Preparing for Retirement Archives | Page 20 of 28

Q: What are The RMD Rules For Inherited IRAs?

Non-spouse beneficiaries have to withdraw all the funds from their inherited IRA within a maximum of 10 years. Spouses can enjoy the benefits of what’s called a “stretch IRA”. You take yearly distributions from the account based on your own life expectancy, even if the original owner was older than 72.

Aug

2023

Inherited IRA: Distribution Rules for Beneficiaries

Inherited IRA Distribution Rules Explained

By Ashley Kilroy | invest, Investing, Preparing for Retirement | Comments Off

When an IRA account holder passes away, they might choose to leave their account to a loved one. But whether the recipient is surprised or knew about the inheritance ahead of time, they may have questions about what to do with this inherited IRA.

How does an inherited IRA work? The key to properly handling an inherited IRA is to understand what it means for you as a beneficiary. Your relationship with the deceased, for example, could impact the tax consequences on the inheritance. Plus there are inherited IRA distribution rules you’ll need to know.

An inherited IRA can also be a tremendous financial opportunity, as long as you understand the inheritance IRA rules. Here’s what you should know about the beneficiary IRA distribution rules.

What Is An Inherited IRA?

An inherited IRA, also called a beneficiary IRA, is a type of account you open to hold the funds passed down to you from a deceased person’s IRA. The original retirement account could have been any IRA, such as a Roth, traditional IRA, SEP IRA, or SIMPLE IRA. The deceased’s 401(k) plan can also be used to fund an inherited IRA.

Spouses won’t necessarily need to open an inherited IRA, because spouses are allowed to transfer any inherited assets directly into their own retirement accounts. However, any other beneficiary of the deceased’s account — such as someone who inherited an IRA from a parent — will need to open an inherited IRA, whether or not they already have a retirement account.

Some people prefer to open their inherited IRA account with the same firm that initially held the money for the deceased. It can make it simpler for the beneficiary while planning after the loved one’s passing. However, you can set up your account with almost any bank or brokerage.

💡 Quick Tip: Did you know that opening a brokerage account online 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.

How Does an Inherited IRA Work?

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

This article focuses on designated beneficiaries. While your relationship with the deceased may impact your options and any inherited IRA distribution rules, as can the age of the deceased at the time of death, certain inheritance IRA rules apply to everyone:

1. You cannot make additional contributions to the inherited IRA. You can only make changes to the investments or buy and sell assets held by the IRA.

2. You must withdraw from the inherited IRA. The required minimum distribution (RMD) rules depend on your age and relationship to the deceased, but according to inherited Roth IRA distribution rules, withdrawals are required even if the original IRA was a Roth IRA (which typically does not have RMD requirements).

What are The RMD Rules For Inherited IRAs?

When it comes to required minimum distributions, there are different rules for inherited IRA RMDs for spouses and non-spouses.

One recent difference between the rules for spouse and non-spouse beneficiaries is a result of the SECURE Act, established in early 2020. It states that non-spouse beneficiaries have to withdraw all the funds from their inherited IRA within a maximum of 10 years. After that time, the IRS will impose a 50% penalty tax on any funds remaining.

Spouses, on the other hand, can take yearly distributions from the account based on their own life expectancy.

RMD Rules for Spouses

Once a spouse takes ownership of the deceased’s IRA account, they can either roll over the assets into their own pre-existing IRA within 60 days, or transfer funds to their newly opened inherited IRA they can withdraw based on their age.

Note that taking a distribution from the account if you are under age 59 ½ results in a 10% early withdrawal penalty.

RMD Rules for Non-Spouses

For non-spouses (relatives, friends, and grown children who inherited an IRA from a parent), once you’ve opened an inherited IRA and transferred the inherited funds into it, RMDs generally must start before December 31st following a year from the person’s death. All assets must be withdrawn within 10 years, though there are some exceptions: if the heir is disabled, more than a decade younger than the original account owner, or a minor.

💡 Quick Tip: Did you know that a traditional Individual Retirement Account, or IRA, is a tax-deferred account? That means you don’t pay taxes on the money you put in it (up to an annual limit) or the gains you earn, until you retire and start making withdrawals.

Multiple Beneficiaries

If there is more than one beneficiary of an inherited IRA, the IRA can be split into different accounts so that there is one for each person. However, in general, you must each start taking RMDs by December 31st of the year following the year of the original account holder’s death, and all assets must be withdrawn from each account within 10 years (aside from the exceptions noted above).

Inherited IRA Situation Examples

These are some of the different instances of inherited IRAs and how they can be handled.

Spouse inherits and becomes the owner of the IRA: When the surviving spouse is the sole beneficiary of the IRA, they can opt to become the owner of it by rolling over the funds into their own IRA. The rollover must be done within 60 days.This could be a good option for someone who is younger than the original owner of the IRA because it delays the RMDs until the surviving spouse turns 73.

Non-spouse designated beneficiaries: An adult child or friend of the original IRA owner can open an inherited IRA account and transfer the inherited funds into it. They generally must start taking RMDs by December 31 of the year after the year in which the original account holder passed away. And they must withdraw all funds from the account 10 years after the original owner’s death.

Both a spouse and a non-spouse inherit the IRA: In this instance of multiple beneficiaries, the original account can be split into two new accounts. That way, each person can proceed by following the RMD rules for their specific situation.

How Do I Avoid Taxes on An Inherited IRA?

