Dec
12
2025
Guide to Investing in Your 30s

Guide to Investing in Your 30s

By | Growing Wealth, invest, Investing | Comments Off on Guide to Investing in Your 30s

Turning 30 can bring a shift in the way you approach your finances. Investing in your 30s can look very different from the way you invest in your 20s or 40s, based on your goals, strategies, and needs.

At this stage in life you may be working on paying off the remainder of your student loan debt while focusing on saving. Your financial priorities may revolve around buying a home and starting a family. At the same time, you may be hoping to add investing for retirement into the mix (or increase the amount you’re already investing) as you approach your peak earning years.

Finding ways to make these goals and needs fit together is what financial planning in your 30s is all about. Knowing how to invest your money as a 30-something can help you start building wealth for the decades to come.

Key Points

•   In your 30s, set specific, measurable, and actionable financial goals, such as contributing 10% of income to a 401(k) and aiming for a net worth of two times your annual salary by 40.

•   Embracing a balanced level of risk that you feel comfortable with, is one tip for investing in your 30s. The longer you have to invest, generally the more risk you may be able to take.

•   Diversifying investment portfolios across different assets such as stocks, bonds, and cash, for example, can help spread out risk.

•   Leverage tax-advantaged accounts like 401(k)s and IRAs for retirement savings, and taxable accounts for flexibility and additional contributions.

•   Prioritize building an emergency fund, achieving short-term goals, and paying off debt, while also saving for the future.

5 Tips for Investing in Your 30s

1. Define Your Investment Goals

Setting clear financial goals in your 30s or at any age is critical. Your goals are your end points, the things that you’re saving for.

So as you consider how to invest in your 30s, think about the result you’re hoping to achieve. Focus on goals that are specific, easy to measure, and actionable.

For example, your goals for investing as a 30-something may include:

•  Contributing 10% of your income to your 401(k) plan each year

•  Maxing out annual contributions to an Individual Retirement Account (IRA)

•  Saving three times your salary for retirement by age 40

•  Achieving a net worth of two times your annual salary by age 40

These goals work because you can define them using real numbers. Say for example, you make $50,000 a year. To meet each of these goals, you’d need to:

•  Contribute $5,000 to your 401(k)

•  Save $7,000 in an IRA in 2025 and $7,500 in 2026

•  Have $150,000 in retirement savings by age 40

•  Grow your net worth to $100,000 by age 40

Setting goals this way may require you to be a little more aggressive in your financial approach. But having hard numbers to work with can help motivate you to move forward.

2. Know Your Tolerance for Risk

If there’s one important rule to remember about investing in your 30s, it’s that time is on your side.

When retirement is still several decades away, you typically have time to recover from the inevitable bouts of market volatility that you’re likely to experience. The market moves in cycles; sometimes it’s up, others it’s down. But the longer you have to invest, the more risk you can generally afford to take.

The best investments for 30 somethings are the ones that allow you to achieve your goals while taking on a level of risk with which you feel comfortable. That being said, here’s another investing rule to remember: the greater the investment risk, the greater the potential rewards.

Stocks, for example, are riskier than bonds, but of the two, stocks are likely to produce better returns over time. If you’re not sure how to choose your first stock, you may have heard that it’s easiest to buy what you know. But there’s more to investing in stocks than just that. When comparing the best stocks to buy in your 30s, think about things like:

•  How profitable a particular company is and its overall financial health

•  Whether you want to invest in a stock for capital appreciation (i.e. growth) or income (i.e. dividends)

•  How much you’ll need to invest in a particular stock

•  Whether you’re interested in short-term trading or using a buy-and-hold strategy

Past history isn’t an indicator of future performance, so don’t focus on returns alone when choosing stocks. Instead, consider what you want to get from your investments and how each type of investment can help you achieve that.


💡 Quick Tip: When people talk about investment risk, they mean the risk of losing money. Some investments are higher risk, some are lower. Be sure to bear this in mind when investing online.

3. Diversify, Diversify, Diversify

Investing in your 30s can mean taking risk but you don’t necessarily want to have 100% of your portfolio committed to just a handful of stocks. A diversified portfolio with multiple investments can help spread out the risk associated with each investment.

So why does portfolio diversification matter? It’s simple. A portfolio that’s diversified is better able to balance risk. Say, for example, you have 80% of your investments dedicated to stocks and the remaining 20% split between bonds and cash. If stocks experience increased volatility, your lower-risk investments could help smooth out losses.

Or say you want to allocate 90% of your portfolio to stocks. Rather than investing in just a few stocks, you could spread out risk by investing and picking one or more low-cost exchange-traded funds (ETFs) instead.

ETFs are similar to mutual funds, but they trade on an exchange like a stock. That means you get the benefit of liquidity and flexibility of a stock along with the exposure to a diversified collection of different assets. Your diversified portfolio might include an index ETF that tracks the performance of the S&P 500, an ETF that’s focused on growth stocks, a couple of bond ETFs, and some individual stocks.

This type of strategy allows you to be aggressive with your investments in your 30s without putting all of your eggs in one basket, so to speak. That can help with growing wealth without inviting more risk into your portfolio than you’re prepared to handle.


💡 Quick Tip: When you’re actively investing in stocks, it’s important to ask what types of fees you might have to pay. For example, brokers may charge a flat fee for trading stocks, or require some commission for every trade. Taking the time to manage investment costs can be beneficial over the long term.

4. Leverage Tax-Advantaged and Taxable Accounts

Asset allocation, or what you decide to invest in, matters for building a diversified portfolio. But asset location is just as important.

Asset location refers to where you keep your investments. This includes tax-advantaged accounts and taxable accounts. Tax-advantaged accounts offer tax benefits to investors, such as tax-deferred growth and/or deductions for contributions. Examples of tax-advantaged accounts include:

•  Workplace retirement plans, such as a 401(k)

•  Traditional and Roth IRAs

•  IRA CDs

•  Health Savings Accounts (HSAs)

•  Flexible Spending Accounts (FSAs)

•  529 College Savings Accounts

If you’re interested in investing for retirement in your 30s, your workplace plan might be the best place to start. You can defer money from your paychecks into your retirement account and may benefit from an employer-matching contribution if your company offers one. That’s free money to help you build wealth for the future.

You could also open an IRA to supplement your 401(k) or in place of one if you don’t have a plan at work. Traditional IRAs can offer a deduction for contributions while Roth IRAs allow for tax-free distributions in retirement. When opening an IRA, think about whether getting a tax break now versus in retirement would be more valuable to you.

If you’re not earning a lot in your 30s but expect to be in a higher tax bracket when you retire, then a Roth IRA could make sense. But if you’re earning more now, then you may prefer the option to deduct what you save in a traditional IRA.

You might also consider taxable accounts for investing in your 30s. With a taxable brokerage account, you don’t get any tax breaks, and you’ll owe capital gains tax on any investments you sell at a profit. But there are no contribution limits on taxable accounts as there are with 401(k)s and IRAs, so you can contribute as much as you like. And if you need money for a shorter-term goal, such as a down payment on a house, a taxable investment account doesn’t have restrictions on how much money you can withdraw and when you can withdraw it, unlike retirement accounts. So your money is easier to access.

5. Prioritize Other Financial Goals

Retirement is one of the most important financial goals to think about, but planning for it doesn’t have to sideline your other goals. Financial planning in your 30s should be more comprehensive than that, factoring in things like:

•  Buying a home

•  Marriage and children

•  Saving for emergencies

•  Saving for short-term goals

•  Paying off debt

As you build out your financial plan, consider how you want to prioritize each of your goals. After all, you only have so much income to spread across them, so think about which ones need to be funded first.

