Growing Wealth Archives

Feb

2026

The Ultimate Guide to Investing for Retirement at Age 60

By Michael Flannelly | Growing Wealth, invest, Investing | Comments Off

Retirement is a milestone that many people look forward to with great anticipation. While the freedom of having more time to spend with loved ones, pursue hobbies, or travel is certainly something to be celebrated, it is also important to plan, save, and invest so this future can be a reality.

It’s never too late to start saving and investing for these future goals, even if you’re nearing 60. And if you’ve been saving for years, it’s still smart to continue to invest for retirement when you reach 60. However, your investment strategies may need to change as you near the end of your working years. In this guide, we’ll explore key factors to consider when investing for retirement at age 60, as well as some low-risk investment options that may be suitable for those nearing retirement.

Investing for Retirement at 60

As you approach 60, retirement may be just around the corner. Maybe you’ve been saving for retirement your entire career. Or perhaps you started saving late and need to grow your nest egg quickly for your golden years. No matter the case, as retirement nears, you may wonder what to do to ensure financial stability.

Investing for retirement is critical to help you reach a comfortable financial position. But planning for retirement at age 60 may seem overwhelming. After all, there are several investment accounts you could open or continue to invest in, not to mention the various types of investments you could have in those accounts. With a little bit of research and planning, you can put yourself on the path of living comfortably in retirement.

If you’re beginning your investment journey, it’s better to start immediately rather than putting it off because you’re overwhelmed by the prospect of failing to meet your financial goals. It’s better to save and invest in different types of retirement plans now rather than put it off and have nothing down the road.

Options for Investing for Retirement at Age 60

Investing for retirement at age 60 can be a confusing and daunting process, particularly for those new to investing. But with some planning, retirees can find the best options for their needs. The following are some options to help you invest for retirement at age 60:

401(k)

A 401(k) is an employer-sponsored, tax-advantaged retirement savings plan that can be a valuable tool for someone who is 60 years old and looking to save for retirement. A 401(k) plan allows you to save for retirement on a tax-deferred basis, which means that your contributions could reduce your taxable income for the current year, and your investment earnings grow tax-free until you withdraw the funds in retirement.

If your employer offers a 401(k), it can be particularly advantageous for someone who is 60 years old as it provides several features that can help to maximize your retirement savings:

• Catch-up contributions: If you are 50 or older, you can make catch-up contributions to your 401(k) plan, which allows you to contribute more money to your account each year than younger participants. In 2025, the annual catch-up contribution is up to $7,500 more than the standard $23,500 contribution limit. In 2026, the annual catch-up contribution is up to $8,000 more than the standard $24,500 contribution limit. Also in 2025 and 2026, those aged 60 to 63 may contribute up to an additional $11,250 (instead of $7,500 in 2025 ans $8,000 in 2026), thanks to SECURE 2.0.

Under a new law regarding catch-up contributions that went into effect on January 1, 2026 (as part of SECURE 2.0), individuals aged 50 and older who earned more than $150,000 in FICA wages in 2025 are required to put their 401(k) catch-up contributions into a Roth 401(k) account. With Roth accounts, individuals pay taxes on contributions upfront, but can make qualified withdrawals tax-free in retirement.

• Employer matching contributions: Many 401(k) plans offer employer matching contributions, which can help to boost your retirement savings. Maxing out your employer match can be an effective way of increasing savings.

• Several investment options: A 401(k) plan typically offers a range of investment options, including mutual funds, exchange-traded funds (ETFs), and individual stocks and bonds. These investment options allow you to diversify your portfolio and manage risk.

• Loan options: Some 401(k) plans allow you to borrow from your account, which can be helpful in times of financial need.

IRA

An individual retirement account (IRA) is a tax-advantaged investment account that provides a way to save for retirement outside of an employer-sponsored plan, such as a 401(k). An IRA can be an option for someone who is 60 years old and looking to save for retirement. There are two main types of IRAs: traditional and Roth.

For someone who is 60 years old, an IRA can offer a number of benefits in terms of retirement savings:

• Tax benefits: A traditional IRA provides tax-deferred growth on your contributions, meaning that you can deduct your contributions from your taxable income for the current year and pay taxes on the funds when you withdraw them in retirement. A Roth IRA provides tax-free growth on your contributions, meaning you can withdraw the funds in retirement without paying any taxes on the investment earnings.

• Catch-up contributions: Like a 401(k), you are eligible to make annual catch-up contributions to your IRA if you are 50 or older. For 2025, the annual catch-up contribution is $1,000 more than the standard $7,000 contribution limit. For 2026, the annual catch-up contribution is $1,100 more than the standard $7,500 contribution limit.

Recommended: What is an IRA?

Real Estate

Investing in real estate is another option to save for retirement. Real estate investments provide a source of passive income, which may help supplement your retirement savings and hedge against inflation. There are several ways that someone who is 60 years old can invest in real estate, including:

• Rental property: Investing in rental property can provide a steady stream of rental income, which can help to supplement your retirement savings.

• Real estate investment trusts (REITs): Some REITs own and manage income-producing properties. Investing in REITs can provide exposure to a diverse portfolio of real estate assets without the responsibility of managing the properties yourself.

Annuities

Annuities may be an attractive investment vehicle for someone saving for retirement. An annuity is an investment product that provides a guaranteed income stream in exchange for a lump sum payment or a series of payments. It’s important to note that there are several types of annuities, each with unique features and benefits.

An annuity can offer many benefits for retirement savings:

• Guaranteed income: An annuity provides a guaranteed stream of income, which can help to provide financial stability in retirement.

• Protection from market downturns: Certain types of annuities can provide protection from market downturns, which can help to mitigate the impact of stock market losses on your retirement savings.

Things to Consider When Investing for Retirement at Age 60

Regardless of your financial situation, you can continue or start to invest for retirement at age 60. However, before you start investing at age 60, you should consider the following:

Retirement Goals

You want to figure out your desired lifestyle that you’ll have during retirement and how much money you will need to support it. You may want to travel the world. Or you want to live a low-key life near your family. Depending on your retirement goals, you’ll have much different needs.

Figuring out your retirement goals will help you determine how much you need to save and invest and what types of investments may be most suitable for your needs.

Time Horizon

One of the most important things to consider when investing for retirement at age 60 is your time horizon. With only a few years remaining until retirement, it’s important to consider how much time you have to invest and how long your investments need to last. This may affect the types of investments you choose, as you’ll likely want to focus on more conservative options that have a lower risk of losing your initial capital.

Risk Tolerance

Your risk tolerance may change as you get closer to retirement. At age 60, you may be less willing to take on the risk of losing your initial investment, as you’ll want to ensure that your savings last throughout your retirement. With a risk-averse outlook, you may consider lower-risk investment options such as certificates of deposit (CDs), dividend-paying stocks, or bond funds made up of US Treasuries and high-grade corporate debt.

Current Savings

Another critical factor to consider when investing for retirement at age 60 is your current savings. The amount you have already saved will play a significant role in determining how much you can invest and how much you will need to save. It’s also important to consider whether you have any other sources of retirement income, such as a pension plan or Social Security.

Social Security

Social Security is an important source of retirement income and can help supplement your other investments. When you turn 62, you can start receiving Social Security benefits. However, your benefits may be reduced if you start taking them early. Therefore, you want a holistic view of how your Social Security benefits will fit into your retirement plan.

Health Care Expenses

Healthcare expenses can significantly impact retirement savings, as they can be one of the largest expenses for individuals during their retirement years. Thus, you should factor in the potential for the need to pay for health care in your retirement savings plans.

According to the Fidelity Retiree Health Care Cost Estimate, the average 65-year-old couple retiring in 2022 can expect to spend approximately $315,000 on healthcare expenses throughout their retirement. This amount can quickly eat into an individual’s retirement savings, leaving them with less money for other costs such as housing, food, and entertainment.

