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Apr

2024

Roth 401(k) vs Traditional 401(k): Which Is Best for You?

By AJ Smith | Growing Wealth, invest, Investing, Preparing for Retirement | Comments Off

A traditional 401(k) and a Roth 401(k) are tax-advantaged retirement plans that can help you save for retirement. While both types of accounts follow similar rules — they have the same contribution limits, for example — the impact of a Roth 401(k) vs. traditional 401(k) on your tax situation, now and in the future, may be quite different.

In brief: The contributions you make to a traditional 401(k) are deducted from your gross income, and thus may help lower your tax bill. But you’ll owe taxes on the money you withdraw later for retirement.

Conversely, you contribute after-tax funds to a Roth 401(k) and can typically withdraw the money tax free in retirement — but you don’t get a tax break now.

To help choose between a Roth 401(k) vs. a traditional 401(k) — or whether it might make sense to invest in both, if your employer offers that option — it helps to know what these accounts are all about.

5 Key Differences Between Roth 401(k) vs Traditional 401(k)

Before deciding on a Roth 401(k) or traditional 401(k), it’s important to understand the differences between each account, and to consider the tax benefits of each in light of your own financial plan. The timing of the tax advantages of each type of account is also important to weigh.

1. How Each Account is Funded

• A traditional 401(k) allows individuals to make pre-tax contributions. These contributions are typically made through elective salary deferrals that come directly from an employee’s paycheck and are deducted from their gross income.

• Employees contribute to a Roth 401(k) also generally via elective salary deferrals, but they are using after-tax dollars. So the money the employee contributes to a Roth 401(k) cannot be deducted from their current income.

💡 Quick Tip: The advantage of opening a Roth IRA and a tax-deferred account like a 401(k) or traditional IRA is that by the time you retire, you’ll have tax-free income from your Roth, and taxable income from the tax-deferred account. This can help with tax planning.

2. Tax Treatment of Contributions

• The contributions to a traditional 401(k) are tax-deductible, which means they can reduce your taxable income now, and they grow tax-deferred (but you’ll owe taxes later).

• By contrast, since you’ve already paid taxes on the money you contribute to a Roth 401(k), the money you contribute isn’t deductible from your gross income, and withdrawals are generally tax free (some exceptions below).

3. Withdrawal Rules

• You can begin taking qualified withdrawals from a traditional 401(k) starting at age 59 ½, and the money you withdraw is taxed at ordinary income rates.

• To withdraw contributions + earnings tax free from a Roth 401(k) you must be 59 ½ and have held the account for at least five years (often called the 5-year rule). If you open a Roth 401(k) when you’re 57, you cannot take tax-free withdrawals at 59 ½, as you would with a traditional 401(k). You’d have to wait until five years had passed, and start tax-free withdrawals at age 62.

4. Early Withdrawal Rules

• Early withdrawals from a 401(k) before age 59 ½ are subject to tax and a 10% penalty in most cases, but there are some exceptions where early withdrawals are not penalized, including certain medical expenses; a down payment on a first home; qualified education expenses.

You may also be able to take a hardship withdrawal penalty-free, but you need to meet the criteria, and you would still owe taxes on the money you withdrew.

• Early withdrawals from a Roth 401(k) are more complicated. You can withdraw your contributions at any time, but you’ll owe tax proportional to your earnings, which are taxable when you withdraw before age 59 ½.

For example: If you have $100,000 in a Roth 401(k), including $90,000 in contributions and $10,000 in taxable gains, the gains represent a 10% of the account. Therefore, if you took a $20,000 early withdrawal, you’d owe taxes on 10% to account for the gains, or $2,000.

5. Required Minimum Distribution (RMD) Rules

With a traditional 401(k), individuals must take required minimum distributions starting at age 73, or face potential penalties. While Roth 401(k)s used to have RMDs, as of January 2024, they no longer do. That means you are not required to withdraw RMDs from a Roth 401(k) account.

