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An expense ratio is the annual cost that a mutual fund or exchange-traded fund (ETF) charges to cover its operating and management costs. It’s typically expressed as a percentage of your overall investment in the fund and is automatically deducted. Because the cost is handled within the fund, you won’t receive a bill for it or see it listed as a separate charge on your account statements.

Because an expense ratio reduces the amount of money remaining in the fund, investors generally prefer funds with lower expense ratios, all else being equal. However, cost is just one factor to consider when comparing funds. Here’s a closer look at how expense ratios are calculated, what they include, how they’re charged, and what else to consider when evaluating a mutual fund or ETF.

How Expense Ratios Are Calculated

An expense ratio tells you how much you’ll pay over one year to cover a fund’s operating expenses and is typically given as a percentage. For example, if you have $10,000 invested in an ETF with 0.04% expense ratio, the annual expense would be approximately $4, assuming your balance remains at $10,000 for the year.

The actual amount you pay can vary as the value of your investment changes. The expense ratio is typically accrued daily rather than deducted from your account in one lump sum.

The expense ratio for an ETF or mutual fund is calculated by dividing the fund’s total operating expenses by its average net assets. The basic formula is:

Expense Ratio = Total Fund Costs ÷ Total Fund Assets

For example, if a fund holds $500 million in assets and $5 million in annual operating expenses, the expense ratio would be:

$5 million ÷ $500 million = 0.01

Expressed as a percentage, that’s an expense ratio of 1%. In simple terms, a 1% expense ratio represents approximately $10 in annual fund expenses for every $1,000 invested.

Recommended: How to Pick an ETF

How Expense Ratios Are Charged

Expense ratios are expressed as a percentage of a fund’s assets and aren’t charged as a separate bill to your account. Instead, fund expenses are usually accrued daily and paid from the fund’s assets. As a result, the cost is reflected in the fund’s net asset value (NAV) and investment performance.

The Components of an Expense Ratio

An expense ratio can include several types of operating expenses, depending on the fund. Common components include:

Management Fees

Management fees are generally one of the largest parts of an expense ratio. They compensate the investment adviser for managing the fund and making decisions about the portfolio.

Actively managed funds typically have higher management fees than passively managed funds because they typically require portfolio managers and research teams to evaluate securities and make investment decisions. Passive funds generally seek to track an index, which may require less ongoing research and portfolio management.

Marketing and 12b-1 Fees

A 12b-1 fee is a type of distribution and service fee that some mutual funds charge to cover certain marketing, distribution, and shareholder-service expenses. These fees are included in a fund’s annual operating expenses when applicable.

Not all mutual funds charge 12b-1 fees, and they are generally not a component of ETF expense ratios.

Administrative and Other Expenses

Expense ratios can also include administrative costs of recordkeeping, accounting, legal services, custodial services, and other expenses associated with operating the fund.

The specific expenses included can vary from one fund to another. The fund’s prospectus provides a breakdown of its annual operating expenses.

Other Investment Costs

Not every cost associated with owning a fund is included in its expense ratio. For example, portfolio transaction costs — such as brokerage commissions and other costs associated with buying and selling securities — aren’t included in a fund’s annual operating expenses.

A fund with a high portfolio turnover may incur more transaction costs than one that trades less frequently. Higher turnover may also result in more taxable capital gains distributions in a taxable account, although tax impact depends on the fund and an investor’s circumstances.

Investors may also encounter transaction-specific fees that are separate from the expense ratio, such as sales loads on certain mutual funds, redemption fees, or brokerage commissions. You’ll want to consider these costs separately when comparing the total cost of owning different funds.

Active vs. Passive Fund Expense Ratios

Expense ratios for passively managed funds are generally lower than those for actively managed funds, although there are exceptions.

Actively managed funds typically employ portfolio managers and research analysts to evaluate individual securities and make decisions about what to buy, hold, or sell. The added resources required to manage an active strategy may contribute to higher operating expenses.

Passive funds generally seek to track a specific market index rather than select securities based on ongoing investment research. Because the strategy involves less active decision-making, passive funds often have lower management expenses.

It’s important to distinguish between fund structure and investment strategy. Both mutual funds and ETFs can be actively or passively managed, so an ETF isn’t automatically less expensive simply because it’s an ETF.

How Expense Ratios Impact Your Returns Over Time

An expense ratio is an ongoing cost that reduces your investment’s value. While the difference between two expense ratios may seem small, the effect can become more noticeable over long periods because the money used to cover expenses is no longer available to generate potential additional returns.

For example, consider two funds with two different expense ratios — 0.15% and 0.4% respectively — and an initial investment of $10,000. Assume both generate a 5% annual return before expenses and that their expense ratios remain unchanged for 20 years. The fund with a 0.15% expense ratio would grow to approximately $25,785, while the fund with a 0.40% expense ratio would grow to approximately $24,583.