Taxes

Some investment options have different tax implications, and it’s important to consider how your investments will be taxed in retirement. For example, traditional IRAs and 401(k)s are tax-deferred, meaning that you won’t have to pay taxes on the money you invest until you withdraw it in retirement. On the other hand, Roth IRAs and 401(k)s are taxed upfront, so you won’t have to pay taxes on the money you withdraw in retirement.

Cost of Living

Inflation, or the rise of the cost of living, can erode the value of your investments over time, so you want to factor in how inflation may affect your savings in the future. This can include investing in assets that may appreciate in value, such as stocks, or in assets that generate income, such as bonds and rental property.

Recommended: How Does Inflation Affect Retirement?

Open an Online IRA With SoFi

People may think that by the time they turn 60, they should have enough money to retire and live comfortably. However, like anything in life, things sometimes work out differently than you planned. So if you don’t have the retirement nest egg you envisioned by the time you turned 60, it doesn’t mean you should avoid saving altogether. By assessing your current financial situation, selecting appropriate investments, and taking advantage of retirement plans, you can ensure a secure financial future even if you’re starting at 60.

If you’re ready to start investing for retirement, you can open an online retirement account with SoFi. SoFi offers Traditional, Roth, and SEP IRAs for investors looking to reach their financial goals for retirement. With a SoFi Invest® active IRA, you’ll be able to access a broad range of investment options, like buying and selling stocks, exchange-traded funds (ETFs), and fractional shares with no commission.

Help grow your nest egg with a SoFi IRA.

FAQ

Are you able to invest for retirement at 60?

It is possible to invest for retirement at age 60. However, it is also important to consider other factors, such as your current savings, retirement goals, and overall financial situation, to determine if investing for retirement at 60 is your best course of action.

Can you open a retirement account for investments at age 60?

You can open retirement accounts for investments at age 60. Several options are available, such as a traditional IRA or a Roth IRA. Additionally, these accounts allow catch-up contributions for people aged 50 or over.

How much money does the average 60-year-old invest for retirement?

The average amount a 60-year-old has saved for retirement can vary greatly depending on several factors, such as their current financial situation, savings habits, and overall financial goals. According to a report by Vanguard, the average and median retirement savings balance for individuals between the ages of 55 and 64 in 2021 was $256,244 and $89,716, respectively.

Photo credit: iStock/sureeporn

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

Feb

2026

The Ultimate Guide to SIMPLE IRAs for Employees and Small Businesses

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

SIMPLE IRA is a tax-advantaged retirement account that can help self-employed individuals and small business owners save and invest for the future.

You may already be familiar with traditional individual retirement accounts (IRAs). A SIMPLE IRA, or Saving Incentive Match Plan for Employees, is similar to a traditional IRA in that it’s also a tax-deferred account. But the contribution limits for SIMPLE IRAs are higher, and the tax treatment of these plans is slightly different.

Also, SIMPLE IRAs require employers to provide a matching contribution.

What Is a SIMPLE IRA?

SIMPLE IRA plans are employer-sponsored retirement accounts for businesses with 100 or fewer employees. They are also retirement accounts for the self-employed and sole proprietors. If you’re your own boss, and thus self-employed, you can set up a SIMPLE IRA for yourself.

For small business owners and the self-employed, SIMPLE IRAs are an easy-to-manage, low-cost way to contribute to their own retirement — while at the same time helping employees to contribute to their savings as well, both through tax-deferred, elective contributions, and a required employer match.

SIMPLE IRAs offer higher contribution limits than traditional IRAs (see below), but employers and employees still benefit from tax advantages like tax-deferred growth and contributions that are either deductible (for the employer) or reduce taxable income (for the employee).

How Does a SIMPLE IRA Work?

A SIMPLE IRA is one of many different types of retirement plans available, but it can be appealing for small business owners and those who are self-employed owing to the lower administrative burden.

That’s because, unlike a 401(k) plan (which requires a plan sponsor and a plan administrator, as well as a custodian for employee assets), a SIMPLE IRA basically enables the employer to set up IRA accounts at a financial institution for eligible employees — or allow employees to do so at the financial institution of their choice.

Once the plan is set up and contributions are made, the employee is fully vested (i.e., they have ownership of all SIMPLE IRA funds, per IRS rules), which is helpful when saving for retirement.

Employee Eligibility

In order for an employee to participate in a SIMPLE IRA, they must have earned at least $5,000 in compensation over the course of any two years prior to the current calendar year, and they must expect to make $5,000 in the current calendar year.

It’s possible for employers to set less restrictive rules for SIMPLE IRA eligibility. For example, they could lower the amount employees are required to have made in a previous two-year time. However, they cannot make participation rules more restrictive.

Employers can exclude certain types of employees from the plan, including union members who have already bargained for retirement benefits and nonresident aliens who don’t receive their compensation from the employer.

Employee Contribution Limits

Those who have a SIMPLE IRA can contribute up to $16,500 in 2025 (plus an extra $3,500 in catch-up contributions for those 50 and older). In 2026, they can contribute up to $17,000 (plus an extra $4,000 in catch-up contributions for those 50 and older). In both 2025 and 2026, those aged 60 to 63 can contribute $5,250 (instead of $3,500 and $4,000 respectively), thanks to SECURE 2.0.

Contributions reduce employees’ taxable income, which lowers their income taxes in the year they contribute. Contributions can be invested inside the account, and may grow tax-deferred until an employee makes withdrawals when they retire.

IRA withdrawal rules are particularly important to pay attention to as they can be a bit complicated. Withdrawals made after age 59 ½ are subject to income tax. If you make withdrawals before then, you may be subject to an additional 10%, with some exceptions, or 25% penalty (if you’ve had the account for less than two years).

Account holders must make required minimum distributions, or RMDs, from their accounts when they reach age 73 (as long as they turn 72 after December 31, 2022).

Matching Contributions

An employer is required to provide a matching contribution to employees in one of two ways. They can match up to 3% of employees’ compensation. Or they can make a non-elective contribution of 2% of employees’ compensation.

If an employee doesn’t participate in the SIMPLE IRA plan, they would still receive an employer contribution of 2% of their compensation, up to the annual compensation limit, which is $350,000 for 2025, and $360,000 for 2026.

This two-tiered structure allows employers to choose whatever matching structure suits them.

SIMPLE IRA vs Traditional IRA

When it comes to a SIMPLE IRA vs. a traditional IRA, the two plans are similar, but there are some key differences between the two. A SIMPLE IRA is for small business owners and their employees. A traditional IRA is for anyone with earned income.

To be eligible for a SIMPLE IRA, an employee generally must have earned at least $5,000 in compensation over the course of two years prior — and expect to make $5,000 in the current calendar year. With a traditional IRA, an individual must have earned income in the past year.

Contribution Limits

One of the biggest differences between the two plans is the contribution limit amount.

While individuals can contribute $7,000 in 2025 to a traditional IRA (or $8,000 if they are 50 or older), and $7,500 in 2026 (or $8,600 if they are 50 or older), those who have a SIMPLE IRA can contribute $16,500 in 2025, plus an extra $3,500 in catch-up contributions for those 50 and older, for a total of $20,000, and they can contribute $17,000 in 2026 plus an extra $4,000 in catch-up contributions, for a total of $21,000. Those aged 60 to 63 can contribute a catch-up of $5,250 for both 2025 and 2026 (instead of $3,500 and $4,000), for a total of $21,750 in 2025, and $22,250 in 2026.