Money from IRAs is generally taxed upon withdrawals, so your ordinary tax rate would apply to any tax-deferred IRA that was inherited — traditional, SEP IRA, or SIMPLE IRA.

However, if you have inherited the deceased’s Roth IRA, which allows for tax-free distributions, you should be able to make withdrawals tax-free, as long as the original account was set up at least five years ago.

Spouses who inherit Roth accounts have an extra opportunity to mitigate the bite of taxes. Since spousal heirs have the power to take ownership of the original account, they can convert their own IRA into a Roth IRA after the funds roll over. Though the spouse would be expected to pay taxes on the amount converted, it may ultimately be financially beneficial if they expect higher taxes during their retirement.

Recommended: Is a Backdoor Roth IRA Right For You?

The Takeaway

Once you inherit an IRA, it’s up to you to familiarize yourself with the inherited IRA rules and requirements that apply to your specific situation. No matter what your circumstance, inheriting an IRA account has the potential to put you in a better financial position in your own retirement.

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

Are RMDs required for inherited IRAs in 2023?

The IRS recently delayed the final RMD rule changes regarding inherited IRAs to calendar year 2024. That’s because rules regarding RMDs have changed in the last few years, leaving many people confused. What this means is that the IRS will, in some cases, waive penalties for missed RMDs on inherited IRAs in 2023 — but only if the original owner died after 2019 and had already started taking RMDs.

What are the disadvantages of an inherited IRA?

The disadvantages of an inherited IRA is knowing how to navigate and follow the many complex rules regarding distributions and RMDs, and understanding the tax implications for your specific situation. However, it’s important to realize that an inherited IRA is a financial opportunity and it could help provide you with money for your own retirement.

How do you calculate your required minimum distribution?

To help calculate your required minimum distribution, you can consult IRS Publication 590-B. There you can find information and tables to help you determine what your specific RMD would be.

Photo credit: iStock/shapecharge

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.

SoFi Invest®

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

Aug

2023

Should You Use Your 401(k) as a First-Time Home Buyer?

By Austin Kilham | Growing Wealth, Investing, Preparing for Retirement | Comments Off

Withdrawing money from a 401(k) to buy a house may be allowed by your company-sponsored plan, but this tactic is not always advisable, especially for first-time home buyers.

When it comes to using money from a 401(k), first-time home buyers need to keep in mind a few things, including the rules and penalties around early withdrawals from a 401(k) account — as well as the potential loss of retirement savings.

Before you consider using a 401k to buy a house, explore alternatives like withdrawing funds from a Roth IRA, seeking help from a Down Payment Assistance Program (DAP), or seeing if you qualify for other types of home loans.

Let’s take a look at the pros, cons, and important considerations that can help prospective homebuyers make a more informed decision about using funds from a 401(k) to buy a home.

Can You Use a 401(k) to Buy a House?

Before you quickly search up “401k first time home buyer,” here’s the answer: If you’re a first-time home buyer, and your employer plan allows it, you can use your 401(k) to help buy a house. There are a couple of ways to access the funds.

First, it’s possible for a first-time homebuyer to take a loan from an existing 401(k). Your employer generally sets the rules for 401(k) loans, but you typically must pay back the loan, with interest, within five years. You pay yourself interest to help offset the loss of investment growth, since the funds are no longer invested in the market.

You can take out a 401(k) loan for a few different reasons (e.g., qualified educational expenses, medical expenses), depending on your plan’s policies. Those using a loan to purchase a residence may have more time to pay back the loan.

In certain rare circumstances, in the case of an “immediate and heavy financial need,” the IRS will allow you to make a 401(k) hardship withdrawal to purchase a primary residence. Hardship withdrawals do not cover mortgage payments, but using a 401(k) for a down payment for a first-time home buyer could be allowed.

The IRS has very strict rules for qualifying for a hardship withdrawal . And if you don’t meet them, the funds you withdraw will be subject to income tax and a 10% early withdrawal penalty.

First-time homebuyers can
prequalify for a SoFi mortgage loan,
with as little as 3% down.

How Much of Your 401(k) Can Be Used For Home Purchase?

Generally, home buyers who want to use their 401(k) funds to finance a real estate transaction can borrow or withdraw up to 50% of their vested balance or a maximum of $50,000 — whichever is less. This limit typically applies to any 401(k) loan, not only a home purchase.

4 Potential Drawbacks of Using Your 401(k) to Buy a House

Taking money out of a 401(k) to buy a house may be allowed, but it’s not always recommended.

1. Withdrawal limits

Since there are limits on the amount you can withdraw or borrow for a home purchase, bear in mind that the total amount you can access may not cover all the costs (e.g., the down payment and closing costs) of the transaction. Be sure to run the numbers, to ensure that a 401(k) loan makes sense.

2. Lost contributions

Homebuyers who borrow from their 401(k) plans can’t make additional contributions to the accounts or receive matching contributions from their employers while paying off the loan. Depending on how much they were contributing, these home buyers could miss out on years of retirement contributions while they’re paying back the loan. That could take a substantial bite out of their overall retirement savings.

3. Automatic repayment terms

Generally, it’s not up to you to repay the loan; your company will deduct the loan payments automatically from your paycheck. This could be viewed as a convenience, since you don’t have to think about it, or as an inconvenience, as it lowers your take-home pay.

