it over into a new account, or cashing it out.
If your 401(k) balance is less than $7,000, your former employer may cash out the funds or roll them into another retirement account in your name.
If you have more than $7,000 in your 401(k), your former employer cannot force you to cash out or roll over the funds without your permission.
If you quit or are fired, you may lose employer contributions that are not fully vested.
It is important to consider the tax implications, penalties, and long-term financial security before making decisions about your 401(k) when leaving a job.

A Quick 401(k) Overview

A 401(k) is a type of retirement savings plan many employers offer that allows employees to save and invest with tax advantages. With a 401(k) plan, an employer will automatically deduct workers’ contributions to the account from their paychecks before taxes are taken out.

In 2025, employees can contribute up to $23,500 a year in their 401(k)s, up from $23,000 in 2024. Employees aged 50 and older can make catch-up contributions of $7,500 a year for a total of $31,000 in 2025, up from $30,500 in 2024. Also in 2025, those aged 60 to 63 may contribute an additional $11,250 instead of $7,500, for an annual total of $34,750.^[1]

Employees will invest the funds in a 401(k) account in several investment options, depending on what the employer and their 401(k) administrator offer, such as stocks, bonds, mutual funds, and target date funds.

The money in a 401(k) account grows tax-free until the employee withdraws it, typically after reaching age 59 ½. At that point, the employee must pay taxes on the money withdrawn. However, if the employee withdraws money before reaching 59 ½, they will typically have to pay 401(k) withdrawal taxes and penalties.

Some employers also offer matching contributions, which are additional contributions to an employee’s account based on a certain percentage of the employee’s own contributions. Employers may use 401(k) vesting schedules to determine when employees can access these contributions.

Generally, the more you can save in a 401(k), the better. If you can’t max out your 401(k) contributions, start by contributing at least enough money to qualify for your employer’s 401(k) match if they offer one.

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

When you quit your job, you generally have several options for your 401(k) account. You can leave the money in the account with your former employer, roll it into a new employer’s 401(k) plan, move it over to an IRA rollover, or cash it out.

However, if your 401(k) account has less than $7,000, your former employer may not allow you to keep it open. If there is less than $1,000 in your account, your former employer may cash out the funds and send them to you via check. If there is between $1,000 and $7,000 in the account, your employer may roll it into another retirement account in your name, such as an IRA. You may also suggest a specific IRA for the rollover.

With most 401(k) plans, if you have more than $7,000 in your account, your funds can usually remain in the account indefinitely.

Also, if you quit your job and you are not fully vested, you forfeit your employer’s contributions to your 401(k). But you do get to keep your vested contributions.

Is There Any Difference if You’re Fired?

If you are fired from your job, your 401(k) account options are similar to those if you quit your job. As noted above, you can leave the money in the account with your former employer, roll it into a new employer’s 401(k) plan, roll it over into an IRA, or cash it out. The same account limits mentioned above apply as well.

Additionally, if you are fired from your job, you may be eligible for a severance package, which may include a lump sum payment or continuation of benefits, including a 401(k) plan. But these benefits depend on your company and the circumstances surrounding your termination. And, like with quitting your job, you do not get to keep any employer contributions that are not fully vested.

How Long Do You Have to Move Your 401(k)?

If you leave your job, you don’t necessarily have to move your 401(k). Depending on the amount you have in the 401(k), you can usually keep it with your previous employer’s 401(k) administrator.

But if you do choose to roll over your 401(k) as an indirect rollover, you typically have 60 days from the date of distribution to roll over your 401(k) account balance into an IRA or another employer’s 401(k) plan. If you fail to roll over the funds within 60 days, the distribution will be subject to taxes and penalties, and if you are under 59 ½ years old, an additional 10% early withdrawal penalty.

Next Steps for Your 401(k) After Leaving a Job

As you decide what to do with your funds, you have several options, from cashing out to rolling over your 401(k)s to expanding your investment opportunities.

Cash Out Your 401(k)

You can cash out some or all of your 401(k), but in most cases, there are better choices than this from a personal finance perspective. As noted above, if you are younger than 59 ½, you may be slammed with income taxes and a 10% early withdrawal penalty, which can set you back in your ability to save for your future.

If you are age 55 or older, you may be able to draw down your 401(k) penalty-free thanks to the Rule of 55. But remember, when you remove money from your retirement account, you no longer benefit from tax-advantaged growth and reduce your future nest egg.

Roll Over Your 401(k) Into a New Account

Your new employer may offer a 401(k). If this is the case and you are eligible to participate, you may consider rolling over the funds from your old account. This process is relatively simple. You can ask your old 401(k) administrator to move the funds from one account directly to the other in what is known as a direct transfer.

Doing this as a direct transfer rather than taking the money out yourself is important to avoid triggering early withdrawal fees. A rollover into a new 401(k) has the advantage of consolidating your retirement savings into one place; there is only one account to monitor.

Keep Your 401(k) With Your Previous Employer

If you like your previous employer’s 401(k) administrator, its fees, and investment options, you can always keep your 401(k) where it is rather than roll it over to an IRA or your new employer’s 401(k).

However, keeping your 401(k) with your previous employer may make it harder to keep track of your retirement investments because you’ll end up with several accounts. It’s common for people to lose track of old 401(k) accounts.

Moreover, you may end up paying higher fees if you keep your 401(k) with your previous employer. Usually, employers cover 401(k) fees, but if you leave the company, they may shift the cost onto you without you realizing it. High fees may end up eating into your returns, making it harder to save for retirement.

Does Employer Match Stop After You Leave?

Once you leave a job, whether you quit or are fired, you will no longer receive the matching employer contributions.

Look for New Investment Options

If you don’t love the investment options or fees in your new 401(k), you may roll the funds over into an IRA account instead. Rolling assets into a traditional IRA is relatively simple and can be done with a direct transfer from your 401(k) plan administrator. You also may be allowed to roll a 401(k) into a Roth IRA, but you’ll have to pay taxes on the amount you convert.

The advantage of rolling funds into an IRA is that it may offer a more comprehensive array of investment options. For example, a 401(k) might offer a handful of mutual or target-date funds. In an IRA, you may have access to individual securities like stocks and bonds and a wide variety of mutual funds, index funds, and exchange-traded funds.

