Dec
12
2025
Opening a Savings Account For a Baby

Opening a Savings Account for a Newborn Baby: What You Need to Know First

By | Budgeting & Goals, Family Finances, money | Comments Off on Opening a Savings Account for a Newborn Baby: What You Need to Know First

When a new baby arrives, there’s much to celebrate and so many milestones ahead. It’s not uncommon to want to help secure a child’s future by opening a savings account. That can start Junior off with a little nest egg and hopefully, in time, some good financial habits.

If you’re thinking you might like to open one of these accounts, read on to learn more.

Key Points

•   Opening a savings account for a newborn can secure their future and instill good financial habits.

•   Compounding interest over time significantly increases the initial savings placed in these accounts.

•   Such accounts typically feature low initial deposits, minimal balance requirements, and nominal fees.

•   Essential documents for opening an account include the baby’s birth certificate and Social Security number.

•   Alternatives like 529 College Savings Accounts or custodial accounts offer different benefits for long-term financial planning.

•   At this time, SoFi only allows members 18 years old or above to open a savings account.

🛈 Currently, SoFi does not offer custodial bank accounts and requires members to be 18 years old and above.

Why Open a Savings Account for a Baby?

There are actually some very good reasons to consider opening a bank account for a baby and start saving. You might be wondering why someone would open this kind of account for a newborn. After all, they don’t have any bills or expenses to pay so what would they need to have money in the bank for? Consider how opening an account and saving for a baby can have real benefits:

•   Time is on your side. Compounding interest can help you grow your baby’s savings account over time. The younger your child is when you start saving, the longer that money has to earn compound interest.

•   Plan for specific goals. Opening a savings account for a baby can make it easier to fund long-term goals. For example, you might want to set aside money to help them buy their first car or pay for college when the time comes.

•   Tax advantages. Savings accounts may not be earning a lot of interest right now. Still, the fact that babies usually don’t typically earn enough dough to pay taxes is a bonus.

•   Increase financial literacy. Teaching kids about saving from an early age can help them get into the habit. By opening a savings account for them when they’re young, you can help them learn the money skills they’ll need as adults.

Kids’ savings accounts can also be appealing because they tend to have low initial deposit requirements, low minimum-balance requirements, and low fees. So you don’t need a lot of money to start saving on behalf of your newborn — and you may not have to worry about paying a lot of fees to maintain the account as they grow.

How to Open a Savings Account for a Baby

Opening a bank account for a baby isn’t a complicated process. To open a savings account for a newborn, you’ll need the following:

•   Information about yourself

•   Information about your baby

•   Required documentation

•   Minimum initial deposit and funding details.

You should be able to open a savings account for a baby either at an online bank or a traditional bank or credit union. You’ll need to fill out the savings account application and provide the deposit via check, money order, cash or ACH transfer if you’re opening an account with an online bank. The minimum deposit may be as little as $1 or even $0, though some banks may require a larger deposit ($25 and up) to open a baby savings account.

Keep in mind that some banks may require you to have an account of your own before you can open a savings account for a child. That could influence where you decide to set up a savings account for a newborn.

Also look into any account maintenance fees that may be assessed monthly. You don’t want fees eating up the principal and interest in the account. Let’s look at this a little more closely next.

Can You Withdraw Money from Your Baby’s Savings Account?

Because a child cannot legally open or hold a bank account, an adult is a required presence. The parent or custodian who opens the account holds it jointly with the child and can indeed withdraw funds. It’s similar to a joint account that couples may have. However, there may be limits regarding whether your child can make withdrawals as they age and for how much.

If you were to open what’s called a custodial account (which becomes property of the child at adulthood; more on these accounts below), you may withdraw funds, but the intention is that they only be used for the kid’s benefit.

Types of Savings Account for Newborns

The best savings accounts for newborns are ones that allow you to save regularly, earn interest, and avoid high fees. You might look to your current bank first to open a savings account for the baby. Consider what type of features or benefits are offered. If you have to pay a monthly service fee, for example, you may be better off considering a savings account for a newborn at an online bank instead.

Online banks can offer the dual advantages of higher annual percentage yields, or APYs, on savings and lower fees. You won’t have branch banking access but that may not be important if you prefer to deposit money via mobile deposit or ACH transfer anyway. And once your child gets a little bigger, you can introduce them to the world of mobile banking and how to manage it on their own.

Also, consider how well a newborn savings account can grow with your kid’s needs. Some questions you might ask: Can you switch the account to a teen savings account or teen checking account down the line? Could you add a prepaid debit card for teens into the mix at some point? Asking these kinds of questions can help you pinpoint the best savings account for a newborn, based on your child’s needs now and in the future.

For some people, it can be a benefit to know that the bank has figured out ways to help accounts grow with their youngest customers and coach them along their journey to financial literacy.

Requirements for Opening a Savings Account for a Baby

The requirements for opening a bank account for a newborn are a little different from opening a bank account for yourself. That’s because the bank needs to be able to verify your identity as well as the baby’s.

Generally, the list of things you’ll be required to provide to open a savings account for baby include:

•   Your name and your baby’s name

•   Dates of birth for yourself and the baby

•   A copy of your government-issued photo ID

•   The baby’s birth certificate

•   Your address, phone number, email address, and Social Security number.

The bank may ask for the baby’s Social Security number though it’s possible you may not have this yet at the newborn stage. And if you don’t have a Social Security number of your own, you may have to provide a substitute federal ID.

Alternatives to Newborn Savings Accounts

A savings account at a bank or credit union isn’t the only way to set aside money for a newborn. While these accounts can earn interest, there are other types of savings you might use to fund different goals for your child. Here are some of the other options you might consider when saving money for a baby.

529 College Savings Accounts

Many parents — even brand-new ones! — wonder how to start saving for college. A 529 college savings account is a type of tax-advantaged plan that’s designed to help you save for education expenses. These accounts can be opened by the parent but anyone can make contributions, including grandparents, aunts and uncles, or family friends.

Nearly all states offer at least one 529 plan, and you can open any state’s plan, regardless of which state you live in. Contributions are subject to annual gift tax exclusion limits, which are $19,000 for individuals and $38,000 for married couples in 2025 and 2026.

With a 529 plan, you’re investing money rather than saving it. You can invest the money you contribute in a variety of mutual funds, including index funds and target-date funds. This money grows tax-deferred, and withdrawals are tax-free when used for qualified education expenses, such as tuition and fees, books and room and board.

Coverdell Education Savings Accounts

There are other ways to save for a child’s college tuition. A Coverdell Education Savings Account (ESA) is a type of custodial account that can be set up to save for education expenses. This account grows tax-deferred just like a 529 plan and qualified withdrawals are tax-free. But there are some key differences:

•   Annual contributions are capped at $2,000 and are not tax-deductible

•   Contributions must end once the child reaches age 18 (an exception is made for special-needs beneficiaries)

•   All funds must be distributed by the time the child reaches age 30.

If you leave money in a Coverdell ESA past the child’s 30th birthday, the IRS can impose a tax penalty. Any withdrawals of ESA funds that aren’t used for qualified education expenses are subject to income tax.

