Dec
29
2025
Should I Put My Bonus Into My 401k? Here's What You Should Consider

Should I Put My Bonus Into My 401(k)? Here’s What You Should Consider

By | Growing Wealth, invest, Investing, Preparing for Retirement | Comments Off on Should I Put My Bonus Into My 401(k)? Here’s What You Should Consider

If you received a bonus and you’re wondering what to do with the bonus money, you’re not alone. Investing your bonus money in a tax-advantaged retirement account like a 401(k) has some tangible advantages. Not only will the extra cash help your nest egg to grow, you could also see some potential tax benefits.

Of course, we live in a world of competing financial priorities. You could also pay down debt, spend the money on something you need, save for a near-term goal — or splurge! The array of choices can be exciting — but if a secure future is your top goal, it’s important to consider a 401(k) bonus deferral.

Here are a few strategies to think about before you make a move.

Key Points

•   Investing a bonus in a 401(k) can significantly enhance retirement savings and offer potential tax benefits.

•   Bonuses are subject to income tax withholding, which may reduce the expected amount.

•   Contribution limits for a 401(k) are $23,500 in 2025 and $24,500 in 2026 for those under age 50. Those aged 50 and over can make an additional catch-up contribution.

•   If 401(k) contributions are maxed out, considering an IRA or a taxable brokerage account is beneficial.

•   Allocating a bonus to a 401(k) or IRA can reduce taxable income for the year, potentially lowering the tax bill.

Receiving a Bonus Check

First, a practical reminder. When you get a bonus check, it may not be in the amount that you expected. This is because bonuses are subject to income tax withholding. Knowing how your bonus is taxed can help you understand how much you’ll end up with so you can determine what to do with the money that’s left, such as making a 401(k) bonus contribution. The IRS considers bonuses as supplemental wages rather than regular wages.

Ultimately, your employer decides how to treat tax withholding from your bonus. Employers may withhold 22% of your bonus to go toward federal income taxes. But some employers may add your whole bonus to your regular paycheck, and then tax the larger amount at normal income tax rates. If your bonus puts you in a higher tax bracket for that pay period, you may pay more than you expected in taxes.

Also, your bonus may come lumped in with your paycheck (not as a separate payout), which can be confusing.

Whatever the final amount is, or how it arrives, be sure to set aside the full amount while you weigh your options — otherwise you might be tempted to spend it.

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

What to Do With Bonus Money

There’s nothing wrong with spending some of your hard-earned bonus from your compensation. One rule of thumb is to set a percentage of every windfall (e.g. 10% or 20%) — whether a bonus or a birthday check — to spend, and save the rest.

To get the most out of a bonus, though, many people opt for a 401k bonus deferral and put some or all of it into their 401(k) account. The amount of your bonus you decide to put in depends on how much you’ve already contributed, and whether it makes sense from a tax perspective to make a 401(k) bonus contribution.

Contributing to a 401(k)

For 2025, the contribution limit for 401(k) plans is $23,500. Those 50 and older can add another $7,500, for a total of $31,000. Those aged 60 to 63 can contribute an additional $11,250, for a total of $34,750.

For 2026, the contribution limit for 401(k) plans is $24,500. Those 50 and older can add another $8,000, for a total of $32,500. Those aged 60 to 63 can contribute an additional $11,250, for a total of $35,750.

If you haven’t reached the limit yet, allocating some of your bonus into your retirement plan can be a great way to boost your retirement savings.

In the case where you’ve already maxed out your 401(k) contributions, your bonus can also allow you to invest in an IRA or a non-retirement (i.e. taxable) brokerage account.

Contributing to an IRA

If you’ve maxed out your 401k contributions for the year, you may still be able to open a traditional tax-deferred IRA or a Roth IRA. It depends on your income.

In 2025, the contribution limit for traditional IRAs and Roth IRAs is $7,000; with an additional $1,000 if you’re 50 or older. In 2026, the contribution limit for traditional IRAs and Roth IRAs is $7,500; with an additional $1,100 if you’re 50 or older.

However, if your income is $165,000 or more (for single filers) or $246,000 or more (for married filing jointly) in 2025, you aren’t eligible to contribute to a Roth. For 2026, you can’t contribute to a Roth if your income is $168,000 or more (for single filers) or $252,000 or more (for married filing jointly).

If you’re covered by a workplace retirement plan and your income is too high for a Roth, you likely wouldn’t be eligible to open a traditional, tax-deductible IRA either. You could however open a nondeductible IRA. To understand the difference, you may want to consult with a professional.

Contributing to a Taxable Account

Of course, when you’re weighing what to do with bonus money, you don’t want to leave out this important option: Opening a taxable account.