That might mean creating an emergency fund, then working on shorter-term goals while also setting aside money for your child’s college education and contributing to your 401(k). And if you’re still paying off student loans or other debts, that may take priority over something like saving for college.

Looking at the bigger financial picture can help with balancing investing alongside your other goals.

The Takeaway

Your 30s are a great time to start investing and it’s important to remember that it doesn’t have to be complicated or overwhelming. Taking even small steps toward getting your money in order can help improve your financial security, both now and in the future.

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.

FAQ

What is the best way to invest money in your 30s?

Some of the options to invest money in your 30s include participating in your employer’s 401(k) and contributing enough to get the employer match, if possible; opening an IRA and maxing out the contribution limit of $7,000 for those under age 50 in 2025, and $7,500 for those under age 50 in 2026; and diversifying your investments across different asset classes and sectors to help spread out the risk.

What is $1,000 a month invested for 30 years?

It depends how the money is invested and the rate of return on the investment. If you invest $1,000 a month for 30 years in an index fund that tracks the S&P 500, for example — where the average annual inflation-adjusted return is about 7% — you would have about $1.2 million. However, if your investment has a lower rate of return of, say, 4%, you would have about $700,000 after 30 years.

Is 30 too late to start investing?

No, 30 is not too late to start investing. In fact, it’s a good time to start. The earlier you begin investing, the more time your money has to grow. If you start at age 30 and retire at age 65, for instance, your money will potentially have 35 years to compound and grow. That stretch of years also helps you ride out ups and downs in the stock market.

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/katleho Seisa

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.

Mutual Funds (MFs): Investors should carefully consider the information contained in the prospectus, which contains the Fund’s investment objectives, risks, charges, expenses, and other relevant information. You may obtain a prospectus from the Fund company’s website or clicking the prospectus link on the fund's respective page at sofi.com. You may also contact customer service at: 1.855.456.7634. Please read the prospectus carefully prior to investing.Mutual Funds must be bought and sold at NAV (Net Asset Value); unless otherwise noted in the prospectus, trades are only done once per day after the markets close. Investment returns are subject to risk, include the risk of loss. Shares may be worth more or less their original value when redeemed. The diversification of a mutual fund will not protect against loss. A mutual fund may not achieve its stated investment objective. Rebalancing and other activities within the fund may be subject to tax consequences.

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

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

S&P 500 Index: The S&P 500 Index is a market-capitalization-weighted index of 500 leading publicly traded companies in the U.S. It is not an investment product, but a measure of U.S. equity performance. Historical performance of the S&P 500 Index does not guarantee similar results in the future. The historical return of the S&P 500 Index shown does not include the reinvestment of dividends or account for investment fees, expenses, or taxes, which would reduce actual returns.
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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Dec
12
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What Is the Average Retirement Age?

By | Budgeting & Goals, invest, Preparing for Retirement | Comments Off on What Is the Average Retirement Age?

The average retirement age in the US is age 62, but that number doesn’t reveal the wide range of ages at which people can and do retire.

Some people retire in their 50s, some in their 70s; other people find ways to keep pursuing their profession and thus never completely “retire” from the workforce. The age at which someone retires depends on a host of factors, including how much they’ve saved, their overall state of health, and their desire to keep working versus taking on other commitments.

Still, having some idea of the average age of retirement can be helpful as a general benchmark for your own retirement plans.

Key Points

•   The average retirement age in the U.S. is 62, with variations by state.

•   Retirement age is influenced by financial, health, and personal factors.

•   Many people retire earlier than planned due to unforeseen circumstances, which can lead to financial challenges.

•   Specific savings benchmarks are recommended at different life stages to achieve retirement goals.

•   One rule of thumb is to save 10 times one’s income by age 67 for a comfortable retirement.

What Is the Average Age of Retirement in the US?

The average age of retirement from the workforce in the U.S. is 62, according to at least two recent studies.

Age 65 may be what many of us think of as the traditional age to retire, and according to 2024 research by the Employee Benefit Research Institute, more than half of workers surveyed expect to retire at age 65 or older. Yet 70% of the retirees in that study reported retiring before age 65.

In addition, the age of retirement by state varies widely. According to the U.S. Census Bureau’s American Community Survey, these are the states with the highest and lowest average U.S. retirement ages:

•   Hawaii, Massachusetts, and South Dakota is 66.

•   Washington, D.C., is 67.

•   Residents of Alaska and West Virginia it’s 61.

A lower cost of living may be what’s helping West Virginia residents retire so young. West Virginia was one of the 10 states in the country with the lowest costs of living, according to the latest Cost of Living Index.

While those previously mentioned states give a look at two ends of the average retirement age spectrum in the U.S., many states have an average retirement age that falls closer to what one might expect.

Colorado, Connecticut, Iowa, Kansas, Maryland, Minnesota, Nebraska, New Hampshire, New Jersey, North Dakota, Rhode Island, Texas, Utah, Vermont, and Virginia all have an average retirement age of 65.

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.

Factors Influencing Retirement Age

There are many different factors that affect the typical retirement age. Some key factors include:

•   Financial situation and retirement savings: How much retirement savings a person has, whether it’s in an investment account or an employer-sponsored plan, is an important determinant of their average retirement age. A recent survey by the AARP found that more than half of all respondents were worried about not having enough money for retirement.

   Concerns like this may delay retirement age. In addition, those who are waiting to get their full Social Security benefits may decide to wait until the government’s designated full retirement age of 66 or 67, depending on their year of birth.

•   Health: The state of a person’s health can also influence the age at which they retire. Those in good health may opt to work for more years, while those with medical conditions or disabilities may need to retire earlier.

•   Location: Where they live may also affect how long an individual keeps working. In places where the cost of living is higher, people may work longer to pay their expenses now and in retirement. Others who are expecting to move to a more affordable place might retire earlier.

•   Lifestyle goals: How a person plans to spend their retirement affects how much money they may need, which can impact when they retire. Someone who hopes to travel frequently may choose to work longer to keep earning money, for instance.

Retirement Expectations vs. Reality

Expectations can lead to disappointment. Anyone who has ever planned for a sunny beach vacation only to see it rain every day knows that.

Now imagine a person spending most of their adult life expecting to retire at 65 or earlier, and then realizing their retirement savings just isn’t enough.

According to the Employee Benefit Research Institute’s 2024 Retirement Confidence Survey, the expected average age of retirement is 65 or older. However, as noted previously, the actual average retirement age in the U.S. is 62, according to that same survey as well as other research. Retiring at 62, or earlier than planned, could lead to not having enough money to retire comfortably.

How to Know When to Retire

Not everyone retires early by choice. Six in 10 people retired earlier than they expected, mostly because of health problems, disabilities, or changes within their companies, according to a 2024 survey by the Transamerica Center for Retirement Studies.

It can be difficult for workers to exactly predict at what age they will retire due to circumstances that may be out of their control. For example, among adults who save regularly for retirement, 33% say they won’t have enough money to be financially secure in their post-employment years, and 31% don’t know if they will have enough, the AARP survey found.

In order to bridge any financial gap caused by not having enough retirement savings, 75% of pre-retirees in the Employee Benefit Research Institute’s survey expect they will earn an income during their retirement by working either full time or part time.

The survey found that half of respondents have calculated how much money they will need in retirement, and 33% estimate they will need $1.5 million. However, there is a gap between their expectations and their actions. One-third of respondents currently have less than $50,000 in retirement savings.