Custodial Accounts

Custodial accounts are savings accounts that allow minors to hold assets other than savings, such as stocks or other securities. You can set up a custodial account with a brokerage on behalf of your child. As the custodian, you maintain ownership of the account and its assets until your child reaches the age of majority, typically either 18 or 21. At that point, all the money in the account becomes theirs.

Opening a custodial account could make sense if you want to make irrevocable financial gifts to your kids. This could be one of the best strategies for building an investment plan for your child. The biggest drawback, however, is that once they turn 18 (or 21) you no longer have control over the account or how the money inside of it is used. For some parents, relinquishing that control can be hard, but remember: There’s lots of financial literacy that can be gained between your child’s birth and officially entering adulthood.

FAQ

Can I start a savings account for my baby?

Yes, opening a savings account for a baby is something you can do even if they’re still a newborn. Traditional banks, credit unions, and online banks can offer savings account options for babies and kids. You can also explore savings account alternatives, such as 529 college savings plans or custodial accounts.

What type of savings account should I open for my newborn?

The type of savings account you open for a baby can depend on your financial goals. If you just want to get them started saving early, a basic savings account might work best. On the other hand, you might consider creating an investment plan for your child that includes a 529 savings account if you’re interested in putting aside money for future college expenses.

What are the typical requirements for opening a bank account for a newborn baby?

You’ll likely need to provide your name, address, and phone number, plus your email address, Social Security number, and government-issued photo ID. You’ll probably be asked for the baby’s birth certificate and an opening deposit as well, which may be as little as $1 or even zero.

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/michellegibson

Annual percentage yield (APY) is variable and subject to change at any time. Rates are current as of 11/12/25. There is no minimum balance requirement. Fees may reduce earnings. Additional rates and information can be found at https://www.sofi.com/legal/banking-rate-sheet

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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.

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.

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Dec
12
2025

Women and Retirement: Insight Into the Gender Divide

By | invest, Life & Career | Comments Off on Women and Retirement: Insight Into the Gender Divide

Retirement is supposed to be a time for enjoying life after decades of work. Yet many women are in a financially precarious situation when it comes to the so-called “golden years.” In a 2023 SoFi survey, 57% of women said they aren’t saving for retirement. Similarly, 50% have no personal retirement savings according to a 2022 Census Bureau Report.

Given that women now outlive men by approximately six years, according to a recent study in JAMA, they need to save for an even longer retirement than their male counterparts. That makes the fact that they have fewer funds earmarked for retirement even more troubling.

Why aren’t women saving for the future? And how can they start financially preparing for retirement? Read on to learn about the retirement gender divide, why it exists, and some possible solutions for overcoming it.

A Look at Retirement Trends for Women and Men

There has long been a disparity in retirement savings for men and women. According to the U.S. Department of Labor, as women get older, their chances of living in poverty increase, a trend that has persisted for at least 50 years, when such data collection started.

Consider the current retirement savings divide between women and men today, as reported by respondents to the SoFi 2023 Ambitions Survey:

Retirement Savings for Women and Men in US

According to the survey of Americans ages 18 to 75, men have a median retirement savings that’s about $40,000 to $60,000 higher than women’s savings. In addition, 11% more women than men aren’t saving for retirement, and likewise 11% more women don’t know how much is in their retirement savings. In fact, 33% of women have less than $5,000 in retirement savings, the survey found.

Men

 Women
Median Retirement Savings $70,001-$80,000 $20,001-$30,000
% Not Saving for Retirement 46% 57%
% Who Don’t Know What Their Retirement Savings Is 45% 56%
*Source: SoFi Ambition Survey, 2023

This savings disparity typically begins early in adult life and accumulates over time. Employment, marriage, and motherhood all play a role.

How Marriage and Children Impact Retirement

Women aged 55 to 66 who have been married once tend to have more retirement savings than women who have never been married, or those who have been married two or more times. According to a recent income survey from the U.S. Census Bureau, close to 37% of women married once have no retirement savings, compared to 41% of women married two or more times and 55% who never married.

Women, Marriage and Retirement Savings*
Women Married Once

 Women Married Two or More Times Women Who Never Married
36.7% have no retirement savings 40.9% have no retirement savings 54.5% have no retirement savings
11.8% have $1 to $24,999 11.8% have $1 to $24,999 11.7% have $1 to $24,999
14.9% have $25,000 to $99,999 13.6% have $25,000 to $99,999 13.6% have $25,000 to $99,999
36.6% have $100,000 or more 33.7% have $100,000 or more 20.2% have $100,000 or more
*Source: U.S. Census Bureau, Survey of Income and Program Participation

In a divorce, some couples may be required to split their retirement savings or one may need to transfer some of their retirement funds to the other, which could be one of the reasons why the percentage of those without retirement savings is lower among women married two or more times than those who never married.

Motherhood and Money

When women have children, they often take time off from the workforce and/or may work part-time, which can have an impact on their earnings. According to an analysis by the Pew Research Center, among people 35 to 44, 94% of fathers are active in the workforce while 75% of mothers are.

Motherhood is also a time when the wage gap comes into play. In 2022, mothers 25 to 34 earned 85% of what fathers the same age did, while women without children at home earned 97% of what fathers earned, the Pew analysis found. The less money women make, the less they have to save for retirement.

Earnings for Mothers 25-34

 85% of what fathers earned
Earnings for Women 25-34 Without Children at Home 97% of what fathers earned
*Source: Pew Research Center, 2023

Earning less also affects the Social Security benefits women get in retirement. While men got $1,838 a month on average in Social Security in 2022, women received on average $1,484, according to the Social Security Administration.

Retirement Is a Top Priority for Women and a Bigger Concern

While saving for retirement is the top goal for women, they are also focused on, and perhaps feeling stress about, paying off credit card and student loan debt, according to the SoFi Ambitions Survey.

Overall, women tend to perceive financial goals and success quite differently than men do. Two-thirds of female survey respondents said their marker of success is being able to feed their families. By comparison, one-third of men said their marker of success is being seen as successful, while another one-third say it’s reaching a certain income bracket.

That divergence may help explain why men are far more likely than women to consider investing a top financial goal, which could help them build retirement savings. For women, investing is at the bottom of the list of their financial priorities, perhaps out of necessity.

Women’s Financial Goals vs. Men’s Financial Goals
Women’s Financial Goals

 Men’s Financial Goals
Saving for retirement: 45%
Paying down credit card debt: 41%
Paying down student loans: 39%
Continue Investing: 33% 		Continue Investing: 52%
Saving for retirement: 49%
Paying down credit card debt: 33%
Paying down student loans: 27%
*Source: SoFi Ambition Survey, 2023

Retirement is women’s number-one goal and it’s also one of their greatest worries. One in five female respondents to SoFi’s survey said they may not be able to retire.

Those Who Worry They Won’t Be Able to Retire
Women

 Men
20% 15%
*Source: SoFi Ambition Survey, 2023

That means women are 33% more likely than men to believe that retirement may not happen for them.

Even if they can retire, there is no guarantee women’s savings will cover their expenses. In fact, women are approximately 10% more likely than men to say they are concerned about outliving their assets and having enough savings, according to a report from McKinsey Insights.