That’s a difference of about $1,202 after 20 years. Although the 0.25-percentage-point difference in expense ratios may seem small, this example shows how even a modest difference in annual fund expenses can add up over longer periods.

How to Research Expense Ratios

Fortunately, you don’t have to work hard to find a fund’s expense ratio. You can find it in a fund’s prospectus, which is available on the fund company’s website. The Securities and Exchange Commission (SEC) requires funds to provide investors with information about fees and expenses, investment objectives, and other important details.

If you’re managing your portfolio through a self-directed investment account, you may be able to use your brokerage’s research tools to look up expense ratios for individual investment funds, or even compare them across different funds.

Average Expense Ratios

Expense ratios have generally declined over the past two decades, according to Morningstar’s 2026 Annual U.S. Fund Fee Study. Morningstar reported that the average expense ratio paid by U.S. fund investors fell from 0.80% in 2006 to 0.32% in 2025.

Expense ratios can vary widely depending on the type of fund, its investment strategy, whether it is actively or passively managed, and whether it invests in domestic or international markets. Here’s a look at typical expense ratios:

Type of Fund	Typical Expense Ratio
Passively managed index fund or ETF	0.02% – 0.25%
Actively managed fund	0.50% – 1.50%+
Specialty or sector fund	0.09% – 2%+
International or emerging market fund	0.30% – 1.75%
Bond fund	0.03% – 0.75%

What’s a Good Expense Ratio?

There isn’t one expense ratio that qualifies as “good” for every fund. Generally speaking, however, a low-cost ETF will have an expense ratio of 0.25% or less, while a low-cost mutual fund is often defined as having an expense ratio of 0.5% or lower. Low-cost bond ETFs may have an expense ratio under 0.2%, while low-cost bond mutual funds may charge 0.4% or less.

When comparing similar funds, a lower expense ratio can be an advantage if the funds have similar strategies, performance objectives, and risk characteristics. But the cheapest fund isn’t necessarily the best choice. A fund with a slightly higher expense ratio may provide a strategy or exposure that better fits your goals.

Looking Beyond Expense Ratios

Expense ratios are an important factor when comparing funds, but they shouldn’t be the only one. A fund with a low expense ratio may not be the best fit if it doesn’t provide the type of investment exposure or strategy you’re looking for.

When evaluating funds, consider factors such as:

•   Investment strategy: You’ll want to make sure the fund’s objective and holdings align with the type of exposure you want.

•   Performance: Compare a fund’s historical performance with its appropriate benchmark, while remembering that past performance doesn’t guarantee future results.

•   Risk: Consider the types of securities the fund holds, its volatility and how much risk you’re comfortable taking.

•   Portfolio turnover: Higher turnover can increase transaction costs and may generate more taxable distributions in a taxable account.

•   Other fees: Check for costs outside the expense ratio, including sales loads, redemption fees, and brokerage-related charges.

•   Fund size and history: A fund’s assets, track record and overall structure may also be relevant when comparing otherwise similar funds.

The Takeaway

An expense ratio is the percentage of a mutual fund or ETF’s assets used to cover its annual operating expenses. The cost is deducted from the fund’s assets rather than billed separately to investors, so you generally won’t see an expense ratio charge on your account statement.

Lower expense ratios can help preserve more of your potential investment returns over time, particularly when comparing funds with similar strategies. However, cost is only one factor to consider. Before choosing a fund, it’s important to review its expense ratio along with its investment strategy, risk, performance, portfolio turnover and other potential fees.

Ready to invest in your goals? It’s easy to get started when you open an investment account with SoFi Invest®. You can trade stocks, ETFs, or options through self-directed investing with SoFi Securities, or simply automate your investments with a robo advisor from SoFi Wealth. You'll gain access to alternative investments and upcoming IPOs, and can plan for retirement with a tax-advantaged IRA. With SoFi, you can manage all your investments, all in one place.

Take a step toward reaching your financial goals with SoFi Invest.

FAQ

What is an expense ratio in an ETF?

An exchange traded fund (ETF) expense ratio is the percentage of the fund’s assets used each year to cover its operating expenses. These may include management, administrative, and other costs. The expense ratio is deducted from the ETF’s assets rather than charged to you as a separate bill. For example, an ETF with a 0.20% expense ratio would have approximately $2 in annual expenses for every $1,000 invested, assuming the investment balance remained unchanged.

How are expense ratios calculated?

An expense ratio is generally calculated by dividing a fund’s annual operating expenses by its average net assets. For example, if a fund has $2 million in annual operating expenses and $500 million in average net assets, its expense ratio would be 0.40%. Funds disclose their expense ratios in their prospectuses and other investor documents, so you typically don’t need to calculate them yourself.