While employer-sponsored retirement accounts typically have some restrictions on what you can invest in, taxable brokerage accounts allow you to invest in a wider range of investments.

So if your 401(k) is maxed out, and an IRA isn’t an option for you, you can use your bonus to invest in stocks, bonds, exchange-traded funds (ETFs), mutual funds, and more in a taxable account.

Deferred Compensation

You also may be able to save some of your bonus from taxes by deferring compensation. This is when an employee’s compensation is withheld for distribution at a later date in order to provide future tax benefits.

In this scenario, you could set aside some of your compensation or bonus to be paid in the future. When you defer income, you still need to pay taxes later, at the time you receive your deferred income.

Your Bonus and 401(k) Tax Breaks

Wondering what to do with a bonus? It’s a smart question to ask. In order to maximize the value of your bonus, you want to make sure you reduce your taxes where you can.

One method that’s frequently used to reduce income taxes on a bonus is adding some of it into a tax-deferred retirement account like a 401(k) or traditional IRA. The amount of money you put into these accounts typically reduces your taxable income in the year that you deposit it.

Here’s how it works. The amount you contribute to a 401(k) or traditional IRA is tax deductible, meaning you can deduct the amount you save from your taxable income, often lowering your tax bill. (The same is not true for a Roth IRA or a Roth 401(k), where you make contributions on an after-tax basis.)

The annual contribution limits for each of these retirement accounts noted above may vary from year to year. Depending on the size of your bonus and how much you’ve already contributed to your retirement account for a particular year, you may be able to either put some or all of your bonus in a tax-deferred retirement account.

It’s important to keep track of how much you have already contributed to your retirement accounts because you don’t want to put in too much of your bonus and exceed the contribution limit. In the case where you have reached the contribution limit, you can put some of your bonus into other tax deferred accounts including a traditional IRA or a Roth IRA.

Recommended: Important Retirement Contribution Limits

How Investing Your Bonus Can Help Over Time

Investing your bonus may help increase its value over the long-run. As your money potentially grows in value over time, it can be used in many ways: You can stow part of it away for retirement, as an emergency fund, a down payment for a home, to pay outstanding debts, or another financial goal.

While it can be helpful to have some of your bonus in cash, your money is typically better in a savings or investment account where it has the potential to work for you. If you start investing your bonus each year in either a tax-deferred retirement account or non-retirement account, this could help you save for the future.

Test your understanding of what you just read.

Investing for Retirement With SoFi

The yearly question of what to do with a bonus is a common one. Just having that windfall allows for many financial opportunities, such as saving for immediate needs — or purchasing things you need now. But it may be wisest to use your bonus to boost your retirement nest egg — for the simple reason that you may stand to gain more financially down the road, while also potentially enjoying tax benefits in the present.

The fact is, most people don’t max out their 401(k) contributions each year, so if you’re in that boat it might make sense to take some or all of your bonus and max it out. If you have maxed out your 401(k), you still have options to save for the future via traditional or Roth IRAs, deferred compensation, or investing in a taxable account.

Keeping in mind the tax implications of where you invest can also help you allocate this extra money where it fits best with your plan.

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.

FAQ

Is it good to put your bonus into a 401(k)?

The short answer is yes. It might be wise to put some or all of your bonus in your 401(k), depending on how much you’ve contributed to your workplace account already. You want to make sure you don’t exceed the 401(k) contribution limit.

How can I avoid paying tax on my bonus?

Your bonus will be taxed, but you can lower the amount of your taxable income by depositing some or all of it in a tax-deferred retirement account such as a 401(k) or IRA. However, this does not mean you will avoid paying taxes completely. Once you withdraw the money from these accounts in retirement, it will be subject to ordinary income tax.

Can I put all of my bonus into a 401(k)?

Possibly. You can put all of your bonus in your 401(k) if you haven’t reached the contribution limit for that particular year, and if you won’t surpass it by adding all of your bonus. For 2025, the contribution limit for a 401(k) is $23,500 if you’re under age 50; those 50 and up can contribute an additional $7,500, for a total of $31,000. Those aged 60 to 63 may contribute an additional $11,250 instead of $7,500, for a total of $34,750. In 2026, the contribution limit for a 401(k) is $24,500 if you’re under age 50; those 50 and up can contribute an additional $8,000, for a total of $32,500. Those aged 60 to 63 may contribute an additional $11,250 instead of $8,000, for a total of $35,750.

Photo credit: iStock/Tempura

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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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Understanding Special Needs Financial Planning

By | invest, Investing, Preparing for Retirement | Comments Off on Understanding Special Needs Financial Planning

Special needs financial planning is a subset of financial planning concerned with meeting the short and long-term needs of children and adults with disabilities. If you’re the primary caregiver for a child or another family member with special needs, it’s important to consider how they’ll be provided for during your lifetime and beyond.

