How to Open Your First IRA

How to Open an IRA: Beginners Guide

Saving for retirement may be the biggest financial goal many of us will ever set. So it makes sense to explore all retirement savings options, including an IRA, or individual retirement account. The sooner you open your first IRA, the more opportunity your savings have to grow over time, potentially leading to a nice nest egg upon retirement.

There are other benefits to opening an IRA. For one, it can deliver attractive tax perks — either up front or in retirement — and it can be especially attractive to individuals who don’t have an employer-sponsored 401(k) plan, or have maxed it out already.

This article will walk you through the steps of opening an IRA — whether a traditional, Roth, or SEP IRA.

How to Open an IRA in 5 Steps

how to open an IRA

1. Choose What Type of IRA Is Best for You

Of the several types of IRAs that exist, traditional and Roth IRAs are the most common. Both allow you to put a certain amount toward retirement each year and invest in an array of assets.

When it comes to choosing between a traditional IRA vs. Roth IRA, it helps to know their key differences.

Traditional IRAs

If you earn a taxable income, you can open a traditional IRA regardless of how much you make per year. An IRA can be a good next step if you’ve maxed out your 401(k), for instance.

One notable difference between traditional and Roth IRA accounts is that traditional IRAs allow you to deduct your contributions on your tax returns now, meaning you pay taxes on distributions when you retire. You’ll pay a 10% penalty tax (in addition to regular income tax) on any money you withdraw from a traditional IRA before age 59 ½, with a few exceptions.

It may be better to go with a traditional IRA if you think you’ll be in a lower tax bracket after retirement. This is because you’ll be saving on a higher tax rate now (vs. the lower rate you’d be paying later, since you’d be in a lower tax bracket in retirement).

Roth IRAs

Unlike traditional IRAs, there are income limits on who can open a Roth IRA. For 2023, individuals can only contribute the full amount — $6,500, with an additional $1,000 for people age 50 or over — to a Roth IRA if their income is below $138,000 for single filers. Those earning more than $138,000 but less than $153,000 can contribute a reduced amount. For married people who file taxes jointly, the limit is $218,000; those who earn up to $228,000 can contribute a reduced amount.

Roth IRA contributions are made with after-tax income. While that doesn’t offer any tax advantages now, it does mean that when you withdraw money upon retirement, you won’t have to pay taxes on it. As such, a Roth IRA may make sense for eligible individuals who typically get a tax refund and expect to be in a similar or higher tax bracket when they retire (for example, if they plan to have substantial income from a business, investments, or work).

💡 Still confused? Consult our Roth IRA Calculator for help deciding which account may be right for you.

SEP IRAs

With the number of self-employed workers on the rise, it’s worth mentioning that there’s a third type of IRA that may be worth considering: a SEP IRA. A SEP IRA, or simplified employee pension, can be set up by either an employer at a small business or by someone who is self-employed.

Employers get a tax deduction when they contribute to their employees’ IRAs, and they’re also allowed to contribute on a “discretionary basis” (meaning the employer doesn’t have to contribute in years where it’s not as financially feasible for the company.)

For employees, this option may allow you to contribute a greater amount than other IRAs, depending on your income.

💡 Recommended: What Is an IRA CD?

2. Choose Where to Open Your IRA

You can open an IRA at a bank, a brokerage, mutual fund company, or other financial services provider. Typically, the more personal care and advice you get, the higher the fees will be. A robo-adviser, for instance, might charge lower fees than a brokerage.

SoFi Invest® streamlines the process of opening an IRA online, allowing investors to transfer money from their bank electronically.

3. Open Your Individual Retirement Account

Once you decide where to open an IRA, you’ll need to follow through with doing so. The process for how to open an IRA can vary a bit from provider to provider, but it’s generally pretty straightforward. You’ll typically need to provide information such as:

•   A copy of your government-issued ID

•   Personal information, including contact information and Social Security number

•   Details on intended beneficiaries

Once your account is opened, you’ll receive guidance on funding an IRA. If you want to fund your account through an electronic transfer, you’ll be asked to provide banking information. It’s also possible to roll over existing retirement accounts — and yes, it is possible to open an IRA if you have a 401(k) already.