What expenses does an expense ratio pay for?

An expense ratio can cover a fund’s operating costs, including management fees, administrative expenses, recordkeeping, accounting, legal services, and custodial services. Some mutual funds may also include 12b-1 distribution and shareholder-service fees. The specific expenses vary by fund. A fund’s prospectus provides a breakdown of its annual operating expenses.

Are expense ratios tax-deductible?

Generally, no. Expense ratios are already automatically subtracted from the fund’s assets before you receive any returns or dividends. Because they can reduce your net investment income and ultimate taxable gain at the fund level, claiming them again as a separate deduction on your taxes is not permitted. In addition, the IRS does not allow individuals to deduct miscellaneous investment-related management fees. Keep in mind, however, that this is general background information only and is not intended to serve as tax advice. You should consult your own tax advisor if you have a question requiring tax advice.

Do expense ratios include trading fees?

Generally, no. A fund’s expense ratio covers its annual operating expenses but generally doesn’t include portfolio transaction costs associated with buying and selling securities. These costs are separate from the expense ratio. Funds with higher portfolio turnover may incur more trading-related costs, although the amount varies depending on the fund’s strategy and trading activity.

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This content is for educational and informational purposes only. The products, services, or features discussed may not currently be available via the SoFi platform. Any references to third-party products, services, or companies do not constitute an endorsement, recommendation, or solicitation by SoFi. Readers should independently evaluate their options and consider their individual financial needs and circumstances before making any decisions. ©2026 SoFi Technologies, Inc. All rights reserved.
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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In the financial world, you’ll often hear the terms “bull market” and “bear market” in reference to market conditions. These terms refer to extended periods of ups and downs in the financial markets. Because market conditions may directly affect investors’ portfolios, it’s important to understand the differences between them.

Knowing the basics of bull and bear markets — and potentially maintaining or adjusting your investment strategy accordingly — can help you make informed investing decisions.

What Is a Bull Market?

A bull market is a period in the financial markets where asset prices are rising, and optimism tends to be high. A bull market is generally seen as a good thing for most investors because stock prices are on the upswing and it may indicate that the broader economy is growing.

It isn’t always easy to identify a bull market at first, and what qualifies as a bull market is often debated. However, a widely accepted benchmark is a 20% or greater rise in major market indexes over a period of two or more months.

The term “bull market” was coined in response to its predecessor, bear market. “Bears” became associated with speculators who sold investments in anticipation of prices falling. In the 1700s, “bull” was used to describe speculators purchasing assets with the anticipation that prices would rise, and the bull became the mascot for upward-trending markets.

Recommended: Bullish vs Bearish: What’s the Difference?

What Is a Bear Market?

Investors and market watchers generally define a bear market as a drop of 20% or more from market highs. When investors refer to a bear market, they usually mean that broad market indexes, such as the S&P 500 Index or the Dow Jones Industrial Average (DJIA), fell by 20% or more over at least two months.

The term “bear” has a long history. It can be traced back to an old proverb, warning that it isn’t wise to “sell the bear’s skin before one has caught the bear.” In time, “bear’s skin” became simply “bear,” and people started to use the term to describe speculators in the markets. Those speculators would sell investments with the belief that prices would soon fall, with the goal of buying them back at a lower price. From there, “bears” became associated with downward-trending markets.

Bull vs Bear: Main Differences

The most obvious difference between bull and bear markets is that one is associated with a downward-trending market, and the other, with an upward-trending market. But there are other differences, as well.

For instance, bull markets tend to last longer than bear markets, although there’s no guarantee that any bull market will last longer than any particular bear market. According to historical market data, the average bull market lasts approximately five years, while the average bear market lasts closer to one year.

Typical gains and losses also tend to be lopsided between the two. The average cumulative gain over the course of a bull market is about 150%, while the average cumulative loss during a bear market is about 30% (though historical market patterns are not a guarantee of future performance).

Bull vs Bear Market: Key Differences
Bull Market	Bear Market
Upward-trending market	Downward-trending market
Average duration of about five years	Average duration of about one year
Average cumulative gains of ~150%	Average cumulative losses of ~30%

How Is Investing Different During a Bull Market vs a Bear Market?

Depending on the individual investor, investing can be different during rising bull markets vs. declining bear markets. For some people, their investing habits may not change at all, but for others, their entire strategy may shift. A lot of it has to do with an investor’s personal risk tolerance, strategy, and investing timeline.

Some investors may adjust their portfolio allocations based on the level of risk they’re comfortable with and the amount of time they may have to absorb shorter-term market volatility. Other investors may maintain a consistent strategy regardless of market activity, and not change their investing habits at all.