Tax Treatment

And while both types of IRAs are considered tax deferred, SIMPLE IRAs use two different tax treatments.
For example: a traditional IRA generally allows individuals to make tax-deductible contributions. With a SIMPLE IRA, the employer or sole proprietor can make tax-deductible contributions to a SIMPLE IRA — while employees benefit from having their elective contributions withheld from their taxable income.

Both methods can help lower taxable income, potentially providing a tax benefit. But withdrawals are taxed as income, as they are with a traditional IRA.

Dive deeper: SIMPLE IRA vs Traditional IRA

SIMPLE IRA vs 401(k)

SIMPLE IRAs have some similarity to employer-sponsored 401(k) plans. Contributions made to both are made with pre-tax dollars, and the money in the accounts grows tax-deferred.

But while a 401(k) gives an employer the option of providing matching contributions to employees’ plans, a SIMPLE IRA requires matching contributions by the employer, as noted above.

Another major difference between the two plans is that individuals can contribute much more to a 401(k) than they can to a SIMPLE IRA.

• In 2025, they can contribute $23,500 to their 401(k) and an additional $7,500 if they’re 50 or older. Those aged 60 to 63 can contribute $11,250 instead of $7,500 to their 401(k), thanks to SECURE 2.0. In 2026, they can contribute $24,500 and an additional $8,000 if they are 50 or older. Those aged 60 to 63 can again contribute $11,250 instead of $8,000.

Under a new law that went into effect on January 1, 2026 (as part of SECURE 2.0), individuals aged 50 and older who earned more than $150,000 in FICA wages in 2025 are required to put their 401(k) catch-up contributions into a Roth 401(k) account. With Roth accounts, individuals pay taxes on contributions upfront, but can make qualified withdrawals tax-free in retirement.

• In comparison, individuals can contribute $16,500 to a SIMPLE IRA in 2025, plus an additional $3,500 if they are 50 or older, and in 2026, they can contribute $17,000, plus an additional $4,000 if they are 50 or older. Those aged 60 to 63 can contribute $5,250 (instead of $3,500 and $4,000) in 2025 and 2026, thanks to SECURE 2.0.

How to Run a SIMPLE IRA Plan

SIMPLE IRAs are relatively easy to put in place, since they have no filing requirements for employers. Employers cannot offer another retirement plan in addition to offering a SIMPLE IRA.

If you’re interested in setting up a SIMPLE IRA, banks and brokerages may have a plan, known as a prototype plan, that’s already been approved by the IRS.

Otherwise you’ll need to fill out one of two forms to set up your plan:

• Form 5304-SIMPLE allows employees to choose the financial institutions that will receive their SIMPLE IRA contributions.

• You can also fill out Form 5305-SIMPLE, which means employees will deposit SIMPLE IRA contributions at a single financial institution chosen by the employer.

Once you have established the SIMPLE IRA, an account must be set up by or for each employee, and employers and employees can start to make contributions.

Notice Requirements for Employees

There are minimal paperwork requirements for a SIMPLE IRA. Once the employer opens and establishes the plan through a financial institution, they need to notify employees about it. This should be done by October 1 of the year the plan is intended to begin. Employees have 60 days to make their elections.

Eligible employees need to be notified about the plan annually. Any changes or new terms to the plan must be disclosed. At the beginning of each annual election period, employers must notify their employees of the following:

• Opportunities to make or change salary reductions.

• The ability to choose a financial institution to receive SIMPLE IRA contribution, if applicable.

• Employer’s decisions to make nonelective or matching contributions.

• A summary description provided by the financial institution that acts as trustee of SIMPLE IRA fund, and notice that employees can transfer their balance without cost of penalty if the employer is using a designated financial institution.

Participant Loans and Withdrawals

Participants cannot take loans from a SIMPLE IRA. Withdrawals made before age 59 ½ are typically subject to a 10% penalty, or 25% if the account is less than two years old, in addition to any income tax due on the withdrawal amount.

Rollovers and Transfers to Other Retirement Accounts

For the first two years of participating in a SIMPLE IRA, participants can only do a tax-free rollover to another SIMPLE IRA. After two years, they may be able to roll over their SIMPLE IRA to a traditional IRA or an employer-sponsored plan such as 401(k).

A rollover to a Roth IRA would require paying taxes on any untaxed contributions and earnings in the accounts.

The Advantages and Drawbacks of a SIMPLE IRA Plan

While SIMPLE IRAs may offer a lot of benefits, including immediate tax benefits, tax-deferred growth, and employer contributions, there are some drawbacks. For example, SIMPLE IRAs don’t allow employees to save as much as other retirement plans such as 401(k)s and Simplified Employee Pension (SEP) IRAs.

In 2025, employees can contribute up to $23,500 to a 401(k), plus an additional $7,500 for those 50 and over. Those aged 60 to 63 can contribute $11,250 instead of $7,500 to their 401(k), thanks to SECURE 2.0.

In 2026, they can contribute $24,500 to a 401(k), plus an additional $8,000 for those 50 or older. Those aged 60 to 63 can contribute $11,250 instead of $8,000 to their 401(k), thanks to SECURE 2.0.

Individuals with a SEP IRA account can contribute up to 25% of their employee compensation, or $70,000, whichever is less, in 2025, and up to 25% of their employee compensation, or $72,000, whichever is less, in 2026.

The good news is, employees with SIMPLE IRAs can make up some of that lost ground. Employers may be wondering about the merits of choosing between a SIMPLE and traditional IRA, but they can actually have both.

Employers and employees can open a traditional or Roth IRA and fund it simultaneously with a SIMPLE IRA. For 2025, total IRA contributions can be up to $7,000, or $8,000 for those 50 and over. In 2026, total IRA contributions can be up to $7,500, or $8,600 for those 50 or older.

Here some pros and cons of starting and funding a SIMPLE IRA at a glance:

Pros of a SIMPLE IRA	Cons of a SIMPLE IRA
Employers are required to provide a matching contribution for all eligible employees.	Lower contribution limits than other plans, such as 401(k)s and SEP IRAs.
Lower cost and less paperwork than other retirement accounts; there are no filing requirements with the IRS.	Withdrawals made before age 59 ½ are subject to a possible 10% or 25% penalty, depending on how long the account has been open.
Contributions are tax deductible for employers and pre-tax for employees (both lower taxable income).	Participants cannot take out a loan from a SIMPLE IRA.
A SIMPLE IRA may offer more investment options than a 401(k) or other employer plan.	There is no Roth option to allow employees to fund a SIMPLE account with after-tax dollars that would translate to tax-free withdrawals in retirement.

Eligibility and Participation in a SIMPLE IRA

As mentioned previously, there are some rules about who can participate in a SIMPLE IRA. Here’s a quick recap.

Who Can Establish and Participate in a SIMPLE IRA?

Small business owners with fewer than 100 employees and self-employed individuals can set up and participate in a SIMPLE IRA, along with any eligible employees.

Employers can’t offer any other type of employer-sponsored plan if they set up a SIMPLE IRA.

Employees’ Eligibility and Participation Criteria

In order for an employee to be eligible to participate, they must have earned at least $5,000 in compensation over the course of any two years prior to the current calendar year, and they must expect to make $5,000 in the current calendar year.

Employees can choose less restrictive requirements if they choose. They may also exclude certain individuals from a SIMPLE IRA, such as those in unions who receive benefits through the union.

Investment Choices and Account Maintenance

Because the employer doesn’t have to set up investment options for the SIMPLE IRA, employees have the advantage of setting up a portfolio from the investments available at the financial institution that holds the SIMPLE IRA.

Investment Choices for a SIMPLE IRA

Typically, there may be more investment choices with a SIMPLE IRA than there with a 401(k) because the SIMPLE IRA account may be held at a financial institution with a wide array of options.

Investment choices can include stocks, bonds, mutual funds, exchange-traded funds (ETFs), target-date funds, and more.