Common Misconceptions About Retirement Age

There are some misconceptions about the typical retirement age. These are two of the more common ones:

•   There is an ideal age to retire. While research shows that many people believe age 63 is the best age to retire, it is a highly individual decision. Some people may need to work longer for financial reasons; others may have to take retirement sooner than anticipated.

•   Age 65 is the traditional retirement age. The average retirement age in the U.S. is actually 62. Many people retire earlier than they think they will, often for health reasons or changes within their companies.

How Much Should You Have Saved for Retirement?

To retire comfortably, the IRS recommends that individuals have up to 80% of their current annual income saved for each year of retirement. With the average Social Security monthly payment being $1,177, retirees may need to do a decent amount of saving to cover the rest of their future expenses.

This is something to keep in mind when choosing a retirement date.

Retirement Savings Benchmarks by Age

To have enough savings for a comfortable retirement, one common rule of thumb is to save 10 times your income by the age of 67. To stay on track toward that goal, these are some retirement savings benchmarks individuals can aim for along the way.

Age

 Retirement savings
30 1x income
35 3x income
40 3x income
45 4x income
50 6x income
55 7x income
60 8x income
67 10x income

Calculating Your Personalized Retirement Goal

To help determine how much money you’ll need for retirement, look at how much you currently have in retirement savings, what your Social Security benefit will be at the age you plan to retire — you can use the Social Security calculator to find this number — and any other income sources you may have, such as a pension or inheritance funds.

Then, draw up a retirement budget to get a sense of how much money you may need. Be sure to include estimated living expenses, housing, and health care costs. Plugging those numbers into a retirement calculator can help you determine how much money you might need per year.

Comparing what you’ll need annually for approximately 30 years of retirement with your savings, Social Security benefit, and other income sources will help you see how much money you still need to save in order to get there — and give you a target goal to aim for.

It’s Never Too Early to Start Saving for Retirement

Since retirement can last 30 years or more, financial security is key to enjoying your golden years.

Any day is a good day to start saving, but saving for retirement while a person is young could help put them on the path toward a more secure retirement. The more years their savings have to grow, the better.

“A very helpful habit,” explains Brian Walsh, CFP® at SoFi, “Is truly automating what you need to do. Recurring contributions. Saving towards your goals. Automatically increasing those contributions. That way you can save now and save even more in the future.”

You could even use something like automated investing if you think it could be helpful. Whatever you do, be sure to start saving as soon as possible. The longer you wait to save for retirement, the more you will need to save in a shorter period of time.

Benefits of Starting Early with Compounded Growth

Starting retirement saving early can be powerful because of a process called compounding returns.

Here’s how it works: Say you have money invested in your retirement account, or maybe you even do self-directed investing, and that money earns returns. As long as those returns are reinvested, you will earn money on your original investment and also on your returns.

Compound returns can be a way for your money to grow over time. The returns you earn each period are reinvested to potentially earn additional returns. And the longer you invest, the more time your returns may have to compound.

3 Steps to Start Preparing for Retirement

It’s not enough to have an idea of when you want to retire. To really reach that goal, it’s important to have a financial plan in place. These steps break down how to prepare for retirement.

Step 1: Estimate how much money you’ll need

One of the first steps a person could take toward their retirement saving journey is to estimate how much money they need to save. Besides the method outlined above, there is also a retirement savings formula that can help you estimate: Start with your current income, subtract your estimated Social Security benefits, and divide by 0.04. That’s the target number of retirement savings per year you’ll need.

Step 2: Set up retirement saving goals

It might be worth considering what retirement savings plans are available, whether that is an employer-sponsored 401(k), an IRA, or a savings account. Contributing regularly is key, even if big contributions can’t be made to retirement savings right now.

Making small additions to savings can add up, especially if extra money from finishing car payments, getting a holiday bonus, or earning a raise can be diverted to a retirement savings account. And periodically review the investments in your account, which may be mutual funds or exchange-traded funds (ETFs), to make sure they’re working for you.

If an employer offers a 401(k) match, it is typically beneficial to take advantage of that feature and contribute as much as the employer is willing to match.

Along with receiving free money from an employer, there are also tax benefits of contributing to a 401(k). Contributions to a 401(k) are pre-tax — that lowers taxable income, which means paying less in income taxes on each paycheck.

In addition, 401(k) contributions aren’t taxed when deposited, but they are taxed upon withdrawal. Withdrawing money early, before age 59 ½, also adds a 10% penalty.

Step 3: Open a Retirement Account

If access to an employer-sponsored 401(k) plan isn’t available — or even if it is — investors might want to consider opening an IRA account. For investors who need a little help sticking to a retirement savings plan, they could consider setting up an automatic monthly deposit from a checking or savings account into an IRA.

In 2025, IRAs allow investors to put up to $7,000 a year into their account ($8,000 if they’re 50 or older). In 2026, they can put up to $7,500 into their account for the year ($8,600 if they’re 50 or older). There are two options for opening an IRA — a traditional IRA or a Roth IRA, both of which have different tax advantages.

Traditional IRA

Any contributions made to a traditional IRA can be either fully or partially tax-deductible, and typically, earnings and gains of an IRA aren’t taxed until distribution.

Roth IRA

For Roth IRAs, earnings are not taxable once distributed if they are “qualified”—which means they meet certain requirements for an untaxed distribution.

Once you set up an IRA, you’ll need to choose investment vehicles for your funds. Investors who don’t have a lot of money to work with might consider something like fractional shares that allow individuals to invest in a portion of an ETF or share of stock, for instance.

Late to the Retirement Savings Game?

Starting to save for retirement late is better than not starting at all. In fact, the government allows catch-up contributions for those aged 50 and over. Catch-up contributions of up to $7,500 in 2025 and up to $8,000 in 2026 are allowed on a 401(k), 403(b), or governmental 457(b). In both 2025 and 2026, those aged 60 to 63 can make a catch-up contribution up to $11,250 (instead of $7,500 or $8,000), thanks to SECURE 2.0.

A catch-up contribution is a contribution to a retirement savings account that is made beyond the regular contribution maximum. Catch-up contributions can be made on either a pre-tax or after-tax basis.

As retirement gets closer, future retirees can plan their savings around their estimated Social Security payments. While this estimate is not a guarantee, it might give a retiree — or anyone planning when to retire — an idea of how much they might consider saving to supplement these earnings.

Social Security benefits can begin at age 62, which is considered the Social Security retirement age minimum. However, full benefits won’t be earned until full retirement age, which is 66 to 67 years old, depending on your birth year.

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.

FAQ

Does the average retirement age matter?

The age at which you retire affects your Social Security benefit. For instance, if you retire at age 62, your benefit will be about 30% lower than if you wait until age 67.

What is the full retirement age for Social Security?

The full age of retirement is 67 for anyone born in 1960 or later. Before that, the full retirement age is 66 for those born from 1943 to 1954. And for those born between 1955 to 1959, the age increases gradually to 67.

How long will my retirement savings last?

One strategy you could use to help determine how long your retirement savings might last is the 4% rule. The idea behind the rule is that you withdraw 4% of your retirement savings during your first year of retirement, then adjust the amount each year after that for inflation. By doing this, ideally, your money could last for about 30 years in retirement.

However, your personal circumstances and market fluctuations may affect this number, which means it could vary. It’s best to use the 4% rule only as a general guideline.

Is early retirement realistic for most people?

While early retirement can sound enticing, for most people, it is not realistic because they don’t have enough retirement savings. For example, one-third of respondents to a survey by the Employee Benefit Research Institute said they have only $50,000 saved for retirement. And according to an AARP survey, 33% of adults who save regularly for retirement say they won’t have enough money to be financially secure in their retirement years.