Recommended: When Can I Retire?

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Why Are Women Facing a Retirement Gap?

In addition to the financial impact of marriage, motherhood, and lower earnings, women also experience some additional barriers to retirement saving.

For instance, a report from the Global Financial Literacy Excellence Center found that women tend to score lower in financial literacy than men do. And women with lower financial literacy are less likely to save and plan for retirement, according to the research.

Women also lack confidence when it comes to investing. Only 33% see themselves as investors, according to a 2022 SoFi Women and Investing Insights analysis, and 71% of their assets are in cash, rather than in investments or a retirement account, where their funds might have the potential to grow.

Minding and Mending the Gap

So how can women and society at large move forward and start closing the retirement gap?

The first step is for everyone, across all genders and ages, to build confidence in their financial skills by learning about money, saving, and investing. Knowledge helps create strength and belief in oneself, and it’s never too early or too late to start learning.

There are numerous good resources on retirement planning, to help individuals determine how much they may need to save for retirement and strategies that could help them get there. They can also sign up for financial classes and courses, and they might even want to consult a financial advisor.

At work, employees can participate in their employer’s 401(k) plan or any other retirement savings plan offered. Because money is automatically deducted from their paychecks and placed in their 401(k) account, saving may be easier to accomplish.

How to Start Saving for Retirement

No matter what your age, the time to kick off your retirement savings is now. Here’s how to begin.

Figure out your retirement budget.

To determine the amount you’ll need for retirement, think about what you want your life after work to look like. Do you want to move to a smaller, less expensive home? Do you hope to travel as much as possible? Having a clear picture of your goals can help you calculate how much you might need.

You can also consider the 4% rule, which suggests withdrawing 4% of your retirement savings each year of retirement so that you don’t outlive your savings. That could give you a ballpark to aim for.

Cut back on current expenses.

Take an honest look at what you’re spending right now on everything from rent or your mortgage to car payments, groceries, clothing, and entertainment. Find things to cut or trim — for example, do you really need three streaming services? — and put that money into your retirement savings instead.

Some savvy belt tightening now could help give you a more financially secure future.

Contribute as much as you can to your 401(k).

If you can max out your 401(k), go for it. You’re allowed (per IRS rules) to contribute up to $23,500 in 2025 and up to $24,500 in 2026 if you’re under age 50. (Those 50 and up can contribute up to $31,000 in 2025 and up to $32,500 in 2026. And those ages 60 to 63 can contribute up to $34,750 in 2025 and up to $35,750 in 2026, thanks to SECURE 2.0.) If that much isn’t possible, contribute at least enough to get your employer’s matching contribution. That’s essentially “free money” that can help build your retirement savings.

Consider opening an IRA.

If you’ve contributed the max to your workplace retirement plan, opening an IRA online could help you save even more for retirement. In tax year 2025, you can contribute up to $7,000 in an IRA, or $8,000 if you’re 50 or older. In tax year 2026, you can contribute up to $7,500 in an IRA, or $8,600 if you’re 50 or older.

IRAs offer certain tax advantages that may help you save money as well by lowering your taxable income the year you contribute (traditional IRA), or allowing you to withdraw your money tax-free in retirement (Roth IRA).

Recommended: How to Open an IRA: A Beginner’s Guide

Diversify your portfolio.

Whatever type of retirement account you have, including a brokerage account, diversifying your portfolio — which means investing your money across a variety of different asset classes — may help mitigate (though not eliminate) risk, rather than concentrating your funds all in one area.

Just make sure that the way you allocate your assets matches your retirement goals and your risk tolerance.

The Takeaway

Women are far behind men when it comes to retirement savings, due to a number of factors, including earning lower wages, and motherhood, which can mean time away from work, costing them in lost earnings. There’s also an emotional component involved: Women are less confident about investing overall.

However, building financial strength, and educating themselves about retirement planning is a good way for women to start saving for their future. Cutting expenses and directing that money into savings instead, participating in their workplace retirement plan, and opening an IRA or investment account are some of the ways women can take charge of their finances and help position themselves for a happy and secure retirement.

Ready to invest in your goals? It’s easy to get started when you open an investment account with SoFi Invest. You can invest in stocks, exchange-traded funds (ETFs), mutual funds, alternative funds, and more. SoFi doesn’t charge commissions, but other fees apply (full fee disclosure here).


Invest with as little as $5 with a SoFi Active Investing account.

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.

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

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.

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Dec
12
2025

Investing for Retirement: Popular Options to Consider

By | invest, Investing, Preparing for Retirement | Comments Off on Investing for Retirement: Popular Options to Consider

Saving steadily for retirement is important, but how you invest that money also matters. These days, you can choose from DIY investing options like a portfolio of stocks and bonds or other securities you select yourself. You can invest in mutual funds or exchange-traded funds (ETFs). There are also types of pre-set retirement funds and automated platforms like robo advisors that use technology to help manage a portfolio.

It’s wise to understand how the different strategies work to help decide which ones are best suited to your financial goals and personality. Below, you’ll learn about some popular retirement investment options.

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

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

money management guide for beginners

Key Points

•   Opening a retirement savings earlier than later allows for the possibility of compounding returns and recovery from market volatility.

•   In general, younger investors might choose more aggressive high-risk, potentially high-reward investments like stocks, while those nearing retirement are likely to opt for more conservative options.

•   Investment options include DIY investing, in which the investor is in control of their portfolio; index funds that track a specific market index; automated investments; and working with a financial advisor.

•   Employer-sponsored plans like 401(k)s and IRAs provide savings automatically deducted from paychecks, certain tax benefits, and potential employer matches.

•   Regularly reviewing your portfolio and rebalancing when necessary may help manage risk and align with retirement goals.

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 grow is essential. For many people, retirement might last 20 or 30 years — or even longer. A solid long-term investment strategy can help you build the amount you need for the years where you’re no longer in the workforce.

Benefits of Starting Retirement Investing Early

The earlier you start saving for retirement, the more time your money has to grow. One reason for this is the potential for compounding returns. Compounding means that if your money sees a return from investments, and that profit is reinvested, you’re earning money not only on your original investment, but also on your returns. In other words, over time, both your savings and your earnings could see gains.

In addition, the longer your time horizon, the more time you may have to recover from market volatility. If you have a time horizon of 30 or 40 years before you retire, you might be able to afford to weather some short-term losses, knowing that your investment returns could balance themselves out over time.

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Double down on your retirement goals with a 1% match on every dollar you roll over and contribute to a SoFi IRA.1

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Understanding Retirement Accounts

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

For instance, you may have a workplace retirement account like a 401(k) or 403(b). In addition, you might decide to set up an Individual Retirement Account (IRA), like a traditional IRA or a Roth IRA that you manage yourself, to save even more for retirement.

Choosing Between Roth and Traditional IRAs

There are many types of IRAs, but two of the main options to choose from are a traditional and Roth IRA. Both can be helpful for saving for retirement, and you can contribute the same amount to each — up to $7,000 annually in 2025, with a catch-up contribution of $1,000 a year if you are age 50 or older, and up to $7,500 annually in 2026, with a catch-up contribution of $1,100 a year if you are 50 or older.