Sticking to investing strategy can sometimes be a challenge for investors in bear markets, in particular, when the value of individual portfolios may decline. However, it’s also important to remember that bear markets and bull markets are cyclical. Bear markets tend to appear, on average, about every five years, typically followed by a longer bull market.

Whether market sentiment is optimistic or cautious, the psychological weight of market movements can lead to reactive decision-making. Staying anchored to a disciplined, well-structured financial plan can help investors manage emotional responses across every phase of the market cycle.

Investing During a Bull Market

Investors may choose to adopt different investment strategies during a bull market depending on their circumstances and goals.

Some investors may find it psychologically easier to invest during a bull market, when assets are (more broadly) appreciating, and they may see a more immediate unrealized return in their portfolio. However, this also comes with the risk of buying assets with potentially inflated values that may decline again in the future.

Other investors may choose to sell securities that have risen in value for profit or to reinvest gains in new investment opportunities. Some may wait to sell in a bull market in anticipation of market prices rising higher. However, no one knows when a peak will arrive, and attempting to time the stock market is challenging even for professional investors.

Many investors stick with a buy-and-hold strategy, where they maintain a long-term asset allocation strategy regardless of short-term price swings. While there are never guarantees in investing, this strategy gives them the chance to benefit from potential long-term market growth while avoiding emotional decision-making. Diversification can be an important part of this strategy to avoid taking on too much risk for individual circumstances. Diversification can’t guarantee profits, however, or fully protect investments in a declining market.

Investing During a Bear Market

Investing during a bear market requires balancing emotional discipline with a clear understanding of your overall financial goals. Bear markets can be particularly nerve-wracking since it can sometimes be difficult to see them coming. Some signs that a bear market may be looming include a slowing economy, increasing unemployment, declining profits for corporations, and decreasing consumer confidence, among other things.

Evaluating the potential risks of and opportunities for buying, selling, or holding assets in a bear market may help investors stick with their core strategy through volatile market cycles.

Buying

Buying stock during a bear market may allow an investor to secure a lower price, since the stock may rise in value over time as the market recovers. This is known as buying the dip.

However, this can be a form of timing the market, and there can be significant risks associated with trying to predict when certain stocks will hit bottom and buying them with the expectation of future gains. No one knows what the future holds, so there’s always a chance the price will keep falling.

Another tactic investors might be able to use is dollar-cost averaging (DCA), which is investing a fixed amount of money over time, so that chances of buying at high or low points are spread out over time. This allows investors to avoid emotional decision-making and attempting to time the market.

Dollar cost averaging comes with the risk of missing out on potential gains during rising markets, however, since a larger sum invested all at once earlier in a specified time period may yield a higher return. Dollar cost averaging also does not guarantee a profit or protect against losses in declining markets.

Recommended: The Pros and Cons of a Defensive Investment Strategy

Selling

When a bear market starts to set in, some investors may adjust their portfolio allocations — selling some types of assets and purchasing others — to align their portfolio with the level of risk they’re comfortable with.

Some investors may begin to sell their stocks to avoid further losses in a bear market. However, doing so could potentially lock in losses. An investor with a long-term strategy may choose to hold their investments and remain positioned to capture potential upside if the market rebounds. Broad market indexes have historically recovered from downturns over time, though individual portfolio recovery can vary.

Holding

If investors are investing for the long haul and comfortable with their portfolio mix, they may opt to hold their investment and/or maintain their predetermined strategy, no matter what’s happening in the markets in the short term. For example, investors might continue investing a set amount through their online brokerage in a robo or active investing account using a dollar cost averaging strategy. It’s worth remembering that market cycles are normal, and the same dynamism responsible for downturns may allow investors to experience gains at other times.

Overall, one way to prepare for a bear market is to try and remember that the market will likely, at some point, see a downturn. And, accordingly, to try and be prepared for it.

One way to do so could be to make sure your assets aren’t allocated in a way that’s riskier than you’re comfortable with — for example, by being overly invested in stocks in one company, industry, or region. In other words, make sure the diversification of your portfolio is in line with your risk tolerance and goals.

Examples of Bull and Bear Markets

From a historical perspective, bear markets are fairly common, occurring approximately every five years. In fact, dating back to 1929, the S&P 500 has experienced a decline of 20% or more at least 25 times, though these have been less frequent since 1945.

Most recently, the S&P 500 dropped roughly 20% in early April 2025 during the U.S. announcement of global tariffs in what was nearly a bear market. Prior to that, the most recent bear market was during 2022, amid the start of the current Ukraine conflict, and lasted approximately 280 days, with a market decline close to 30%.

Before that, there was a bear market in February and March 2020, when the pandemic initially hit the U.S., which saw the markets fall by more than 33%, but the bear market itself lasted only 33 days.