What’s the difference between early and full retirement age?

When it comes to receiving Social Security benefits, early retirement age is 62 and full retirement age is 66 or 67, depending on your birth year. However, retiring early at age 62 and starting these benefits can result in a benefit that’s as much as 30% lower than waiting until the full retirement age of 67.

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.

Brokerage and Active investing products offered through SoFi Securities LLC, member FINRA(www.finra.org)/SIPC(www.sipc.org). For all full listing of the fees associated with Sofi Invest, please view our fee schedule.
CalculatorThis retirement calculator is provided for educational purposes only and is based on mathematical principles that do not reflect actual performance of any particular investment, portfolio, or index. It does not guarantee results and should not be considered investment, tax, or legal advice. Investing involves risks, including the loss of principal, and results vary based on a number of factors including market conditions and individual circumstances. Past performance is not indicative 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.

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 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.

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.

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How Much Money Should I Have Saved by 40?

By | Budgeting & Goals, Growing Wealth, invest, Investing, Preparing for Retirement | No Comments

By the time you reach 40, your retirement savings should ideally be on track to support a comfortable lifestyle once you stop working. But how do you know if you’re saving enough? Exactly how much should you have for retirement by age 40?

The answer depends on various factors, including your income, current expenses, and long-term financial goals. Below, we’ll walk you through key retirement savings benchmarks, simple ways to calculate your retirement savings target, and how to play catch-up if you’re behind.

Key Points

•   Aim to have three times your annual income saved for retirement by age 40.

•   Prioritize paying off high-interest debt over saving for retirement in your 40s.

•   Maximize contributions to 401(k) and IRA accounts to boost savings.

•   Consider Roth accounts for tax-free withdrawals in retirement.

•   Protect your retirement savings by building an emergency fund with at least six months’ worth of living expenses.

Understanding Your Retirement Savings at 40

Whether you have a full-time job or you’re self-employed, a smart way to save for retirement is in a retirement savings account, such as 401(k) or an individual retirement account (IRA). Unlike regular investment accounts, these accounts give you a tax break on your savings, either upfront or down the line when you withdraw the funds.

In the meantime, your money grows without being taxed.

A general rule of thumb is to save at least 15% to 20% of your income into your retirement fund. However, you may need to adjust this percentage based on your income and current monthly expenses.

💡 Quick Tip: Want to save more, spend smarter? Let your bank manage the basics. It’s surprisingly easy, and secure, when you open an online bank account.

Retirement Savings Benchmarks for 40-Year-Olds

Financial experts provide benchmarks to help gauge whether you’re on track with retirement saving. A common guideline suggests having two to three times your annual salary saved in a 401(l) or IRA by 40. For example, if you earn $80,000 per year, you should aim for $160,000 to $240,000 in retirement savings.

If you haven’t reached this benchmark, however, don’t get discouraged. There are ways to boost retirement savings in your 40s, plus ways to play catch-up later (more on that below).

Analyzing Personal Financial Circumstances

As you enter your 40s, it’s likely that your income is increasing. However, your expenses and financial obligations may also be on the rise. You may be managing mortgage payments, still paying off student loans, and also trying to save for a child’s future college education. Here’s a look at how to balance it all.

Income and Earning Potential

Your income level directly affects how much you can save for retirement. If your income is modest and your expenses are high, it may be difficult to put 10%, let alone 15%, of each paycheck into retirement. The key is to save a consistent percentage of each paycheck, even if it’s small. As your income grows, so will your contributions. As you earn more, you can also gradually bump up the percent you put into retirement savings.

Current Debt and Financial Obligations

In your 40s, you may have debts, which can hinder your ability to save for retirement. Which is wiser — saving for retirement or paying off your debts?

A general rule of thumb is to prioritize paying off high-interest debts, like credit cards, over saving for retirement. This is because your investment returns likely won’t exceed the interest you’re paying on your balances. With other debts, like student loans and a mortgage, however, it’s generally a good idea to balance paying them off while consistently contributing to retirement savings.

Recommended: Money Management Guide

Calculating Your Retirement Savings Target

So how much 401(k) should you have at 40? There are two guidelines financial planners often use to help people determine how much they should have in retirement savings. Here’s a closer look at each.

Salary Multiplier Method

This approach recommends saving a multiple of your salary at different life stages. While this method doesn’t account for any unique lifestyle choices or financial needs, it provides a quick and easy way to assess your savings progress at various ages.

Retirement Savings By:

•  Age 30: 1x your annual income

•  Age 40: 3x your annual income

•  Age 50: 6x your annual income

•  Age 60: 8x your annual income

•  Age 67: 10x your annual income

Income Replacement Ratio Approach

This method focuses on saving enough to replace 75% of your pre-retirement income annually once you stop working. So if you think you’ll be making $100,000 in the last few years before retirement, you would plan on needing $75,000 a year to live on once you stop working.

There are a few reasons you’ll likely need less than your full income after retirement:

•   Your everyday expenses will likely be lower.

•   You’re no longer a portion of your earnings into retirement savings.

•   Your taxes may be lower.

How to Maximize Your Retirement Savings in Your 40s

Maximizing contributions to tax-advantaged accounts such as 401(k)s and IRAs can accelerate your retirement savings in your 40s.

Contribute to Retirement Accounts

If you have access to a 401(k) at work, you ideally want to contribute up to the max allowed by the Internal Revenue Service (IRS). For tax year 2025, the most you can contribute to a 401(k) is $23,500 if you’re under age 50. For 2026, the maximum rises to $24,500.

If you don’t have access to an employer-sponsored retirement plan, you can open an IRA and set-up automatic transfers from your checking account into the IRA each month — ideally up to max allowed for an IRA. For tax year 2025, you can contribute up to $7,000 if you’re under age 50, and for tax year 2026, you can contribute up to $7,500 if you’re under age 50.

You can make 2025 IRA contributions until the unextended federal tax deadline.

Take Advantage of 401(k) Matching

Employer-sponsored 401(k) plans often come with matching contributions. If your employer offers this benefit, consider adjusting your contributions to get the full match, since this is essentially free money. Over time, compound returns (which are the returns you earn on your returns) on these extra contributions can lead to substantial growth.

Leverage Catch-Up Contributions

Once you reach age 50, you can make catch-up contributions to your 401(k), which could help you save even more for retirement.

For tax year 2025, the 401(k) catch-up contribution is an extra $7,500 on top of the regular $23,500 limit (for a total limit of $31,000), and for tax year 2026, the catch-up contribution is an extra $8,000 on top of the regular $24,500 limit (for a total limit of $32,500). In both 2025 and 2026, those aged 60 to 63 can contribute up to an additional $11,250 (in place of the $7,500 in 2025 and the $8,000 in 2026), if their plan allows it.

The IRA catch-up contribution is $1,000 for 2025, for a total contribution limit of $8,000 for those age 50 or older. In 2026, the IRA catch-up contribution is $1,100 for a total contribution limit of $8,600 for those age 50 or older.

Expert Strategies to Increase Retirement Savings

There are a number of smart ways to maximize your savings and stay on track for retirement. Here are a few strategies experts advise.

Salary Negotiations and Their Long-Term Impact on Savings

If it’s been a while since you’ve received a raise, this may be a good time to ask for one. By age 40, you’ve probably developed skills that make you valuable to your employer. To increase your chances of success, it can be helpful to research industry standards, highlight your achievements, and demonstrate your value to the company.