4. Loan terms change if you leave your job.

Finally, if an individual borrows from their 401(k) to purchase a home and leaves employment at their company (whether voluntarily or via layoff), the loan balance may be deducted from their remaining 401(k) funds in what’s called an offset. An offset is then treated like an early withdrawal, and potentially subject to taxes and a 10% penalty if the borrower is under 59 ½.

As an example: Derek is 35 and has $100,000 in his 401(k) and borrows $30,000 for a home purchase. He pays back $5,000 including interest, but still owes $25,000 when he takes another job. The remaining $25,000 would be deducted from his 401(k) as an offset, leaving $75,000 in the 401(k) or rollover IRA. Worse, the $25,000 would be treated by the IRS as an early withdrawal or distribution, and Derek would owe taxes, plus a 10% penalty ($2,500).

Terms may vary depending on the terms of your loan and the plan rules.

💡 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.

Pros and Cons of Using a 401(k) to Buy a House

Here are the pros and cons of using a 401(k) to buy a home, at a glance:

Pros of Using a 401(k) to Buy a House	Cons of Using a 401(k) to Buy a House
Individuals may be able to purchase a home that they might otherwise not be able to afford.	Individuals can’t make regular contributions to their 401(k) while making loan payments.
When using a 401(k) loan, individuals are borrowing money from themselves, so they don’t owe interest to a bank or other institution.	Borrowed or withdrawn funds aren’t growing inside the 401(k) account, potentially derailing an individual’s retirement savings.
Interest rates are generally low.	If a person doesn’t qualify for a hardship withdrawal and they’re under age 59 ½, withdrawals would be subject to income tax and a 10% early withdrawal penalty.
You don’t have to meet any credit requirements.	If a person leaves their job before the loan is repaid, the balance owed could be deducted from the remainder of their 401(k) funds as an offset. For those under 59 ½, the amount of the offset would be considered a distribution and the borrower would potentially owe taxes and a 10% penalty.

What are the Rules & Penalties for Using 401(k) Funds to Buy a House?

Here’s a side-by-side look at some key differences between taking out a 401(k) loan and withdrawing funds from a 401(k).

401(k) loans	401(k) withdrawals
• Must be repaid with interest in a certain period of time — usually 5 years. • Qualified loans are penalty free and tax free, unless the borrower defaults or leaves their job before closing the loan. • The maximum loan amount is 50% of the vested account balance, or $50,000, whichever is less. (For accounts with a vested account balance of less than $10,000, the maximum loan amount is $10,000.) • Interest accrued on the loan goes back into the 401(k), so the borrower is basically paying interest back to themselves. The interest is also tax-deferred until retirement. • If the borrower doesn’t repay the loan on time, the loan is treated as a regular distribution (a.k.a. withdrawal) and subject to taxes and an early withdrawal penalty of 10%.	• Do not have to be repaid. • Usually allowed only in the case of “financial hardship,” which can include medical expenses, funeral expenses, and primary home-buying expenses, if the individual meets strict IRS criteria for “hardship.” ◦ Subject to income tax and a 10% early withdrawal penalty for people under age 59 ½. • One can only withdraw enough to cover the immediate expense (a down payment, for example, not future monthly mortgage payments), with a limit of 50% of the vested balance or $50,000—whichever is less • You can only withdraw enough to cover the immediate expense (a down payment, for example, not future mortgage payments), with a limit of 50% of the vested balance or $50,000 — whichever is less.

401(k) loans

401(k) withdrawals

• Must be repaid with interest in a certain period of time — usually 5 years.

• Qualified loans are penalty free and tax free, unless the borrower defaults or leaves their job before closing the loan.

• The maximum loan amount is 50% of the vested account balance, or $50,000, whichever is less. (For accounts with a vested account balance of less than $10,000, the maximum loan amount is $10,000.)

• Interest accrued on the loan goes back into the 401(k), so the borrower is basically paying interest back to themselves. The interest is also tax-deferred until retirement.

• If the borrower doesn’t repay the loan on time, the loan is treated as a regular distribution (a.k.a. withdrawal) and subject to taxes and an early withdrawal penalty of 10%.

• Do not have to be repaid.

• Usually allowed only in the case of “financial hardship,” which can include medical expenses, funeral expenses, and primary home-buying expenses, if the individual meets strict IRS criteria for “hardship.”

◦ Subject to income tax and a 10% early withdrawal penalty for people under age 59 ½.

• One can only withdraw enough to cover the immediate expense (a down payment, for example, not future monthly mortgage payments), with a limit of 50% of the vested balance or $50,000—whichever is less

• You can only withdraw enough to cover the immediate expense (a down payment, for example, not future mortgage payments), with a limit of 50% of the vested balance or $50,000 — whichever is less.

What are the Alternatives to Using a 401(k) to Buy a House?

For some first-time homebuyers, there may be other, more attractive options for securing a down payment than taking money out of a 401(k) to buy a house. Here are a few of the alternatives.

Withdrawing Money from a Roth IRA

Using a Roth IRA to help buy a first home can be a smart alternative to borrowing from a 401(k) that might be beneficial for some home buyers. Unlike 401(k)s, Roth IRA contributions are made with after-tax dollars.

Contributions can be withdrawn at any time, tax free; earnings can be withdrawn without a penalty at age 59 ½ or older, as long as you’ve held the account for at least five years.

If you’re under 59 ½ or don’t meet the five-year criteria, some exceptions may apply for a first-time home purchase.