However, there are some key differences between a Roth and traditional IRA, especially when it comes to taxes. With a traditional IRA you contribute pre-tax dollars, and you get an upfront deduction on your taxes. But you’ll pay taxes on the money when you withdraw it in retirement.

A Roth IRA allows you to contribute after-tax dollars. In other words, you pay the taxes on the money upfront, and you’ll withdraw your savings tax-free in retirement.

Another difference between the two types of IRAs: With a traditional IRA you will need to take required minimum distributions (RMDs) starting at age 73 (assuming you turned 72 after December 31, 2022). A Roth IRA does not have RMDs.

If you’d like to open an IRA, think about which type makes the most sense for you. If you expect to be in a lower tax bracket in retirement, a traditional IRA might be a good choice. But if you think you’ll be in a higher tax bracket, a Roth IRA may be a better option.

Understanding Employer-Sponsored Accounts

Retirement accounts such as 401(k)s, 403(b)s, and 457 plans are examples of employer-sponsored plans.

401(k)s are one of the most common types of employer-sponsored plans. An employee signs up for the plan at work and their contributions are automatically deducted from their paychecks. Employees choose how to invest their 401(k) funds, and employers may match the employees’ contribution up to a certain amount, depending on the plan.

Your employer may offer a Roth 401(k) in addition to a traditional 401(k). With a traditional 401(k), contributions are taken from your paycheck before taxes, lowering your taxable income for the year, and you pay taxes on your withdrawals in retirement. With a Roth 401(k), contributions are taken after taxes, and your withdrawals in retirement are tax-free.

Other employer-sponsored plans like 403(b)s are for those who work in education, health-care, and other tax-exempt organizations, and the way they work is similar to a 401(k). Another type of employer sponsored plan, a 457 plan, is offered to some government employees and those who work for certain tax-exempt organizations.

All of these employer-sponsored plans have the same annual employee contribution limits: up to $23,500 in 2025 and $24,500 in 2026 for those under age 50. For 2025, individuals age 50 and up can contribute an additional $7,500 in catch-up contributions, and in 2026, they can contribute an additional catch-up contribution of $8,000. (In both 2025 and 2026, those ages 60 to 63 can contribute up to an additional $11,250 instead of $7,500 in 2025 and $8,000 in 2026, thanks to SECURE 2.0.)

Total contributions limits (including employer contributions) are $70,000 in 2025, and $77,500 for the standard catch-up, and $81,250 with the SECURE 2.0 catch-up. In 2026, the total contribution limit is $72,000, and $80,000 with the standard catch-up, and $83,250 with the SECURE 2.0 catch-up.

Investment Options

While investing for retirement can seem overwhelming, it doesn’t have to be. There are various retirement strategies suited to different personality types and risk-tolerance levels, as well as a number of investment options, so you can choose methods and plans that are the best fit for you.

Here are a few options for retirement investing to consider:

DIY Investing

For investors who feel confident in managing their own retirement portfolio, taking a DIY approach may be an option.

You can open an investment account and 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 strategy isn’t for everyone. It’s time and energy intensive, and it requires a certain amount of expertise. For instance, anyone interested in something like IPO investing, which can be risky and speculative, according to the Securities and Exchange Commission (SEC), should be a very experienced investor.

In addition, if you go the DIY 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 portfolio diversification, as this may, over time, help mitigate unsystematic risk, which is the type of risk unique to a particular company or industry (something that’s due to the management of a specific company, say). But remember, risk is inherent in all investing.

Index Funds

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, such as smaller companies, technology companies, sustainable or green companies, various types of bonds, and more. Most are index funds.

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.

Mutual Funds

Mutual funds are a type of pooled investment. Mutual funds may include stocks, bonds, commodities, and other securities that are in what you might think of as a basket. An investor buys shares or fractional shares of a mutual fund, which gives them exposure to a variety of different companies or assets and may help with portfolio diversification. Unlike stocks and ETFs, mutual funds trade just once a day, at the end of the day.

Mutual funds were designed to get people started with investing. Buying even just a few shares of a mutual fund invests an individual in all the individual securities the fund holds.

Mutual funds may be actively or passively managed. Passively managed funds track an index, while actively managed funds attempt to beat the performance of an index with careful investment selection. Actively managed funds typically cost more than passively managed funds, so you’ll want to watch for transaction and operating fees.

Automated Options

In the world of investing there 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 a 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, for instance. 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 automated investing, 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 (years to retirement or another financial goal), their risk level, and so forth.

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

While automated options do offer the convenience of managing a portfolio on your behalf, they also have some drawbacks. The cost can be higher than other types of investment options. And there is limited flexibility. Investors typically have less control to adjust the securities in these funds.

Hire an Advisor

If you don’t feel 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, and 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 (meaning a contribution for tax year 2025 can typically be deducted on your 2025 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 qualified 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 take RMDs from a traditional IRA or 401(k) every year. That doesn’t apply to Roth accounts.

•   Taxable Investment Accounts

If you invest for retirement in a non-retirement or taxable account, such as a brokerage account, you’ll owe income taxes on your gains whenever you sell those securities, which will affect your portfolio’s overall performance.

Setting a Retirement Goal

Setting a retirement goal can help you establish a road map for your future and get you to the place you want to be financially and personally.

To get started, decide at what age you’d like to retire. Next, determine what you’d like to do in retirement. Travel? Visit family frequently? Move to a new city? Think about what suits you best. Then figure out how much money you’ll need for a comfortable retirement based on what you want to do in your after-work years, the costs associated with the goal, and your life expectancy.

Setting goals can motivate you to take action and step up your retirement savings. Revisit your goals periodically to make you’re on track to reach them.

Rebalancing Your Portfolio Over Time

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.

How Often Should I Adjust My Investments?

Investors who are managing their investments themselves can rebalance when they like, based on their personal preferences. Some choose to do it at certain points, such as quarterly or annually. Others do it when their target asset allocation changes.

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 typically rebalance your portfolio to keep it in line with your target percentages. Check in periodically and review what’s going on to make sure everything is on track.

Signs It’s Time to Rebalance Your Portfolio

There is no one answer for when to rebalance your portfolio —it is up to each investor and what they are comfortable with. However, there are certain situations that indicate it might be time to consider a portfolio rebalance. These typically include:

•   Major life changes that affect your financial goals or risk tolerance. For instance, perhaps you lost your job or got divorced. Or on a happier note, maybe you inherited some money or had a baby.

•   Market volatility has caused your asset allocations to stray from your target goals.

•   You’re concerned your portfolio isn’t diversified enough.

Strategies for Adjusting Investments with Age

The mix of assets in your portfolio will likely shift with age. When you’re younger and you have a longer time horizon until retirement, you may want to have more assets that are considered riskier with more potential for growth, like stocks, because you have more time to ride out any market volatility.

As you get older and closer to retirement, however, you will likely want to shift your allocation to have fewer riskier assets and more assets considered less risky, such as bonds, to help protect your money from any drops in the market.

Each investor’s financial situation is different, so individuals’ asset allocation will vary. Every investor needs to determine the best allocation for their age and circumstances.