Even small salary increases can have a compounding effect on long-term savings. If you need some incentive for negotiating for a higher salary, consider this: Increasing your retirement contributions by just $25 a month for the next 20 years can add an extra $13,023.17 to your retirement fund, assuming a growth rate of 7.00% and monthly compounding.

Building a Solid Financial Foundation With a Six-Month Emergency Fund

Having an emergency fund that contains at least six months’ worth of living expenses is also critical to your retirement plan.

Why? While retirement is still a long way off if you’re 40, an emergency could happen at any time. For instance, you may get hit with an unexpected medical bill or your heating system might break in the middle of winter and need to be replaced. If you don’t have the emergency funds to cover these things, you might be forced to dip into your retirement fund early (and pay penalties) or run up debt that could limit your ability to save for retirement.

You might open a high-yield savings account for your emergency fund to help it grow. Consider automating your savings to make sure you’re contributing to your emergency fund regularly. Once it’s fully funded, you can allocate the money you had been contributing to the emergency fund to your retirement savings.

Recommended: Emergency Fund Calculator

Why Prioritizing Roth Retirement Accounts Can Pay Off

A Roth IRA or Roth 401(k) is a retirement account that taxes your contributions up front, but your withdrawals in retirement are tax-free, including all your growth. This differs from a traditional IRA, which involves tax-deferred contributions, meaning you’ll pay taxes every time you withdraw money, including on your growth. A Roth IRA or 401 (k) can be especially beneficial if you anticipate being in a higher tax bracket later in life.

Even if you have a 401(k) at work, you can add a Roth IRA to boost your retirement earnings. However, there are contribution and income limits with Roth IRAs that you’ll need to keep in mind.

The Role of Expenses in Retirement Planning

Figuring out how much your retirement living expenses will be is important for calculating how money you’ll need to save. These are some of the things you may want to consider and budget for when figuring out how much to save for retirement.

Planning for Health Care Expenses in Retirement

As people grow older, their health care needs and costs typically increase. For many, health care can be one of the biggest retirement expenses. Fidelity estimates that the average person may need $165,000 to cover health care costs in retirement.

If you have a high-deductible health insurance plan, you might want to set up a health savings account (HSA). An HSA is a tax-advantaged account that can be used to pay for medical expenses. You can invest the money in an HSA, and if you leave it untouched, it will grow and earn interest. When you make withdrawals in retirement, you won’t pay any taxes if you spend the money on qualified health care expenses.

Long-term care insurance is another option to consider for covering health care costs later in life. Researching Medicare options and potential out-of-pocket expenses ahead of time can help you prepare for future medical needs.

Incorporating Home Costs Into Retirement Savings

Housing costs are another major retirement expense. You may have mortgage payments, homeowner’s insurance, and home maintenance and repairs to pay for. If you rent, you’ll have to cover your monthly rental fee plus renters’ insurance.

If you’re planning on a move after you retire, where you choose to live can have a major impact on how much you pay for housing. In general, living on the coasts can be more expensive. You may want to take the cost of living into consideration when you’re thinking about where you want to live in retirement.

Family and Retirement: Balancing the Present and Future

Along with planning for retirement, you may be saving for important family milestones, such as college and a child’s wedding. Fortunately, with proper budgeting and planning, it is possible to help cover these expenses and save for retirement at the same time.

Budgeting for College Savings While Prioritizing Retirement

To help your children with the cost of college, consider opening a 529 plan. You fund this account with after-tax dollars, but your money grows tax-free and withdrawals for qualified education expenses are also tax-free.

Just keep in mind: Financial experts generally recommend that people in their 40s prioritize retirement savings over college savings. The reason? Financial aid can help fill a college funding gap, but there’s no financial aid for retirement, so you’ll want to ensure your retirement contributions remain consistent.

You might funnel extra funds toward college saving. You can also let family members know they can contribute to a child’s 529. For instance, instead of birthday gifts, you might ask loved ones to contribute to your child’s 529 instead.

Weddings and Other Major Family Expenses

If you’d like to help pay for your child’s wedding or first home purchase it’s a good idea to save for those goals separately, so they don’t disrupt your retirement savings progress.

If the wedding or home purchase is coming up in the next few years, you might open a high-yield savings account earmarked for that goal. If these family expenses are well off in the future, you might want to invest in mutual funds or a stock index fund, which could deliver more growth (though returns are not guaranteed).

The Takeaway

While there are several rules of thumb as to how much money you should have saved by 40, the truth is everyone’s path to a comfortable retirement looks different. One piece of advice is universal, however: The sooner you start saving for retirement, the better your chances of being in a financially desirable position later in life.

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Although we do our best to recognize all Eligible Direct Deposits, a small number of employers, payroll providers, benefits providers, or government agencies do not designate payments as direct deposit. To ensure you're earning the APY for account holders with Eligible Direct Deposit, we encourage you to check your APY Details page the day after your Eligible Direct Deposit posts to your SoFi account. If your APY is not showing as the APY for account holders with Eligible Direct Deposit, contact us at 855-456-7634 with the details of your Eligible Direct Deposit. As long as SoFi Bank can validate those details, you will start earning the APY for account holders with Eligible Direct Deposit from the date you contact SoFi for the next 31 calendar days. You will also be eligible for the APY for account holders with Eligible Direct Deposit on future Eligible Direct Deposits, as long as SoFi Bank can validate them.

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Putting an IRA in a Trust: What You Need to Know

By | Growing Wealth, invest, Investing | Comments Off on Putting an IRA in a Trust: What You Need to Know

While it’s not possible to put an individual retirement account (IRA) in a trust while you’re alive, you can name a trust to be the beneficiary of your IRA assets after you die. This can be done with traditional IRAs as well as Roth IRAs, SEP, and SIMPLE IRAs.

Trusts are an estate-planning tool that can be useful for passing on assets to others after your death. Assets you can transfer to a trust include investments like stocks and bonds, real estate, bank accounts, and antiques — but not IRA accounts, per se.

Rather, the trust would become a beneficiary of the IRA, and assets within the IRA would transfer to the trust after your death, with instructions about how and when those assets should be distributed.

Key Points

•   You can effectively put an IRA in a trust after you die by naming the trust as the beneficiary of the IRA.

•   Naming a trust as the beneficiary of an IRA allows you, the IRA owner, to manage how and when assets will be distributed after your death.

•   This arrangement can be used for any type of IRA: traditional, Roth, SEP, or SIMPLE.

•   Setting up a trust as an IRA beneficiary requires that you establish a trust, identify a trustee, and name the trust beneficiaries, who will then inherit the IRA assets.

•   Benefits include greater control over how IRA assets are distributed; drawbacks include the cost and time involved in setting up a trust.

What Is an IRA?

To recap what an IRA is, it’s an individual retirement account that allows you to save and invest on a tax-advantaged basis.

You can open an IRA at brokerages, banks, and other financial institutions that offer them. There are different types of IRAs you can fund; each with its own set of restrictions:

•   Traditional IRA: A traditional IRA typically allows you to make tax-deductible contributions. Withdrawals are taxed at your ordinary income tax rate.

•   Roth IRA: Roth IRAs do not allow for deductible contributions. However, qualified withdrawals are tax free.

•   SEP and SIMPLE IRAs: SEP and SIMPLE IRAs are designed for small business owners and self-employed individuals. Similar to traditional IRAs, these plans are tax-deferred, but generally have higher contribution limits.

How much can you put in an IRA? The IRS determines how much you can contribute to an IRA each year. The maximum contribution for tax year 2025 is $7,000; an additional $1,000 catch-up contribution is allowed for people aged 50 or older. For tax year 2026, the maximum contribution is $7,500, plus an additional $1,100 catch-up contribution for those aged 50 or older.