Financial planning for special needs families requires a personalized approach, as every family’s situation is different. It’s never too late, or too early, to think about how to shape your family’s plan.

Key Points

•   Personalized financial planning for those with special needs can help provide tailored support and quality of life.

•   Government benefits like Medicaid, Supplemental Security Income (SSI), and Medicare are essential for covering care costs.

•   ABLE accounts offer tax-advantaged savings for disability expenses without disrupting eligibility for federally funded benefits, such as SSI.

•   Estate planning can include creating wills and trusts and appointing guardians to secure financial stability.

•   A letter of intent guides future caregivers on daily routines and care needs.

The Importance of Special Needs Financial Planning

A financial plan is a roadmap to help you reach your financial goals, whether that means paying off your home early or retiring with $1 million in the bank. Accordingly, financial planning for special needs has some additional considerations. It also takes into account the financial demands of caring for someone with disabilities or special healthcare needs and what’s necessary to provide them with the best quality of life possible.

Developing a special needs financial plan is important for several reasons.

•   Planning allows you to establish some continuity in the type of care your loved one receives while you’re living and after you’re gone.

•   Government benefit programs may have specific requirements your loved one will need to meet to receive care. Setting up a disability trust account or another type of trust as part of your special needs financial plan can help ensure they’re eligible.

•   While your focus may be on providing care for your loved one, you can’t afford to neglect your own goals, like retirement. A special needs financial plan helps you balance those goals against your loved one’s care priorities.

A comprehensive plan spans every stage of your loved one’s life and anticipates their needs at different ages. Financial planning for special needs adults, for instance, may look very different from financial planning for special needs infants, children, or teens. And planning ahead, and getting the planning process started at an early age means you don’t have to catch up later on.

Key Components of a Special Needs Financial Plan


What a special needs financial plan should cover depends largely on the specifics of your situation. At a minimum, you should probably be thinking about:

•   Your immediate and long-term financial planning needs, including life insurance, disability insurance, and retirement savings

•   Your loved one’s eligibility for government benefits that could help cover the cost of their care

•   Whether you’ll need to create a transition plan that allows your loved one to live independently

•   Long-term care planning for your loved one

•   Estate planning and what you’d like to happen to your assets after you’re gone

It’s also important to think about who will help you execute your plan. That might include a financial advisor, accountant, and/or estate planning attorney. You’ll also need to decide who will act as guardian or power of attorney for your loved one in your absence if they’re unable to make decisions for themselves.

Long-Term Care Considerations


Special needs financial planning means thinking about the degree of care someone will need lifelong, the cost of that care, and how to pay for it. It’s important to consider your loved one’s needs and the options you have.

There are different ways to approach care, including:

•   Taking care of your loved one yourself

•   In-home care assistance, either on a part-time or full-time basis

•   Day programs that provide care for special needs children or adults

•   Group or community care homes

•   Intermediate care facilities

•   Independent living

Your loved one’s age and health care needs can dictate which type of care is most suited to their situation. Cost is an important consideration in each scenario.

Your health insurance may pay for some of your loved one’s needs if they’re eligible for enrollment in your plan. You may also apply for Medicaid on their behalf. Medicaid is a government-funded program administered at the state level that can cover a variety of costs related to special needs care, including:

•   Preventive services

•   Primary and specialty care

•   Prescription drugs

•   Medical devices

•   Long-term care and support

Eligibility for Medicaid is automatic in most states when someone qualifies for Supplemental Security Income (SSI). SSI provides cash payments to children and adults with disabilities.
Medicare is also available to individuals under 65 with qualifying disabilities and can cover certain nursing care needs.

Independent of these programs, you may set up an ABLE account to help cover long-term care needs. The Achieving a Better Life Experience (ABLE) Act of 2014 created ABLE accounts which offer a tax-advantaged way to save money for qualified disability expenses.

You can open an ABLE account on behalf of a designated beneficiary and contribute up to the annual gift tax exclusion limit each year. Funds in an ABLE account can be used to pay for qualified disability expenses, including:

•   Higher education

•   Housing

•   Transportation

•   Job training and support

•   Healthcare

•   Personal support expenses

•   Basic living expenses

•   Legal expenses

•   End-of-life care

•   Burial and funeral expenses4

Someone can have an ABLE account and still be eligible to receive Medicaid, Medicare, or SSI to help pay for special needs care. If their ABLE account balance exceeds $100,000 that can affect their ability to continue drawing SSI benefits but it won’t impact their Medicaid or Medicare eligibility.