Rolling Over a 401(k) into an IRA

If you’re leaving a job with an employee-sponsored retirement plan, you can roll over your 401(k) into a traditional IRA. Doing so can potentially allow you to access better investment options and lower fees.

When you roll money over from a 401(k), there’s no limit to how much you can add to an IRA at that time. Going forward, additional contributions will be capped at the typical IRA contribution limit.

💡 Recommended: IRA vs. 401(k)

4. Choose a Contribution Amount

As of 2023, you can contribute up to $6,500 a year to a traditional or Roth IRA, or up to $7,500 if you’re 50 or older. If you take home more than the maximum earnings allowed for a Roth IRA but still prefer a Roth IRA over a traditional account, you might be able to contribute a reduced amount of Roth IRA contribution limits.

In many cases, it’s a good idea to invest as much as you can up to that amount each year to take full advantage of the power of compound interest.

A retirement calculator can help you figure out whether you’re on track for retirement. A quick rule of thumb: By the time you’re 30, it’s typically good to have the equivalent of one year’s salary saved.

5. Decide Where To Invest Your Funds

Investors can choose to invest in stocks, bonds, mutual funds, low-cost index funds, or exchange-traded funds (ETFs) — or a combination thereof.

One popular type of investment fund geared toward retirement savings is a “target date fund.” A target date fund is calibrated to the year you plan to retire, and it’s meant to automatically update your mix of assets, like stocks and bonds, so they’re more aggressive earlier in life and more conservative as you approach retirement.

Ultimately, the mix of investments in your IRA should depend on your personal risk tolerance, lifestyle, and retirement goals.

Is your retirement piggy bank feeling light?

Start saving today with a Roth or Traditional IRA.


Pros and Cons of IRAs

If you’re contemplating whether to open an IRA, it’s important to understand the pros and cons of this category of retirement account. Here’s a look at the pros and cons of traditional and Roth IRAs, two of the most common types of IRAs:

Pros

Cons

Tax-advantaged saving Lower contributions limits than other types of retirement accounts
Anyone can open one Income limits on contributions/ deductions
Wider array of investment options No employer matching contributions
Easy to set up Have to set it up yourself

Investing in Your Retirement

Once you’re familiar with how to open an IRA account, the process itself is pretty straightforward — possibly the biggest lift involved is deciding which IRA suits your personal situation and retirement goals best: a traditional, Roth, or SEP IRA. From there, you’ll need to decide where to start a Roth IRA or other type or IRA, then go through the formal process of starting an IRA, which includes providing certain information, funding the account, selecting a contribution amount, and deciding where to invest your funds.

That can all sound like a lot, but getting started on saving for your retirement doesn’t have to be difficult. SoFi Invest makes opening an IRA simple — it’s possible to sign up in less than five minutes. You can be as involved in the investment process as you want to be — either with hands-on investing or our automated investing technology, in which our algorithm will recommend an appropriate mix of investments based on your age and retirement goals.

For a limited time, opening and funding an account gives you the opportunity to win up to $1,000 in the stock of your choice.

FAQ

How much money is required to open an IRA?

There’s no universal minimum amount required to open an IRA. That being said, some providers will have minimum requirements.

Can you open an IRA all on your own?

Yes, it’s definitely possible to open an IRA on your own. The process is simple, similar to opening a bank account, and you can do so at most banks, brokerages, or other financial institutions. Often, it’s possible to start an IRA online.

Can you open an IRA at a bank?

Yes, many banks offer IRAs. You can also open an IRA at credit unions, brokerages, and investment companies.