• After the account has been open for five years, Roth IRA account holders who are buying their first home are allowed to withdraw up to $10,000 in investment earnings with no taxes or penalties. (Meaning a person could withdraw the amount of their total contribution plus up to $10,000 in investment earnings.) The $10,000 is a lifetime limit.

• Roth IRA funds can be used to help with the purchase of a first home not only for the account holders themselves, but for their children, parents, or grandchildren.
One important requirement to note is that time is of the essence when using a Roth IRA to purchase a first home: The funds have to be used within 120 days of the withdrawal.

💡 Quick Tip: How much does it cost to set up an IRA? Often there are no fees to open an IRA, but you typically pay investment costs for the securities in your portfolio.

Low- and No-Down-Payment Home Loans

There are certain low- and no-down-payment home loans that homebuyers may qualify for that they can use instead of using a 401(k) for a first time home purchase. This could allow them to secure the down payment for a first home without tapping into their retirement savings.

• FHA loans are insured by the Federal Housing Administration and allow home buyers to borrow with few requirements. Home buyers with a credit score lower than 580 qualify for a loan with 10% down, and those with credit scores higher than 580 can get a loan with as little as 3.5% down.

• Conventional 97 loans are Fannie Mae-backed mortgages that allow a loan-to-value ratio of up to 97% of the cost of the loan. In other words, the home buyer could purchase a house for $400,000 and borrow up to $388,000, leaving only a down payment requirement of 3%, or $12,000, to purchase the house.

• VA loans are available for U.S. veterans, active duty members, and surviving spouses, and they require no down payment or monthly mortgage insurance payment. They’re provided by private lenders and banks and guaranteed by the United States Department of Veterans Affairs.

• USDA loans are a type of home buyer assistance program offered by the U.S. Department of Agriculture to buy or possibly build a home in designated rural areas with an up-front guarantee fee and annual fee. Borrowers who qualify for USDA loans require no down payment and receive a fixed interest rate for the lifetime of the loan. Eligibility requirements are based on income, and vary by region.

Other Types of Down Payment Assistance

For home buyers who are ineligible for no-down payment loans, there are a few more alternatives instead of using 401(k) funds:

• Down Payment Assistance (DAP) programs offer eligible borrowers financial assistance in paying the required down payment and closing costs associated with purchasing a home. They come in the form of grants and second mortgages, are available nationwide, can be interest-free, and sometimes have lower rates than the initial mortgage loan.

• Certain mortgage lenders provide financial assistance by offering credits to cover all or some of the closing costs and down payment.

• Gifted money from friends or family members can be used to cover a down payment or closing costs on certain home loans.

The Takeaway

Generally speaking, a 401(k) can be used to buy a house, either by taking out a 401(k) loan and repaying it with interest, or by making a 401(k) withdrawal (which is subject to income tax and a 10% withdrawal fee for people under age 59 ½).

However, using a 401(k) for a first-time home purchase is usually not advisable. Both qualified loans and withdrawals have some potential drawbacks — primarily the possibility of owing taxes and a penalty under certain conditions. Fortunately, there are other options. Certain Roth IRA withdrawals can be made tax and penalty free. Qualified homebuyers can also seek financial help from down payment assistance programs and other low- or no-interest plans.

As you weigh your choices, it helps to know where your retirement stands. Many people lose track of retirement accounts when they change jobs. To help manage your retirement funds, consider doing a 401(k) rollover. That’s when you move funds from an old 401(k) to an IRA.

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.

SoFi Invest®

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

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Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform.

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.

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Aug

2023

Investing for Retirement: Tips and Options to Consider

By Dan Miller | invest, Investing, Preparing for Retirement | Comments Off

Saving steadily for retirement is important, but how you invest that money also matters. Fortunately, today’s retirement saver has a number of options to consider — many of which can make the task of investing for the future less daunting.

These days, you can choose from DIY investing options like a portfolio of stocks and bonds or other securities you choose yourself. You can also invest in mutual funds or exchange-traded funds to help lower costs and add diversification. There are also certain types of pre-set retirement funds and automated platforms (i.e. robo advisors) that use technology to help manage your portfolio.

If you’re saving for retirement, it helps to understand the options that best suit your goals and your personality so that you’re more likely to stick with a plan for the long term.

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

The Importance of Investing for Retirement

Retirement may be a long way off or a short way down the road, depending on your age and stage of life. Either way, developing an investment strategy that can help your savings to grow is essential. For many people, retirement might last 10, 20, 30 years — or even more. A solid long-term investment strategy can help you build up the amount you need for those years where you’re no longer in the workforce.

Remember that the longer your money is invested, the more time you have for potential gains to compound and help your money grow. Compounding simply means that if your money potentially sees a return, or a profit from various investments, that growth can compound over time, with both your savings and your earnings seeing gains.

Time can also help with losses. The longer your time horizon, the more volatility or risk it may be safe for you to assume. If you have a time horizon of 30 or 40 years before you retire, you can probably afford to weather some short-term losses, knowing that your investment returns will likely balance themselves out over time.

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Understanding Retirement Accounts

While this article will focus on investment options, it’s worth a reminder that the type of retirement account you choose is also important. You may have a workplace retirement account like a 401(k) or 403(b). You may have opened an Individual Retirement Arrangement (IRA), like a traditional IRA, a Roth IRA, or a SEP IRA.

Different accounts have different contribution limits, and different tax implications. Since both the amount you can save and how it will be taxed can have a long-term impact on your nest egg, be sure to spend time strategizing about which types of accounts make the most sense for you.