For a quick side-by-side comparison, here are the key differences of a Roth 401(k) vs. traditional 401(k):

Traditional 401(k)	Roth 401(k)
Funded with pre-tax dollars.	Funded with after-tax dollars.
Contributions are deducted from gross income and may lower your tax bill.	Contributions are not deductible.
All withdrawals taxed as income.	Withdrawals of contributions + earnings are tax free after 59 ½, if you’ve had the account for at least 5 years. (However, matching contributions from an employer made with pre-tax dollars are subject to tax.)
Early withdrawals before age 59 ½ are taxed as income and are typically subject to a 10% penalty, with some exceptions.	Early withdrawals of contributions are not taxed, but earnings may be taxed and subject to a 10% penalty.
Account subject to RMD rules starting at age 73.	No longer subject to RMD rules as of January 2024.

Bear in mind that a traditional 401(k) and Roth 401(k) also share many features in common:

• The annual contribution limits are the same for a 401(k) and a Roth 401(k). For 2024, the total amount you can contribute to these employer-sponsored accounts is $23,000; if you’re 50 and older you can save an additional $7,500 for a total of $30,500. This is an increase over the 2023 limit, which was capped at $22,500 ($30,000 if you’re 50 and older).

• For both accounts, employers may contribute matching funds up to a certain percentage of an employee’s salary.

• In 2024, total contributions from employer and employee cannot exceed $69,000 ($76,500 for those 50 and up). In 2023, total contributions from employer and employee cannot exceed $66,000 ($73,500 for those 50 and up).

• Employees may take out a loan from either type of account, subject to IRS restrictions and plan rules.

Because there are certain overlaps between the two accounts, as well as many points of contrast, it’s wise to consult with a professional when making a tax-related plan.

How to Choose Between a Roth and a Traditional 401(k)

In some cases it might make sense to contribute to both types of accounts (more on that below), but in other cases you may want to choose either a traditional 401(k) or a Roth 401(k) to maximize the specific advantages of one account over another. Here are some considerations.

When to Pay Taxes

Traditional 401(k) withdrawals are taxed at an individual’s ordinary income tax rate, typically in retirement. As a result these plans can be most tax efficient for those who will have a lower marginal rate after they retire than they did while they were working.

In other words, a traditional 401(k) may help you save on taxes now, if you’re in a higher tax bracket — and then pay lower taxes in retirement, when you’re ideally in a lower tax bracket.

On the other hand, an investor might look into the Roth 401(k) option if they feel that they pay lower taxes now than they will in retirement. In that case, you’d potentially pay lower taxes on your contributions now, and none on your withdrawals in retirement.

Your Age

Often, younger taxpayers may be in a lower tax bracket. If that’s the case, contributing to a Roth 401(k) may make more sense for the same reason above: because you’ll pay a lower rate on your contributions now, but then they’re completely tax free in retirement.

If you’re older, perhaps mid-career, and in a higher tax bracket, a traditional 401(k) might help lower your tax burden now (and if your tax rate is lower when you retire, even better, as you’d pay taxes on withdrawals but at a lower rate).

Where You Live

The tax rates where you live, or where you plan to live when you retire, are also a big factor to consider. Of course your location some years from now, or decades from now, can be difficult to predict (to say the least). But if you expect that you might be living in an area with lower taxes than you are now, e.g. a state with no state taxes, it might make sense to contribute to a traditional 401(k) and take the tax break now, since your withdrawals may be taxed at a lower rate.

💡 Quick Tip: Before opening any investment account, consider what level of risk you are comfortable with. If you’re not sure, start with more conservative investments, and then adjust your portfolio as you learn more.

The Benefits of Investing in Both a Roth 401(k) and Traditional 401(k)

If an employer offers both a traditional and Roth 401(k) options, employees might have the option of contributing to both, thus taking advantage of the pros of each type of account. In many respects, this could be a wise choice.