Test your understanding of what you just read.

The Takeaway

Changing jobs is an exciting time, whether or not you’re moving, and it can be a great opportunity to reevaluate what to do with your retirement savings. Depending on your financial situation, you could leave the funds where they are or roll them over into your new 401(k) or an IRA. You can also cash out the account, but that may harm your long-term financial security because of taxes, penalties, and loss of a tax-advantaged investment account.

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

Help build your nest egg with a SoFi IRA.

FAQ

How long can a company hold your 401(k) after you leave?

A company can hold onto an employee’s 401(k) account indefinitely after they leave, but they are required to distribute the funds if the employee requests it or if the account balance is less than $7,000.

Can I cash out my 401(k) if I quit my job?

You can cash out your 401(k) if you quit your job. However, experts generally do not advise cashing out a 401(k), as doing so will trigger taxes and penalties on the withdrawn amount. Instead, it is usually better to either leave the funds in the account or roll them over into a new employer’s plan or an IRA.

What happens if I don’t rollover my 401(k)?

If you don’t roll over your 401(k) when you leave a job, the funds will typically remain in the account and be subject to the rules and regulations of the plan. If the account balance is less than $7,000, the employer may roll over the account into an IRA or cash out the account. If the balance is more than $7,000, the employer may offer options such as leaving the funds in the account or rolling them into an IRA.

You may also be interested in:

Guide to Transferring 401(k) to a New Job

How to Roll Over Your 401(k)

When Can You Withdraw From Your 401(k)?

Article Sources

IRS. 401(k) limit increases to $23,500 for 2025, IRA limit remains $7,000.

Photo credit: iStock/chengyuzheng

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

SOIN-Q225-161

Sep

2025

401(k) Vesting: What Does Vested Balance Mean?

By Michael Flannelly | Growing Wealth, invest, Investing, Preparing for Retirement | Comments Off

Table of Contents

What Does Vested Balance Mean?
How 401(k) Vesting Works
Importance of 401(k) Vesting
401(k) Contributions Basics
Benefits of 401(k) Vesting
Drawbacks of 401(k) Vesting
How Do I Know if I Am Fully Vested in my 401(k)?
What Happens If I Leave My Job Before I’m Fully Vested?
Other Common Types of Vesting
How Do I Find Out More About Vesting?
FAQ

Your vested 401(k) balance is the portion of your 401(k) you fully own and can take with you when you leave your employer. This amount includes your employee contributions, which are always 100% vested, any investment earnings, and your employer’s contributions that have passed the required vesting period.

Here’s a deeper look at what being vested means and the effect it can have on your retirement savings.

Key Points

• 401(k) vesting refers to when ownership of an employer’s contributions to a 401(k) account shifts to the employee.

• 401(k) contributions made by employees are always 100% vested; that means they own them outright.

• Vesting schedules vary, but employees become 100% vested after a specified number of years.

• 401(k) vesting incentivizes employees to stay with their current employer and to contribute to their 401(k).

• Companies may use immediate, cliff, or graded vesting schedules for their 401(k) plans.

What Does Vested Balance Mean?

The vested balance is the amount of money in your 401(k) that belongs to you and cannot be taken back by an employer when you leave your job — even if you are fired.

The contributions you make to your 401(k) are automatically 100% vested. Vesting of employer contributions typically occurs according to a set timeframe known as a vesting schedule. When employer contributions to a 401(k) become vested, it means that the money is now entirely yours.

Having a fully vested 401(k) means that employer contributions will remain in your account when you leave the company. It also means that you can decide to roll over your balance to a new account, start making withdrawals, or take out a loan against the account, if your plan allows it. However, keeping a vested 401(k) invested and letting it grow over time may be one of the best ways to save for retirement.

How 401(k) Vesting Works

401(k) vesting refers to the process by which employees become entitled to keep the money that an employer may have contributed to their 401(k) account. Vesting schedules can vary, but most 401(k) plans have a vesting schedule that requires employees to stay with the company for a certain number of years before they are fully vested.

For example, an employer may have a vesting schedule requiring employees to stay with the company for five years before they are fully vested in their 401(k) account. If an employee were to leave the company before reaching that milestone, they could forfeit some or all of the employer-contributed money in the 401(k) account. The amount an employee gets to keep is the vested balance. Other qualified defined contribution plans, such as 401(a) plans or 403(b) plans, may also be subject to vesting schedules.

Importance of 401(k) Vesting

401(k) vesting is important because it determines when an employee can keep the employer’s matching contributions to their retirement account. Vesting schedules can vary, but typically after an employee has been with a company for a certain number of years, they will be 100% vested in the employer’s contributions.

401(k) Vesting Eligibility

401(k) vesting eligibility is the time an employee must work for their employer before they are eligible to receive the employer’s contribution to their 401(k) retirement account. The vesting period varies depending on the employer’s plan.

401(k) Contributions Basics

Before understanding vesting, it’s important to know how 401(k) contributions work. A 401(k) is a tax-advantaged, employer-sponsored retirement plan that allows employees to contribute a portion of their salary each pay period, usually on a pre-tax basis.

For tax year 2025, employees can contribute up to $23,500 annually in their 401(k), with an extra $7,500 in catch-up contributions allowed for those age 50 or older. For 2025, those aged 60 to 63 may contribute an additional $11,250 instead of $7,500, thanks to SECURE 2.0.

The Internal Revenue Service (IRS) also allows employers to contribute to their employees’ plans. Often these contributions come in the form of an employer 401(k) match. For example, an employer might offer matching contributions of 3% or 6% if an employee chooses to contribute 6% of their salary to the 401(k).

In 2025, the total contributions that an employee and employer can make to a 401(k) is $70,000 ($77,500 including standard catch-up contributions, and $81,250 with SECURE 2.0 catch-up for those aged 60 to 63).

Employer contributions are a way for businesses to encourage employees to save for retirement. They’re also an important benefit that job seekers look for when searching for new jobs.