Understanding SIMPLE IRA Distributions

There are particular rules for SIMPLE IRA distributions, as there are with all types of retirement accounts.

Withdrawal Rules and Tax Consequences

As discussed previously, withdrawals made before age 59 ½ are subject to income tax plus a potential 10% or 25% penalty, depending on how long the account has been open.

Withdrawals made after age 59 ½ are subject to income tax only and no penalty. Account holders must make required minimum distributions from their accounts when they reach age 73 (as long as they turn 72 after Dec. 31, 2022).

The 2-Year Rule and Early Withdrawal Penalties

There is a two-year rule for withdrawals from a SIMPLE IRA. If you make a withdrawal within the first two years of participating in the plan, the penalty may be increased from 10% to 25%, with some exceptions (e.g., for a first-time home purchase, for higher education expenses, and more). In addition, all withdrawals are subject to ordinary income tax.

The Takeaway

SIMPLE IRAs are one of the easiest ways that self-employed individuals and small business owners can help themselves and their employees save for retirement, whether they’re experienced retirement investors or they’re opening their first IRA.

These accounts can even be used in conjunction with certain other retirement accounts and investment accounts to help individuals save even more.

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

Help grow your nest egg with a SoFi IRA.

Photo credit: iStock/shapecharge

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

SOIN-Q324-054
CN-Q425-3236452-28
Q126-3525874-009

Feb

2026

Solo 401(k) vs SEP IRA: Key Differences and Considerations

Solo 401(k) vs SEP IRA: An In-Depth Comparison for Self-Employed Retirement Planning

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

Self-employment has its perks, but an employer-sponsored retirement plan isn’t one of them. Opening a solo 401(k) or a Simplified Employee Pension Individual Retirement Account (SEP IRA) allows the self-employed to save for retirement while enjoying some tax advantages.

So, which is better for you? The answer can depend largely on whether your business has employees or operates as a sole proprietorship and which plan yields more benefits, in terms of contribution limits and tax breaks.

Weighing the features of a solo 401(k) vs. SEP IRA can make it easier to decide which one is more suited to your retirement savings needs.

Key Points

• Solo 401(k) allows tax-deductible contributions, employer contributions, employee contributions, and offers the option for Roth contributions and catch-up contributions.

• SEP IRA allows tax-deductible contributions, employer contributions, but does not allow employee contributions, Roth contributions, catch-up contributions, or loans.

• Withdrawals from traditional solo 401(k) plans and SEP IRAs are taxed in retirement.

• Solo 401(k) plans allow loans, while SEP IRAs do not.

• Solo 401(k) plans offer more flexibility and options compared to SEP IRAs.

Understanding the Basics

A solo 401(k) is similar to a traditional 401(k), in terms of annual contribution limits and tax treatment. A SEP IRA follows the same tax rules as traditional IRAs. SEP IRAs, however, typically allow a higher annual contribution limit than a regular IRA.

What Is a Solo 401(k)?

A solo 401(k) covers a business owner who has no employees or employs only their spouse. Simply, a Solo 401(k) allows you to save money for retirement from your self-employment or business income on a tax-advantaged basis.

These plans follow the same IRS rules and requirements as any other 401(k). There are specific solo 401(k) contribution limits to follow, along with rules regarding withdrawals and taxation. Regulations also govern when you can take a loan from a solo 401(k) plan.

A number of online brokerages offer solo 401(k) plans for self-employed individuals, including those who freelance or perform gig work. You can open a retirement account online and start investing, no employer other than yourself needed.

If you use a solo 401(k) to save for retirement, you’ll also need to follow some reporting requirements. Generally, the IRS requires solo 401(k) plan owners to file a Form 5500-EZ if it has $250,000 or more in assets at the end of the year.

What Is a SEP IRA?

A SEP IRA is another option to consider if you’re looking for retirement plans for the self-employed. This tax-advantaged plan is available to any size business, including sole proprietorships with no employees. SEP IRAs work much like traditional IRAs, with regard to the tax treatment of withdrawals. They do, however, allow you to contribute more money toward retirement each year above the standard traditional IRA contribution limit. That means you could enjoy a bigger tax break when it’s time to deduct contributions.

If you have employees, you can make retirement plan contributions to a SEP IRA on their behalf. SEP IRA contribution limits are, for the most part, the same for both employers and employees. If you’re interested in a SEP, you can set up an IRA for yourself or for yourself and your employees through an online brokerage.

💡 Quick Tip: Did you know that you must choose the investments in your IRA? Once you open a new IRA and start saving, you get to decide which mutual funds, ETFs, or other investments you want — it’s totally up to you.

Diving Deeper: Pros and Cons of Each Plan

As you debate between a solo 401(k) vs. a SEP IRA as ways to build wealth for retirement, it’s helpful to learn more about how these plans work, including their benefits and drawbacks.

Advantages of Solo 401(k)s

In terms of differences, there are some things that set solo 401(k) plans apart from SEP IRAs.

With a solo 401(k), you can choose a traditional or Roth. You can deduct your contributions in the year you make them with a traditional solo 401(k), but you’ll pay taxes on your distributions in retirement. With a Roth solo 401(k) you pay taxes on your contributions in the year you make them, and in retirement, your distributions are tax free. You can choose the plan that gives you the best tax advantage.

Another benefit of a solo 401(k) is that those age 50 and older can make catch-up contributions to this plan. In addition, you may be able to take a loan from a solo 401(k) if the plan permits it.

Advantages of SEP IRAs

One of the benefits of a SEP IRA is that contributions are tax deductible and you can make them at any time until your taxes are due in mid-April of the following year.

The plan is also easy to set up and maintain.

If you have employees, you can establish a SEP IRA for yourself as well as your eligible employees. You can then make retirement plan contributions to a SEP IRA on your employees’ behalf. (All contributions to a SEP are made by the employer only, though employees own their accounts.)

SEP IRA contribution limits are, for the most part, the same for both employers and employees. This means that you need to make the same percentage of contribution for each employee that you make for yourself. That means if you contribute 15% of your compensation for yourself, you must contribute 15% of each employee’s compensation (subject to contribution limits).

A SEP IRA also offers flexibility. You don’t have to contribute to it every year.

However, under SEP IRA rules, no catch-up contributions are allowed. There’s no Roth option with a SEP IRA either.

Eligibility and Contribution Limits

Here’s what you need to know about who is eligible for a SEP IRA vs. a Solo 401(k), along with the contribution limits for both plans for 2024 and 2025.

Who Qualifies for a Solo 401(k) or SEP IRA?

Self-employed individuals and business owners with no employees (aside from their spouse) can open and contribute to a solo 401(k). There are no income restrictions on these plans.

SEP IRAs are available to self-employed individuals or business owners with employees. A SEP IRA might be best for those with just a few employees because IRS rules dictate that if you have one of these plans, you must contribute to a SEP IRA on behalf of your eligible employees (to be eligible, the employees must be 21 or older, they must have worked for you for three of the past five years, and they must have earned at least $750 in the tax year).

Plus, the amount you contribute to your employees’ plan must be the same percentage that you contribute to your own plan.

Contribution Comparison

With a solo 401(k), there are rules regarding contributions, including contribution limits. For 2025, you can contribute up to $70,000, plus an additional catch-up contribution of $7,500 for those age 50 and older. In 2026, you can contribute up to $72,000, plus an extra catch-up contribution of $8,000 for those age 50 and older. Also, in 2025 and 2026, those aged 60 to 63 may contribute an additional catch-up of $11,250 instead of $7,500 and $8,000 respectively, thanks to SECURE 2.0.