Divvying up contributions between both types of accounts allows for greater flexibility in tax planning down the road. Upon retirement, an individual can choose whether to withdraw money from their tax-free 401(k) account or the traditional, taxable 401(k) account each year, to help manage their taxable income.

It is important to note that the $23,000 contribution limit ($30,500 for those 50 and older) for 2024 is a total limit on both accounts.

So, for instance, you might choose to save $13,500 in a traditional 401(k) and $9,500 in a Roth 401(k) for the year. You are not permitted to save $23,000 in each account.

What’s the Best Split Between Roth and Traditional 401(k)?

The best split between a Roth 401(k) and a traditional 401(k) depends on your individual financial situation and what might work best for you from a tax perspective. You may want to do an even split of the $23,000 limit you can contribute in 2024. Or, if you’re in a higher tax bracket now than you expect to be in retirement, you might decide that it makes more sense for you to put more into your traditional 401(k) to help lower your taxable income now. But if you expect to be in a higher income tax bracket in retirement, you may want to put more into your Roth 401(k).

Consider all the possibilities and implications before you decide. You may also want to consult a tax professional.

The Takeaway

Employer-sponsored Roth and traditional 401(k) plans offer investors many options when it comes to their financial goals. Because a traditional 401(k) can help lower your tax bill now, and a Roth 401(k) generally offers a tax-free income stream later — it’s important for investors to consider the tax advantages of both, the timing of those tax benefits, and whether these accounts have to be mutually exclusive or if it might benefit you to have both.

When it comes to retirement plans, investors don’t necessarily have to decide between a Roth or traditional 401(k). Some might choose one of these investment accounts, while others might find a combination of plans suits their goals. After all, it can be difficult to predict your financial circumstances with complete accuracy — especially when it comes to tax planning — so you may decide to hedge your bets and contribute to both types of accounts, if your employer offers that option.

Another step to consider is a 401(k) rollover, where you move funds from an old 401(k) into an IRA. When you do a 401(k) rollover it can help you manage your retirement funds.

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FAQ

Is it better to contribute to 401(k) or Roth 401(k)?

Whether it’s better to contribute to a traditional 401(k) or Roth 401(k) depends on your particular financial situation. In general, if you expect to be in a lower tax bracket in retirement, a traditional 401(k) may make more sense for you since you’ll be able to deduct your contributions when you make them, which can lower your taxable income, and then pay taxes on the money in retirement, when you’re in a lower income tax bracket.

But if you’re in a lower tax bracket now than you think you will be later, a Roth 401(k) might be the preferred option for you because you’ll generally withdraw the money tax-free in retirement.

Can I max out both 401(k) and Roth 401(k)?

No, you cannot max out both accounts. Per IRS rules, the annual 401(k) limits apply across all your 401(k) accounts combined. So for 2024, you can contribute a combined amount up to $23,000 (or $30,500 if you’re 50 or older) to your Roth 401(k) and your traditional 401(k) accounts.

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Apr

2024

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

By AJ Smith | Growing Wealth, Investing, Life & Career, Preparing for Retirement | No Comments

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

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

401(k) Contribution Limits for 2024

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

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

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

401(k) Contribution Limits 2024 vs 2023

	2024	2023
Basic contribution	$23,000	$22,500
Catch-up contribution	$7,500	$7,500
Total + catch-up	$30,500	$30,000
Employer + Employee maximum contribution	$69,000	$66,000
Employer + employee max + catch-up	$76,500	$73,500

💡 Quick Tip: Want to lower your taxable income? Start saving for retirement with a traditional IRA. The money you save each year is tax deductible (and you don’t owe any taxes until you withdraw the funds, usually in retirement).

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

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

When You’re Starting Out in Your Career

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

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

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

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

As You Move Up in Your Career

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

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

As You Get Closer to Retirement

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

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

The Impact of Contributing More Over Time

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

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

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

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

Factors That May Impact Your Decision

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

1. The Tax Effect

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

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

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

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

2. Your Earning Situation

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

For instance, consider the following:

• Are you the sole or primary household earner?