Benefits of 401(k) Vesting

There are several benefits of 401(k) vesting, including motivating employees to stay with a company for the long term because they know they will eventually vest and be able to keep the money they have contributed to their 401(k). Additionally, it incentivizes employees to contribute to a 401(k) because they know they will eventually be fully vested and be entitled to all the money in their account.

401(k) vesting also gives employees a sense of security, knowing they will not lose the money they have put into their retirement savings if they leave their job.

Drawbacks of 401(k) Vesting

While 401(k) vesting benefits employees, there are also some drawbacks. For one, vesting can incentivize employees to stay with their current employer, even if they want to leave their job. Employees may be staying in a job they’re unhappy with just to wait for their 401(k) to be fully vested.

Also, using a 401(k) for investing can create unwanted tax liability and fees. When you withdraw money from a 401(k) before age 59 ½, you’ll typically have to pay a 10% early withdrawal penalty and taxes. This can eat into the money you were hoping to use for retirement.

How Do I Know if I Am Fully Vested in my 401(k)?

If you’re unsure whether or when you will be fully vested, you can check their plan’s vesting schedule, usually on your online benefits portal.

Immediate Vesting

Immediate vesting is the simplest form of vesting schedule. Employees own 100% of contributions right away.

Cliff Vesting

Under a cliff vesting schedule, employer contributions are typically fully vested after a certain period of time following a job’s start date, usually three years.

Graded Vesting

Graded vesting is a bit more complicated. A percentage of contributions vest throughout a set period, and employees gain gradual ownership of their funds. Eventually, they will own 100% of the money in their account.

For example, a hypothetical six-year graded vesting schedule might look like this:

Years of Service	Percent Vested
1	0%
2	20%
3	40%
4	60%
5	80%
6	100%

What Happens If I Leave My Job Before I’m Fully Vested?

If you leave your job before being fully vested, you forfeit any unvested portion of their 401(k). The amount of money you’d lose depends on your vesting schedule, the amount of the contributions, and their performance. For example, if your employer uses cliff vesting after three years and you leave the company before then, you won’t receive any of the money your employer has contributed to their plan.

If, on the other hand, your employer uses a graded vesting schedule, you will receive any portion of the employer’s contributions that have vested by the time they leave. For example, if you are 20% vested each year over six years and leave the company shortly after year three, you’ll keep 40% of the employer’s contributions.

Other Common Types of Vesting

Aside from 401(k)s, employers may offer other forms of compensation that also follow vesting schedules, such as pensions and stock options. These tend to work slightly differently than vested contributions, but pensions and stock options may vest immediately or by following a cliff or graded vesting schedule.

Stock Option Vesting

Employee stock options give employees the right to buy company stock at a set price at a later date, regardless of the stock’s current value. The idea is that between the time an employee is hired and their stock options vest, the stock price will have risen. The employee can then buy and sell the stock to potentially make a profit.

Pension Vesting

With a pension plan, vesting schedules determine when employees are eligible to receive their full benefits.

How Do I Find Out More About Vesting?

There are a few ways to learn more about vesting and your 401(k) vested balance. This information typically appears in the 401(k) summary plan description or the annual benefits statement.

Generally, a company’s plan administrator or human resources department can also explain the vesting schedule in detail and pinpoint where you are in your vesting schedule. Understanding this information can help you know the actual value of your 401(k) account.

Test your understanding of what you just read.

The Takeaway

While any employee contributions to 401(k) plans are immediately fully vested, the same is not always true of employer contributions. The employee may gain access to employer contributions slowly over time or all at once after the company has employed them for several years.

Understanding vesting and your 401(k)’s vesting schedule is one more piece of information that can help you plan for your financial future. A 401(k) and other retirement accounts like a traditional or Roth IRA can be essential components of a retirement savings plan. Knowing when you are fully vested in a 401(k) can help you understand how much money might be available when you retire.

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

Help build your nest egg with a SoFi IRA.

🛈 While SoFi does not offer 401(k) plans at this time, we do offer a range of individual retirement accounts (IRAs).

FAQ

What does 401(k) vesting mean?

401(k) vesting is when an employee becomes fully entitled to the employer’s matching contributions to the employee’s 401(k) account. Vesting typically occurs over a period of time, such as five years, and is often dependent on the employee remaining employed with the company.

What is the vesting period for a 401(k)?

The vesting period is the amount of time an employee must work for an employer before they are fully vested in the employer’s 401(k) plan. This period is different for each company, but generally, the vesting period is between three and five years.

How does 401(k) vesting work?

Vesting in a 401(k) plan means an employee has the right to keep the employer matching contributions made to their 401(k) account, even if they leave the company. Vesting schedules can vary, but most 401(k) plans have a vesting schedule of three to five years.

You may also be interested in:

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

When Can You Withdraw From Your 401(k)?

Borrowing From Your 401(k): Pros and Cons

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

SOIN-Q325-043

Sep

2025

What Are Meme Stocks? Guide to Meme Stock Investing

By Inyoung Hwang | Growing Wealth, invest, Investing | Comments Off

Table of Contents

What Is a Meme Stock?
Background on Meme Stocks
Pros and Cons of Trading Meme Stocks
How to Trade Meme Stocks
FAQ

Meme stocks are stocks that go viral on social media platforms and quickly increase in price. Meme stocks have gotten a lot of attention in recent years, especially since the pandemic in 2020. Back in May, 2021, shares of GameStop, as well as other similarly meme-driven stocks such as AMC, Koss BlackBerry, and Koss Corp., suddenly spiked after a post on the X platform by Keith Gill (known as Roaring Kitty) of a popular gaming meme signifying “things are getting serious” is believed to have reignited the meme stock phenomenon that had boosted GameStop shares more than 1,000%.

At the time, online investors rallied together to create a massive short squeeze that befuddled traditional investors and made headlines across the globe. There has been more recent “meme stock” action as well, but that, largely, was the genesis.

Key Points

• Meme stocks are shares of companies that gain popularity through social media, leading to viral status and rapid price increases.

• These stocks are heavily influenced by retail investors’ sentiments rather than the company’s fundamental value.

• The volatility of meme stocks is high, making them a risky investment choice.

• Trading in meme stocks surged during the pandemic, with platforms like Reddit driving significant price swings.