Claw Promotion: Customer must fund their Active Invest account with at least $10 within 30 days of opening the account. Probability of customer receiving $1,000 is 0.028%. See full terms and conditions.
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The information provided is not meant to provide investment or financial advice. Also, past performance is no guarantee of future results.
Investment decisions should be based on an individual’s specific financial needs, goals, and risk profile. SoFi can’t guarantee future financial performance. Advisory services offered through SoFi Wealth, LLC. SoFi Securities, LLC, member FINRA / SIPC . SoFi Invest refers to the three investment and trading platforms operated by Social Finance, Inc. and its affiliates (described below). Individual customer accounts may be subject to the terms applicable to one or more of the platforms below.
1) Automated Investing—The Automated Investing platform is owned by SoFi Wealth LLC, an SEC registered investment advisor (“Sofi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC, an affiliated SEC registered broker dealer and member FINRA/SIPC, (“Sofi Securities).
2) Active Investing—The Active Investing platform is owned by SoFi Securities LLC. Clearing and custody of all securities are provided by APEX Clearing Corporation.
3) Cryptocurrency is offered by SoFi Digital Assets, LLC, a FinCEN registered Money Service Business.
For additional disclosures related to the SoFi Invest platforms described above, including state licensure of Sofi Digital Assets, LLC, please visit www.sofi.com/legal. Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform. Information related to lending products contained herein should not be construed as an offer or prequalification for any loan product offered by SoFi Bank, N.A.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.
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What Is the Average Savings by Age?

There are lots of reasons—and lots of ways—to save. However, for those looking for a benchmark of just how much they should’ve saved by a specific age, things get tricky. Average savings by age is a tough metric because there are so many variables that go into a number like that.

The Importance of Saving for the Future

Life can happen fast. For example, the average cost of just having a new baby can run anywhere from $5,000 to $14,500, let alone the cost of raising a child for the rest of their life.

And, if that baby wants to get a college degree, you’re looking at a whole new ballpark of savings, as the cost of a college education can run from about $40,000 to well past $100,000.

There’s one other big reason to save for the future: People are living longer. According to a 2019 survey by Aegon Center for Longevity, Transamerica Center for Retirement Studies and Instituto de Longevidade Mongeral Aegon in Brazil, just 36% of American workers are “very confident they will be able to retire comfortably.” Globally, that number is just 29%.

A Savings Shortfall

The number of Americans who would be able to cover an unexpected $1,000 expense has held steady at between only 37% and 41% since 2014, according to Bankrate’s annual surveys.

The Federal Reserve notes that 30% of all Americans don’t have enough cash in savings to cover even a $400 emergency. And Bankrate’s most recent survey shows that nearly one in five Americans have no money saved at all to cover an emergency expense.

The Typical American Household’s Savings by Age Group

The Fed’s 2019 Survey of Consumer Finances shows that the typical American household has $5,300 in a savings account at a bank or credit union. But, this number varies greatly by age and number of people in a household.

Average Savings for Those 35 and Younger

Americans under the age of 35 had an average savings account balance of $11,200, according to the Fed’s survey .

Because this is such a large age bracket that can skew from teenagers just graduating high school to recent college grads to young professionals well into a decade’s worth of work, it’s tough to nail down age-by-age where the average may be.

It is typically suggested to have three to six months of expenses in an emergency account. At the very least, aiming to have $1,000 handy in a savings account for unexpected expenses is recommended.

Employer-sponsored retirement funds such as an IRA or a 401(k) may be good options for people who are ready to set long-term retirement savings goals.

Minimally, contributing the amount the company will match is a good way to ensure potential future savings, thanks to compound interest. For reference, the average 401k savings for someone between the ages of 20-29 in 2019 was $10,500.

Recommended: Why You Should Start Retirement Planning in Your 20s

Average Savings by Age: 35 to 44

The 2019 Federal Reserve Survey of Consumer Finances found that Americans between the ages of 35 and 44 had an average savings account balance of $27,900. Those in this age bracket are now well into adulthood. At this stage of life, it’s prudent to save up that three-to six-month savings account, to cover the cost of everything from an accident to a lost job.

Now may also be the time to think about diversifying a financial portfolio and possibly investing in the stock market or in real estate.

Again, for reference on where a person may want to be at for retirement savings goals, the average 401k savings for someone between the ages of 30 and 39 in 2019 was $38,400.

In your 30s

Average Savings by Age: 45 to 54

People between the ages of 45 and 54 had an average savings account balance of $48,200, according to the Fed’s 2019 survey.

At this point, common financial advice dictates that a 50-year-old should have at least six times their annual salary if their intention is to retire at 67.