With a suitable combination of accounts, you can then begin to choose the investments that will populate that account.

Remember: Just because you open an IRA or set up your 401(k) at work doesn’t mean it comes with any investments. Like moving into a new home, it’s up to you to furnish the account.

Recommended: 401(k) vs IRA: What’s the Difference?

Investment Options

While investing for retirement can seem overwhelming, it doesn’t have to be. Again, there are various retirement strategies that have stood the test of time, as well as a number of investment options that can make a retirement saver’s life easier.

Here are a few options for retirement investing that you can consider:

DIY Investing

For investors who feel confident in managing their own retirement portfolio, and the securities within it, taking a DIY approach is an option.

You can purchase stocks, bonds, commodities, mutual funds, or any other types of securities for your long-term portfolio. While the term active investing brings to mind day traders, active investing can also mean taking a hands-on approach to managing your own portfolio.

This approach isn’t for everyone. It’s time and energy intensive, and it requires a certain amount of expertise in order to be successful. In addition, if you go this route, bear in mind that the same rules apply to all long-term investors.

• Be mindful of the contribution limits and tax implications of the retirement account you choose.

• Consider the cost of your investments, as fees can reduce your earnings over time.

• Consider using a strategy that includes some diversification, as this may help mitigate certain risks over time.

💡 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.

Index Funds

Index funds offer a basic way to invest for retirement. An index fund is a type of fund that tracks a broad market index. One of the most popular types of index funds tracks the S&P 500 index, for example, which mirrors the performance of the 500 largest U.S. companies.

There are hundreds of indexes, and many have corresponding funds that track different sectors of the market, e.g.: smaller companies, technology companies; sustainable or green companies; various types of bonds, and more.

Index funds don’t rely on a live team of portfolio managers, so they tend to be less expensive than actively managed funds. However, they have a downside which is that your money is pegged to the securities in that sector.

Automated Options

In the world of investing there really isn’t a truly automated “set it and forget it” strategy that will work on its own, without any input, for decades. But there are some options that are more hands-off than others.

• Target Date Funds

One such option is a target date fund. A target date fund is designed to be an all-inclusive portfolio option for people that are looking to retire on or near a certain date. For example, a 2050 target date fund is intended for people that will be ready for retirement in 2050.

Target date funds use a set of calculations to adjust the portfolio’s asset allocation over time. When a target date fund is decades away from the specified date, it might invest 80% in equities and 20% in fixed income or cash/cash equivalents. As the date draws nearer, it will automatically move more of its investments away from equities towards bonds, cash, or other investments with lower risk. This automatic readjustment is referred to as the glide path.

• Robo Advisors

Another option is an automated portfolio, commonly known as a robo advisor (although these services are not robots, and don’t typically offer advice).

A robo advisor platform offers a questionnaire for investors to gauge their time horizon (i.e. years to retirement or another goal), their risk level, and so forth.

The platform then uses sophisticated technology to recommend a portfolio of low-cost exchange-traded funds (ETFs).

While these are two of the more hands-off options, and they do offer the convenience of managing a portfolio on your behalf, these options have some downsides. The cost can be higher than other types of investment options. And there is very little flexibility. Investors typically cannot adjust the securities in these funds (although there may be some hybrid options in the market).

Recommended: How Do Robo Advisors Work

Hire an Advisor

If you still are not feeling comfortable investing for retirement on your own, you may want to consider using a financial advisor. Talk with your trusted friends or family members to get a recommendation.

Because an advisor introduces a new level of cost, be sure to ask how the person is compensated. Some advisors charge a flat fee, or an hourly rate, or some earn commissions — or combinations of the above.

Tips When Investing for Retirement

As you start investing for retirement, here are a few things that you’ll want to keep in mind:

Ask About Fees

Many investments come with fees that are charged by the advisor or company that manages the investment. These investment fees may be explicitly charged to your account, or they may be captured as part of the investment’s returns. Make sure to check any fees that are charged before you invest. There are many low-cost mutual funds that offer investment fees under 0.1% as compared to a financial advisor who may charge 1% or more. Even a small difference in the fees charged can make a huge difference on your returns when compounded over decades.

Plan for Taxes

You’ll also want to account for how your retirement investments will be taxed.

• Tax-Deferred Accounts

If you contribute to a traditional 401(k) or IRA, you may be eligible for a tax deduction in the tax year that you make the contribution (i.e. a contribution for tax year 2023 can be deducted on your 2023 taxes).

These accounts are called tax-deferred because you will owe taxes on your withdrawals.

• After-Tax Accounts

If you contribute to a Roth 401(k) or Roth IRA, you won’t get a tax deduction when you contribute — because you deposit after-tax dollars — instead, your withdrawals will be tax-free.

There are other differences between tax-deferred and after-tax accounts that can impact your nest egg. For example, once you reach the age of 73, you’re required to withdraw a minimum amount from a traditional IRA or 401(k) every year (also called RMDs or required minimum distributions). That doesn’t apply to Roth accounts.

• Taxable Investment Accounts

On the other hand, if you invest for retirement in a non-retirement or taxable account, you will owe income taxes on your gains whenever you sell those securities, which will affect your portfolio’s overall performance.

How Often Should I Adjust My Investments?

It’s generally considered a good idea to periodically adjust your investments by rebalancing your portfolio. Portfolio rebalancing is a way to adjust the mix of your investments. It means realigning the assets of a portfolio’s holdings to match your desired asset allocation.