• Meme stock movements can lead to substantial market impacts, including short squeezes that can negatively impact institutional investors.

What Is a Meme Stock?

Meme stocks are company stocks that have gone viral due to popularity among retail investors on social-media platforms.

In a traditional buy-and-hold strategy, investors seek stocks whose shares appear undervalued relative to the company’s fundamental worth or growth potential. In contrast, prices of meme stocks are closely tied to sentiment and chatter among day traders on the Internet, rather than the value of the underlying business. Meme stocks can be extremely volatile and risky.

Common Meme Stock Terminology

Meme stocks have a specific terminology that those who invest in them use. These are a few of the common terms:

• Apes: These are members of the meme stock community

• Diamond hands: This refers to hanging onto a stock, even if it suffers losses, because the investor thinks the price will go back up.

• Hold the line: This is about standing your ground with meme stocks and holding onto them, despite volatility.

• Tendies: Profits made in meme stock. The word is a play on chicken tenders.

• To the moon: The belief that the stock will rise sky high.

Characteristics of Meme Stocks

It can be difficult to pin down what, exactly, makes a meme stock a meme stock. But generally, there are some similarities. For one, they’re almost always at the center of some intense action and attention on social media. They’re also stocks that are disconnected from the fundamentals, meaning that their share values may not reflect the current strength of their business performance. And they tend to be very volatile, rapidly gaining or losing value.

Background on Meme Stocks

In the past, before the pandemic, when it came to institutional investors vs. retail ones, the former were thought to hold clout in markets. But in 2021, small investors showed they could be a force to be reckoned with, coordinating trades on Internet platforms like Reddit, X (formerly Twitter), YouTube, or Discord to fuel big price swings.

These investors also helped drive moves in different types of cryptocurrencies as well as SPACs, or special purpose acquisition companies.

In January 2021, Investors on the Reddit forum “r/wallstreetbets” banded together and triggered a short squeeze in GameStop Corp. (GME), a popular short among hedge funds. When an investor or trader is shorting a stock, it means they’re wagering that the price of the shares will fall. A short squeeze refers to rapid price gains in a stock, as traders exit their bearish positions at a loss en masse.

Retail investors succeeded in triggering a short squeeze on GameStop stock, leading to losses for hedge funds, who then turned to trying to monitor social-media forums in order to spot the next meme stock.

However, controversy ensued when some brokerage firms halted trading in some meme stocks, citing an inability to post collateral at clearinghouses. Such moves led to angry retail investors and day traders and congressional hearings that looked into brokerage practices such as payment for order flow.

Role of Social Media and Online Communities

A stock becomes a meme when it goes viral. It may become popular on online platforms like Reddit, X, and YouTube. A meme stock can gain a following in discussion groups in these platforms, and the online communities can fuel price swings in the stock.

Examples of Meme Stocks

The first major meme stock example was GameStop Corp., as mentioned above. Investors on the Reddit forum “r/wallstreetbets” banded together. Those investors triggered a short squeeze, which drove up the price of the stock. In January 2021, GameStop stock went as high as $120.75 at one point, after trading as low as $0.70 in the preceding months.

There was another surge of interest in the stock in May 2024, when Roaring Kitty (a key figure in the original short squeeze) returned to social media after a three year absence.

Other meme stocks have included AMC Entertainment Holdings, Inc., a movie theater chain; Blackberry Limited, the smartphone maker; and Bed, Bath and Beyond, Inc. In 2025, other meme stock trended, including Kohl’s and Krispy Kreme.

Pros and Cons of Trading Meme Stocks

Meme stocks can be difficult to wrap your head around, but for some investors, there may be some things that draw them in – or away.

Benefits of Trading Meme Stocks

A couple of the main benefits of trading meme stocks include the fact that they’ve helped retail investors reassume a bit of power in the markets, and brought in younger investors.

• Rise of Retail Traders: Retail investors have shown they need to be taken more seriously by the rest of the market.

• Younger Investors: Given the hyper-online ways in which meme stocks come about, younger investors have learned more about investing and trading through these social-media fads. Still, it’s unclear whether meme stocks will help engender healthy long-term financial planning habits for beginner investors in their 20s.

• Potential for Returns: Naturally, there’s the chance that investors could get in at the right time and generate big returns on their meme stock investments. Note, however, that the risks of losing your investment are perhaps even more likely.

Risks of Trading Meme Stocks

There are a number of potential drawbacks and risks associated with meme stocks, however.

• Lack of Fundamentals: Meme stocks tend to go viral not because of the performance or potential of the underlying business, but because of the sometimes irrational enthusiasm of retail investors and day traders. That puts meme-stock investors at greater risk of downward share performance, if the fundamentals of the business disappoint when the economy or markets dip.

• High Volatility: Studies have shown that passive, diversified investments tend to outperform active trading over the long term. The volatility of meme stocks means that investors are at greater risk of locking in losses or seeing their portfolios underperform in the near term. Take for instance, when trading was halted on GameStop, investors potentially couldn’t execute sell orders.

• Potential Stock Dilution: In some cases, meme-stock companies have tried to take advantage of higher valuations by issuing new shares. In such examples, it’s important that investors understand stock dilution, which occurs when the number of outstanding shares increases and every shareholder ends up owning a less significant piece.

💡 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 Trade Meme Stocks

Single-name stocks are also not the only ways investors can get exposure to meme stocks. Options trading in meme stocks tend to be liquid, often allowing investors to buy and sell calls and puts easily.

If an investor doesn’t want to research or follow specific meme stocks, another way to get exposure to the phenomenon is by buying an exchange-traded fund (ETF) that holds companies popular on brokerage platforms.

In addition, here are some precautions that investors can take when trading meme stocks:

1. Diversify Your Portfolio: Rather than just holding meme stocks in their portfolios, investors may benefit from also getting exposure to more broad-based ETFs, blue-chip stocks, or dividend-paying companies. Such stocks tend to post more muted price moves, which may help offset the volatility of meme stocks.

2. Set Stop-Loss Orders: Investors can pre-set orders so that a meme stock automatically gets sold if it hits a certain price. A stop-loss order can be used to lock-in profits, so if the shares rise, or to limit losses, if the stock’s price falls.