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

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

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

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

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

3. Your Retirement Goals

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

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

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

4. Do You Have Debt?

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

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

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

The Takeaway

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

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

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

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

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

Help grow your nest egg with a SoFi IRA.

FAQ

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

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

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

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

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

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

Apr

2024

An Introduction to Secondary Offerings

By Laurel Tincher | Financial Independence, Growing Wealth, invest, Investing | Comments Off

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

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

What Are Offerings In Stock?

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

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

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

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

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

Primary vs Secondary Offerings

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

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

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

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

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

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

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

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

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

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Types of Secondary Offerings

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

Dilutive Secondary Offerings

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

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

Non-Dilutive Secondary Offerings

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

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

Examples of Secondary Offerings

Many companies make secondary offerings following their IPOs.

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

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

Why Make a Secondary Offering?

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

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

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

How to Trade Secondary Offerings

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

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

💡 Quick Tip: Access to IPO shares before they trade on public exchanges has usually been available only to large institutional investors. That’s changing now, and some brokerages offer pre-listing IPO investing to qualified investors.

How Do Stock Prices React to a Secondary Offering?

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

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

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

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

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

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

For Investors, Green or Experienced

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

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

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

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

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

FAQ

Is a secondary offering good for stock?

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

What is the difference between a primary and secondary offering?

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

Can you sell a secondary offering stock?

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

How do you sell on secondary?

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

What is the purpose of a secondary listing?

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

What are the risks of buying from a secondary market?

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

What are the benefits of secondary markets to investors?

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

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Apr

2024

What is the Average Cost of an Oil Change in 2023

Average Cost of an Oil Change in 2024

By Kelly Boyer Sagert | Budgeting & Goals | Comments Off

The average cost of an oil change varies depending on where you live. The type of oil used is another factor, with varieties including conventional, synthetic, and semi-synthetic. For basic service with conventional oil and no extra quarts, you can count on paying between $35 and $75, according to Kelley Blue Book.

We’ll discuss the ins and outs of oil changes, including how often you should get it done, the benefits to your vehicle and the environment, and how to save money on your next oil change.

How Much Does an Oil Change Cost on Average?

The cost of an oil change depends on several things:

• Vehicle’s year, make, and model

• DIY vs. service station

• Geographic location

• Service provider

• Type of oil: conventional, synthetic, or synthetic blend

• Add-on services like filter changes and tire rotation

You’ll pay about $35 for basic service with no extra quarts. Top service with extra quarts will run about $75. This is likely to be with conventional oil.

With semi-synthetic oil, the average cost will be higher: $40-$100. And with fully synthetic oil, the price inches up to $65-$125. Some luxury vehicles require special filters, which can cost $260 or more.

The average cost of an oil change at a dealership is generally around $100; this typically includes a filter change. Another popular add-on is tire rotation, which can tack on $20-$50. It’s possible that a dealership or auto repair shop will offer a small discount for more than one service.

In case you were wondering, oil changes are not covered by car insurance because they’re considered a regular part of car maintenance. Learn more in our Insurance Tips for First-time Drivers.

💡 Quick Tip: Saving money on your fixed costs isn’t always easy. One exception is auto insurance. Shopping around for a better deal really can pay off.

Average Cost of Oil Change by Provider

The table below lists the price of the cheapest oil change option at a number of national service providers. Differences in price are often due to the quality of oil used, and the speed and scope of the service.

Service Provider	Lowest-Price Oil Change Service
Firestone	$24.99
Goodyear	$18.95
Jiffy Lube	$29.99
Midas	$33.99
NTB	$24.99
Pennzoil	$25.98
Pep Boys	$24.99
Sears	$19.99
Valvoline	$39.99
Walmart	$19.88
Data courtesy of CarServiceCosts.com

Recommended: How to Lower Your Car Insurance

The Difference Between Synthetic and Conventional Oil

Conventional oil is crude oil that’s been refined, while synthetic is made from chemical compounds. Synthetic oil has fewer impurities and is designed to protect car engines.