The Takeaway

Investing for retirement is important as part of an overall financial plan. And with some research, picking the right investment options doesn’t have to be overwhelming.

You can learn about different types of retirement plans, including employer-sponsored plans and IRAs, and investment options. Then, you can weigh the pros and cons and pick those that suit your financial situation, risk tolerance, and goals. Make sure you are aware of any fees involved, along with tax implications.

If you don’t feel comfortable managing your own portfolio, you might want to consider such alternatives as working with an advisor or using an automated portfolio. Whatever you do, start saving as soon as you can so that you’ll have more time to work toward your retirement goals.

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

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 may be one reason it’s even more important to invest for retirement as soon as you can. Especially if you are younger and have a long time before retirement, even a small amount can potentially grow to be a sizable nest egg when investment 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 type of higher-risk, potentially higher-rewards strategy can possibly lead to higher overall returns while you have a long time to weather the ups and downs of the market. Then, as you get closer to retirement, you’ll likely want 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, and Treasury bills. As you get closer to retirement, it likely makes sense to choose more conservative investments. You may give up some possible returns, but you may also be better insulated against large losses.

How much should I save monthly to reach my retirement goal?

How much you should save monthly to reach your retirement goal depends on what your goal is, your time frame for reaching it, and your financial situation. One guideline is to put 15% to 20% of your income toward your retirement, and aim for specific targets based on your age, such as having 1 times your salary saved by age 30, 3 times your salary by age 40, and 10 times your salary saved by the time you are 67. Those are just rough guidelines, but they can give you a point of reference.

Is it safe to rely on Social Security for retirement?

Typically, Social Security doesn’t provide enough of a retirement income for most people. For instance, in 2023, retirees received about $1,900 per month, on average. That’s why it’s a good idea to start saving for retirement as early as possible, through an employer-sponsored retirement plan or an IRA, or both, and not rely on Social Security as the main source of your retirement income.

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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.

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

Exchange Traded Funds (ETFs): Investors should carefully consider the information contained in the prospectus, which contains the Fund’s investment objectives, risks, charges, expenses, and other relevant information. You may obtain a prospectus from the Fund company’s website or by emailing customer service at [email protected]. Please read the prospectus carefully prior to investing.

Investing in an Initial Public Offering (IPO) involves substantial risk, including the risk of loss. Further, there are a variety of risk factors to consider when investing in an IPO, including but not limited to, unproven management, significant debt, and lack of operating history. For a comprehensive discussion of these risks please refer to SoFi Securities’ IPO Risk Disclosure Statement. This should not be considered a recommendation to participate in IPOs and investors should carefully read the offering prospectus to determine whether an offering is consistent with their investment objectives, risk tolerance, and financial situation. New offerings generally have high demand and there are a limited number of shares available for distribution to participants. Many customers may not be allocated shares and share allocations may be significantly smaller than the shares requested in the customer’s initial offer (Indication of Interest). For more information on the allocation process please visit IPO Allocation Procedures.

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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Guide to Rolling Over a 403(b) Into an IRA

By | invest, Investing, Preparing for Retirement | Comments Off on Guide to Rolling Over a 403(b) Into an IRA

If you have a 403(b) plan at work and you leave your employer, you could roll over some or all of your savings into an IRA. Rolling a 403(b) over to an IRA simply means moving money from one retirement account to another.

You might consider a 403(b) rollover if you’d like to gain access to a wider range of investment options. Understanding how the process works can help you decide if rollover 403(b) makes sense.

Key Points

•   A 403(b) is a retirement plan for employees of public schools, religious organizations, and certain non-profits.

•   Rolling over a 403(b) to an IRA can offer more investment options and potentially lower fees.

•   There are various types of IRAs, including traditional, Roth, SIMPLE, and SEP IRAs, each with different tax implications.

•   Consider tax implications, fees, and investment options before rolling over a 403(b) to an IRA.

•   Rolling over a 403(b) to a Roth IRA requires paying income tax on the rollover amount, but allows for tax-free withdrawals in retirement.

What Is a 403(b)?

If you don’t know what a 403(b) plan is, it’s a retirement plan that’s offered to employees of public schools, religious organizations, and certain other 501(c)(3) tax-exempt organizations.

A 403(b) plan may also be called a tax-sheltered annuity or TSA, because in some instances the organization’s 403(b) plan may include an annuity option; in other cases the plan can be structured more like an investment account, similar to a 401(k).

Like a 401(k), these plans allow you to defer (i.e., contribute) part of your salary each year to the 403(b) plan, and pay no tax on the money until you begin taking distributions.

In many cases you can choose to make your 403(b) a Roth-designated account, in which case you’d make contributions using after-tax dollars and withdraw them tax-free in retirement, similar to a Roth IRA.

How a 403(b) Works

Eligible employers can establish a 403(b) plan on behalf of their employees. IRS rules define eligible employers as:

•   Public schools, including public colleges and universities

•   Churches

•   Charitable entities that are tax-exempt under Section 501(c)(3)

Elementary school teachers, college professors, and ministers are all examples of employees who may be eligible to contribute to a 403(b) plan. Contributions reduce taxable income in the year they’re made, and are taxed as ordinary income when withdrawn.

The maximum contribution limit is $23,500 for 2025. Employees age 50 or older can make catch-up contributions of up to $7,500 per year, for a total of $31,000, and those aged 60 to 63 can contribute up to $11,250 instead of $7,500, for a total of $34,750, thanks to SECURE 2.0.

The maximum contribution limit is $24,500 for 2026. Employees age 50 or older can make catch-up contributions of up to $8,000 per year, for a total of $32,500, and those aged 60 to 63 can contribute up to $11,250 instead of $8,000, for a total of $35,750.

There are special catch-up rules for workers who have at least 15 years of service, who may be eligible to contribute an additional $3,000 per year if they meet certain criteria.

Combined contributions from the employee and the employer — employers can also make matching contributions — may not exceed the lesser of 100% of the employee’s most recent yearly compensation or $70,000 in 2025, or $72,000 in 2026.

Like most other types of employer-sponsored retirement plans, 403(b) accounts are subject to required minimum distribution rules (RMDs), which require plan participants to start withdrawing a certain sum of money each year when they reach a certain age.

Per IRS.gov: “You generally must start taking withdrawals from your traditional IRA, SEP IRA, SIMPLE IRA, and retirement plan accounts when you reach age 72 (73 if you reach age 72 after Dec. 31, 2022).” This may factor into your decision about whether to do a rollover to an IRA.

Get a 1% IRA match on rollovers and contributions.

Double down on your retirement goals with a 1% match on every dollar you roll over and contribute to a SoFi IRA.1

1Terms and conditions apply. Roll over a minimum of $20K to receive the 1% match offer. Matches on contributions are made up to the annual limits.

What Is an IRA?

An individual retirement account, also referred to as an IRA, is a tax-advantaged savings account that you can open independently of your employer.

You can open an IRA online through a brokerage and make contributions up to the annual limit. Whether you pay tax on distributions from your IRA depends on which type of account you open.