Under a new law that went into effect on January 1, 2026 (as part of SECURE 2.0), individuals aged 50 and older who earned more than $150,000 in FICA wages in 2025 are required to put their catch-up contributions into a Roth 401(k) account. Because of the way Roth accounts work, these individuals will pay taxes on their catch-up contributions upfront, but can make eligible withdrawals tax-free in retirement.

For the purposes of a solo 401(k) you play two roles — employer and employee. As an employee, you can contribute the lesser of 100% of your compensation or up to $23,500 in 2025 and up to $24,500 in 2026. If you’re 50 or older, you can contribute the $7,500 catch-up contribution in 2025, and $8,000 in 2026. And if you’re aged 60 to 63, in 2025 and 2026, you may contribute an additional $11,250 instead of $7,500 (in 2025) or $8,000 (in 2026). Again, under the new law regarding catch-up contributions, if you are aged 50 and older with FICA wages exceeding $150,000 in 2025, you are required to put your catch-up contributions into a Roth 401(k) account. As an employer, you can make an additional contribution of 25% of your compensation (up to $350,000 in 2025, and up to $360,000 in 2026) or net self-employment income.

The contribution limits for a SEP IRA are the lesser of 25% of your compensation or $70,000 in 2025 and $72,000 in 2026. As mentioned earlier, there are no catch-up contributions with this plan.

And remember, per the IRS, if you have a SEP IRA, you must contribute to the plan on behalf of your eligible employees. The amount you contribute to your employees’ plan must be the same percentage that you contribute to your own plan.

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Key Differences That Could Influence Your Decision

When you’re deciding between a solo 401(k) vs. a SEP IRA, consider the differences between the two plans carefully. These differences include:

Roth Options and Tax Benefits

With a solo 401(k), you can choose between a traditional and Roth solo 401(k), depending on which option’s tax benefits make the most sense for you. If you expect to be in a higher tax bracket when you retire, a Roth may be more advantageous since you can pay taxes on your contributions upfront and get distributions tax-free in retirement.

On the other hand, if you anticipate being in a lower tax bracket at retirement, a traditional solo 401(k) that lets you take deductions on your contributions now and pay tax on distributions in retirement could be your best option.

Loan Options and Investment Flexibility

You may also be able to take a loan from a solo 401(k) if your plan permits it. Solo 401(k) loans follow the same rules as traditional 401(k) loans.

If you need to take money from a SEP IRA before age 59 ½, however, you may pay an early withdrawal penalty and owe income tax on the withdrawal.

Both solo 401(k)s and SEP IRA offer more investment options than workplace 401(k)s. So you can choose the investment options that best suit your needs.

The Impact of Having Employees

Whether you have employees or not will help determine which type of plan is best for you.

A solo 401(k) is designed for business owners with no employees except for a spouse.

A SEP IRA is for those who are self-employed or small business owners. A SEP IRA may be best for those who have just a few employees since, as discussed above, you must contribute to a SEP IRA on behalf of all eligible employees and you must contribute the same percentage of compensation as you contribute for yourself.

The Financial Implications for Your Business

The plan you choose, solo 401(k) vs. SEP IRA, does have financial and tax implications that you’ll want to consider carefully. Here’s a quick comparison of the two plans.

Solo 401(k) vs SEP IRA at a Glance

Both solo 401(k) plans and SEP IRAs make it possible to save for retirement as a self-employed person or business owner when you don’t have access to an employer’s 401(k). And both can potentially offer a tax break if you’re able to deduct contributions each year.

Here’s a rundown of the main differences between a 401(k) vs. SEP IRA.

	Solo 401(k)	SEP IRA
Tax-Deductible Contributions	Yes, for traditional solo 401(k) plans	Yes
Employer Contributions Allowed	Yes	Yes
Employee Contributions Allowed	Yes	No
Withdrawals Taxed in Retirement	Yes, for traditional solo 401(k) plans	Yes
Roth Contributions Allowed	Yes	No
Catch-Up Contributions Allowed	Yes	No
Loans Allowed	Yes	No

How These Plans Affect Your Bottom Line

Both solo 401(k)s and SEP IRAs are tax-advantaged accounts that can help you save for retirement. With a SEP IRA, contributions are tax deductible, including contributions made on employees’ behalf, which offers a tax advantage. Solo 401(k)s give you the option of choosing a traditional or Roth option so that you can pay tax on your contributions upfront and not in retirement (traditional), or defer them until you retire (Roth).

Making the Choice Between SEP IRA and Solo 401(k): Which Is Right for You?

An important part of planning for your retirement is understanding your long-term goals. Whether you choose to open a solo 401(k) or make SEP IRA contributions can depend on how your business is structured, how much you want to save for retirement, and what kind of tax advantages you hope to enjoy along the way.

When to Choose a Solo 401(k)

If you’re self-employed and have no employees (or if your only employee is your spouse), you may want to consider a solo 401(k). A solo 401(k) could allow you to save more for retirement on a tax-advantaged basis compared to a SEP IRA. A solo 401(k) allows catch-up contributions if you are 50 or older, and you can also take loans from a solo 401(k).

Just be aware that a solo 401(k) can be more work to set up and maintain than a SEP IRA.

When to Choose a SEP IRA

If you’re looking for a plan that’s easy to set up and maintain, a SEP IRA may be right for you. And if you have a few employees, a SEP IRA can be used to cover them as well as your spouse. However, you will need to cover the same percentage of contribution for your employees as you do for yourself.

Remember that a SEP IRA does not allow catch-up contributions, nor can you take loans from it.

Step-by-Step Guide to Opening Your Account

You can typically set up a SEP IRA with any financial institution that offers other retirement plans, including an online bank or brokerage. The institution you choose will guide you through the set-up process and it’s generally quick and easy.

Once you establish and fund your account, you can choose the investment options that best suit your needs and those of any eligible employees you may have. You will need to set up an account for each of these employees.

To open a Solo 401(k), you’ll need an Employee Identification Number (EIN). You can get an EIN through the IRS website. Once you have an EIN, you can choose the financial institution you want to work with, typically a brokerage or online brokerage. Next, you’ll fill out the necessary paperwork, and once the account is open you’ll fund it. You can do this through direct deposit or a check. Then you can set up your contributions.

Additional Considerations for Retirement Planning

Besides choosing a SEP IRA or a solo 401(k), there are a few other factors to consider when planning for retirement. They include:

Rollover Process

At some point, you may want to roll over whichever retirement plan you choose — or roll assets from another retirement plan into your current plan. A SEP IRA allows for either option. You can generally roll a SEP IRA into another IRA or other qualified plan, although there may be some restrictions depending on the type of plan it is. You can also roll assets from another retirement plan you have into your SEP.

A solo 401(k) can also be set up to allow rollovers. You can roll other retirement accounts, including a traditional 401(k) or a SEP IRA, into your solo 401(k). You can also roll a solo 401(k) into a traditional 401(k), as long as that plan allows rollovers.

Can You have Both a SEP IRA and a Solo 401(k)?

It is possible to have both a SEP IRA and a solo 401(k). However, how much you can contribute to them depends on certain factors, including how your SEP was set up. In general, when you contribute to both plans at the same time, there is a limit to how much you can contribute. Generally, your total contributions to both are aggregated and cannot exceed more than $70,000 in 2025 and $72,000 in 2026.

Preparing for Retirement Beyond Plans

Choosing retirement plans is just one important step in laying the groundwork for your future. You should also figure out at what age you can retire, how much money you’ll need for retirement, and the typical retirement expenses you should be ready for.

Working on building your retirement savings is an important goal. In addition to opening and contributing to retirement plans, other smart strategies include creating a budget and sticking to it, paying down any debt you have, and simplifying your lifestyle and cutting unnecessary spending. You may even want to consider getting a side hustle to bring in extra income.