Conventional oil needs changing more often and can have problems flowing in extreme temperatures. Synthetic oil can be used for longer periods and flows in a wider range of temperatures. Although there are clear advantages to synthetic oil, there’s one disadvantage: It costs more.

Check your owner’s manual to see what type and grade are recommended for your vehicle’s engine. How much your car is worth may factor into your choice of which oil to use.

How Often Should You Get an Oil Change?

Your owner’s manual should also list how often to change the oil in your specific vehicle. In general, conventional motor oil needs to be changed after about 5,000 miles of driving. Synthetic oil can go as long as 10,000 miles. If you use semi-synthetic motor oil (a blend of the two), you may get 8,000 miles of usage before it needs to be changed.

Did you know you should also be evaluating your insurance on a regular basis? Annual personal insurance planning sessions can help your coverage keep up with important life changes.

Benefits of Getting Your Oil Changed

The benefits of regular oil changes are significant. They include:

• Cleaner engine. When you change the oil, you’re also getting rid of the dirt, debris, and contaminants in the old oil.

• More efficient engine. When the engine is clean and the oil is new, the engine has better lubrication and works more efficiently. This helps boost performance and maximizes the life of the engine.

• Better gas mileage. A more efficient engine will help your car get better gas mileage and save you money on fuel.

• Environmental benefits. When oil stays in your vehicle for too long, it starts to degrade. At this point, it releases potentially toxic hydrocarbons.

• Prevents overheating. Engine components generate heat, especially when you’re driving at faster speeds. When the engine is freshly and appropriately lubricated with motor oil, this lowers friction and reduces the risk of overheating.

How to Lower the Cost of Oil Changes

As noted above, timely oil changes can reduce fuel costs. To save money on oil changes, you can shop around for the best prices in auto shops or do it yourself.
Before your first DIY oil change, you may need to invest in a few supplies. These include a wrench to remove the drain plug (your owner’s manual should list what size and type), an oil filter wrench, an oil pan, latex gloves, and perhaps a jack.

You can save $25 to $75 per oil change on average, depending on the oil and filter you use. So, once you’ve saved enough to “pay back” what you invested in the right tools, you can enjoy savings each time you change your own oil. Check out more tips for saving on car maintenance costs.

💡 Quick Tip: If your car is paid off and worth only a few thousand dollars, consider updating your car insurance: You might choose to opt out of collision coverage and double down on liability.

The Takeaway

The average cost of a basic oil change with conventional oil is $35, but you can find low-cost oil changes for as little as $19. Higher prices may indicate a better quality of oil, add-ons like filter replacement, or faster service. Your vehicle’s owner manual will recommend a type and grade of oil. Conventional oil is typically cheapest, followed by semi-synthetic, and then fully synthetic. Synthetic oils allow you to go longer between oil changes — 10,000 miles compared to 5,000 with conventional. To save the most money on your oil change, don’t be afraid to DIY.

When you’re ready to shop for auto insurance, SoFi can help. Our online auto insurance comparison tool lets you see quotes from a network of top insurance providers within minutes, saving you time and hassle.

SoFi brings you real rates, with no bait and switch.

FAQ

Is $100 a lot for an oil change?

It depends on where you live, the type of oil used, your vehicle, and add-ons such as filter changes and tire rotation. The average cost of a basic oil change is $35, with prices as low as $19. Ask your service provider for a breakdown of what goes into that $100 oil change.

Should I get my tires rotated when I get an oil change?