These are all issues that you might want to talk about with a financial advisor. They can go into detail with you about how to qualify for Medicaid in your state, how to plan ABLE account contributions, or whether it makes sense to establish a special needs trust for your loved one.

Retirement Planning With a Special Needs Child


While you may be focused on meeting your child’s needs, it’s important to consider where your retirement fits into your financial plan. Start by evaluating your assets, which may include:

•   A 401(k) or similar workplace retirement plan

•   A traditional or Roth IRA

•   SEP IRAs or a solo 401(k) if you’re self-employed

•   A taxable brokerage account

•   A Health Savings Account (HSA) if you have a high deductible health plan

Look at how much you contribute to each account, what you’re paying in fees, and the returns your investments generate. Then, consider what age you’d like to retire and how much you think you’ll need.

Calculators can help with this step. You can use a 401(k) or an IRA calculator to estimate how much your money will grow, based on what you’re saving now.

Once you have a target savings number, ask yourself what you can do to increase your chances of reaching it. For instance, could you:

•   Increase your 401(k) contribution rate

•   Max out an IRA or HSA

•   Change up your investment mix to seek better returns and/or reduce the fees you’re paying

•   Supplement tax-advantaged retirement accounts with a taxable brokerage account

•   Stash money in high-yield savings accounts or CDs for liquidity

What if you don’t have anything saved for retirement? You could open an IRA through an online brokerage and start contributions based on what your budget allows. For 2025, you can save up to $7,000 in an IRA or $8,000 if you’re 50 or older. For 2026, you can save up to $7,500 in an IRA or $8,600 if you’re 50 or older.

Estate Planning for Special Needs Families


Special needs estate planning considers both your needs and your loved ones. What you’ll include in this plan can depend on whether you’re talking about estate planning for a special needs child or estate planning for special needs adults.

At a minimum, you’ll need a last will and testament. Your will allows you to specify how you want your assets to be distributed when you pass away but you can also use it to name one or more guardians for your special needs loved one. You may want to work with a special needs attorney to draft a will since the laws for creating one vary from state to state.

Another aspect of special needs estate planning centers on what will happen to your retirement accounts. When managing retirement accounts that allow you to name a beneficiary, it’s important to choose wisely.

Leaving your 401(k) or IRA directly to your child could impact the eligibility to receive certain government benefits. Aside from that, inherited IRAs are subject to required minimum distribution (RMD) rules, which could add another wrinkle to financial planning for special needs children.

Under these rules, non-spouse beneficiaries are required to withdraw all the money in the account within 10 years. The SECURE Act allows certain individuals with disabilities, or a special needs trust fund established on their behalf, to qualify as eligible designated beneficiaries. An eligible designated beneficiary may follow the 10-year withdrawal rule or take withdrawals over their life expectancy.

You’d have to determine whether your child qualifies as an eligible designated beneficiary and if so, whether it makes sense to name them as beneficiary to your retirement accounts directly or establish a special needs trust to inherit those accounts. If you prefer to establish a trust you could name it as the beneficiary to any life insurance policies you have as well.

Recommended: Why You Need a Trust

Creating a Letter of Intent


A letter of intent (LOI) includes a detailed profile of your special needs loved one, including their daily routine, care needs, and financial situation. This document is not legally binding; instead, it’s meant to act as a guide for those who will assume care duties after you’re gone.

Including a letter of intent in your special needs financial plan allows you to communicate what your loved one needs now and what their needs might be in the future. You can update your LOI annually to adjust for any changes to your situation.

There’s no specific template or form your letter of intent needs to take, however, it’s important to make it as detailed and thorough as possible. If you need direction on how to write a letter of intent you can find free templates to use as a guide online.

Working With Special Needs Financial Planners


If you find the idea of creating a financial plan for special needs overwhelming or you don’t know where to start, you may benefit from talking to a financial planner or advisor who specializes in this area. A special needs financial planner can look at your situation and help you create a financial plan that allows you to reach your goals while making sure your loved one is taken care of.

You may look for a financial planner or advisor who holds a chartered special needs consultant (ChSNC) designation. This credential means they’ve completed education courses in the area of special needs financial planning.

When choosing a financial advisor, consider:

•   What experience they have with special needs planning

•   What kind of clients they typically serve

•   Which services they can help you with

•   How much they charge

If you’d like to find a certified financial planner near you, you can use the CFP Board’s search tool to see who’s available in your area.

The Takeaway


Financial planning and estate planning for special needs are important priorities if you care for a child or adult with disabilities or significant medical issues. Creating your plan can take time, but you don’t have to go it alone. Take this financial planning quiz to find out how a financial advisor can help.

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FAQ

How does special needs financial planning differ from traditional planning?