Anyone with earned income can contribute to a traditional or a Roth IRA. There are some rules to know, however:

•   The amount of traditional IRA contributions you can deduct, if any, is based on your income and filing status and whether you (or your spouse, if married) are covered by an employer’s retirement plan.

•   The amount of Roth IRA contributions you can make each year is determined by your income and tax filing status. If your income is too high, you may be ineligible to contribute to a Roth IRA.

The assets in any of these types of IRAs could be transferred to a trust upon your death, as long as you name the trust the beneficiary of the IRA account.

Recommended: Calculate Your 2025 IRA Contribution Limits

Inherited IRAs

Before deciding whether to transfer your IRA assets to a trust upon your death, you may want to consider the rules for inherited IRAs. Leaving the funds in the IRA to be inherited by a beneficiary such as your spouse, child, or grandchild is also an option, rather than going to the trouble of setting up a trust.

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

Depending on the beneficiary’s relationship to you at the time of your death, as well as your age, different rules will apply to how IRA funds can be accessed and distributed. For example, all inherited IRAs obey a set of IRS rules pertaining to the distribution of funds. But when you set up a trust as the beneficiary for an IRA, the funds can be distributed according to parameters that you have established.

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How Does a Trust Work?

A trust is a legal entity you can establish for the protection and distribution of assets after you die. State law determines the process for creating one, but generally here’s how a trust works:

•   You create the trust document on paper, either by yourself or with the help of an estate planning attorney.

•   You name a trustee who will manage trust assets on behalf of the individuals or entities you name as beneficiaries.

•   Once the trust is created, you typically can transfer assets to the trust and control of the trustee. With an IRA, you would name the trust as the beneficiary of the IRA assets.

•   The assets are transferred to the trust upon your death, and the trustee oversees the distribution of the funds to the beneficiaries of the trust.

•   In many cases, the assets in a trust are not subject to probate after you pass. This can streamline the transfer of assets, and also ensure some privacy.

More Facts About Trusts

•   A trustee is a fiduciary, meaning they’re obligated to act in the best interests of you and the trust’s beneficiaries. The trustee has an ethical duty to manage the trust assets according to the terms you spelled out in the trust document.

•   There are different types of trusts you can consider, but generally they can be classified as revocable or irrevocable: A revocable trust can be altered or canceled, while an irrevocable trust is permanent.

•   In estate planning, a trust is separate from a person’s will. A will is a legal document you can use to specify how you’d like assets to be distributed after your death or name a guardian for minor children.

Can an IRA Be Put in a Trust?

An IRA can be put in a trust, but it cannot be transferred to a trust during your lifetime. You can, however, establish a trust and name it as the beneficiary of your IRA.

Naming a trust as the beneficiary of your IRA assets can give you more control over how and when the funds are distributed.

Making a trust the beneficiary to your IRA may be as simple as updating your beneficiary elections with the company that holds your account, assuming the trust has already been created. Your brokerage account may allow you to make a change to your beneficiary designation online or require you to mail in a new beneficiary election form.

What Happens When You Put an IRA in a Trust?

When you name a trust as the beneficiary of an IRA, funds in the IRA account are directed into the trust once you pass away. IRA funds can then be distributed among the trust’s beneficiaries, according to the conditions you set.

Moving an IRA to a trust would not affect the beneficiary designations for any other retirement accounts you might have, such as a 401(k).

Reasons Someone Might Put Their IRA in a Trust

There are different scenarios in which it might make sense to name a trust as your IRA beneficiary, versus passing it on to your heirs directly. You might choose to do so if you:

•   Want to set specific conditions or restrictions on when beneficiaries can access IRA assets.

•   Are interested in creating a legacy of giving through your estate plan and have named one or more charities as trust beneficiaries.

•   Want to protect IRA assets from creditors.

•   Need to set up a trust for a special needs beneficiary.

Control is often the biggest reason for naming a trust as an IRA beneficiary. For example, say one of your children is a spendthrift. If you were to name them as beneficiary to your IRA, then they’d have free access to that money once you pass away.

Instead, you could name the trust as beneficiary, with a stipulation that your child is only able to withdraw a certain amount of money from the IRA each year, or only for a certain purpose (e.g., their education). Or you could specify that the IRA assets should only be released to them when they reach a certain age.

Things to Consider Before Putting an IRA in a Trust

Before setting up a trust for an IRA, it’s important to consider whether it actually makes sense for your situation.

Here are some questions to weigh:

•   What are the goals of the trust, and specifically for the IRA assets?

•   Will you transfer other assets to the trust as well?

•   Which type of trust should you open?

•   Who will benefit from the trust itself?

•   What are the tax implications for beneficiaries?

•   Who is the best choice to act as executor?

It’s also important to factor in the cost of setting up and maintaining a trust. Doing it yourself could save you the expense of hiring an attorney, but that might not be an option if you have a complex estate.

Once the trust is created, there may be additional costs including any fees the executor is entitled to collect.

How Can You Put an IRA in a Trust?

As mentioned, you cannot transfer an IRA into a trust during your lifetime. To plan for a trust to be the beneficiary of an IRA, you’ll need to take the following steps.

1. Open an IRA

If you don’t already have a retirement account, opening an IRA is a good place to start. That’s easy to do, as many brokerages allow you to set up a traditional, Roth, SEP or SIMPLE IRA online. When deciding where to open an IRA, pay attention to:

•   The range of investment options offered

•   What you might pay in fees

•   How easily you’ll be able to access and manage your account (i.e., website, mobile app, etc.)

You can open an IRA with money from a savings account or rollover funds from another retirement account.

Recommended: A Beginner’s Guide to Opening an IRA

2. Establish a Trust

Once you have an IRA, you’ll need a trust to name as its beneficiary. You could create a simple living trust yourself using an online software program. Remember that the rules governing trusts vary depending on the state.

If you have a more complicated estate, you might want to work with an attorney.

Here are some of the key steps to establishing a trust:

•   Select the trust type. As mentioned, there are different types of trusts to choose from. If you’re unsure which one might be right for you, it may be helpful to talk to a professional.

•   Choose a trustee. Your trustee should be someone you can rely on to manage trust assets ethically. It’s possible to name yourself as the trustee in your lifetime, with one or more successor trustees to follow you.

•   Decide which assets to transfer. An IRA isn’t the only thing you might transfer to a trust. You’ll want to take some time to decide what other assets you’d like to include.

•   Set the rules. Again, you have control over what happens to trust assets. So as you create the trust you’ll need to decide what conditions, if any, to place on when beneficiaries can gain access to those assets.

3. Name Trust Beneficiaries

You’ll need to decide who to name as beneficiaries for the trust. Individuals you might name include:

•   Your spouse

•   Children

•   Siblings

•   Other relatives or family members

•   Charities or nonprofit organizations

Remember, these are the people who benefit from the trust directly. When naming beneficiaries, you can further specify which trust assets they will or won’t have access to, including IRA funds.

4. Fund the Trust

After creating the trust, you’ll need to fund it. Funding a trust simply means transferring assets into it.

Depending on the type of trust, you might choose to place real estate, land, antiques, collectibles, bank accounts, or investments under the control of the executor. Remember that once assets are transferred to an irrevocable trust you can’t change your mind later.

5. Name the Trust as Your IRA Beneficiary

Once you’ve established the trust and arranged to fund it, the final step is naming it as a beneficiary on your IRA account. Again, that might be as simple as logging in to your brokerage account to update your beneficiary choices. If you’re not sure how to change your IRA beneficiary to a trust, you can reach out to your brokerage for help.