Risk Management Strategies for Meme Stocks

Perhaps the most important or worthwhile things an investor can do when trading meme stocks is to do a lot of research and pay significant amounts of attention to what’s going on with their stocks, and do their best to maintain a sense of discipline, and not to let their emotions carry them away.

If you’re trading meme stocks, you’re perhaps already swept up in a bit of hype — do what you can to keep your wits and know when you should exit a position. There’s no easy way to do that, so keep your personal risk tolerances and limits in mind.

The Takeaway

In 2021, during the pandemic, the proliferation of zero-commission brokerage accounts and stay-at-home orders led to an individual-investor surge. That led to the creation and rise of meme stocks, and meme stock trading.

Sometimes, individual traders target companies with high short interest to turn into meme stocks. Certain meme stocks like GameStop and AMC capture news headlines by posting rapid, colossal gains, but once the trading frenzy subsides, many meme stocks also plummet. Investors may want to consider other, less risky investments for their portfolio.

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

What is a meme stock rally?

A meme stock rally is when a meme stock that became popular through social media skyrockets in price.

What is a meme stock ETF?

Meme stock ETFs are exchange-traded funds based around meme stocks. ETF meme holdings are made up of primarily meme stocks.

What investment strategy should you use for meme stocks?

Investing in meme stocks can be extremely risky. If you do decide to invest in them, you may benefit from also having other assets, such as ETFs or blue-chip stocks, in your portfolio to help diversify it. That may help offset the volatility of meme stocks.

Why are meme stocks considered risky investments?

Meme stocks are generally the focus of emotional swings on social media, are disconnected from their underlying fundamentals, and are extremely volatile. Taken all together, that means they’re fairly high-risk investments.

How do online forums influence meme stock prices?

A stock may become a meme when it goes viral on social media or an online forum. It may become popular on online platforms like Reddit, X, and YouTube, and then a meme stock can gain a following in discussion groups in these platforms. Then, the online communities can fuel price swings in the stock.

Photo credit: iStock/RgStudio

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.

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.

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.

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.

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.

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.

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-Q325-054

Sep

2025

How to Invest as a College Student

By Pam O’Brien | Growing Wealth, invest, Investing | No Comments

Table of Contents

Why You Should Start Investing Early
3 Ways to Invest While in College
Steps to Start Investing as a College Student
Tips for Investing as a College Student
FAQ

As a college student, it’s not too early to start investing your money. In fact, the sooner you start, the more time your money may have to grow. That could help you meet your financial goals such as going to graduate school, buying a house, or saving for retirement.

There are different types of accounts college students can use to invest, including brokerage accounts and retirement accounts like individual retirement accounts (IRAs) and 401(k)s. But there are some important steps college students should take before they start investing. Here’s what to know about investing as a college student.

Key Points

• Investing early may give college students the opportunity to benefit from compound returns over time.

• IRAs, brokerage accounts, and 401(k) plans are investment accounts to consider.

• Setting clear financial goals, understanding different types of investments, and choosing the appropriate investment account are steps college students can use to get started.

• Balancing investing with academic responsibilities is important.

• Maintaining a long-term perspective and avoiding emotional investing can help navigate market fluctuations.

Why You Should Start Investing Early

One key reason to start investing early is the potential return on your investment. The average annual return offered by the S&P 500 — a stock market index of the 500 largest companies in the U.S. — is around 7% when adjusted for inflation.

While investing does involve risk, it may help you outpace inflation and give you an extra boost toward your long term goals.

Investing as a college student can be a good time to get started.

💡 Quick Tip: Look for an online brokerage with low trading commissions as well as no account minimum. Higher fees can cut into investment returns over time.

3 Ways to Invest While in College

There are several ways for college students to invest their money, including using tax-advantaged retirement accounts and brokerage accounts.

IRA

An IRA, whether it’s a traditional or Roth IRA, is a type of retirement account that almost anyone with an earned income can open up and start contributing to. There are rules regarding how much you can contribute to an IRA every year — up to $7,000 for those under age 50 in 2025 — and when you can take withdrawals (depending on the type of IRA you open). However, these accounts can be relatively easy ways to kick-start a college students’ investment portfolio.

Two of the most common types of IRAs are traditional IRAs and Roth IRAs. With a Roth IRA, you contribute after-tax dollars and you can withdraw the money tax-free in retirement. With a traditional IRA, you contribute pre-tax dollars (those contributions may be tax deductible), and you pay taxes on the money when you withdraw it in retirement.

IRAs do have withdrawal rules and penalties. Early withdrawals may incur taxes and penalties, with some exceptions. The rules for making withdrawals from a Roth IRA are different from those for a traditional IRA, so it’s wise to understand what they each involve.

Brokerage Account

A brokerage account allows investors to make investments by depositing funds in the account. Your financial institution may have brokerage options, or you may consider using an outside financial brokerage firm or an online brokerage. You can shop around and research different brokerage accounts to compare their minimum deposit required (if they have one), the fees they charge, the investments they offer, and the responsiveness of their customer service department.

With a brokerage account, a college student can buy and sell stocks, bonds, mutual funds, index funds, and other assets. Once an investor opens an account they can transfer money into it from a checking or savings account to fund their investments. Unlike IRAs, brokerage accounts have no contribution limits.

However, selling assets in a brokerage account can trigger capital gains taxes. Short-term capital gains (from assets you’ve held for less than a year) are charged at a higher rate than long-term capital gains (assets you’ve held a year or more).

401(k)

A 401(k) is a type of retirement account offered through an employer (though there are different types of 401(k)s, such as solo 401(k)s, that you can open yourself if you are self-employed). Like IRAs, 401(k)s have annual contribution limits — up to $23,500 for those under age 50 in 2025.

The money you put in a 401(k) account is pre-tax dollars and it reduces your taxable income. The money grows tax-deferred while it’s invested. Your contributions are typically deducted automatically from your paycheck and you have a choice of investments to pick from, depending on your employer’s plan. Your employer may offer a 401(k) match — essentially matching your contribution up to a certain amount and/or percentage.

Aside from certain specific exceptions, you can’t withdraw money from the account until you reach age 59 ½, or you’ll be subject to a 10% early withdrawal penalty.