And, by the age of 40 to 49, a person may want to hit the average retirement savings, which sits at $93,400.

In your 40s

Average Savings by Age: 55 to 64

The 2019 Fed survey found that Americans between the ages of 55 and 64 had an average savings account balance of $57,800.

As this is the time when most Americans are staring down retirement in a few years it’s typically a good idea to kick up savings, specifically retirement savings, into high gear.

That’s because while younger people are capped at contributing $19,500 a year to a 401(k) account, those over the age of 50 are allowed to contribute an additional $6,500.This is known as a catch-up contribution.
The average retirement savings account for a person between the ages of 50 and 59 in 2019 was $160,000. It’s important to note that taking out cash before the age of 59 and a half could mean tax penalties.

In your 50s

Average Savings by Age: 65 and Older

This is when savings really peaks for the average American. The 2019 Federal Reserve Survey of Consumer Finances found that Americans between the ages of 65 and 74 had an average savings account balance of $60,400.

However, that savings number does drop over time. According to the survey, Americans above the age of 75 had an average savings account balance of $55,600.

This drop illustrates the importance of creating a retirement budget and sticking to it in an effort to have enough savings for as long as needed.

But, before retirement, try to hit the average retirement savings number of 2019 for those aged 60 to 69, which was $182,100.

Once you reach retirement age, you may be thinking about your life insurance options. SoFi Protect via Ladder offers term life insurance to have a solid plan in place for your loved ones.*

Saving a Little Bit More

Reaching specific savings goals doesn’t have to be complicated. It just means doing a bit of homework, strategizing and staying diligent about personal finances.

The first step in saving more is to analyze current expenses to see what can be cut back on or cut out altogether to make more room for saving. This means creating a monthly personal budget and tracking current personal spending.

To track spending, a person could create an excel spreadsheet and list all expenditures by categories like groceries, phone bill, car expenses, housing, medical, entertainment and others over the course of a month, filling it in with every single dollar spent to see where the money is going.

To make this process a little easier, SoFi offers SoFi Relay, which allows users to connect all their accounts to one mobile dashboard and track spending habits in real time.

After the month is up, the next step is to look back on the expenditures list. Was there anything that surprised you? Going to coffee shops more often than needed? How about that gym membership—did it actually get used? This is the time to get a little ruthless.

After figuring out what’s left, try implementing a general financial outline like the 50/30/20 rule. This means typically 50% of after-tax income goes toward essential expenses like food and rent, while 30% goes toward discretionary expenses like nights out at the movies or concerts. The last 20% belongs to savings and retirement account goals.

Now, it’s time to get creative about saving even more for the future. This can be done by simply direct depositing more cash into a savings or retirement account right from a paycheck. That way, it’s like the cash never existed in the first place.

Those looking to save a few more bucks every month could also do so by getting rid of unnecessary expenses like recurring payments on apps they may not even use anymore. But, instead of pocketing that cash for fun, consider directing that cash right to savings.

Still feeling the pinch and don’t really have room to save more from a budget? Nearly 69% of Americans live paycheck to paycheck and may want to consider finding ways to earn extra income if there’s nothing left to cut from the budget.

Working part-time via an app like Uber, Lyft or Taskrabbit allows people to set their own hours and earn extra income based on how much time they can dedicate to the part-time work. Other options might include freelance work in photography, writing or other creative arts.

Making Your Savings Work Even Harder

There’s one more way to start making more money for your savings account and future, and it takes barely any work at all: Signing up for online stock trading with SoFi Invest®.

With the account, users can trade stocks and ETFs, trade crypto or even start an automated investing program to make things quicker and easier than going it alone.

And, for those feeling a bit squeamish about diving headfirst into investing, that’s okay. SoFi Invest gives users the option to invest in smaller amounts like buying fractional shares, which gives users the ability to buy and sell fractional shares.

And investing a little now can go a long way in saving for tomorrow, next year and your happy retirement to come.

SoFi Invest can help your money work toward your long-term financial plans.