Tax and Withdrawal Rules for Trust IRAs

When IRA money is held inside a trust, withdrawals may be taxable according to the type of trust it is. If money from IRA assets is distributed to beneficiaries of the trust, they’re responsible for paying any taxes due.

That said, in some cases the trust can assume responsibility for paying taxes on distributions, including elective and required minimum distributions, when required.

For example, say you set up a trust to hold your IRA assets, and specify that a beneficiary cannot receive distributions until age 30. In that scenario, the trust could take distributions from the IRA to pay expenses for the beneficiary and pay any tax owed on those distributions.

Qualified distributions from Roth IRAs are always tax free. IRA withdrawal rules dictate that early or non-qualified withdrawals from a traditional or Roth IRA can trigger a 10% tax penalty. Income tax may also be due on early distributions, unless an exception or exclusion applies. Unlike 401(k)s, IRAs do not allow for loans.

Pros and Cons of Putting an IRA in a Trust

If you have a trust already, then naming it as beneficiary of your IRA may not be that difficult. However, it’s important to consider what kind of advantages you may gain by setting up a trust if you don’t have one yet.
On the pro side, putting an IRA in a trust gives you more control over how your heirs use that money. It can also make it easier to create financial security for a special needs beneficiary. It can protect the assets from creditors.

However, it’s important to consider the cost and the level of effort required to set up a trust for an IRA. A trust may not be necessary if you don’t have a lot of other assets or wealth to pass on.

Pros

 Cons

•   Allows for greater control of trust assets, including IRA funds.

•   Can protect assets from creditors.

•   May make financial planning easier when you have a special needs beneficiary.

•   Setting up a trust for an IRA can be time-consuming and potentially costly.

•   IRA funds only transfer to the trust once you pass away.

•   May not be necessary if you have a simple estate.

The Takeaway

If you have assets in any type of IRA account (traditional, Roth, SEP, or SIMPLE), you can set up a trust so that the assets in the IRA can be transferred to the trust upon your death — and then distributed to beneficiaries according to your wishes.

Just as funding an IRA can help you save for retirement, bequeathing your IRA to a trust can protect your assets and perhaps add to the financial security of the person(s) who later inherits those funds.

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

What happens to an IRA in a trust?

When an IRA is placed in a trust, what really happens is that the trust becomes the beneficiary of the IRA. After your death, the assets are then managed by a trustee according to the direction of the trust creator. The beneficiaries of the trust can access IRA assets, but only according to the instructions specified by the trust document. Beneficiaries of the trust can include spouses, children, or other family members, as well as charities and nonprofits.

Why put an IRA in a trust?

Naming a trust as the beneficiary of an IRA could be the right move if you’d like to have more control over how your beneficiaries access those assets. You may also set up a trust for an IRA if you have a special needs beneficiary, you want to protect those assets from creditors, or you want all of your estate assets to be held in the same place.

How is an IRA taxed in a trust?

IRA tax rules still apply when assets are held in a trust. The difference is that the trust, not the trust beneficiaries, are responsible for any resulting tax liability associated with earnings from IRA assets. Once the trust distributes income from an IRA to beneficiaries, they become responsible for paying any taxes owed on earnings.

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/Milan Markovic

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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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11
2025
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Capital Gains Tax Rates and Rules for 2025 and 2026

By | Growing Wealth, invest, Investing | No Comments

What Is Capital Gains Tax?

Capital gains are the profits investors may see from selling investments and other assets, like stocks, bonds, properties, vehicles, and so on. Capital gains tax doesn’t apply when you own these assets — it only applies when you profit from selling them, and the gain has to be reported to the IRS.

Short-term capital gains (from assets you’ve held for a year or less) are taxed at a higher marginal income tax rate. Long-term capital gains, which apply to assets you’ve held for more than a year, are taxed at the lower capital gains rate.

Other factors can affect an investor’s tax rate on gains, including: which asset you’re selling, your annual income, as well as your filing status. Capital gains tax rates typically change every year. Here, we’ll cover 2025 capital gains tax rates (for returns filed in 2026), and 2026 rates (for returns filed in 2027). Investment gains may also be subject to state and local taxes, as well.

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Key Points

•   Capital gains tax is levied on the profit (capital gains) you make from selling investments or assets like stocks and properties.

•   Gains are classified as either short-term (from assets held for one year or less) or long-term (from assets held for more than a year).

•   Short-term gains are taxed at a higher marginal income tax rate compared to the lower long-term capital gains rate.

•   Investments held within tax-advantaged retirement accounts, such as an IRA or 401(k), are generally not subject to capital gains tax as the money grows, though withdrawals may be subject to income tax.

•   Holding an investment for more than a year to qualify for the long-term rate, and utilizing strategies like tax-loss harvesting (selling investments at a loss to offset capital gains) can help lower your overall capital gains tax liability.

Capital Gains Tax Rates Today

Capital gains and losses result from selling assets. Capital gains occur when the asset is sold for more than its purchase price. A capital loss is when an investor sells an asset for less than its original value.

How long you hold an investment before selling it can make a big difference in how much you pay in taxes.

When you profit from an asset after owning it for a year or less, it’s considered a short-term capital gain. If you profit from it after owning it for at least a year, it’s a long-term capital gain.

Capital gains tax applies to investments that are sold when you’re investing online or through a traditional taxable brokerage; again, appreciated assets are not taxed until they’re sold. Gains may also be subject to state and local tax.

With a tax-deferred retirement account, such as an IRA or 401(k), you don’t pay any capital gains; you do owe income tax on withdrawals, however.

Other Capital Gains Tax Rules

Certain investments are subject to capital gains even if you don’t sell those securities. For example, a dividend-paying stock can produce a taxable gain because dividends are a type of income.

Taxes on qualified dividends are paid at long-term capital gains rates. Taxes on ordinary dividends are taxed at the marginal income tax rate, the same as short-term gains. Because the long-term capital gains tax rate is lower than the marginal income tax rate, qualified dividends are generally preferred vs. ordinary dividends.

Again, if divided-paying investments are held in a tax-advantaged account, those dividends are also tax deferred.

Capital Gains Tax Rates for Tax Year 2025

Long-term capital gains taxes for an individual are simpler and lower than for married couples. These rates apply to gains from an asset sold after one year, and fall into three brackets: 0%, 15%, and 20%.

Long-Term Capital Gains Rates, 2025

The following table shows the long-term capital-gains tax rates, by income bracket and filing status, for the 2025 tax year, according to the IRS.

Capital Gains Tax Rate Single Married, Filing Jointly Married, Filing Separately Head of Household
0% Up to $48,350 Up to $96,700 Up to $48,350 Up to $64,750
15% $48,351 to $533,400 $96,701 to $600,050 $48,351 to $300,000 $64,751 – $566,700
20% Over $533,401 Over $600,051 Over $300,001 Over $566,701

Long-Term Capital Gains Tax Rates, 2026

The following table shows the long-term capital gains tax rates for the 2026 tax year by income and filing status, according to the IRS.

Capital Gains Tax Rate Single Married, Filing Jointly Married, Filing Separately Head of Household
0% Up to $49,450 Up to $98,900 Up to $49,450 Up to $66,200
15% $49,451 to $545,500 $98,901 to $613,700 $49,451 to $306,850 $66,201 to $579,600
20% Over $545,500 Over $613,700 Over $306,850 Over $579,600

Recommended: Stock Market Basics

Short-Term Capital Gains Tax Rates for Tax Year 2025

The short-term capital gains are taxed as regular income at the “marginal rate,” so the rates are based on the federal income tax bracket you’re in.