Types of IRAs

It’s important to know how an IRA works, since the options are quite different, especially when it comes to making a 403(b) rollover:

•   Traditional IRAs. Traditional IRAs allow for tax-deductible contributions, and qualified distributions are subject to ordinary income tax. Whether you’re eligible to claim IRA tax deductions, and how much, is determined by your income, filing status, and whether you’re covered by an employer’s retirement plan at work.

A rollover from a 403(b) account to a traditional IRA is an apples-to-apples transfer in terms of tax treatment, as both are tax-deferred accounts. Traditional IRAs also fall under RMD rules.

•   Roth IRA. It’s important to understand the distinctions between a Roth IRA vs a 403(b). Roth IRAs do not offer tax-deductible contributions, but they do allow you to take qualified distributions tax-free in retirement. Also, you’re not required to take RMDs from a Roth IRA, unless it’s inherited.

A rollover to a Roth IRA from a 403(b) is essentially a Roth conversion (see below), and would require you to pay income tax on the rollover amount. That said, you might be able to avoid the income limits for traditional Roth accounts. As this option is more complicated, you may want to consult a tax professional.

Note: While IRA contributions for traditional and Roth accounts are capped at $7,000 in 2025, with an additional catch-up contribution limit of $1,000 for those 50 and up, and $8,000 in 2026, with a catch-up contribution of $1,100 for those 50 and older, those limits don’t apply to rollovers of higher balances from other retirement accounts.

•   SIMPLE IRA. SIMPLE IRAs are designed for small business owners and their employees. These plans allow employees to defer part of their salary while requiring employers to make a contribution each year.

SIMPLE IRAs generally follow traditional IRA tax rules, and a rollover from a 403(b) would not trigger a tax event in most cases, when using a direct rollover method (see below for details).

•   SEP IRA. A SEP IRA is another retirement savings option for business owners and individuals who are self-employed. SEP IRAs offer higher annual contribution limits than SIMPLE IRAs, though they also follow traditional IRA tax rules, and the same rollover terms generally apply.

Unlike many employer-sponsored plans, ordinary traditional and Roth IRAs don’t offer employer matching contributions. Withdrawing money early from an IRA could trigger a 10% early withdrawal penalty, with some exceptions. Traditional IRAs are subject to required minimum distributions (RMDs) beginning at age 72, or 73 if you turn 72 after Dec. 31, 2022.

Recommended: How to Open an IRA in 5 Steps

Can You Roll Over a 403(b) Into an IRA?

Yes, the IRS allows you to roll a 403(b) over to an IRA. That includes rollovers to a traditional IRA, SIMPLE IRA, or a SEP IRA. You may be able to do a rollover to a Roth IRA, with possible tax implications.

You can also roll over a 403(b) into another 403(b), a 457(b) account — which is for state and local government employees, and some non-profits. If you have a 403(b) with a designated Roth feature, you can do a rollover to a Roth IRA without tax implications.

There are, however, a few things to consider before rolling over a 403(b).

Investment Options

Some people may choose to roll a 403(b) to an IRA if the IRA custodian (i.e., the brokerage holding the account) has better investment options. In many cases an IRA can offer a wider range of investment options.

If you’re feeling limited by what your 403(b) offers, then it may be to your advantage to move your savings elsewhere. However, it’s important to look at not only the range of investments an IRA offers but the types of investment fees you’ll pay for them. Ideally, you’re able to find a rollover IRA that features a variety of low-cost investments.

Rollover Methods

There are different ways to rollover a 403(b) to an IRA, including:

•   Direct rollovers

•   Indirect rollovers

With a direct rollover, your plan administrator moves the money from your 403(b) to a tax-deferred IRA for you. All you may need to do is fill out some paperwork to tell the plan administrator where to transfer the money. No taxes are withheld for this type of transfer, as long as the account designations match, i.e. a tax-deferred 403(b) to a tax-deferred or traditional type of IRA; a Roth-designated 403(b) to a Roth IRA.

Indirect rollovers may allow you to receive a paper check, then deposit the money to an IRA yourself. The problem with that, however, is that if you fail to deposit the funds within 60 days of receiving them, the entire amount becomes a taxable distribution (meaning: you will owe income tax on that money, as if it were a straight withdrawal).

You may want to ask your plan administrator what options you have for rolling over a 403(b), and choose the method that’s easiest for you.

Withholding

If you decide to request an indirect rollover with a check made payable to you, your distribution is subject to a 20% mandatory withholding. The withholding is required even if you plan to deposit the money into an IRA within the 60-day window.

Should you choose the indirect rollover option, you’d need to keep in mind that you wouldn’t be receiving the full balance, unless you have the rollover check made out to the institution holding the receiving IRA.

Other Retirement Plans

Certain employees may be eligible to contribute to both a 403(b) and a 457(b). For example, public school teachers who are also classified as state employees may have access to both plans.

If you have a 403(b) and a 457(b) you’d need to decide if you want to rollover funds from both plans, or just one, when you leave work or retire. That might require you to take a closer look at how much money you have in each plan, how it’s invested, and the fees you’re paying before you make a decision.

Do You Pay Taxes When Rolling a Pension Into an IRA?

Whether you pay taxes when rolling a pension into an IRA depends on which type of IRA you’re moving the money into, and whether you’re completing a direct or indirect rollover. If you’re rolling over your 403(b) to a traditional IRA, then you’d pay no tax if you’re doing a direct rollover.

If you choose an indirect rollover, the 20% withholding applies.

Roth Rollovers

Rolling over a 403(b) to a Roth IRA would, however, trigger tax consequences if your plan was funded with pre-tax dollars. In that case, you’d have to pay income tax on those assets when you roll over the money to a Roth IRA, similar to doing a Roth conversion. When you make qualified distributions from the Roth IRA later, those would be tax-free.

If you’re rolling funds from a Roth-designated account to a Roth IRA that would be a tax-free rollover. Qualified withdrawals would also be tax-free, though taking money out prior to age 59 ½ could result in a 10% early withdrawal penalty.

Pros and Cons of Rolling a 403(b) Into an IRA

A 403(b) rollover to an IRA can offer some advantages but there are some potential drawbacks to consider, too.

Pros of a 403(b) Rollover

Rolling over a 403(b) to an IRA could benefit you if you’re looking for different investment options or you want to convert traditional retirement savings to a Roth account.

Roth IRAs can be attractive thanks to the ability to take qualified tax-free distributions. If your income is too high to make direct contributions to a Roth account, then rolling over 403(b) funds could offer a backdoor point of entry (sometimes called a backdoor Roth).

A 403(b) to IRA rollover may also be attractive if your current retirement plan charges high fees or you’re finding it difficult to diversify based on the current range of investments offered. You may also prefer rolling over a 403(b) to your IRA so that all of your retirement savings are held in one centralized account.

Cons of a 403(b) Rollover

One of the biggest cons of rolling over 403(b) funds has to do with taxes. If you choose an indirect rollover, 20% of your savings is automatically withheld. You also run the risk of having the rollover treated as a taxable distribution if you’re not able to deposit the money to your IRA within the 60-day window.

Aside from that, there are also the tax implications from rolling a traditional 403(b) into a Roth IRA. If you’re rolling over a large amount of money, that could lead to a much higher than usual tax bill.