Traditional financial planning concerns itself with your goals, which may include college planning, paying off your mortgage, or retirement planning. Special needs financial planning can include those things but it also extends to creating a lifelong plan of care for a loved one with disabilities. The issues and challenges of financial planning for special needs tend to be more complex.

When should I start special needs financial planning?

The best time to start special needs financial planning is when you become the caregiver for someone with disabilities. Delaying planning could put the person you’re responsible for at risk of not getting the care they need if something should happen to you.

Can siblings be involved in special needs financial planning?

If you’re the parent of a child with special needs, involving siblings in financial planning often makes sense. You may designate them as the person you’d like to assume responsibility for their sibling’s care or financial assets after you’re gone. Making sure they’re involved in each stage of planning can make the transition as smooth as possible when the time comes.

About the author

Rebecca Lake

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/Unaihuiziphotography

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

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

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

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


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Investing Checklist: Things to Do Before the End of 2022

Investing Checklist: Things to Do Before the End of 2025

By | Growing Wealth, invest, Investing, Preparing for Retirement | Comments Off on Investing Checklist: Things to Do Before the End of 2025

There are numerous things that investors can and perhaps should do before the clock strikes midnight on New Year’s Eve, such as maxing out retirement or college savings account contributions, and harvesting tax losses.

Read on to find out what should probably be on your investing checklist for the end of the year, what to consider tackling before your tax return is due in April, and how some simple moves this December can help set you up nicely for 2025, 2026, and beyond.

Key Points

•   Investors should maximize their 401(k) contributions by the end of 2025. They can contribute up to $23,500 for the year, plus an additional $7,500 for those over 50. People 60 to 63 can contribute a higher catch-up limit of $11,250 in 2025.

•   Tax-loss harvesting, a strategy to offset investment gains with losses and reduce tax burdens, should be considered before year-end if applicable.

•   Contributing to a 529 college savings plan before the year ends can offer state tax deductions, depending on the state.

•   Reviewing and updating estate plans and insurance policies is crucial to ensure they are current and accurate.

•   Donating appreciated stocks to charity by December 31 can provide a tax deduction for the full market value of the shares.

End-of-Year vs Tax-Day Deadlines

Before diving into the year-end investing checklist, it’s important to remember that there are a couple of key distinctions when it comes to the calendar. Specifically, though the calendar year actually ends on December 31 of any given year, Tax Day is typically in the middle of April (April 15, usually). That’s the due date to file your federal tax return, unless you file for an extension.

As it relates to your investing checklist, this is important to take into account because some things, like maxing out your 401(k) contributions must be done before the end of the calendar year, while others (like maxing out contributions to your IRA account) can be done up until the Tax Day deadline.

In other words, some items on the following investing checklist will need to be crossed off before New Year’s Day, while others can wait until April.

7 Things to Do With Your Investments No Later Than Dec. 31

Here are seven things investors can or should consider doing before the calendar rolls around to 2026.

1. Max Out 401(k) Contributions

Perhaps the most beneficial thing investors can do for their long-term financial prospects is to max out their 401(k) contributions. A 401(k) is an employer-sponsored retirement account, where workers can contribute tax-deferred portions of their paychecks.

There are also Roth 401(k) accounts, which may be available to you, which allow you to preemptively pay taxes on the contributions, allowing for tax-free withdrawals in the future.

You can only contribute a certain amount of money per year into a 401(k) account, however. For 2025, that limit is $23,500, and those over 50 can contribute an additional $7,500, for a total of $31,000. And in 2025, under SECURE 2.0, those aged 60 to 63 can make a higher catch-up limit of $11,250 (instead of $7,500) for a total of $34,750.

In 2026, the contribution limit rises to $24,500, with a $8,000 catch-up provision if you’re 50 and up, for a total of $32,500. And again, under the SECURE 2.0 Act, a higher catch-up limit of $11,250 (instead of $8,000) applies to individuals ages 60 to 63 in 2026, for a total of $35,750.

So, if you are able to, it may be beneficial to contribute up to the $23,500 limit for 2025 before the year ends. After December 31, any contributions will count toward the 2026 tax year.

2. Harvest Tax Losses

Tax-loss harvesting is an advanced but popular strategy that allows investors to sell some investments at a loss, and then write off their losses against their gains to help lower their tax burden.

Note that investment losses realized during a specific calendar year must be applied to the gains from the same year, but losses can be applied in the future using a strategy called a tax-loss carryforward. But again, tax-loss harvesting can be a fairly complicated process, and it may be best to consult with a professional

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3. Consider 529 Plan Contributions

A 529 college savings plan is used to save for education expenses. There are two basic types of 529 plans, but the main thing that investors should focus on, as it relates to their year-end investing checklist, is to stash money into it before January as some states allow 529 contributions as tax deductions.