The Internal Revenue Service (IRS) changes these numbers every year to adjust for inflation. You may learn your tax bracket by going to the IRS website, or asking your accountant.

2025 Short-Term Capital Gains Tax Rates

Here’s a table that shows the federal income tax brackets for the 2025 tax year, which are used for short-term gains, for tax returns that are usually filed in 2026, according to the IRS.

Marginal Rate Single filers Married, filing jointly Head of household Married, filing separately
10% $0 to $11,925 $0 to $23,850 Up to $17,000 $0 to $11,925
12% $11,926 to $48,475 $23,851 to $96,950 $17,001 to $64,850 $11,926 to $48,475
22% $48,476 to $103,350 $96,951 to $206,700 $64,851 to $103,350 $48,476 to $103,350
24% $103,351 to $197,300 $206,701 to $394,600 $103,351 to $197,300 $103,351 to $197,300
32% $197,301 to $250,525 $394,601 to $501,050 $197,301 to $250,500 $197,301 to $250,525
35% $250,526 to $626,350 $501,051 to $751,600 $250,501 to $626,350 $250,526 to $375,800
37% Over $626,350 Over $751,600 Over $626,350 Over $375,800

Short-Term Capital Gains Tax Rates for Tax Year 2026

This table shows the federal marginal income tax rates for tax year 2026, which apply to short-term capital gains (for tax returns that are usually filed in 2027).

Marginal Rate Single filers Income Married, filing jointly Head of household Married, filing separately
10% $0 to $12,400 $0 to $24,800 $0 to $17,700 $0 to $12,400
12% $12,401 to $50,400 $24,801 to $100,800 $17,701 to $67,450 $12,401 to $50,400
22% $50,401 to $105,700 $100,801 to $211,400 $67,451 to $105,700 $50,401 to $105,700
24% $105,701 to $201,775 $211,401 to $403,550 $105,701 to $201,750 $105,701 to $201,775
32% $201,776 to $256,225 $403,551 to $512,450 $201,751 to $256,200 $201,776 to $256,225
35% $256,226 to $640,600 $512,451 to $768,700 $256,201 to $640,600 $256,226 to $384,350
37% Over $640,600 Over $768,700 Over $640,600 Over $384,350

Tips for Lowering Capital Gains Taxes

Hanging onto an investment for more than a year can lower your capital gains taxes significantly.

Capital gains taxes also don’t apply to tax-advantaged accounts like 401(k) plans, 529 college savings accounts, or when you open an IRA. So selling investments within these accounts won’t generate capital gains taxes.

Instead, traditional 401(k)s and IRAs are taxed when you take distributions, while qualified distributions for Roth IRAs and 529 plans are tax-free.

Single homeowners also get a tax exclusion on the first $250,000 in profit they make from the sale of their primary residence, which they need to have lived in for at least two of the past five years. The limit is $500,000 for a married couple filing jointly.

Tax-Loss Harvesting

Tax-loss harvesting is another way to potentially save money on capital gains. Tax-loss harvesting is the strategy of selling some investments at a loss to offset the tax on profits from another investment.

Using short-term losses to offset short-term gains is a way to take advantage of tax-loss harvesting — because, as discussed above, short-term gains are taxed at higher rates. IRS rules also dictate that short-term or long-term losses must be used to offset gains of the same type, unless the losses exceed the gains from the same type.

Investors can also apply losses from investments of as much as $3,000 to offset ordinary income. And because tax losses don’t expire, if only a portion of losses was used to offset income in one year, the investor can “save” those losses to offset taxes in another year. This is known as a tax-loss carryforward.

Understanding the Wash-Sale Rule

While it may be useful in some cases to sell securities in order to harvest losses, it’s important to know about something called the wash-sale rule.

Per the IRS, the wash-sale rule states that if an investor sells an investment for a loss, then buys the same or a “substantially identical” asset within 30 days before or after the sale, they cannot use the original loss to offset capital gains or ordinary income and claim the tax benefit.

The wash-sale rule sounds straightforward, but the details are complicated. If you plan to sell securities at a loss in order to claim the tax benefit, you may want to consult a professional.

Recommended: Is Automated Tax-Loss Harvesting a Good Idea?

How US Capital Gains Taxes Compare

Generally, capital gains tax rates affect the wealthiest taxpayers, who typically make a bigger chunk of their income from profitable investments.

Here’s a closer look at how capital gains taxes compare with other taxes, including those in other countries.

Compared to Other Taxes

The highest long-term capital gains taxes rate of 20% is lower than the highest marginal rate of 37%.

Proponents of the lower long-term capital gains tax rate say the discrepancy exists to encourage investments.

Comparison to Capital Gains Taxes in Other Countries

In 2025, the Tax Foundation listed the capital gains taxes of the 35 different European Organization for Economic Cooperation and Development (OECD) countries. The U.S. maximum rate of 20% is roughly midway on the spectrum of comparable capital gains taxes.

In comparison, Denmark had the highest top capital gains tax at a rate of 42%. Norway was second-highest at 37.8%. The Netherlands were third on the list, at 36%. In addition, the following European countries all levied higher capital gains taxes than the U.S. (listed in order from the highest to lowest rate): Finland, France, Ireland, Sweden, Spain, Latvia, Austria, Germany, Italy, Czech Republic, and Iceland.

Comparing Historical Capital Gains Tax Rates

Because short-term capital gains tax rates are the same as those for wages and salaries, they adjust when ordinary income tax rates change. As for long-term capital gains tax, Americans today are paying rates that are relatively low historically. Today’s maximum long-term capital gains tax rate of 20% started in 2013.

For comparison, the high point for long-term capital gains tax was in the 1970s, when the maximum rate was at 35%.

Going back in time, in the 1920s the maximum rate was around 12%. From the early 1940s to the late 1960s, the rate was around 25%. Maximum rates were also pretty high, at around 28%, in the late 1980s and 1990s. Then, between 2004 and 2012, they dropped to 15%.

The Takeaway

Capital gains taxes are the levies you pay from making money on investments. The IRS updates the tax rates every year to adjust for inflation.

It’s important for investors to know that capital gains tax rates can differ significantly based on whether they’ve held an investment for a year or less (for short-term gains), or more than a year (for long-term gains). An investor’s income level also determines how much they pay in capital gains taxes.

An accountant or financial advisor can suggest ways to lower your capital gains taxes as well as help you set financial goals.

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).


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FAQ

Why is capital gains tax important?

When investors decide how long to hold investments, it’s a complex decision. Given that long-term capital gains rates are more favorable, some investors may want to hold onto their profitable investments for at least a year to get the lower rate.

Can you pay zero capital gains tax?

If you meet certain income criteria, yes. The lowest capital gains rate of 0% applies if your taxable income for tax year 2025 is equal to or less than $94,050 (married filing jointly); $47,025 (single, married filing separately, qualifying surviving spouse); and $63,000 for head of household. For tax year 2026, the 0% rate applies if your taxable income is equal to or less than $98,900 (married, filing jointly); $49,450 (single, married filing separately, qualifying surviving spouse); $66,200 (head of household).

Can capital losses reduce personal income tax?

In some cases yes: If your capital losses for a given year exceed your capital gains, you can deduct up to $3,000 in losses from your ordinary income (married, filing jointly; $1,500 if you’re married, filing separately). Losses can be applied to future capital gains or to income, in what’s known as a tax-loss carryforward.

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.

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

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.

This article is not intended to be legal advice. Please consult an attorney for advice.

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