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The information provided is not meant to provide investment or financial advice. Investment decisions should be based on an individual’s specific financial needs, goals and risk profile. SoFi can’t guarantee future financial performance. Advisory services offered through SoFi Wealth, LLC. SoFi Securities, LLC, member FINRA / SIPC . The umbrella term “SoFi Invest” refers to the three investment and trading platforms operated by Social Finance, Inc. and its affiliates (described below). Individual customer accounts may be subject to the terms applicable to one or more of the platforms below.

SoFi Invest®
The information provided is not meant to provide investment or financial advice. Also, past performance is no guarantee of future results.
Investment decisions should be based on an individual’s specific financial needs, goals, and risk profile. SoFi can’t guarantee future financial performance. Advisory services offered through SoFi Wealth, LLC. SoFi Securities, LLC, member FINRA / SIPC . SoFi Invest refers to the three investment and trading platforms operated by Social Finance, Inc. and its affiliates (described below). Individual customer accounts may be subject to the terms applicable to one or more of the platforms below.
1) Automated Investing—The Automated Investing platform is owned by SoFi Wealth LLC, an SEC registered investment advisor (“Sofi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC, an affiliated SEC registered broker dealer and member FINRA/SIPC, (“Sofi Securities).
2) Active Investing—The Active Investing platform is owned by SoFi Securities LLC. Clearing and custody of all securities are provided by APEX Clearing Corporation.
3) Cryptocurrency is offered by SoFi Digital Assets, LLC, a FinCEN registered Money Service Business.
For additional disclosures related to the SoFi Invest platforms described above, including state licensure of Sofi Digital Assets, LLC, please visit www.sofi.com/legal. Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform. Information related to lending products contained herein should not be construed as an offer or prequalification for any loan product offered by SoFi Bank, N.A.
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10 Tips for Investing Long-Term

When it comes to big savings goals like college tuition and retirement, many investors turn to long-term investing. Yet financial markets can be a turbulent, scary place, and it can be useful to have some guidance to how to navigate day-to-day market fluctuations.

10 Tips for Long Term Investing

Here are 10 tips that aim to help you reach your long-term investment goals.

1. Setting Goals and a Time Horizon

What your goals are will largely determine whether or not long-term investing is the right choice for you. So you might want to spend time outlining what you want to achieve—which may depend on your life stage—and how much money you’ll need to achieve it.

Once you’ve done that, you can think about your time horizon—when you’ll need the cash—which can help you determine what types of investments are better suited to your overall goals. Investing in the stock market is generally a long-term proposition, which may not always be appropriate for shorter-term goals.

For example, if you are saving to buy a car in just a couple years, you may consider setting aside money in a savings account or money market accounts, which are stable and can provide relatively quick access to your cash.

If you were to invest the same money in the stock market, you are subject to greater market risk, meaning markets could be down when you need to pull out your cash. The short timeframe of your goal allows little time to recover from a downswing.

Stock market investing can be more appropriate for big goals in the distant future, such as saving for a child’s education or your own retirement, which could be 20 or 30 years down the line. This relatively long time horizon not only gives your investments a chance to grow, but it means that you also have the time to ride out market downturns that may occur along the way.

2. Determining Your Risk Tolerance

Your risk tolerance is essentially a measure of your ability to stomach weak markets. It can help you determine the mix of investments that you will hold in your investment accounts.

Your goals and time horizon will play a part in determining your risk tolerance, as will your personal level of comfort. Longer time horizons typically mean that you can have a higher risk tolerance, which in turn means you might be more inclined to hold a greater proportion of stocks inside your portfolio.

This goes back to the idea that the longer you have to stay invested, the longer you have to recover should markets take a dive. A shorter time horizon means you may prefer to hold a greater proportion of less risky assets like bonds, cash or cash equivalents. These tend to be less volatile, so if the market drops, they are unlikely to drop with it.

Setting your risk tolerance also means knowing yourself. If you’re somebody who will be kept up at night when the market takes a downward turn, even if your goal is still 20 years away, then you may not want a portfolio that’s aggressively allocated to stocks. On the other hand, if stock market volatility doesn’t bother you, an aggressive allocation may be the best fit to help you achieve your long-term goals.