If you have a robo advisor or investment advisor, they likely have you set up with a specific target of different types of investments. Over time, the advisor will rebalance your portfolio to keep it in line with your target percentages.

If you’re managing your investments yourself, you might rebalance your portfolio monthly, quarterly or annually, depending on the type of investments that you have.

The Takeaway

Investing for your retirement is one of the smartest things that you can do as part of an overall financial plan. While it may seem overwhelming, there are a few things that you can do to help streamline your investment plan.

Make sure that you understand the fees and taxes that come with different investment options. If you don’t feel comfortable managing your own portfolio, consider working with an advisor or investing in an automated portfolio.

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

Can I invest for retirement if I have limited funds?

It is possible to invest for retirement if you have limited funds. In fact, if you have limited funds, that is one reason it’s even more important to invest for retirement. Especially if you are younger and have a long time before retirement, even a small amount can grow to be a sizable nest egg when its returns are compounded over many decades.

Should I adjust my investment strategy as I approach retirement?

How you choose to invest will depend on a number of factors, one of which is how close you are to retirement. One common strategy is to be more aggressive with your investment strategy when you are years or decades away from retirement. This can possibly lead to higher overall returns while you have a long time to smooth out the ups and downs of a high-risk, high-reward strategy. Then, as you get closer to retirement, you start to be more conservative with your investments in an attempt to better preserve capital.

What investment options are suitable for conservative investors?

Choosing your investment options will depend on your overall financial situation and tolerance for risk. Some examples of more conservative investments include bonds, cash, CDs, or Treasury bills. As you get closer to retirement, it can make sense to choose more conservative investments. You may give up some possible returns, but you may also be better insulated against large losses.

Photo credit: iStock/monkeybusinessimages

SoFi Invest®

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

SoFi Invest encompasses two distinct companies, with various products and services offered to investors as described below: Individual customer accounts may be subject to the terms applicable to one or more of these platforms.
1) Automated Investing and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser (“SoFi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC.
2) Active Investing and brokerage services are provided by SoFi Securities LLC, Member FINRA (www.finra.org)/SIPC(www.sipc.org). Clearing and custody of all securities are provided by APEX Clearing Corporation.
For additional disclosures related to the SoFi Invest platforms described above please visit SoFi.com/legal.
Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform.

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.

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.

SOIN0623047

Aug

2023

How to Rebalance Your 401(k)

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

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

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

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

What Is Rebalancing Your 401(k)?

When you’re talking about a 401(k) rebalance, you’re talking about buying or selling investments in your workplace retirement plan to bring them back into alignment with the original percentages you started with.

Example

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

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

When you rebalance 401(k) assets, you’re changing where you invest the money you contribute. How you determine your retirement goals and your risk tolerance can shape your ideal asset allocation.

When to Rebalance Your 401(k)

How often should I rebalance my 401(k)? It’s a common question, but there’s no uniform answer, as every investor’s needs and goals are different. As a general rule of thumb, you might revisit your 401(k) allocation at least once a year. But rebalancing 401(k) savings could make sense at any time when your allocation no longer matches up with your investment goals.

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

Age is also a consideration for deciding when to rebalance a portfolio. When you’re younger with years ahead of you to ride out periodic ups and downs in the market, you might not be too concerned with rebalancing your 401(k) assets. You can afford to take greater risks at this stage to earn greater rewards with your investments.
As you get older, however, you might naturally begin to gravitate toward more conservative investments. If you find yourself growing less tolerant of risk, that’s a sign that it might be time for some 401(k) rebalancing.

Recommended: Average Retirement Savings by Age

Example of Rebalancing a 401(k)

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

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

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

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

Benefits of Rebalancing Your 401(k)

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

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

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

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

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

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

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

Boost your retirement contributions with a 1% match.

SoFi IRAs now get a 1% match on every dollar you deposit, up to the annual contribution limits. Open an account today and get started.

Only offers made via ACH are eligible for the match. ACATs, wires, and rollovers are not included.

Steps for Rebalancing Your 401(k)

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

Calculate Current Asset Allocations

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

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

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

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

Compare to Target Asset Allocations

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

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

• Your age

• Risk tolerance

• Investment goals

• Time frame for investing

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

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

Sell Overweight Assets

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

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

Buy Underweight Assets

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

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

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

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

Consider a Target Date Fund

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

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

The Takeaway

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

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

Easily manage your retirement savings with a SoFi IRA.

FAQ

Is it good to rebalance your 401(k)?

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

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

Whether it makes sense to rebalance a 401(k) before a recession can depend on your current asset allocation and what you perceive the biggest threat to be should a recession occur. If you’re heavily invested in securities that are typically recession-proof or tend to fare well in economic downturns, then rebalancing might not be necessary. On the other hand, you might need to make some shifts in your 401(k) assets if you think a recession could expose you to more risk than you’re comfortable with.

Does it cost money to rebalance 401(k)?

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

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

Whether you should rebalance your 401(k) in a bear market can depend on the type of assets you’re holding and where you think stocks might be headed next. Bear markets can be opportunities for investors who are comfortable taking more risk, as you might be able to find investments at bargain prices when the market is down. Once the market recovers, those discounted investments might pay you back in the form of substantial gains as prices rise again.