Consumer Reports recommends rotating your tires every 5,000-8,000 miles. Tires protect you on the road, so this maintenance task shouldn’t be overlooked. Depending on the kind of oil you use and your owner manual’s recommendation, you may want to have your oil changed every 5,000-10,000 miles. If you can combine your oil change schedule with your tire rotation schedule, you might save a bit of money.

How much do oil changes cost in 2024?

The overall average with conventional oil and no other services provided is somewhere about $35. No-frills service with conventional oil starts at $19. You’ll pay for more synthetic oil and add-ons like filter replacement.

Photo credit: iStock/Phynart Studio

Insurance not available in all states.
Experian is a registered service mark of Experian Personal Insurance Agency, Inc.
Social Finance, Inc. ("SoFi") is compensated by Experian for each customer who purchases a policy through Experian from the site.

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

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

SORL0324014

Apr

2024

Can You Have a Joint Retirement Account?

By Pam O’Brien | invest, Investing, Preparing for Retirement | No Comments

No matter what stage of life you’re in, it’s likely that planning for retirement may be looming in the back of your mind. And that’s a good thing: According to the Center for Retirement Research, 39% of households are at risk for not having enough to maintain their living standards in retirement.

One way to start your retirement savings plan is to work shoulder-to-shoulder with your partner. You’ve no doubt heard of joint checking accounts, but what about joint retirement accounts – is there such a thing? Unfortunately, no. But while retirement plans like a 401(k) or IRA do not allow for multiple owners, there are ways couples can plan their retirement savings together.

How Couples Can Plan Together for Retirement

Although there are no joint retirement account options, you can prepare for your golden years together by combining retirement forces. Here’s how.

Review Your Retirement Goals as a Couple

Talking openly and honestly about your finances is one of the keys to building a healthy financial plan. A good first step is to have a productive conversation about your plans and goals for retirement with your significant other. Do you plan on staying in the same home during your retirement years? Perhaps you want to travel internationally once per year or buy a camper and travel across the country.

Determine the amount of money you want in retirement, too. While of course each couple’s retirement number is dependent upon their standard of living, you can calculate an estimate: Start with your current income, subtract estimated Social Security benefits, and divide by 0.04 to get your target number in today’s dollars.

Once you’ve put the numbers together and have a sense of how much you need to retire, you can figure out what you can safely withdraw to make your retirement last as long as you do.

💡 Quick Tip: The advantage of opening a Roth IRA and a tax-deferred account like a 401(k) or traditional IRA is that by the time you retire, you’ll have tax-free income from your Roth, and taxable income from the tax-deferred account. This can help with tax planning.

Determine When Both of You Will Retire

Do you know when you will retire? How about your partner? Remember, retirement plans like 401(k)s and IRAs generally cannot be withdrawn from penalty-free until you reach age 59 ½.

If you or your partner do plan to retire earlier than 59 ½, it might make sense to put some of your retirement funds into a taxable brokerage account that you can access at any time.

Name Your Spouse as a Beneficiary

While there are many ways to start saving for retirement, unfortunately, there aren’t any options that operate as a joint retirement account by default. A work-around to this is for each of you to name your spouse as a beneficiary in your retirement account. If something were to happen to one of you, the other person would still have access to your accounts and the money in it.

Your Top Questions About Joint Retirement, Answered

These are some of the biggest questions couples have when it comes to joint retirement.

Can both spouses contribute to a 401(k)?

No — only one spouse can contribute to a 401(k) account. 401(k)s are employer-sponsored plans. So just the spouse who works at the company offering the plan can participate in it and contribute to it.

However, the other spouse can be a beneficiary of the plan. This means that if the original planholder dies, the spouse gets the inherited 401(k) and can then roll it into their own 401(k) or into an IRA.

How much can a married couple contribute to a 401(k)?

As noted above, 401(k) plans are individual, with only one person contributing to each account (along with their employer, in some cases). The maximum 401(k) contribution allowed in 2024 is $23,000, with an additional catch-up contribution of $7,500 for those 50 and older. With those figures in mind, if each partner has their own 401(k) plan, a married couple could each contribute $23,000 for a combined $46,000 a year.