🛈 While SoFi does not offer 401(k) plans at this time, we do offer a range of individual retirement accounts (IRAs).

Steps to Start Investing as a College Student

If you’re a college student who is new to investing, there are several actions that could help you get started.

Set Clear Financial Goals

Before you make your first investment as a college student, it’s important to give some serious thought and consideration to your financial goals. Do you want to try to hit a total net worth or dollar amount by a certain age, for instance? Or do you want to save up enough to buy a home or start a family?

Having clear financial goals in mind before you start investing can help guide your decision-making about what types of investments you make.

Determine How Much Money You Can Set Aside

With your goals in mind, think about how much money you realistically can set aside to invest. Even if you have a part-time job, odds are, you won’t be able to invest your entire paycheck. But if you can free up some additional money in your budget for investing, that could help you get started. Even a small amount can help.

Choose the Right Investment Account

Next, knowing how much you have to invest and with some end-goals in mind, you’ll need to decide what type of investment account will best help you build your portfolio and reach your objectives. As discussed, this might be a retirement account like an IRA, a 401(k), or a brokerage account.

Understand Types of Investments

You’ll also want to review and understand the different investments available. That can include a variety of asset types such as stocks, bonds, cash, mutual funds, exchanged-traded funds (ETFs), and more. Study up on each one to help determine which makes the most sense for your situation and your goals.

Also, consider your risk tolerance. Remember, investing involves risk, and some assets are riskier than others, so you’ll want to make sure you are comfortable with your choices.

Fund Your Investments

The final step is to go ahead and fund your investment account and make your initial investments. You may want to start small and increase your contributions over time if your financial situation allows.

Tips for Investing as a College Student

Investing as a college student may feel intimidating at first, but these tips and guidelines can help.

Consider Diversification

A good rule of thumb for all investors is to invest in different types of assets and asset classes. The basic idea behind portfolio diversification is that by diversifying the assets you have, you may offset a certain amount of investment risk. Conversely, the fewer types of assets you have, the more risk you may take on should they perform poorly.

For example, imagine you invest in only one stock and that company folds — if that happens, you’ve lost your entire investment. However, if you’ve invested in a number of different stocks in different sectors, one company failing would affect you far less. However, it’s important to note that diversification does not eliminate risks.

One way to potentially stay diversified is by investing in mutual funds or exchange-traded funds, which bundle different groups of stocks together.

Avoid Emotional Investing

The market experiences natural ups and downs. As market fluctuations occur, it’s critical to try to avoid letting your emotions impact your investing.

When the market makes a big dip, you may feel the urge to quickly sell investments. However, by doing so, you may be locking in your losses. Letting reason prevail over emotions is generally wise — that way you don’t miss out on any future potential upturn that may take place.

Think of investing as a long-term proposition. The longer you allow your investments to stay in the market, the more opportunity they may have to ride out downturns — and the greater the potential you may have to take advantage of an upswing.

Timing the Market vs Time in the Market

When the market is doing well, you may find yourself tempted to get in on the action and end up buying investments that are too expensive or selling investments too soon. This type of buying and selling is known as timing the market. You may want to avoid checking the market frequently to help keep your emotions in check.

Rather than trying to time the market, think about investing over the long term.

Balancing Investing With Academic Responsibilities

As a college student working on earning your degree, your school work comes first. That means your academic responsibilities should take precedence over your investing activity. Remember, your education is an investment, too — one that is likely vital to your future.

That said, you may want to keep an eye on your portfolio and review your investments and allocations from time to time, whether that’s monthly or quarterly, and make any changes as necessary. But don’t get so caught up in investing that you neglect your classwork.

The Takeaway

Investing as a college student is possible, and there are many ways to get started. College students can explore various types of retirement accounts, like IRAs or 401(k)s, or brokerage accounts to get started. Investing when you’re young may help you build wealth over time. But investing involves risk, so make sure to choose investment accounts and asset types that you’re comfortable with.

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

FAQ

How should I invest as a college student?

How you invest as a college student depends on your financial situation and your goals. For example, if you’re saving for a long-term goal such as retirement, you may want to open a retirement account, such as an IRA or, if you’re eligible, a 401(k). However, if your goal is more of a short-term one such as going to grad school or buying a car, you may want to open a brokerage account that gives you more flexibility for making withdrawals.

Carefully consider your objectives, the amount of money you have to invest, your risk tolerance, and the types of investments you’d like to make, whether it’s mutual funds or a mix of stocks and bonds.

How much will $100 a month be worth in 30 years?

How much $100 a month will be worth in 30 years depends on an investment’s rate of return. For example, if the annual average return is 5%, you could have about $83,673 after 30 years. With a 10% rate of return on the investment, you could end up with approximately $228,003 in 30 years.

Which investment is best for students?

The type of investment that’s best for students depends on the student’s specific financial situation, investing timeframe, financial goals, and appetite for risk. Generally speaking, low-cost assets that offer some diversification such as exchange-traded funds, mutual funds, and index funds may be investment options for students to explore. Do your research on the different investment options to help determine which may be best for you.

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

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

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

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

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

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.

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.

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.

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

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.

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.

SOIN-Q325-116

Sep

2025

How to Rebalance Your 401(k)

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

Table of Contents

What Is Rebalancing Your 401(k)?
When to Rebalance Your 401(k)
Example of Rebalancing a 401(k)
Benefits of Rebalancing Your 401(k)
Steps for Rebalancing Your 401(k)
Consider a Target Date Fund
FAQ

Rebalancing is the process of buying and selling assets in a portfolio to bring your allocations back into line with your investment goals. If you’re new to rebalancing 401(k) savings, it helps to know how it works and how often you might want to do it.

Making 401(k) contributions can help you build retirement wealth while enjoying some tax advantages. Periodic 401(k) rebalancing can help ensure that your asset allocation aligns with your risk tolerance and financial goals.

Key Points

• Determine the current asset allocation in your 401(k) to understand the distribution of investments.

• Establish a target allocation that aligns with personal financial goals, age, and risk tolerance.

• Sell assets that exceed the target allocation to reduce overconcentration in certain investments.