Photo credit: iStock/miniseries

SoFi Invest®

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

SoFi Invest encompasses two distinct companies, with various products and services offered to investors as described below: Individual customer accounts may be subject to the terms applicable to one or more of these platforms.
1) Automated Investing and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser (“SoFi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC.
2) Active Investing and brokerage services are provided by SoFi Securities LLC, Member FINRA (www.finra.org)/SIPC(www.sipc.org). Clearing and custody of all securities are provided by APEX Clearing Corporation.
For additional disclosures related to the SoFi Invest platforms described above please visit SoFi.com/legal.
Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform.

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.

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.

SOIN0723002

Aug

2023

What Is a Money Purchase Pension Plan (MPPP)? How Is It Different From a 401(k)?

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

A money purchase pension plan or MPPP is an employer-sponsored retirement plan that requires employers to contribute money on behalf of employees each year. The plan itself defines the amount the employer must contribute. Employees may also have the option to make contributions from their pay.

Money purchase pension plans have some similarities to more commonly used retirement plans such as 401(k)s, pension plans, and corporate profit sharing plans. If you have access to a MPPP plan at work, it’s important to understand how it works and where it might fit into your overall retirement strategy.

What Is a Money Purchase Pension Plan?

Money purchase pension plans are a type of defined contribution plan. That means they don’t guarantee a set benefit amount at retirement. Instead, these retirement plans allow employers and/or employees to contribute money up to annual contribution limits.

Like other retirement accounts, participants can make withdrawals when they reach their retirement age. In the meantime, the account value can increase or decrease based on investment gains or losses.

Money purchase pension plans require the employer to make predetermined fixed contributions to the plan on behalf of all eligible employees. The company must make these contributions on an annual basis as long as the plan is maintained.

Contributions to a money purchase plan grow on a tax-deferred basis. Employees do not have to make contributions to the plan, but they may be allowed to do so, depending on the plan. The IRS does allow for loans from money purchase plans but it does not permit in-service withdrawals.

💡 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.

What Are the Money Purchase Pension Plan Contribution Limits?

Each money purchase plan determines what its own contribution limits are, though the amount can’t exceed maximum limits set by the IRS. For example, an employer’s plan may specify that they must contribute 5% or 10% of each employee’s pay into that employee’s MPPP plan account.

Annual money purchase plan contribution limits are similar to SEP IRA contribution limits. For 2023, the maximum contribution allowed is the lesser of:

• 25% of the employee’s compensation, OR

• $66,000

The IRS routinely adjusts the contribution limits for money purchase pension plans and other qualified retirement accounts based on inflation. The amount of money an employee will have in their money purchase plan upon retirement depends on the amount that their employer contributed on their behalf, the amount the employee contributed, and how their investments performed during their working years. Your account balance may be one factor in determining when you can retire.

Rules for money purchase plan distributions are the same as other qualified plans, in that you can begin withdrawing money penalty-free starting at age 59 ½. If you take out money before that, you may owe an early withdrawal penalty.

Like a pension plan, money purchase pension plans must offer the option to receive distributions as a lifetime annuity. Money purchase plans can also offer other distribution options, including a lump sum. Participants do not pay taxes on their accounts until they begin making withdrawals.

The Pros and Cons of Money Purchase Pension Plans

Money purchase pension plans have some benefits, but there are also some drawbacks that participants should keep in mind.

Pros of Money Purchase Plans

Here are some of the advantages for employees and employers who have a money purchase plan.

• Tax benefits. For employers, contributions made on behalf of their workers are tax deductible. Contributions grow tax-free for employees, allowing them to put off taxes on investment growth until they begin withdrawing the money.

• Loan access. Employees may be able to take loans against their account balances if the plan permits it.

• Potential for large balances. Given the relatively high contribution limits, employees may be able to accumulate account balances higher than they would with a 401(k) retirement plan, depending on their pay and the percentage their employer contributes on their behalf.

• Reliable income in retirement. When employees retire and begin drawing down their account, the regular monthly payments through a lifetime annuity can help with budgeting and planning.

Disadvantages of Money Purchase Pension Plan

Most of the disadvantages associated with money purchase pension plans impact employers rather than employees.

• Expensive to maintain. The administrative and overhead costs of maintaining a money purchase plan can be higher than those associated with other types of defined contribution plans.

• Heavy financial burden. Since contributions in a money purchase plan are required (unlike the optional employer contributions to a 401(k)), a company could run into issues in years when cash flow is lower.

• Employees may not be able to contribute. Depending on the terms of a plan, employees may not be able to make contributions to the plan. However, if the employer offers both a money purchase plan and a 401(k), employees could still defer part of their salary for retirement.

💡 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).

Money Purchase Pension Plan vs 401(k)

The main differences between a pension vs 401(k) have to do with their funding and the way the distributions work. In a money purchase plan, the employer provides the funding with optional employee contribution.

With a 401(k), employees fund accounts with elective salary deferrals and option employer contributions. For both types of plans, the employer may implement a vesting schedule that determines when the employee can keep all of the employer’s contributions if they leave the company. Employee contributions always vest immediately.

The total annual contribution limits (including both employer and employee contributions) for these defined contribution plans are the same, at $66,000 for 2023. But 401(k) plans allow for catch-up contributions made by employees aged 50 or older. For 2023, the total employee contribution limit is $22,500 with an extra catch-up contribution of $7,500.

Both plans may or may not allow for loans, and it’s possible to roll amounts held in a money purchase pension plan or a 401(k) over into a new qualified plan or an Individual Retirement Account (IRA) if you change jobs or retire.

Employees may also be able to take hardship withdrawals from a 401(k) if they meet certain conditions, but the IRS does not allow hardship withdrawals from a money purchase pension plan.