There is no yearly federal contribution limit for 529 plans — instead, the limit is set at the state level. Gift taxes, however, may apply, which is critical to consider.

4. Address Roll-Over Loose Ends

Another thing to check on is whether there are any loose ends to tie up in regard to any account roll-overs that you may have executed during the year.

For example, if you decided to roll over an old 401(k) into an IRA at some point during the year, you’ll want to make sure that the funds ended up with your new brokerage or retirement plan provider.

It may be easy to overlook, but sometimes checks get sent to the wrong place or other wires get crossed, and it can be a good idea to double-check everything is where it should be before the year ends.

5. Review Insurance Policies

Some employers require or encourage employees to opt into certain benefits programs every year, including insurance coverage. This may or may not apply to your specific situation, but it can be a good idea to check and make sure your insurance coverage is up to date — and that you’ve done things like named beneficiaries, and that all relevant contact information is also current.

6. Review Your Estate Plan

This is another item on your investing checklist that may not necessarily need to be done by the end of the year, but it’s a good idea to make a habit of it: Review your estate plan, or get one started.

There are several important documents in your estate plan that legally establish what happens to your money and assets in the event that you die. If you don’t have an estate plan, you should probably make it an item on your to-do list. If you do have one, you can use the end of the year as a time to check in and make sure that your heirs or beneficiaries are designated, that there are instructions about how you’d prefer your death or incapacitation to be handled, and more.

7. Donate Appreciated Stocks

Finally, you can consider donating stocks to charity by the end of the year. There are a couple of reasons to consider a stock donation: One, you won’t pay any capital gains taxes if the shares have appreciated, and second, you’ll be able to snag a tax deduction for the full market value of the shares at the time that you donate them. The tax deduction limit is for up to 30% of your adjustable gross income — a considerable amount.

Remember, though, that charitable donations must be completed by December 31 if you hope to deduct the donation for the current tax year.

3 Things for Investors to Do by Tax Day 2026

As mentioned, there are a few items on your investing checklist that can be completed by Tax Day, or April 15, 2026. Here are the few outstanding items that you’ll have until then to complete.

1. Max Out IRA Contributions

One of the important differences between 401(k)s and IRAs is the contribution deadline. While 401(k) contributions must be made before the end of the calendar year, investors can keep making contributions to their IRA accounts up until Tax Day 2026, within the contribution limits of course.

So, if you want to max out your IRA contributions for 2025, the limit is $7,000. But people over 50 can contribute an additional $1,000 — and you’ll have until April to contribute for 2025 and still be able to deduct contributions from your taxable income (assuming it’s a tax-deferred IRA, not a Roth IRA).

The contribution limits rise in 2026 to $7,500, and a $1,100 catch-up provision for those 50 and up. And some taxpayers may be able to deduct their contributions, too, under certain conditions.

2. Max Out HSA Contributions

If you have a health savings account (HSA), you’ll want to make sure you’ve hit your contribution limits before Tax Day, too. The contribution limits for HSAs in 2025 are $4,300 for self-only coverage and $8,550 for family coverage. People over 55 can contribute an additional $1,000. For 2026, the contribution limits are $4,400 for self-only coverage and $8,750 for family coverage. People aged 55 and up can contribute an additional $1,000 in both 2025 and 2026.

3. Take Your RMD (if Applicable)

If you’re retired, you may need to take a required minimum distribution (RMD) from your retirement account by the beginning of April next year, if it’s your first RMD. But if you’ve taken an RMD before, you’ll need to do so before the end of 2025 — so, be sure to check to see what deadline applies to your specific situation.

This generally only applies to people who are in their 70s (typically age 73 if you reach age 72 after December 31, 2022), but it may be worth discussing with a professional what the best course of action is, especially if you have multiple retirement accounts or if you have an inherited account.

The Takeaway

Doing a year-end financial review can be extremely beneficial, and a checklist can help make sure you don’t miss any important steps for 2025 — and set you up for 2026. That investing checklist should probably include things like maxing out contributions to your retirement accounts, harvesting tax losses in order to manage your tax bill, and possibly even taking minimum required distributions. Everyone’s situation is different, so you’ll need to tailor your investing checklist accordingly.

Also, it’s important to keep in mind that you may have until Tax Day in April to get some of it done — though it may be good practice to knock everything out by the end of the year. If you’re only beginning to invest, keeping this list handy and reviewing it annually can help you establish healthy financial habits.

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

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

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

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

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

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.

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.