Going back even further, there was a relatively severe bear market in the early 1970s that lasted 630 days and saw the market decline by 48%. That makes more recent downturns look fairly tame in comparison.

The Takeaway

Bull and bear markets refer to rising and declining markets, respectively, with bear markets particularly notable as they represent declines of at least 20% in the market. Both bull and bear markets can have psychological as well as financial effects, and it’s important to understand what they are so you can try to adjust (or stick to) your strategy accordingly.

If you’re investing for decades down the road, one option may be to maintain a long-term investing strategy, regardless of what the market is doing, once you have an investment mix that is diversified and matches your comfort with risk. It may also be a good idea to speak with a financial professional for guidance.

Ready to invest in your goals? It’s easy to get started when you open an investment account with SoFi Invest®. You can trade stocks, ETFs, or options through self-directed investing with SoFi Securities, or simply automate your investments with a robo advisor from SoFi Wealth. You'll gain access to alternative investments and upcoming IPOs, and can plan for retirement with a tax-advantaged IRA. With SoFi, you can manage all your investments, all in one place.

Take a step toward reaching your financial goals with SoFi Invest.

FAQ

What’s the difference between a bull market and a bear market?

A bull market is a period in which asset prices are rising, the economy may be expanding, and investors are generally feeling optimistic. A bear market is a period in which prices have fallen, usually by 20% or more (according to major market indexes) over two or more months.

How long do bull and bear markets last?

Bull markets tend to last longer, reaching an average of about five years, according to historical market cycles. The average bear market lasts closer to a year, though some bear markets are longer than others.

What should investors do in a bull market?

How an investor reacts to a bull market can vary depending on their strategy, risk tolerance, and goals. Investors focused on a long-term, buy-and-hold strategy may simply maintain their current investment plan. Some investors may wish to sell when stock prices are rising, though this could potentially mean missing out on future, longer-term gains.

Some investors are tempted to take on more risk when prices are rising. However, it may be a good idea to keep confidence in check during a bull market since it’s hard to know when a downswing may arrive.

What should investors do in a bear market?

Navigating a bear market can involve maintaining financial discipline, evaluating your personal goals and timeline, and avoiding panic-driven decisions. While market downturns can be uncomfortable, many investors focus on a few key strategies to help manage risk.

These may include maintaining an investment strategy focused on potential long-term growth, rather than shorter-term market volatility, and allocating assets in a portfolio to align with risk tolerance. Some investors may purchase stocks while prices are lower; however, keep in mind there’s no guarantee that a given stock will recover from a downturn.

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This content is for educational and informational purposes only. The products, services, or features discussed may not currently be available via the SoFi platform. Any references to third-party products, services, or companies do not constitute an endorsement, recommendation, or solicitation by SoFi. Readers should independently evaluate their options and consider their individual financial needs and circumstances before making any decisions. ©2026 SoFi Technologies, Inc. All rights reserved.
Options involve substantial risk of loss and the possibility an investor may lose the entire amount invested. Before starting options trading, investors should be familiar with the Characteristics and Risks of Standardized Options . TTax implications with options should be considered. Consult your tax advisor to understand any impacts to your taxes.

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Under the Navy Loan Repayment Program, those who join the Navy may qualify for a significant amount of student loan relief. The program will pay up to $65,000 toward an eligible service member’s student loans.

Read on to learn more about the Navy Loan Repayment Program.

Who Qualifies for the Navy Program?

The Navy Loan Repayment Program is a military student loan repayment program that can provide up to $65,000 of federal student loan repayment assistance for Navy personnel who qualify. The program is offered to service members who are enlisting for active duty in the Navy.

To be eligible for the loan repayment program, service members must meet the following criteria.

•   They must have a high school diploma.

•   They must enlist in the delayed entry program as active duty and have an eligible rating.

•   They must have a loan that is not in student loan default.

How Navy Student Loan Repayment Works

Through the program, the Navy will pay 33.3% of a service member’s outstanding loan balance or $1,500 a year, whichever is greater, for each year of Naval service for up to three years.

Only federal student loans qualify for the loan repayment program. The eligible types of student loans include:

Federal Direct Loans. Subsidized and Unsubsidized Direct Loans are low-interest loans made by the U.S. Department of Education to qualified borrowers for tuition and other college expenses.

Federal PLUS Loans. Otherwise known as Direct PLUS Loans, these loans are offered by the U.S. government to graduate or professional students to cover tuition and college costs. In many cases, Direct PLUS Loans offer funds to help cover education expenses not covered by other financial aid programs.

Direct Consolidation Loan. A Direct Consolidation Loan bundles multiple federal loans into a single loan, streamlining the repayment process.

Perkins Loans. These low-interest loans were geared toward college students who demonstrated exceptional financial need. The Federal Perkins Loan Program stopped disbursing loans in 2018, but Navy personnel may still have outstanding Perkins Loan debt and thus are eligible for help from the Navy Loan Repayment Program.