3. Setting an Appropriate Asset Allocation

Understanding your goals, time horizon and risk tolerance can help give you an idea of what mix of assets—generally stocks, bonds, and cash equivalents—you may want to hold in your portfolio. For example, a portfolio might hold 70% stocks, 30% bonds, and no cash equivalents.

As a general rule of thumb, the longer your time horizon, the more stocks you may want to hold. That’s because stocks tend to be drivers of long-term growth.

As you approach your goal, you’ll likely begin to shift some of your assets into fixed-income investments like bonds. The reason for this shift? As you approach your goal—the time when you’ll need your money—you’ll likely become more vulnerable to market downturns.

For example, if the market experiences a big drop, you may be left without enough money to meet your goal. By gradually shifting your money to bonds you can help protect it from stock market swings, so by the time you need your cash, you have a more stable source of income to draw upon.

4. Diversifying Your Investment Portfolio

A key factor of any investing is that portfolio diversification matters. The idea is that holding many different types of assets reduces risk inside your portfolio in the long and short term. Imagine briefly that your portfolio consists of stock from only one company.

If that stock drops, your whole portfolio drops. However, if your portfolio contains stocks from 100 different companies, if one company does poorly, the effect on the rest of your portfolio will be relatively small.

A diverse portfolio contains many different asset classes, such as stocks, bonds, and cash equivalents as mentioned above. And within those asset classes a diverse portfolio holds many different types of assets across size, geographies and sectors, for example.

The basic principle behind diversification is that assets in a diverse portfolio are not perfectly correlated. In other words, they react differently to different market conditions.

Domestic stocks for example, might react differently than European stocks should U.S. markets start to struggle. Or investing in energy stocks will be different than tech-stock investing. So, if oil prices drop, energy sector stocks might take a hit, while tech might be less affected.

Many investors may choose to add diversity to their portfolios by using mutual funds, index funds, and exchange-traded funds, which themselves hold diverse baskets of assets.

5. Starting Investing Early

This tip may seem like a no-brainer, but there are very good reasons to start investing as early as you can for long-term goals. First, this can give yourself time to ride out market volatility, as mentioned above.

Increasing your time horizon gives you the opportunity to invest in riskier investments, like stocks, for longer. Though risky, stocks typically offer higher earning potential than other types of investments, such as bonds. Consider that the average stock market return annually is about 10%.

Second, the sooner you start investing, the sooner you are able to take advantage of compounding interest, one of the most powerful tools in your investing toolkit. Compound interest is essentially the interest you earn on your interest.

The idea here is that as you reinvest your returns, you are increasing the amount of money on which you earn returns. As a result, your returns keep getting bigger and your investments can start to grow exponentially.

6. Leaving Emotions Out Of It

Investing is just numbers and math, so it’s totally rational, right? Well…not exactly. Humans are emotional creatures and sometimes those emotions can get the better of us, leading us to make decisions that aren’t always in our best interest. Letting emotions dictate our investing behavior can result in costly mistakes.

For example, if you’re investing in a recession and the stock market starts to drop, you may panic and be tempted to sell your stocks. However, doing so can actually lock in your losses and means that you miss the subsequent rally.

On the other end of the spectrum, when the stock market is roaring, you may be tempted to jump on the bandwagon and overbuy stocks. Yet, doing so opens you up to the risk that you are jumping on a bubble that may soon burst.

There are a number of strategies that can help these mistakes be avoided. First, fight the urge to check how your stocks are doing all the time. There are natural cycles of ups and downs that can happen even on a daily basis. These can cause anxiety if you pay attention too closely. You might want to avoid constant checking in and instead keep your eye on the big picture—achieving your long-term goals.

Trust your asset allocation. Remember that it has already taken your goals, time horizon, and your risk tolerance into consideration. Tinkering with it based on spur-of-the-moment decisions can throw off your allocation and make it difficult to achieve your goals.

7. Reducing Fees and Taxes

Be wary of taxes and fees as these can take a hefty bite out of your potential earnings.

Mutual funds are a common, actively managed tool for investing. To cover the cost of management, mutual funds may charge an expense ratio—a percentage based on the total assets invested in the fund each year. The expense ratio is deducted directly from your returns. You may also encounter annual fees and custodian fees.