The Takeaway

Saving for retirement is something that you can’t afford to put off. And the sooner you start, the better so that your money has time to grow. Whether you choose a solo 401(k), SEP IRA, or another savings plan, it’s important to take the first step toward building retirement wealth.

Help grow your nest egg with a SoFi IRA.

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/1001Love

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

SOIN-Q424-114
CN-Q425-3236452-33
Q126-3525874-011

Feb

2026

Low-angle view of a brick and blue-tiled apartment building, a classic multifamily property under a clear blue sky.

How to Buy a Multifamily Property and What to Look For

By Alene Laney | Growing Wealth, Home Ownership, mortgage | Comments Off

Buying a multifamily home — like a duplex, triplex, or fourplex — can be a smart way to enter the housing market while generating rental income and building long-term wealth. Unlike single-family homes, these properties offer multiple units under one roof, allowing owners to live in one unit and rent out the others or manage the entire property as an investment.

Understanding the unique financing, management responsibilities, and potential cash-flow benefits is key before taking the leap into multifamily ownership.

Table of Contents

What Is a Multifamily Property?
Why Buy a Multifamily Property?
Analyzing the Investment Potential of a Multifamily Property
How to Buy a Multifamily Property
FAQ

Key Points
• Multifamily homes allow buyers to own multiple units in one property, offering the potential to live in one unit while renting out the others.
• Rental income from additional units can help offset mortgage payments and improve overall affordability.
• Financing requirements may be more complex than for single-family homes, with different down payment and qualification rules depending on occupancy and loan type.
• Owning a multifamily property comes with added responsibilities, including property management, maintenance, and tenant relationships.
• Multifamily homes can be a long-term investment opportunity, offering potential cash flow, appreciation, and diversification within real estate ownership.

What Is a Multifamily Property?

Multifamily property consists of multiple units in a single building. This includes duplexes, triplexes, fourplexes, condominium buildings, student housing, apartment complexes, age-restricted communities, low-income housing, and townhomes. The units in a full multifamily housing property must have separate entrances, kitchens, bathrooms, and utility meters.

Individual investors may tend to gravitate toward two- to four-unit properties due to ease of management compared to other multifamily properties and residential home loan options. Residential loans of 30 years with a fixed rate are available for properties with one to four dwelling units. FHA, VA, and USDA loans are available for those properties if they are owner-occupied.

For five or more units, a commercial loan is required. Commercial loans usually come with a higher down payment requirement, higher interest rate, and a shorter term, meaning significantly higher mortgage payments.

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Why Buy a Multifamily Property?

Buying a multifamily home can jump-start your own real estate portfolio and investment portfolio. Here’s how.

Income From Flipping

Multifamily homes can be improved and then resold for a profit, or ”flipped.” Buying a multifamily property, remodeling, and then reselling can be even more profitable than flipping single-family homes because as you remodel, you can increase rents.

Once you increase rents, the property becomes more valuable, both in terms of monthly income, cash flow, and overall worth.

The ‘BRRRR’ Method

BRRRR stands for buy, rehab, rent, refinance, repeat. An investor buys a property, renovates it, and rents out the newly refurbished units for more money. After that, they can refinance the property to take out extra cash to buy a new property to renovate.

This method works well with larger multifamily properties because the rehabbing of multiple units can be done while other units that are not being renovated can still bring in some income.

Cash Flow

Multifamily homes were designed for cash flow. Space and amenities are optimized to bring in money for the investor. On the other hand, single-family homes are designed for comfort. The added space of a single-family home may not bring as high of a return as a multifamily property.

Quick Portfolio Expansion

Buying multifamily properties allows investors to acquire multiple units with one transaction, so they may have a favorite in the single-family vs. multifamily comparison. Additionally, investing in multifamily properties can allow an investor to quickly generate income, which could be enough to acquire more properties.

Reduced Risk

A multifamily property lessens risk exposure. When you have single-family homes, vacancies may have a bigger effect on your monthly cash flow. With one or more multifamily properties, the risk is spread across a number of properties. In other words, there may be units still rented that can help cover the costs of the units that are vacant.

Recommended: First-Time Homebuyer Guide

Analyzing the Investment Potential of a Multifamily Property

Investors can use a number of methods to determine if it makes sense to buy a multifamily property or not. Here are some of the most common calculations you can use to make that determination for yourself.

Cash Flow

In real estate investing, cash flow is money that’s generated by the property and money spent on the property. Positive cash flow, also known as profit, means income exceeds expenses.

Investors have differing amounts that they consider acceptable. Some real estate investors bank on the appreciation of the property instead of the amount of cash flow.

The 1% Rule

The 1% rule states that the gross rents should be 1% or more of the purchase price. The 1% rule is hard to apply in high-income areas where the purchase price of a property is high relative to the rents it generates.

Gross Rent Multiplier

The gross rent multiplier (GRM) is a ratio: the fair market value of a property divided by its gross annual rents. It doesn’t take expenses into consideration and is meant to be a simple calculation to determine if a property is worth exploring further. If you’re comparing two properties for purchase, the one with the lower GRM may be the better investment.

Cash on Cash Return

The cash on cash return is the annual amount earned compared with the amount of cash invested. It’s expressed as a formula: annual net cash flow divided by cash investment. This is helpful for investors who want to know how much cash is brought in by their cash investment each year.

Capitalization Rate

The capitalization rate, or cap rate, is the amount of net operating income divided by the purchase price. This number indicates how long it will take to get back all your money in an investment.

Internal Rate of Return

The IRR measures the rate of return over an amount of time. It takes into account both cash flow and expected appreciation.

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How to Buy a Multifamily Property

You may be able to use 75% of documented rental income to help finance mortgage interest on your loan. And again, multifamily homes with four or fewer units can be financed more traditionally, while five or more units require a commercial mortgage.

Getting preapproved for a mortgage for your multifamily investment property is one of the best things you can do to get started. After a mortgage officer has examined your finances and greenlighted an amount, you can go shopping for your multifamily investment properties.

Find a Multifamily Home

To narrow your search for a new multifamily property here, you’ll want to decide what it is you’re looking for. Keep a few of these factors in mind:

• Location: Do you have an area that you have expertise in? Are you going to manage the property yourself? These are some questions you’ll want to ask yourself to determine if you can buy a multifamily property near or far.

• Price range: After you’ve looked at where you want to potentially invest, you’ll get a good sense of what properties will cost by looking at real estate listings. Keep in mind that you can count 75% of documented rents toward the purchase price for many loan types, so the price you’ll be looking at will be much different than if you were looking for a single-family home.

• Type of property: Are you looking for a fourplex or an apartment complex? Duplex or 55+ community? There are many choices to make between different property types and whether or not they’ll bring you a profit.

• Profit potential: Are you looking to invest for appreciation or cash flow? Many properties with a lower price tag in the Midwest may be better for cash flow, while properties on the West Coast may appreciate more. Take a look at both and decide on your investment strategy.

• Condition: Do you have the resources and team in place to take on a multifamily property that needs a lot of work? Or would you rather have something turnkey? You’ll want to be sure you know what resources you can commit to the project before you get in over your head.

Choose a Loan

The type of rental property used may determine what type of loan you’re able to get. If this is your first rental, you may want to consider living in one of the units so you can qualify for owner-occupied financing, which usually comes with lower rates and down payment requirements.

Choose a lender that can answer your questions about mortgages.

Make an Offer and Close

Working with a real estate agent, you’ll submit a competitive offer for the property you’ve chosen. Some buyers use cash to make the most competitive offer, while others need financing.

Renovate and Get Ready for Your Tenants

No matter what class of property you buy, the rental units will almost always require some work. Whether it’s a simple clean or a major renovation, these things are both tax-deductible and will improve the value, not to mention rentability, of your property.