A Navy applicant is typically given the option to enroll in the Loan Repayment Program at the Military Entrance Processing Station (MEPS).

MEPS, the stations funded by the U.S. Department of Defense to enroll military service members, handle their applications and assess their physical, mental, and emotional health to see if they’re fit for military service.

What Documents Do You Need to Apply?

All documents needed to apply are available at the MEPS recruiting center. Those interested in the Navy Loan Repayment Program can connect with a recruiter for more information.

Filling Out the Loan Repayment Form

The key document when applying for the Navy Loan Repayment Program is DD Form 2475, which is broken down into four sections.

Section 1 is completed and approved by the recruiting officer (i.e., the verifying official). The section includes the naval office address and contact information so the lending institution can forward the proper paperwork. Basically, Section 1 includes the recruiter’s name and signature and the date.

Section 2 includes the applicant’s name, address, telephone number, email address, and Social Security number. This section is completed by the service member/applicant.

Section 3 includes the student loan data (including the borrower’s name, the loan amount, outstanding balance, the original date of the promissory note, the loan holder address, email and phone number, and the loan application number). The section also includes a box noting whether the student loan is in default or not and asks for the name and address of the financial institution where the loan aid is to be sent.

Section 4 is a grid where more information on the loan can be included to expedite processing. Sections 3 and 4 are filled out by the student loan servicing agency.

Important Things to Know

There are two guidelines that applicants for the Navy Loan Repayment Program should be aware of:

Payments are taxable. Any payments made by the Navy to the service member are taxed, as the IRS deems student loan relief as taxable income in the year the money is paid out. There may be state taxes for this loan relief as well.

Lenders only. The Navy will not refund any loan amount that is paid out by other parties aside from the qualified student loan lenders. Private student loans may not be covered by the program.

Other Ways to Repay Student Loans

Borrowers who are uncertain about a military commitment or who may be struggling to make student loan payments, have alternatives to military-supported repayment.

One option for those with federal student loans is income-driven repayment plans, which base a borrower’s monthly payments on their discretionary income and family size. The repayment term is 20-30 years, depending on which plan you’re on, after which any remaining balance is forgiven if you have made a certain number of payments.

Another alternative is student loan refinancing. With refinancing, a borrower’s federal student loans are replaced with one new loan from a private lender.

While there are advantages to refinancing federal student loans, there are disadvantages to know about. If you are thinking of taking advantage of federal benefits such as income-driven repayment or Public Service Loan Forgiveness, refinancing may not be right for you because you’ll lose your eligibility for federal programs.

Borrowers who do not plan on using federal benefits and choose to refinance may qualify for a lower interest rate or lower monthly payments. They’ll have only one payment a month and may be able to either lengthen or shorten the term. Note: You may pay more interest over the life of the loan if you refinance with an extended term.

The Takeaway

The Navy Loan Repayment Program can be a great way to tackle up to $65,000 of federal student loan debt for those who are enlisting for active duty in the Navy. However, if this program doesn’t fit your needs, other options such as income-driven repayment plans or refinancing might help you manage your debt. Just be sure to weigh the pros and cons, especially since refinancing means giving up federal benefits. It pays to explore all your options before deciding.

Looking to lower your monthly student loan payment? Refinancing may be one way to do it — by extending your loan term, getting a lower interest rate than what you currently have, or both. (Please note that refinancing federal loans makes them ineligible for federal forgiveness and protections. Also, lengthening your loan term may mean paying more in interest over the life of the loan.) SoFi student loan refinancing offers flexible terms that fit your budget.

With SoFi, refinancing is fast, easy, and all online. We offer competitive fixed and variable rates.

FAQ

Does the Navy offer a loan repayment program?

Yes, the Navy offers a military student loan repayment program. Called the Navy Loan Repayment Program, it provides up to $65,000 of federal student loan repayment assistance to Navy service members who are enlisting for active duty.

How does Navy loan repayment work?

The Navy Loan Repayment program offers up to $65,000 of federal student loan relief to Navy service members who are enlisting. Through this program, the Navy will pay 33.3% of a service member’s outstanding loan balance or $1,500 a year, whichever is greater, for each year of service, up to three years.

How much money does the Navy Loan Repayment Program pay?

The maximum repayment amount is $65,000 for the Navy Loan Repayment Program. The payments are 33.3% of a service member’s outstanding federal student loan balance annually for each year of service in the Navy for up to three years.

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This content is for educational and informational purposes only. The products, services, or features discussed may not currently be available via the SoFi platform. Any references to third-party products, services, or companies do not constitute an endorsement, recommendation, or solicitation by SoFi. Readers should independently evaluate their options and consider their individual financial needs and circumstances before making any decisions. ©2026 SoFi Technologies, Inc. All rights reserved.

Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article.

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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If you’re leaving a job, you may hear the term “rollover IRA.” But exactly what is a rollover IRA? Employees have the option of moving their retirement savings from their employer-sponsored 401(k) plan to an individual retirement account, or IRA, at another financial institution when they leave a job. This IRA, where they transfer their 401(k) savings to, is called a rollover IRA. If the 401(k) plan was not a Roth 401(k), you’ll likely want to open what’s called a traditional IRA.

In this scenario, a rollover IRA is also a traditional IRA. But they aren’t always the same. You can have a traditional IRA that is not a rollover IRA. Read on for the differences worth noting between a rollover IRA and a traditional IRA.

What Is a Rollover IRA?

A rollover IRA is an individual retirement account created with money that’s being rolled over from a qualified retirement plan like a 401(k). Generally, rollover IRAs happen when someone leaves a job with an employer-sponsored plan, such as a 401(k) or 403(b), and they roll the assets from that plan into a rollover IRA.

In a rollover IRA, like a traditional IRA, your savings grow tax-deferred until you withdraw the money in retirement. And because you choose the provider rather than your employer, you can compare your options on investment selection, fees, and account access.

Moving the money through a direct rollover, where the funds go straight from your old plan to the IRA, keeps that tax-deferred status intact and avoids taxes and penalties.

What Is a Traditional IRA?

A traditional IRA is an individual retirement account that you can fund with your own contributions. If you or your spouse have taxable compensation for the year, you may be able to contribute up to the annual limit set by the IRS.

When you open a traditional IRA, your contributions may be tax deductible, depending on your income and whether you or your spouse is covered by a retirement plan at work.^[1] Your savings then grow tax-deferred, which means you owe no tax on earnings while they stay in the account. You pay ordinary income tax on the money when you withdraw it in retirement.

This is advantageous to some retirees: Upon retirement, it’s likely one might be in a lower income tax bracket than when they were employed. Given that, the money they withdraw will be taxed at a lower rate than it would have when they contributed.

Is a Rollover IRA the Same as a Traditional IRA?

When it comes to a rollover IRA vs. traditional IRA, the only real difference is that the money in a rollover IRA was rolled over from an employer-sponsored retirement plan.

Otherwise, the accounts share the same tax rules on withdrawals, required minimum distributions, and conversions to Roth IRAs.

Recommended: Types of Retirement Plans and Which to Consider

Rollover IRA vs. Traditional IRA: A Side-by-Side Comparison

	Rollover IRA	Traditional IRA
Source of contributions	Created by “rolling over” money from another account, most typically an employer-sponsored retirement plan, such as 401(k) or 403(b). For the rollover amount, annual contribution limits do not apply.	Created by regular contributions to the account, not in excess of the annual contribution limit, although rolled-over money can also be contributed to a traditional IRA.
Contribution limits	There is no limit on the funds you roll over from another account. If you’re contributing outside of a rollover, the limit is: •   $7,500 for tax year 2026 plus an additional $1,100 if you’re 50 or older.[2] •   $7,000 for tax year 2025 plus an additional $1,000 if you’re 50 or older.	•   Up to $7,500 for tax year 2026, plus an additional $1,100 if you’re 50 or older.[2] •   Up to $7,000 for tax year 2025, plus an additional $1,000 if you’re 50 or older.
Withdrawal rules	Withdrawals before age 59 ½ are subject to both income taxes and an early withdrawal penalty (with certain exceptions , like for higher education expenses or the purchase of a first home).	Withdrawals before age 59 ½ are subject to both income taxes and an early withdrawal penalty (with certain exceptions , like for higher education expenses or the purchase of a first home).
Required minimum distributions (RMDs)	You’re required to withdraw a certain amount of money from this account each year once you reach age 73, or age 75 if you were born in 1960 or later[3] (thanks to the SECURE 2.0 Act of 2022).	You’re required to withdraw a certain amount of money from this account each year once you reach age 73, or age 75 if you were born in 1960 or later[3] (again, thanks to the SECURE 2.0 Act).
Taxes	Since contributions are from a pre-tax account, all withdrawals from this account in retirement will be taxed at ordinary income rates.	If contributions are tax deductible, all withdrawals from this account in retirement will be taxed at ordinary income rates. (If contributions were non-deductible, you’ll pay taxes on only the earnings in retirement.)
Convertible to a Roth IRA	Yes	Yes

Should You Roll Over to an IRA or Leave Your Money in an Employer Plan?

Because a rollover IRA generally follows the same tax rules as a traditional IRA, the bigger decision is whether to move money from your old employer plan into an IRA or leave it in the plan.