• Purchase assets that are below the target allocation to achieve a balanced portfolio.

• Automatic rebalancing or target date funds could simplify the process and maintain the desired asset mix.

This article is part of SoFi’s Retirement Planning Guide, our coverage of all the steps you need to create a successful retirement plan.

What Is Rebalancing Your 401(k)?

A 401(k) rebalance refers to buying or selling investments in your workplace retirement plan to bring them back into alignment with the original percentages you started with.

Example

If you started with 50% in equities (stocks) and 50% in bonds, over time that portfolio balance will change as the value of those securities rises or falls. You can then rebalance your portfolio to restore the original 50-50 ratio. (Or you can adjust your allocation according to a new ratio that reflects what you’re comfortable with today.)

Rebalancing isn’t the same as changing your 401(k) contributions. That usually refers to increasing — or decreasing — the amount of your salary you contribute to your plan. If you’re wondering if you change your 401(k) contribution at any time, you typically can, though it might depend on your plan administrator’s rules.

When you rebalance 401(k) assets, you’re changing how the money in your account is allocated. How you determine your retirement goals and your risk tolerance can shape your ideal asset allocation.

When to Rebalance Your 401(k)

There’s not one specific answer for how often to balance your 401(k). Every investor’s needs and goals are different. As a general rule of thumb, you might revisit your 401(k) allocation at least once a year. But rebalancing 401(k) savings could make sense at any time when your allocation no longer matches up with your investment goals or risk tolerance.

Life changes might also affect your decision of how often to rebalance 401(k) assets. For example, you might need to take a second look at your assets if you get married, have a child, or get divorced. Any of those situations can influence the way you approach investing, including how much risk you’re comfortable taking and how much you might need your 401(k) to grow to hit your retirement target.

Age is also a consideration for deciding when to rebalance a portfolio. When you’re younger with years ahead of you to ride out periodic ups and downs in the market, you might not be as concerned with rebalancing your 401(k) assets. You can generally afford to take greater risks at this stage to earn greater rewards with your investments.

As you get older, however, and closer to retirement, you might naturally begin to gravitate toward more conservative investments. If you find yourself growing less tolerant of risk, that’s a sign that it might be time for some 401(k) rebalancing.

Recommended: Average Retirement Savings by Age

Example of Rebalancing a 401(k)

Rebalancing 401(k) assets is a fairly straightforward process. First, you need to decide what you want your target asset allocation to look like. From there, you’d either buy or sell assets until your portfolio achieves the right balance.

Let’s say that you’re 35 years old and your target 401(k) portfolio allocation is 85% stocks and 15% bonds. Upon checking your latest statement, realize that your asset makeup has become 75% stocks and 25% bonds. You could rebalance 401(k) investments by selling 10% of your bond holdings, then reinvesting the proceeds into stocks.

You can do that without tax consequences as long as you’re not withdrawing money from your plan. Should you decide later that it makes more sense to move back to a 75%/25% split, you could sell off some of your stocks and purchase bonds instead.

Benefits of Rebalancing Your 401(k)

What is rebalancing meant to do for you? A few things, actually, and there are good reasons to consider regular 401(k) rebalancing.

Here are some of the main advantages of paying attention to your 401(k) allocation.

• Manage risk. Rebalancing your retirement savings can help ensure that you’re not taking more risk with your investments than you’re comfortable with. At the same time, it allows you to see if you’re taking enough risk in order to reach your goals.

In the example above, rebalancing the portfolio so it has a higher percentage invested in stocks will increase the portfolio’s risk/reward ratio. Stocks tend to be higher-risk investments, with a higher risk of loss and a higher potential for rewards.

• Maximize returns. If your 401(k) allocation becomes too conservative, you could miss out on potential opportunities to earn greater returns. Rebalancing can prevent that from happening so that you have a better chance of achieving the level of returns you’re looking for.

• Keep pace with changing goals. As mentioned, life changes and age can influence your asset allocation preferences. Should your goals or needs change, rebalancing can help you adjust your financial plan both for the short- and long-term.

Is there a downside to 401(k) rebalancing? There can be if the investments you’re buying underperform and don’t deliver the level of returns you’re expecting. Another unintended consequence centers on cost. If you’re swapping out lower-cost investments in your 401(k) for ones with higher fees, that could potentially offset benefits you might realize in the form of better returns.

Steps for Rebalancing Your 401(k)

Ready to rebalance your 401(k)? The process itself isn’t difficult, though you may want to spend some time researching the different investment options offered through your plan.

Calculate Current Asset Allocations

The first step in 401(k) rebalancing is figuring out what kind of asset split you currently have. In other words, what percentage of your account is dedicated to stocks, bonds, or other assets.

You may be able to do that by logging in to your 401(k) plan and checking your asset allocation. Many plan administrators offer online investment portfolio tracking so you can see at a glance how much you have invested in stocks, bonds, or other securities.

If your plan doesn’t automatically calculate your allocation, you can figure it out yourself by identifying the amount of money assigned to each investment, dividing it by the total value of your account, then multiplying by 100.

For example, say that you have $120,000 in your 401(k) and $72,000 of that is in stocks. If you divide $72,000 by $120,000, then multiply by 100, you get 60%. That means 60% of your 401(k) portfolio is stocks. You can perform the same calculation for each type of investment in your plan.

Compare to Target Asset Allocations

Once you know how your 401(k) assets break down, you can compare those percentages to your target percentages. For example, if you’ve got 60% of your 401(k) in stocks and your goal is 80% stocks, then you know you’ve got a 20% gap to close.

How you set your target allocations is entirely up to you and, again, it can depend on things like:

• Your age

• Risk tolerance

• Investment goals

• Timeframe for investing

You might try using a basic rule of thumb like the rule of 100 or rule of 120 to find a starting point for allocating assets. These rules suggest subtracting your age from 100 or 120, then using that number as a guide for allocating your portfolio to stocks.

For example, if you’re 35, then based on the rule of 120, stocks should account for 85% of your portfolio. You could also look at how much you have saved versus what you need to save. This kind of retirement gap analysis can tell you how close or how far away you are to your goals and where you might need to adjust your savings strategy.