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How to Invest Your 401(k)

By | Growing Wealth, invest, Preparing for Retirement | No Comments

Utilizing your 401(k) retirement account can seem daunting to beginner investors, but there are numerous strategies and tactics you can use to improve returns. Before any of that happens, though, investors will want to be sure to sign up for a 401(k) retirement account through your employer, which is often as simple as filling out a form.

As for the rest? Investing in your 401(k) doesn’t have to be complicated. From understanding your investment options and choosing your portfolio, to common mistakes to avoid, read on to get into the nitty-gritty.

How to Invest Your 401(k)

Investing in your 401(k) can often be as simple as making some basic investment choices. But it’s also good to know exactly how the account works.

As a refresher, a 401(k) is a type of tax-deferred retirement account sponsored by your employer. If you work for a non-profit, a school district, or the government instead of a company, your retirement plan might be a 403(b) or a 457(b) plan. All of these plans are employer-sponsored, meaning they pick the plan — and most of the information here applies to all three types of accounts.

You and your employer can both contribute to a 401(k). Many employers match employee contributions to some degree, and some may even contribute a portion of company profits to employees’ accounts (that’s known as a 401(k) profit-sharing plan).

Contributions are capped by the IRS: For the 2025 tax year, the maximum amount an individual might contribute to a 401(k) is $23,500, with an additional $7,500 in catch-up contributions allowed for people aged 50 and over. Those aged 60 to 63 may contribute up to an additional $11,250 instead of $7,500, thanks to SECURE 2.0. The total amount that might be contributed to a 401(k), including matching funds and other contributions from an employer, is $70,000 (or $77,500 for people aged 50 and older, and $81,250 for those aged 60 to 63).

For the 2026 tax year, the maximum amount an individual could contribute to a 401(k) is $24,500, with an extra $8,000 in catch-up contributions allowed for people aged 50 and over. And those aged 60 to 63 may again contribute an additional $11,250 instead of $8,000 in 2026. The total amount that might be contributed to a 401(k), including matching funds and other contributions from an employer, is $72,000 (or $80,000 for people aged 50 and older, and $83,250 for those aged 60 to 63).

With all of that in mind, here are some things to remember as you start to invest in your 401(k), or look for ways to improve your returns.

Assess Your Goals

Investors should really take the time to assess their overall investment goals, and think about how their 401(k) fits into achieving those goals. Each investor will have different goals, and that means they’ll be willing to take different risks and be on different timelines as to when they want to reach those goals.

Again, this will vary from investor to investor, but before making any moves, it can be helpful to think more deeply about goals. Talking to a financial professional may be helpful, too.

Determine Your Risk Tolerance

Every investment comes with risk. The key is assessing your comfort level with risk now, and going forward. Whether you’re picking a target date fund or making your own mix of investments, you’ll want to allocate your money based on your needs and risk tolerance.

One rule of thumb when it comes to retirement investments is that the younger you are, the more risk you might be able to handle. The thinking goes that you will have more time to recover from market drops to allow riskier investments to pay off.

On the other hand, people closer to retirement may choose to adjust their investments. There, the goal would be to minimize risk, so that the savings they will soon need would not be overly impacted by a market downturn.

Look at Diversification

Diversification is critical when building a portfolio, so investors should keep an eye on what’s in their portfolio. An individual employee may not have a whole lot of say as to what exactly is going into their 401(k) investment mix, but you’ll want to keep an eye on things and stay abreast of the way that your portfolio manager is diversifying for you.

Target-Date Funds

A target-date fund is a mutual fund with a passive mix of investments aimed at a “target” retirement date. The mix of assets (stocks and bonds) typically becomes more conservative as your target retirement date nears. For people who prefer a hands-off approach, these funds might be a good investment option.

Something to keep in mind is that you don’t necessarily have to pick the target date based on when you actually plan to retire. If you feel the mix of assets is too aggressive, you might choose to select an earlier retirement year to take less risk.

Factors to Consider

Additionally, there are many factors investors will need to consider as it relates to their 401(k), such as their time horizon, expenses, and contribution levels.

•   Time horizon: How long do you plan to invest? Investors will want to keep long-term returns in mind, and their investment mix and other choices can have an impact on their returns.

•   Expenses: Investments often have expense ratios or other fees that can eat into returns, which is another thing to keep in mind.

•   Contribution levels: The more you save for retirement and the earlier you start saving, the better off you’ll likely be in retirement. If you’re lucky enough to have an employer that matches your contributions, at a minimum you’ll probably want to take full advantage of your employer match.

Remember: Maximizing your 401(k) tends to benefit you in the long run. 401(k) employer contributions vary, so it makes sense to find out how matching works at your company, and then contribute at least enough to get that “free money.”