Create a Management Plan

To make sure you’re running a business, and it’s not running you, you need to have a solid plan in place for how the rentals will be managed. How are repairs going to be taken care of? What’s your process when a rental turns over? How are you going to keep up with laws and ordinances?

Having a plan helps. Even so, you’ll learn as you go and will need to adjust this plan.

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The Takeaway

To buy a multifamily property, do your research and choose a property that you’ll have the ability to finance and manage. Investing in rental properties and multifamily investing is not easy, but it can generate cash flow and create family wealth.

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FAQ

Is buying a multifamily property a good investment?

Finding a multifamily property that is a good investment will depend on the investor’s analysis of the property. This can include the price, condition, gross rent multiplier, capitalization rate, and a number of other factors that will make renting the units successful.

What are the different kinds of multifamily properties?

• Duplexes, triplexes, fourplexes

• Townhouses

• Apartment buildings

• Condominiums

• Bungalow courts

• Mixed-use buildings

• Student housing

• Age-restricted housing units

• Low-income housing units

What is the best way to finance a multifamily home?

Some would argue that an FHA loan with 3.5% down is one of the best ways to finance a home with up to four units. The owner must live in one of the units to qualify for this type of financing.

Photo credit: iStock/Andrey Sayfutdinov

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*SoFi requires Private Mortgage Insurance (PMI) for conforming home loans with a loan-to-value (LTV) ratio greater than 80%. As little as 3% down payments are for qualifying first-time homebuyers only. 5% minimum applies to other borrowers. Other loan types may require different fees or insurance (e.g., VA funding fee, FHA Mortgage Insurance Premiums, etc.). Loan requirements may vary depending on your down payment amount, and minimum down payment varies by loan type.

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Qualifying for the reward requires using a real estate agent that participates in HomeStory’s broker to broker agreement to complete the real estate buy and/or sell transaction. You retain the right to negotiate buyer and or seller representation agreements. Upon successful close of the transaction, the Real Estate Agent pays a fee to HomeStory Real Estate Services. All Agents have been independently vetted by HomeStory to meet performance expectations required to participate in the program. If you are currently working with a REALTOR®, please disregard this notice. It is not our intention to solicit the offerings of other REALTORS®. A reward is not available where prohibited by state law, including Alaska, Iowa, Louisiana and Missouri. A reduced agent commission may be available for sellers in lieu of the reward in Mississippi, New Jersey, Oklahoma, and Oregon and should be discussed with the agent upon enrollment. No reward will be available for buyers in Mississippi, Oklahoma, and Oregon. A commission credit may be available for buyers in lieu of the reward in New Jersey and must be discussed with the agent upon enrollment and included in a Buyer Agency Agreement with Rebate Provision. Rewards in Kansas and Tennessee are required to be delivered by gift card.

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SOHL-Q126-076

Feb

2026

A woman in a gray blazer sits at a desk typing on a laptop.

Important Retirement Contribution Limits

By Amanda Holden | Growing Wealth, Investing, Preparing for Retirement | No Comments

Table of Contents

What Are Retirement Contribution Limits?
401(k) Contribution Limits
403(b) Contribution Limits
457(b) Contribution Limits
Thrift Savings Plan (TSP) Contribution Limits
Traditional IRA Contribution Limits
Roth IRA Contribution Limits
SEP IRA Contribution Limits
SIMPLE IRA
Maxing Out Your Retirement Contributions
Opening Your Own Retirement Account

By saving and investing for retirement, you are working toward financial freedom — a goal worthy of your time and effort.

As you may know, there are benefits to using an account designed specifically for retirement, such as a 401(k) plan or Roth IRA.

For instance, some company retirement programs may offer an employer match. Second, these accounts are designed to hold investments over time so that investors can potentially earn compound returns.

Retirement accounts also have tax advantages. Because these accounts have special tax treatment, there’s a limit to how much money the IRS allows individuals to contribute to each of them in a given year.

These retirement contribution limits vary depending on the type of account you have. For example, 401(k) contribution limits are different from IRA contribution limits.

To build a successful long-term financial plan, you’ll likely want a solid understanding of your retirement plan options. Below is a summary of some different types of retirement accounts and their respective annual retirement contribution limits.

Key Points

• Retirement accounts have specific annual contribution limits set by the IRS due to their special tax treatment.

• Employee contributions to 401(k) plans are capped at $23,500 in 2025 and $24,500 in 2026.

• Individuals aged 50 and over can make additional catch-up contributions to 401(k)s of $7,500 in 2025 and $8,000 in 2026.

• Traditional and Roth IRA contributions are limited to $7,000 in 2025, with an extra $1,000 catch-up for those 50 and older, and $7,500 in 2026, with an extra $1,100 for those 50 and older.

• Employer contributions to SEP IRAs are capped at the lesser of 25% of compensation or $70,000 in 2025, and $72,00 in 2026, with no catch-up options.

What Are Retirement Contribution Limits?

Ever heard someone say that they have “maxed out” their retirement account? Maxing out means contributing the total amount allowed by the IRS in a given year.

Generally, the IRS increases retirement contribution limits every few years as the cost of living increases. Many of the 2025 and 2026 contribution limits were increased from the previous year.

There are a lot of different types of retirement accounts, and each comes with its own nuances, which can make it hard to keep them straight.

This list of the account types, along with their contribution limits, will help you keep track.

401(k) Contribution Limits

A 401(k) plan is a tax-deferred retirement account that is typically offered through a person’s employer, usually as part of a benefits package. With a 401(k) plan, the employee can opt to have a certain percentage of their salary withheld from their paycheck on a pretax basis.

Individual 401(k) plans — also known as solo 401(k) plans — are available to people who are self-employed and have an employee identification number (EIN).

2025 Employee contribution limit: $23,500

2026 Employee contribution limit: $24,500

Plans may allow for catch-up contributions for employees ages 50 and over.

2025 Catch-up contribution limit: $7,500

2026 Catch-up contribution limit: $8,000

In 2025 and 2026, those aged 60 to 63 may contribute up to an additional $11,250 instead of $7,500 and $8,000, thanks to SECURE 2.0.

Under a new law that went into effect on January 1, 2026 (as part of SECURE 2.0), individuals aged 50 and older who earned more than $150,000 in FICA wages in 2025 are required to put their 401(k) catch-up contributions into a Roth 401(k) account. With Roth accounts, individuals pay taxes on contributions upfront, but can make eligible withdrawals tax-free in retirement.

Some employers may offer a company match in their 401(k) plans. A typical match would see employers match around 3% of an employee’s salary when that employee contributes 6% to the plan. The company match plan is determined by the employer.

Employer contributions to a 401(k) do not count toward the employee’s contribution limits. But instead of putting a cap on how much the employer alone can contribute, there’s a total contribution limit that includes both the employer and employee contributions.

2025 Total employer plus employee contribution limit: The lesser of 100% of the employee’s compensation or $70,000 — if the employee is eligible for the catch-up contribution, then it would be $77,500. (If the employee is eligible for the Secure 2.0 catch-up contribution, then it would be $81,250.)

2026 Total employer plus employee contribution limit: The lesser of 100% of the employee’s compensation or $72,000 — if the employee is eligible for the catch-up contribution, then it would be $80,000. (If the employee is eligible for the Secure 2.0 catch-up contribution, then it would be $83,250.)

403(b) Contribution Limits

A 403(b) plan is similar to a 401(k) but is offered to employees of public schools, nonprofit hospital workers, tax-exempt organizations, and certain ministers.

2025 Employee contribution limit: $23,500

2026 Employee contribution limit: $24,500

2025 Catch-up contribution limit: $7,500

2026 Catch-up contribution limit: $8,000

Catch-up contributions are for employees aged 50 and older. In 2025 and 2026, those aged 60 to 63 may contribute an additional $11,250 instead of $7,500 and $8,000, thanks to SECURE 2.0.