You can also be charged fees for buying and selling assets as well as commissions that are paid to brokers for their services. It’s important to manage these costs, as they can eat away at your ability to save over time. One of the best lines of defense is doing your research to understand what fees you will be charged and what your alternatives are.

For example, you may want to choose mutual funds with the lowest expense ratios, or you may consider passive ETFs or index funds that charge very low fees. Selling stocks can expose you to short-term or long-term capital gains tax. Short-term capital gains tax—which is equal to your income tax rate—is owed when a stock is sold after being owned for a year or less.

Long-term capital gains tax—equal to 0%, 15% or 20%, depending on the tax bracket—is owed on assets that are sold after they’ve been held for a year or more. Limiting how often stocks are sold may limit the amount of capital gains taxed owed.

8. Taking Advantage of Tax-Advantaged Accounts

There are a few long-term goals that the government wants you to save for, including higher education and retirement. As a result, the government offers special tax-advantaged accounts to help you achieve these goals.

A 529 savings plan can help you save for your child’s—or anyone’s—college or grad school tuition. Contributions can be made to these accounts with after-tax dollars. This money can be invested inside the account where it grows tax-free. You can then make tax-free withdrawals to cover your child’s qualified education expenses.

Your employer may offer you a 401(k) account through your job. These accounts allow pre-tax dollars to be contributed, which lower your taxable income and can grow tax-deferred inside the account. If your employer offers matching funds, you could try to contribute enough to receive the maximum match. When you withdraw money from your 401(k) at age 59 ½, it is subject to income tax.

You may also take advantage of traditional IRAs and Roth IRAs. Traditional IRAs use pre-tax dollars and allow tax-deferred growth inside your account. Withdrawals at age 59 ½ are subject to income tax. You fund Roth IRAs, on the other hand, with after-tax dollars, so money in your account grows tax-free, and withdrawals are not subject to income tax.

IRAs provide more flexibility in terms of investment options than 401(k). Usually 401(k)s offer limited investment options through your employers, whereas you can hold diverse investments from stocks and bonds to real estate inside an IRA.

9. Making Saving Automatic

One way to continually add to your investments is by making saving a regular activity. One easy way to do this is through automation. If you have a workplace retirement account, you can usually automate contributions through your employer.

Or if you’re saving in a brokerage account you can arrange with your broker for a fixed amount of money to be transferred to your brokerage account each month and invested according to your predetermined allocation.

Recommended: What is a Brokerage Account? How Does it Work?

Automation can take the burden off of you to remember to invest. And with the money automatically flowing from your bank account to your investments accounts, you probably won’t be as tempted to spend it on other things.

10. Checking In on Your Investments

You may want to periodically check in on your portfolio to make sure your asset allocation is still on track. If it’s not, it may be time to rebalance your portfolio. You may want to rebalance when the proportion of any particular asset shifts by 5% or more.

This could occur, for example, if the stock market does really well over a given period, upping the portion of your portfolio taken up by stocks.

If this is the case, you might consider selling some stocks and purchasing bonds to bring your portfolio back in line with your goals. Periodic check-ins can also provide opportunities to examine fees and other costs and their impact on your portfolio.

The Takeaway

When you’re ready to invest, whether through retirement accounts, brokerage accounts, by yourself, or with help, these strategies can help you build an investment plan to match your financial situation.

The most important tips for long-term investing involve setting financial goals, diversifying your holdings, learning about taxes and fees, and starting early so your portfolio can benefit from compounding. This plan accounts for your individual needs, and sticking to it can help you achieve your long-term objectives.

Start investing on SoFi Invest® today.



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SoFi Invest®
The information provided is not meant to provide investment or financial advice. Investment decisions should be based on an individual’s specific financial needs, goals and risk profile. SoFi can’t guarantee future financial performance. Advisory services offered through SoFi Wealth, LLC. SoFi Securities, LLC, member FINRA / SIPC . The umbrella term “SoFi Invest” refers to the three investment and trading platforms operated by Social Finance, Inc. and its affiliates (described below). Individual customer accounts may be subject to the terms applicable to one or more of the platforms below.

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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