Deciding Which Retirement Account Is Right for You

Choosing the right retirement account starts with understanding your needs and goals. One of the best features of 403(b) plans and other workplace plans is that you may be able to get additional savings in the form of employer-matching contributions. Those contributions could help you to build a larger nest egg.

The annual contribution limits for 403(b)s and similar plans are also much higher than what you’re allowed with an IRA.

On the other hand, IRAs can offer more investing options and some tax savings in retirement, if you rollover funds to a Roth account.

•   When deciding which retirement account to use, it can help to ask the following questions:

•   How much money do I need to save for retirement?

•   Do I expect to be in the same tax bracket at retirement, a higher one, or a lower one?

•   When do I think I’ll need to start taking distributions?

•   Am I comfortable taking required minimum distributions?

•   How much can I contribute to the plan each year?

Asking those kinds of questions can help you figure out which type of retirement plan may be best suited to your needs. And of course, you’ll also want to take a look at the investment options and fees for any retirement plan you might be considering.

The Takeaway

Whether you should roll over money from your existing 403(b) retirement account can depend on whether you’re still working, what kind of investment options you’re looking for, and how much you’re paying in fees.

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

Can a 403(b) plan be rolled over into an IRA?

Yes. It’s possible to roll a 403(b) plan into a traditional IRA, SIMPLE IRA, or SEP IRA. You can also rollover a 403(b) to a Roth IRA, but there may be tax implications. Before rolling over a 403(b), it’s important to consider the reasons for doing so, and how you’ll be able to invest your retirement funds should you decide to move them elsewhere.

Is a rollover from a 403(b) to an IRA taxable?

A rollover from a 403(b) to an IRA may incur a 20% tax withholding if you’re requesting an indirect rollover instead of a direct rollover. A rollover can be taxable if you’re rolling over funds from a traditional 403(b) to a Roth IRA. This would not apply if your 403(b) is a Roth-designated account and the rollover is to a Roth IRA.

Is it better to leave money in my 403(b) or roll it over to an IRA?

Whether it makes sense to leave money in your 403(b) or roll it over to an IRA can depend on how happy you are with the investments offered by your plan, what you’re paying in fees, and if you need access to any of the money right away. An IRA rollover could offer more investment options with fewer fees. You could also withdraw funds, though tax penalties may apply.

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/FreshSplash

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.

Disclaimer: The projections or other information regarding the likelihood of various investment outcomes are hypothetical in nature, do not reflect actual investment results, and are not guarantees of future results.

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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Guide to Rolling Over a Pension Into an IRA

By | invest, Investing, Preparing for Retirement | Comments Off on Guide to Rolling Over a Pension Into an IRA

If you have a defined-benefit pension plan, you could opt for a lump-sum distribution when you retire or roll the money over to an individual retirement account (IRA). Rolling pension benefits to an IRA is something you might consider if you don’t necessarily need the money right away for retirement and you want to maintain those funds on a tax-advantaged basis.

Rolling a pension into an IRA isn’t a complicated process, though it’s important to understand how it works to avoid triggering an unexpected tax bill.

Key Points

•   A traditional pension plan is offered and funded by employers, while an IRA is generally opened and funded by an individual.

•   Rolling a pension over to an IRA involves opening an IRA, requesting a rollover, and choosing investment options, with direct rollovers typically being the simplest method.

•   Rolling a pension into a Roth IRA may help individuals avoid required minimum distributions (RMDs).

•   Rolling over a pension into an IRA may allow for more investment control and flexibility, but it’s important to understand investment risks.

•   Understanding the implications of a rollover as well as tax differences between pensions and IRAs is crucial for making informed rollover decisions.

What Is a Pension Plan?

A pension plan is a type of benefit plan that employers can establish on behalf of their employees. Traditional pension plans are defined benefit plans that provide employees with retirement income based on their earnings, years of service, or a combination of the two. These plans are funded by the employer and may provide retiring employees with a lump-sum distribution or annuitized payments.

Defined benefit pension plans, along with defined contribution plans, are protected under the Employee Retirement Income Security Act (ERISA). Defined contribution plans are funded by employee contributions, with the option for employer matching. The most common example of a defined contribution plan is a 401(k).

What Is an IRA?

If you don’t know what an IRA is, it’s an Individual Retirement Arrangement, also referred to as an Individual Retirement Account. In simpler terms, an IRA is a tax-advantaged retirement savings account that is not offered through an employer. You can typically open an IRA at a brokerage or a bank and make contributions up to the annual limit.

Note, too, that IRAs are subject to required minimum distribution rules (RMDs), which means that owners must start making withdrawals from IRAs at age 73.

There are two main types of IRAs:

•   Traditional IRAs, which allow for tax-deductible contributions and tax-qualified withdrawals as ordinary income.

•   Roth IRAs, which do not offer a tax deduction for contributions but do allow for tax-free qualified distributions.

You must have taxable income to save in either type of plan. Your ability to contribute to a Roth IRA is determined by your tax filing status and adjusted gross income. There are also IRA tax deduction rules that determine how much of your traditional IRA contributions you can write off.

The maximum annual contribution for either type of IRA is $7,000 for 2025 and $7,500 for 2026. Both plans allow for catch-up contributions of up to $1,000 in 2025 if you’re age 50 or older, and $1,100 in 2026 if you’re 50 or older. Each type of IRA also allows you to roll funds into your account from another eligible retirement plan.

Get a 1% IRA match on rollovers and contributions.

Double down on your retirement goals with a 1% match on every dollar you roll over and contribute to a SoFi IRA.1

1Terms and conditions apply. Roll over a minimum of $20K to receive the 1% match offer. Matches on contributions are made up to the annual limits.

Can You Roll Over a Pension Into an IRA?

A rollover occurs when you withdraw funds from one eligible retirement plan and redeposit them to another eligible plan. The IRS allows you to roll funds from qualified plans, which includes defined benefit plans, into an IRA. Technically, if you have a pension plan that’s classified as a defined benefit plan, you could roll funds from it to any of the following:

•   Traditional IRA

•   Roth IRA

•   SIMPLE IRA

•   SEP IRA

•   457(b) plan

•   403(b) plan

•   Designated Roth 401(k), 403(b), or 457(b)

The IRS allows for full or partial rollovers, though whether you’d be required to withdraw all of the money in your pension for a rollover may depend on the terms of the plan.

Rolling over pension funds may potentially help you to avoid tax penalties while preserving your savings so that it can continue to grow through the power of compounding returns. But it’s also important to remember that there can be increased risks of rolling pension funds into an IRA. It may be a good idea to parse through those risks, in your specific situation, with a financial advisor or professional.

Reasons You May Want to Roll Over a Pension

There are different scenarios where a rollover pension, and specifically a rollover to an IRA, could make sense. It’s a good idea to consider both your current financial situation and the timing when deciding whether to roll a pension into an IRA.

Reason #1: You Want More Control Over Your Investments

Rolling a pension to an IRA may offer more flexibility when it comes to how the money is invested. With an IRA, you might have a broader range of mutual funds, index funds, or exchange-traded funds (ETFs) to choose from. That could make it easier to build a diversified portfolio that aligns with your goals.