Reasons to Roll Over Into an IRA

There are several advantages to rolling your employer-sponsored retirement plan into an IRA, vs. into a 401(k) with a new employer:

Reasons to Leave Your Money Where It Is

There are also some rollover IRA rules that may feel like disadvantages to putting your money into an IRA instead of leaving it in an employer-sponsored plan:

Recommended: 4 Step Guide to Retirement Planning

Can You Contribute to a Rollover IRA?

Yes, a rollover IRA can accept new contributions just like any other traditional IRA. You can make contributions to a rollover IRA, up to IRA contribution limits. For tax year 2026, you can contribute up to $7,500 (with an additional catch-up contribution of $1,100). If you do add money to your rollover IRA, however, you may not be able to roll the account into another employer’s retirement plan at a later date.

Can You Combine a Traditional IRA With a Rollover IRA?

A rollover IRA is essentially a traditional IRA that holds money rolled over from an employer-sponsored retirement plan. Because of this, you can generally combine a rollover IRA and a traditional IRA by moving the assets from one account into the other.

How you move the money matters. With an indirect, or 60-day, rollover, the money is paid to you and you generally have 60 days to deposit it into another eligible retirement account.^[4] With a trustee-to-trustee transfer or direct rollover, the money moves directly between financial institutions, so it never passes through your hands and there’s no 60-day deadline to manage.

One catch applies when money from an employer-sponsored retirement plan is paid directly to you. The plan generally must withhold 20% for federal income taxes, even if you intend to roll over the full amount. To complete a full rollover, you would need to replace that 20% with money from another source within the 60-day period. Any taxable portion you don’t roll over generally counts as a distribution and, if you’re under age 59½, may also be subject to a 10% additional tax unless an exception applies.

There are a few other considerations when combining accounts. Mixing regular IRA contributions with rollover assets may make it more complicated to move those assets into a future employer-sponsored retirement plan, depending on the plan’s rules. Also, you generally can make only one 60-day rollover between IRAs in any 12-month period. That limit does not apply to trustee-to-trustee transfers, rollovers from an employer plan to an IRA, rollovers from an IRA to an employer plan, or conversions from a traditional IRA to a Roth IRA.

How to Open a Rollover or Traditional IRA

Opening a traditional IRA and a rollover IRA are identical processes — the only difference is the funding. You can open a traditional or rollover IRA by doing the following:

The Takeaway

Both a rollover IRA and a traditional IRA allow investors to put money away for retirement in a tax-advantaged way, with very little difference between the two accounts.

One of the primary questions anyone considering a rollover IRA should consider is, will you keep contributing to it? If so, that would prevent you from rolling the rollover IRA back into an employer-sponsored retirement account in the future.

Whether it’s a rollover IRA you’ve created by rolling over an employer-sponsored retirement account or a traditional IRA you’ve opened with regular contributions, either account can play a key role in your retirement game plan.

Prepare for your retirement with an individual retirement account (IRA). It’s easy to get started when you open a traditional or Roth IRA with SoFi. Whether you prefer a hands-on self-directed IRA through SoFi Securities or an automated robo IRA with SoFi Wealth, you can build a portfolio to help support your long-term goals while gaining access to tax-advantaged savings strategies.

Easily manage your retirement savings with a SoFi IRA.

FAQ

Can you take money out of a rollover IRA?

Yes, but if you take money from a rollover IRA (or a traditional IRA for that matter) before age 59½, those withdrawals are subject to income tax and an early withdrawal penalty of 10%. There are certain exceptions, however. If you withdraw the money for certain higher education expenses or to buy your first home, for example, the penalty may not apply.

Why would you rollover an IRA?

A rollover is when you move money between two different types of retirement plans. Typically, you might roll over an IRA if you leave a job with an employer-sponsored plan, such as a 401(k) or 403(b). You would roll the assets from that plan into a rollover IRA where your savings grow tax-deferred until you withdraw the money in retirement.

You could instead choose to leave the money in your former employer’s plan, if that’s allowed, or roll it over into your new employer’s 401(k) or 403(b) plan, if they have one. However, a rollover IRA may offer you more investment choices and lower fees and costs than an employer-sponsored plan.

Can I roll over assets into my traditional IRA?

Yes, rolled over money can be contributed to a traditional IRA. It’s also worth noting that you can also combine a traditional IRA and a rollover IRA. You can do this with a direct transfer from one account to another, or by rolling money from one IRA to another, for instance. Just keep in mind that there is a limit of one rollover between IRAs in any 12-month period.

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About the author

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Article Sources

1. IRS. IRA deduction limits.
2. IRS. 401(k) limit increases to $24,500 for 2026, IRA limit increases to $7,500.
3. IRS. Distributions from Individual Retirement Arrangements (IRAs).
4. IRS. Rollovers of retirement plan and IRA distributions.

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