Sell Overweight Assets

Now that you know what your target allocation should be, you can take the next step and sell off overweight assets. These are the ones that are causing your asset allocation to skew away from your ideal alignment.

If you need more stocks, for example, then you’d sell off bonds. And if you want a more conservative allocation, you’d sell some of your stocks so you can use the money to buy more bonds.

Buy Underweight Assets

The last step is to buy underweight assets in order to bring your 401(k) portfolio back in line with where you want it to be. There are a couple of ways you can do this.

First, you could make a large, one-time purchase using the proceeds from the overweight assets that you sold. That might be easiest if you don’t want to make any changes to future allocations of your 401(k) contributions.

The other option is to change your allocations to direct future 401(k) contributions to underweight assets. What you have to keep in mind here is that once you reach your target allocation, you may need to change your future allocation preferences again so that you don’t accidentally end up overweight in one asset class.

One more possibility when considering how to manage 401(k) asset allocation is to check with your plan administrator to see if automatic rebalancing is an option. An automatic rebalance 401(k) feature could make keeping your allocation easier so you don’t have to spend as much time worrying about your assets.

Consider a Target Date Fund

If you want to skip rebalancing altogether, you might consider investing in a target date fund in your 401(k). Target date funds have an asset allocation that shifts automatically over time as you get closer to retirement.

You choose a target date fund based on your expected retirement date and the fund does the rest. Target date funds offer convenience since you don’t have to actively rebalance, but they might not be right for everyone. If the fund’s allocation doesn’t adjust in a way that’s consistent with your goals, you might be overexposed or underexposed to risk.

The Takeaway

If you’re contributing to a 401(k) for your retirement, it helps to know how to make the most of it. Rebalancing your 401(k) can help you stick to an asset allocation that makes the most sense for you. You also have the option of changing your allocation if your risk tolerance changes or your goals shift.

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

Easily manage your retirement savings with a SoFi IRA.

🛈 While SoFi does not offer 401(k) plans at this time, we do offer a range of Individual Retirement Accounts (IRAs).

FAQ

Is it good to rebalance your 401(k)?

It’s a good idea to rebalance your 401(k) if you’re concerned about taking too much risk — or not enough — with your investments. Rebalancing 401(k) assets is usually recommended when you experience life changes that affect your retirement goals and as you get older.

Should I rebalance my 401(k) before a recession?

Whether it makes sense to rebalance a 401(k) before a recession can depend on your specific financial situation, investment timeline, and current asset allocation. If you’re heavily invested in securities that are typically recession-proof or tend to fare well in economic downturns, then rebalancing might not be necessary. On the other hand, you might want to consider the idea of making some shifts in your 401(k) assets if you think a recession could expose you to more risk than you’re comfortable with. You may also want to consult with a financial professional.

Does it cost money to rebalance 401(k)?

In general, it shouldn’t cost money to rebalance a 401(k), since you’re buying and selling assets in the same plan. However, you may want to ask your plan administrator whether any transaction fees will apply before you move ahead with 401(k) rebalancing. Keep in mind that taking money out of your plan to buy investments could cost you, since early withdrawals are subject to tax penalties.

Should I rebalance my 401(k) in a bear market?

Whether you should rebalance your 401(k) in a bear market can depend on the type of assets you’re holding, your investment timeline, and how much risk you’re willing to take. Bear markets can be opportunities for investors who are comfortable taking more risk, as they might be able to find investments at bargain prices when the market is down. Once the market recovers, those discounted investments might experience gains as prices rise again. But then again, they might not, since there is no guarantee. Carefully consider the pros and cons.

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/miniseries

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

SOIN-Q325-084

A Quick 401(k) Overview

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

Is There Any Difference if You’re Fired?

How Long Do You Have to Move Your 401(k)?

Next Steps for Your 401(k) After Leaving a Job

Cash Out Your 401(k)

Roll Over Your 401(k) Into a New Account

Keep Your 401(k) With Your Previous Employer

Does Employer Match Stop After You Leave?

Look for New Investment Options

The Takeaway

FAQ

How long can a company hold your 401(k) after you leave?

Can I cash out my 401(k) if I quit my job?

What happens if I don’t rollover my 401(k)?

You may also be interested in:

What Does Vested Balance Mean?

How 401(k) Vesting Works

Importance of 401(k) Vesting

401(k) Vesting Eligibility

401(k) Contributions Basics

Benefits of 401(k) Vesting

Drawbacks of 401(k) Vesting

How Do I Know if I Am Fully Vested in my 401(k)?

Immediate Vesting

Cliff Vesting

Graded Vesting

What Happens If I Leave My Job Before I’m Fully Vested?

Other Common Types of Vesting

Stock Option Vesting

Pension Vesting

How Do I Find Out More About Vesting?

The Takeaway

FAQ

What does 401(k) vesting mean?

What is the vesting period for a 401(k)?

How does 401(k) vesting work?

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What Is a Meme Stock?

Common Meme Stock Terminology

Characteristics of Meme Stocks

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Background on Meme Stocks

Role of Social Media and Online Communities

Examples of Meme Stocks

Pros and Cons of Trading Meme Stocks

Benefits of Trading Meme Stocks

Risks of Trading Meme Stocks

How to Trade Meme Stocks

Risk Management Strategies for Meme Stocks

The Takeaway

FAQ

What is a meme stock rally?

What is a meme stock ETF?

What investment strategy should you use for meme stocks?

Why are meme stocks considered risky investments?

How do online forums influence meme stock prices?

Why You Should Start Investing Early

3 Ways to Invest While in College

IRA

Brokerage Account

401(k)

Steps to Start Investing as a College Student

Set Clear Financial Goals

Determine How Much Money You Can Set Aside

Choose the Right Investment Account

Understand Types of Investments

Fund Your Investments

Tips for Investing as a College Student

Consider Diversification

Avoid Emotional Investing

Timing the Market vs Time in the Market

Balancing Investing With Academic Responsibilities

The Takeaway

FAQ

How should I invest as a college student?

How much will $100 a month be worth in 30 years?

Which investment is best for students?

What Is Rebalancing Your 401(k)?

Student Loan
Refinancing

Personal
Loans

Online
Investments