Reason #2: You’d Like to Avoid RMDs

As noted, most retirement plans are subject to required minimum distribution (RMD) rules. These rules require you to take a minimum amount from your retirement account each year, starting at age 73 (if you turn 72 after December 31, 2022). Rolling a pension over to a Roth IRA, however, would allow you to avoid RMDs and draw down your retirement assets at your own pace. Note that pensions are typically rolled over into traditional IRAs, so this may require utilizing a “backdoor Roth IRA” strategy.

Reason #3: Your Pension Is Small

Rolling a pension to a Roth IRA can trigger tax consequences, as you’ll need to pay income tax on the earnings at the time the rollover is completed. However, you might choose to go ahead with a pension rollover to a Roth account if the balance is small and your tax liability would not be that great.

Reason #4: You’re Worried About Losing Benefits

Though it’s not a common occurrence, there have been instances of employees losing pension benefits as a result of their employer filing bankruptcy or encountering other financial issues. If you’re concerned about seeing your pension go up in smoke, rolling it over to an IRA could eliminate that risk. You would, however, still be subject to the risk that always accompanies investing money.

Reason #5: You Want Convenient Access

Certain pension plans may allow for loans, though loans are more commonly associated with 401(k) plans. There may be some rules for private pensions around withdrawals, which may prevent you from making a withdrawal – it’ll depend on the specific pension.

But if you’d like to be able to withdraw money from retirement for emergencies or other purposes, an IRA could potentially allow you to do that more easily, or in a more straightforward manner. Keep in mind, however, that withdrawing money from an IRA before age 59 ½ may trigger a 10% tax penalty unless an exception or exclusion applies.

How Do You Roll a Pension Into an IRA?

Rolling a pension into an IRA typically isn’t difficult. There are only a few steps required to complete the process.

•   Open an IRA. If you don’t have an IRA, you’ll need to open one – you can even open an IRA online.

•   Request the rollover. Once your IRA is open, you can ask your pension plan administrator what’s required to initiate a rollover transaction. The simplest option is to request a direct rollover, which would allow funds to be transferred from your pension to your IRA without having to get a paper check and deposit it yourself.

•   Choose your investment options. Once your pension funds have been rolled over to your IRA, you can decide how you’d like to invest it. You may also want to update your IRA beneficiary if you haven’t selected one.

If you can’t choose a direct rollover, or you’d rather roll over the funds yourself, you’d have to ask your plan administrator to send you a paper check for the amount you’re withdrawing. You’d then need to deposit the funds to your IRA within 60 days from the date you receive it. If you fail to do so, the entire amount becomes a taxable distribution.

Also know that there may be a mandatory income tax withholding of 20%. THough that generally doesn’t apply in a direct rollover to an IRA.


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Pros and Cons of Rolling a Pension Into an IRA

Rolling a pension into an IRA or Roth IRA has some advantages and disadvantages, and it’s important to weigh both before making a decision.

On the pro side, a pension rollover to an IRA may give you greater control of how your retirement money is invested. You can make changes to your investments as needed. That assumes, however, that you’re comfortable with making your own investment decisions and with the risk that’s involved.

The pros and cons of rolling into an IRA will depend on the type of IRA you’re rolling funds into. For instance, pension rollovers to a Roth IRA could help you avoid RMD rules, and may allow for tax-free withdrawals, though again, there would be tax consequences at the time you roll the funds over. Additionally, you may face tax penalties if you roll money over to a Roth, then make a withdrawal prior to age 59 ½. Again, it may be helpful to discuss your specific options, and your specific situation, with a financial advisor to get an idea of what the best course of action is.

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Pros:

•   Rolling a pension into an IRA may offer greater flexibility and freedom when making investment choices.

•   Rolling a pension to a Roth IRA allows you to avoid RMDs.

•   A direct rollover is fairly simple to complete and doesn’t require a lot of effort on your part.

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Cons:

•   Making a change to your investments could increase your risk exposure if you’re not sure what you’re doing.

•   You’ll may need to pay income tax on your pension when rolling it into a Roth IRA (but not a traditional IRA).

•   Rolling pension funds to an IRA yourself could result in a sizable tax penalty if you don’t deposit the money on time.

Taxes on Pensions vs. IRAs

One of the most common questions about IRAs and pensions centers on taxes. Specifically, how much tax will you pay on pension or IRA distributions?

The answer can depend on which tax bracket you’re in when you take distributions and in the case of an IRA, whether you have a traditional or Roth account. Where you live can also play a part as there are a handful of states that don’t tax pensions.

If you’re receiving annuitized or periodic payments from a pension, then those distributions would be taxed at your ordinary income tax rate. The same rate would apply if you’re taking your pension in a lump sum, though you’d owe taxes on the entire amount all at once.

Taxable rollover distributions from employer-sponsored pension plans may also be subject to 20% withholding at the time the money is rolled over. That withholding may not apply in a direct rollover, however, if the rollover involves sending funds to another eligible retirement plan, such as an IRA. Any amounts that are withdrawn but not rolled over to an IRA may be subject to a 10% early withdrawal penalty if you’re under age 59 ½.

With a traditional IRA, you’ll pay ordinary income tax on distributions beginning at age 59 ½. Distributions taken before 59 ½ may incur a 10% early withdrawal penalty. Qualified withdrawals from a Roth IRA, and withdrawals of original contributions, are tax-free. Understanding what your tax picture might look like if you keep your money in a pension vs. rolling it to an IRA can help you decide if it’s the right option.

The Takeaway

Saving for retirement early and often can help you build financial security for the future. If you don’t have a pension plan or you have a retirement plan at work and you want to supplement your savings, you might consider opening an IRA.

SoFi offers both traditional and Roth IRAs and it’s easy to open one online. You can choose from automated or self-directed investing to build your portfolio. If you need help getting your retirement plan started, you can book a complimentary 30-min session with a SoFi Financial Planner as a perk of being a SoFi member.

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

Help build your nest egg with a SoFi IRA.

FAQ

Can I roll my pension into an IRA?

Yes, you can roll a pension into an IRA. You might choose a traditional IRA or a Roth IRA rollover, depending on the amount you need to move and your expected tax situation in retirement. Keep in mind that you’ll need to pay taxes on a Roth IRA rollover at the time that you complete it.

Is a pension better than an IRA?

A pension can be attractive, since it’s funded by the employer and you don’t have to contribute any money to it yourself. On the other hand, an IRA can allow for more flexibility and you may be able to gain certain tax benefits from rolling your pension to a Roth IRA, such as avoiding required minimum distributions.

How much of your pension can you roll over to an IRA?

You can initiate a partial or full rollover of your pension money to a traditional or Roth IRA. If you’re considering a partial rollover, it’s helpful to understand what that might mean from a tax perspective and how you’ll be able to withdraw the amount that you don’t rollover.

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/Andrii Zastrozhnov

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.

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

¹Claw Promotion: Probability of Member receiving $1,000 is a probability of 0.026%; If you don’t make a selection in 45 days, you’ll no longer qualify for the promo. Customer must fund their account with a minimum of $50.00 to qualify. Probability percentage is subject to decrease. See full terms and conditions.

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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