401(k) Investing: Things to Keep In Mind

There are a couple of other things that investors may want to try and keep in mind in regard to their 401(k), such as leaving old accounts open, and over-investing in specific funds.

Putting Everything into a Money Market Fund

A money market fund is a mutual fund made up of relatively low-risk, short-term securities. It’s a tempting move, because it feels like you don’t risk losing money. You’ll want to gauge whether your investing returns are outpacing inflation, accordingly. That may be the case if your money is only being invested in a money market fund — in fact, that may be the default if employees don’t make investment selections for their portfolio. You’ll need to check with your plan provider to find out.

Leaving Old 401(k)s Open

When you leave your current employer, it’s often a good idea to roll over your 401(k) into a traditional or Roth IRA. Most 401(k) accounts have fees associated with them. While typically an employer will pay those fees while you work for them, once you’re no longer with the company, many will stop paying them for you.

By moving your money into an account of your choosing, you have more control over the fees you pay. You’ll also generally have a broader range of investment choices.

The Takeaway

Investing in a 401(k) retirement savings account is fairly simple, especially since you can set it up through your employer. Whether you are typically a hands-on investor or prefer a hands-off approach, you can get your 401(k) contributions up and running — and start saving money for your future.

If you have an old 401(k), as noted above, you might want to consider doing a rollover to an IRA account so you can better manage your savings in one place.

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.

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

FAQ

Can I invest my 401(k) on my own?

It may be possible to invest in your 401(k) on your own, as some employers offer a self-directed plan option, which gives investors more choice and say over their portfolio.

Is it possible to make my 401(k) grow faster?

To make your 401(k) grow faster, you can look at increasing your contributions (up to a specified limit), or changing your investment mix. But note that many investments with higher growth potential tend to have higher associated risks.

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

External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
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.

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

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

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

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

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

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

By | invest, Investing, Preparing for Retirement | Comments Off on What Is a Money Purchase Pension Plan (MPPP)? How Is It Different From a 401(k)?

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, traditional 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.

Key Points

•   A Money Purchase Pension Plan (MPPP) is an employer-sponsored retirement plan in which employers make fixed, pre-determined contributions to the plan on behalf of all employees.

•   MPPP contribution limits are $70,000 annually in 2025, or 25% of compensation, whichever is less.

•   Contributions to MPPPs grow tax-free for employees and are tax-deductible for employers.

•   MPPP distribution options include a lifetime annuity and a lump sum distribution.

•   MPPP advantages include large account balances and tax benefits, but disadvantages include no hardship withdrawals and no catch-up contributions.

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, which can be an important part of their retirement planning. 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 can choose to do so.

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 2025, the maximum contribution allowed is the lesser of:

25% of the employee’s compensation, OR

$70,000

For 2026, the maximum contribution amount allowed is the lesser of:

25% of the employee’s compensation, OR

$72,000

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. 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 — 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 pension plan.

•   Tax benefits. For employers, contributions made on behalf of their workers are tax deductible. Contributions grow tax-free for employees, allowing them to defer 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 may 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.

•   Vesting schedules may be long. Employees who leave the company before they are fully vested in an MPPP may forfeit some or all of their employer’s contributions.

•   No catch-up contributions for older employees. Unlike a 401(k), employees ages 50 and up do not have the option to make an additional annual catch-up contribution to an MPPP.

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 optional 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 $70,000 for 2025 and $72,000 for 2026. But 401(k) plans allow for catch-up contributions made by employees aged 50 or older.

For 2025, the employee contribution limit is $23,500, while those aged 50+ can make an extra catch-up contribution of up to $7,500. For 2026, the employee contribution limit is $24,500, while those aged 50+ can make an extra catch-up contribution of up to $8,000. In both 2025 and 2026, those aged 60 to 63 can make a catch-up contribution of up to $11,250 (instead of $7,500 and $8,000, respectively), thanks to a SECURE 2.0 provision.

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.

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

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 (2025 & 2026) For 2025, lesser of 25% of employee’s pay or $70,000

For 2026, lesser of 25% of employee’s pay or $72,000

 For 2025, $23,500, with catch-up contribution of $7,500 for employees 50 or older, and $11,250 SECURE 2.0 catch-up for those 60 to 63

For 2026, $24,500, with catch-up contribution of $8,000 for employees 50 or older, and $11,250 SECURE 2.0 catch-up for those 60 to 63
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 can be 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 potentially have to grow.

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.

Easily manage your retirement savings with a SoFi IRA.

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

FAQ

What is a pension money purchase plan?

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. However, if you leave your job, you can roll over the amount of money for which you are fully vested into an IRA or a new employer’s 401(k).

Is a 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

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

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

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

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

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

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

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