As mentioned with 401(k) plans, as of January 1, 2026, individuals aged 50 and older with FICA wages above $150,000 in 2025 are required to put their 403(b) catch-up contributions into a Roth account.

Employees of any age who have been in service for 15 or more years with the same eligible 403(b) employer can potentially contribute another $3,000. There is a $15,000 lifetime limit for the latter catch-up provision. It may be possible to qualify for both catch-up provisions; if you think you qualify, check with the plan or your CPA to be sure.

It is important to keep in mind that some 403(b) plans have mandatory employee contributions. These mandatory contributions are made by the employee, but since you do not have a choice they do not count towards the employee contribution limit. If you are part of a plan like this you might actually be able to contribute your annual contribution maximum plus the mandatory contributions.

457(b) Contribution Limits

A 457(b) plan is similar to a 401(k) plan but for governmental and certain nonprofit employees. Unlike a 401(k), there is only one contribution limit for both employer and employee.

2025 Total employer plus employee contribution: $23,500

2026 Total employer plus employee contribution: $24,500

Those in government plans who are 50 or older, may be able to make a catch-up contribution of up to $7,500 in 2025 and $8,000 in 2026; those ages 60 to 63 may be able to take the special SECURE 2.0 contribution of up to $11,250 for those years instead. As with 401(k) and 403(b) plans, under the new law that went into effect in 2026, individuals aged 50 and older with FICA wages above $150,000 in 2025 are required to put their 457(b) catch-up contributions into a Roth account. (Those in non-governmental plans do not have the option of catch-up contributions.)

If permitted by the plan, a participant who is within three years of the normal retirement age may contribute the lesser of twice the annual limit or the standard annual limit plus the amount of the limit not used in prior years.

Thrift Savings Plan (TSP) Contribution Limits

A TSP is similar to a 401(k), but for federal employees and members of the military.

2025 Employee contribution limit: $23,500

2026 Employee contribution limit: $24,500

Tax-free combat zone contributions: Military members serving in tax-free combat zones are allowed to make the full $70,000 in employee contributions for 2025, and $72,000 in 2026.

2025 Catch-up contribution limit: $7,500 (or a SECURE 2.0 contribution limit of $11,250 for those ages 60 to 63)

2026 Catch-up contribution limit: $8,000 (or a SECURE 2.0 contribution limit of $11,250 for those ages 60 to 63)

According to the “spillover” method for TSP catch-up contributions, for those eligible to make catch-up contributions, any contributions made that exceed the annual employee contribution limit will automatically count toward the catch-up contribution limit of $7,500 in 2025 and $8,000 in 2026.

Traditional IRA Contribution Limits

The traditional IRA (individual retirement account is a tax-deferred account that is set up by the individual. Unlike workplace retirement plans, IRA accounts tend to have lower contribution limits. These contribution limits are combined totals for all the traditional or Roth IRAs an individual may have .

2025 Contribution limit: $7,000

2026 Contribution limit: $7,500

2025 Catch-up contribution limit: $1,000 (for a total of $8,000 for those age 50 or over)

2026 Catch-up contribution limit: $1,100 (for a total of $8,600 for those age 50 or older)

Additionally, there are income limits for tax deductions on contributions that vary based on whether or not you are covered by a retirement plan at work.

Calculate your IRA contributions.

Use SoFi’s IRA contribution calculator to determine how much you can contribute to an IRA in 2024.

Roth IRA Contribution Limits

Similar to a traditional IRA, a Roth IRA is set up by the individual.

Unlike tax-deferred retirement accounts, Roth IRA contributions are not tax deductible. However, you will not need to pay income taxes on qualified withdrawals. Again, these contribution limits are combined totals for the traditional and Roth IRAs an individual may have.

2025 Contribution limit: $7,000

2026 Contribution limit: $7,500

2025 Catch-up contribution limit: $1,000 (for a total of $8,000 for those age 50 or over)

2026 Catch-up contribution limit: $1,100 (for a total of $8,600 for those age 50 or older)

There are income limitations for who is able to use a Roth IRA. These limits exist on a phase-out schedule and ability to use a plan slowly tapers off until the final income cap.

Single-filer income limit: Under $165,000 for tax year 2025, and under $168,000 for tax year 2026.

Married, filing jointly income limit: under $246,000 for tax year 2025, and under $252,000 for tax year 2026.

💡 Quick Tip: Did you know that you can choose the investments in a self-directed IRA? Once you open a new IRA online and start saving, you get to decide which mutual funds, ETFs, or other investments you want — it’s totally up to you.

SEP IRA Contribution Limits

A simplified employee pension simplified employee pension (SEP) IRA is a tax-deferred retirement account for employers and self-employed individuals.

2025 Contribution limit: An employer’s contributions to an employee’s SEP IRA can’t exceed the lesser of 25% of the employee’s compensation or $70,000.

2026 Contribution limit: An employer’s contributions to an employee’s SEP IRA can’t exceed the lesser of 25% of the employee’s compensation or $72,000.

Catch-up contributions are not permitted in SEP plans.

SIMPLE IRA

A savings incentive match plan for employees [SIMPLE) IRA is a retirement savings plan for small businesses with 100 or fewer employees.

2025 Employee contribution limit: $16,500

2026 Employee contribution limit: $17,000

2025 Catch-up contribution limit: $3,500 for those age 50 and older

2026 Catch-up contribution limit: $4,000 for those age 50 and older

In 2025, those aged 60 to 63 may contribute up to an additional $5,250 instead of $3,500, due to SECURE 2.0. And in 2026, those aged 60 to 63 may contribute up to an additional $5,250 instead of $4,000.

Employer contribution limit: The employer is generally required to make up to 3% of employee contribution, or 2% of employee compensation up to $350,000 in 2025 and up to $360,000 in 2026.

Also, under a SECURE Act 2.0 provision, an employer can make an additional non-elective contribution which is the lesser of 10% of compensation or $5,000 per employee.

Maxing Out Your Retirement Contributions

If you have a 401(k), you would need to contribute $1,958.33 each month to reach the $23,500 limit for 2025 and $2,041.66 each month to reach the $24,500 limit for 2026. With IRAs, that number is $583.33 per month to reach the annual $7,000 contribution limit for 2025 and $625 each month to reach the annual contribution limit of $7,500 in 2026.

When you make pre-tax contributions to a tax-deferred account such as a 401(k), the money is entering into the account before taxes. Therefore, the difference in your post-tax paycheck might not be as drastic as you may think.

There are several tactics you can take when working to increase how much you’re contributing to your retirement plan.

But whether you increase your contribution each month, quarter, or year, you may want to consider automating the saving process. Automation removes human emotion from the equation, which may help you save.

You may also want to try to avoid massive lifestyle creep as your income increases over the years. It’s a balance to take care of both your current situation and your future situation. When you get raises or bonuses, consider allocating those funds to your retirement instead of a material purchase.

The most successful savers will likely have a strategy that focuses on earning more and cutting costs.

Opening Your Own Retirement Account

If you have a retirement account through work, contributions are taken directly from your paycheck and you can take advantage of a company match program if it’s offered.

For those without a workplace retirement plan, getting set up with an account may take slightly more initiative. Luckily, opening an account doesn’t have to be hard. An account like a traditional IRA, Roth IRA, SEP IRA, or Solo 401(k), or a general investment account, can be set up at a brokerage firm of your choosing.

Easily manage your retirement savings with a SoFi IRA.

🛈 While SoFi does not offer 401(k), 403(b), 457(b), TSP, or SIMPLE IRA plans at this time. However, we do offer Individual Retirement Accounts (IRAs).

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.

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.

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

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

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