Here’s a side-by-side comparison of a MPPP and a 401(k):

	MPPP Plan	401(k) Plan
Funded by	Employer contributions, with employee contributions optional	Employee salary deferrals, with employer matching contributions optional
Tax status	Contributions are tax-deductible for employers, growth is tax-deferred for employees	Contributions are tax-deductible for employers and employees, growth is tax-deferred for employees
Contribution limits (2023)	Lesser of 25% of employee’s pay or $66,000	$22,500, with catch-up contributions of $7,500 for employees 50 or older
Catch-up contributions allowed	No	Yes, for employers 50 and older
Loans permitted	Yes, if the plan allows	Yes, if the plan allows
Hardship withdrawals	No	Yes, if the plan allows
Vesting	Determined by the employer	Determined by the employer

The Takeaway

Money purchase pension plans are a valuable tool for employees to reach their retirement goals. They’re similar to 401(k)s, but there are some important differences.

Whether you save for retirement in a money purchase pension plan, a 401(k), or another type of account the most important thing is to get started. The sooner you begin saving for retirement, the more time your money will have to grow through the power of compounding returns.

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.

FAQ

Here are answers to some additional questions you may have about money pension purchase plans.

What is a pension money purchase scheme?

A money purchase pension plan or money purchase plan is a defined contribution plan that allows employers to save money on behalf of their employees. These plans are similar to profit-sharing plans ,and companies may offer them alongside a 401(k) plan as part of an employee’s retirement benefits package.

Can I cash in my money purchase pension?

You can cash in a money purchase pension at retirement in place of receiving lifetime annuity payments. Otherwise, early withdrawals from a money purchase pension plan are typically not permitted, and if you do take money early, taxes and penalties may apply.

Is final salary pension for life?

A final salary pension is a defined benefit plan. Unlike a defined contribution plan, defined benefit plans pay out a set amount of money at retirement, typically based on your earnings and number of years of service. Final salary pensions can be paid as a lump sum or as a lifetime annuity, meaning you get paid for the remainder of your life.

Photo credit: iStock/ferrantraite

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

SOIN0723113

Inherited IRA Distribution Rules Explained

What Is An Inherited IRA?

How Does an Inherited IRA Work?

What are The RMD Rules For Inherited IRAs?

RMD Rules for Spouses

RMD Rules for Non-Spouses

Multiple Beneficiaries

Inherited IRA Situation Examples

How Do I Avoid Taxes on An Inherited IRA?

The Takeaway

FAQ

Are RMDs required for inherited IRAs in 2023?

What are the disadvantages of an inherited IRA?

How do you calculate your required minimum distribution?

Should You Use Your 401(k) as a First-Time Home Buyer?

Can You Use a 401(k) to Buy a House?

First-time homebuyers can prequalify for a SoFi mortgage loan, with as little as 3% down.

How Much of Your 401(k) Can Be Used For Home Purchase?

4 Potential Drawbacks of Using Your 401(k) to Buy a House

1. Withdrawal limits

2. Lost contributions

3. Automatic repayment terms

4. Loan terms change if you leave your job.

Pros and Cons of Using a 401(k) to Buy a House

What are the Rules & Penalties for Using 401(k) Funds to Buy a House?

What are the Alternatives to Using a 401(k) to Buy a House?

Withdrawing Money from a Roth IRA

Low- and No-Down-Payment Home Loans

Other Types of Down Payment Assistance

The Takeaway

Investing for Retirement: Tips and Options to Consider

The Importance of Investing for Retirement

Boost your retirement contributions with a 1% match.

SoFi IRAs now get a 1% match on every dollar you deposit, up to the annual contribution limits. Open an account today and get started.

Understanding Retirement Accounts

Investment Options

DIY Investing

Index Funds

Automated Options

Hire an Advisor

Tips When Investing for Retirement

Ask About Fees

Plan for Taxes

How Often Should I Adjust My Investments?

The Takeaway

FAQ

Can I invest for retirement if I have limited funds?

Should I adjust my investment strategy as I approach retirement?

What investment options are suitable for conservative investors?

How to Rebalance Your 401(k)

What Is Rebalancing Your 401(k)?

When to Rebalance Your 401(k)

Example of Rebalancing a 401(k)

Benefits of Rebalancing Your 401(k)

Boost your retirement contributions with a 1% match.

SoFi IRAs now get a 1% match on every dollar you deposit, up to the annual contribution limits. Open an account today and get started.

Steps for Rebalancing Your 401(k)

Calculate Current Asset Allocations

Compare to Target Asset Allocations

Sell Overweight Assets

Buy Underweight Assets

Consider a Target Date Fund

The Takeaway

FAQ

Is it good to rebalance your 401(k)?

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

Does it cost money to rebalance 401(k)?

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

What Is a Money Purchase Pension Plan (MPPP)? How Is It Different From a 401(k)?

What Is a Money Purchase Pension Plan?

What Are the Money Purchase Pension Plan Contribution Limits?

The Pros and Cons of Money Purchase Pension Plans

Pros of Money Purchase Plans

Disadvantages of Money Purchase Pension Plan

Money Purchase Pension Plan vs 401(k)

The Takeaway

FAQ

What is a pension money purchase scheme?

Can I cash in my money purchase pension?

Is final salary pension for life?

First-time homebuyers can
prequalify for a SoFi mortgage loan,
with as little as 3% down.

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