The maximum 401(k) contribution allowed in 2023 is $22,500, with an additional catch-up contribution of $7,500 allowed for those 50 and older. That means if each partner has their own 401(k) plan, a married couple can each contribute $22,500 for a combined $45,000 a year in 2023.

How many IRAs can a married couple have?

If a couple is married and files their taxes jointly, each partner in the marriage can contribute to their own IRAs. There is a contribution limit, however — the total contributions to the IRAs “may not exceed your joint taxable income or the annual contribution limit on IRAs times two, whichever is less,” according to the IRS. The annual IRA contribution limit is $7,000, so the total limit is $14,000, for 2024. Those 50 and older can contribute an additional catch-up amount of $1,000.

For 2023, the IRA contribution limit is $6,500, so the total limit is $13,000. Those 50 and older can contribute an additional catch-up amount of $1,000.

💡 Quick Tip: Before opening an investment account, know your investment objectives, time horizon, and risk tolerance. These fundamentals will help keep your strategy on track and with the aim of meeting your goals.

Can my wife contribute to an IRA if she doesn’t work?

Yes, a non-working spouse can open and contribute to an IRA (called a spousal IRA) as long as the other spouse is working and the couple files a joint federal income tax return. The spouse who doesn’t work can contribute up to the IRA limit of $7,000 in 2024, plus $1,000 additional in catch-up contributions if she is 50 or older.

What is a spousal Roth IRA?

A spousal IRA is a Roth or traditional IRA for a spouse who doesn’t work. A couple must file their taxes as married filing jointly to be eligible for a spousal IRA. The spouse who doesn’t work can contribute up to the IRA limit of $7,000 in 2024, plus $1,000 additional in catch-up contributions if she is 50 or older.

Can a husband and wife both have a Roth IRA?

A husband and wife can each have their own separate Roth IRAs. Your total contributions to both IRAs must not exceed your joint taxable income or the annual contribution limit to the IRAs times two. For 2024, you can each contribute $7,000 to your separate Roth IRAs, making the total contribution limit $14,000 for those under age 40. Those 50 and up can each contribute an extra $1,000 if they choose.

Can my non-working spouse have a Roth IRA?

Yes. Spousal IRAs can be traditional or Roth IRAs. In a Roth IRA, the money put into it is not tax deductible. Instead the money comes from taxable income but may grow tax free, so that an individual typically doesn’t have to pay taxes on the money that’s taken out of the account when they retire. While the contribution limits vary according to your tax filing and income status, typically the limit of contributions is the same as it is for traditional IRAs.

What is the maximum Roth contribution for a married couple?

In 2024, the annual limit for an IRA contribution is 7,000 per person, or $8,000 for those 50 and older. However, a Roth IRA has income limits. In 2024, a couple that is married filing jointly cannot contribute to a Roth IRA if their modified adjusted gross income (MAGI) is more than $240,000. Those with a MAGI between $230,000 and $240,000 can contribute a partial amount, and those whose income is less than $230,000 can contribute the full amount.

Should a married couple have two Roth IRAs?

Whether you should have two Roth IRAs is a personal decision. One consideration: Since a married couple cannot have a joint retirement account like a joint Roth IRA, if you each have a Roth IRA, you may be able to save more for retirement if you both contribute the full amount allowed to your separate IRAs. For 2024, that amount is $7,000 for those under age 50, and $8,000 for those 50 and up. However, your total contributions to both IRAs must not exceed your joint taxable income

The Takeaway

While no specific retirement savings plans — such as 401(k)s or IRAs — offer joint retirement accounts, there are ways for couples to plan and save for retirement together. One way is to each have your own separate IRAs that you contribute to. Another easy way to make sure you’re both taken care of in retirement is to make each other the beneficiaries on your individual accounts.

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.