Feb
06
2026
When to Start Saving for Retirement

When Should You Start Saving for Retirement?

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

If you ask any financial advisor when you should start saving for retirement, their answer would likely be simple: Now, or in your 20s if possible.

It’s not always easy to prioritize investing for retirement. If you’re in your 20s or 30s, you might have student loans or other goals that seem more “immediate,” such as a down payment on a house or your child’s tuition. But starting early is important because it can allow you to save much more. In fact, setting aside a little every year starting in your 20s could mean an additional hundreds of thousands of dollars of accumulated investment earnings by retirement age.

No matter what age you are, putting away money for the future is a good idea. Read on to learn more about when to start saving for retirement and how to do it.

Key Points

•   Starting to save for retirement in your 20s is ideal, as it gives your money more time to potentially grow and benefit from compounding. Compounding occurs when any earnings received are added to your principal balance, so future earnings are calculated on this updated, larger amount.

•   Assessing personal financial situations and retirement goals is crucial when determining how much to save for retirement, regardless of age.

•   Individuals in their 30s, 40s, 50s, or 60s can still successfully start saving for retirement, with different strategies tailored to each age group.

•   Regular contributions and taking advantage of employer-sponsored plans are key steps in building a solid retirement savings strategy at any age.

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

money management guide for beginners

What Is the Ideal Age to Start Saving for Retirement?

Ideally, you should start saving for retirement in your 20s, if possible. By getting started early, you could reap the benefits of compound interest. That’s when money in savings accounts earns interest, that interest is added to the principal amount in the account, and then interest is earned on the new higher amount.

Starting to save for retirement in your 20s can allow you to save much more. In fact, setting aside a little every year starting in your 20s could mean an additional hundreds of thousands of dollars of accumulated investment earnings by retirement age.

That said, if you are older than your 20s, it’s not too late to start saving for retirement. The important thing is to get started, no matter what your age.

The #1 Reason to Start Early: Compound Interest

If you start saving early, you could reap the benefits of compound interest.

CFP®, Brian Walsh says, “Time can either be your best friend or your worst enemy. If you start saving early, you make it a habit, and you start building now, time becomes your best friend because of compounded growth. If you delay — say 5, 10, 15 years to save — then time becomes your worst enemy because you don’t have enough time to make up for the money that you didn’t save.”

Here’s how compound interest works and why it can be so valuable: The money in a savings account, money market account, or CD (certificate of deposit) earns interest. That interest is added to the balance or principle in the account, and then interest is earned on the new higher amount.

Depending on the type of account you have, interest might accrue daily, weekly, monthly, quarterly, twice a year, or annually. The more frequently interest compounds on your savings, the greater the benefit for you.

Investments — including investments in retirement plans, such as an employee-sponsored 401(k) plan or a traditional or Roth IRA — likewise benefit from compounding returns. Over time, you can see returns on both the principal as well as the returns on your contributions. Essentially, your money can work for you and potentially grow through the years, just through the power of compound returns.

The sooner you start saving and investing, the more time compounding has to do its work.

💡 Quick Tip: If you’re opening a brokerage account for the first time, consider starting with an amount of money you’re prepared to lose. Investing always includes the risk of loss, and until you’ve gained some experience, it’s probably wise to start small.

Saving Early vs Saving Later

To understand the power of compound returns, consider this:

If you start investing $7,000 a year at age 25, by the time you reach age 67, you’d have a total of $2,129,704.66. However, if you waited until age 35 to start investing the same amount, and got the same annual return, you’d have $939,494.76.

Age

 Annual Return

 Savings
25 8% $2,129,704.66
35 8% $939,494.76

As you can see, starting in your 20s means you may save double the amount you would have if you waited until your 30s.

Starting Retirement Savings During Different Life Stages

Retirement is often considered the single biggest expense in many peoples’ lives. Think about it: You may be living for 20 or more years with no active income.

Plus, while your parents or grandparents likely had a pension plan that kicked off right at the age of 65, that may not be the case for many workers in younger generations. Instead, the 401(k) model of retirement that’s more common these days requires employees to do their own saving.

As you get started on your savings journey, do a quick assessment of your current financial situation and goals. Be sure to factor in such considerations as:

•   Age you are now

•   Age you’d like to retire

•   Your income

•   Your expenses

•   Where you’d like to live after retirement (location and type of home)

•   The kind of lifestyle you envision in retirement (hobbies, travel, etc.)

To see where you’re heading with your savings you could use a retirement savings calculator. But here are more basics on how to get started on your retirement savings strategy, at any age.

Starting in Your 20s

Starting to save for retirement in your 20s is something you’ll later be thanking yourself for.

As discussed, the earlier you start investing, the better off you’re likely to be. No matter how much or little you start with, having a longer time horizon till retirement means you’ll be able to handle the typical ups and downs of the markets.

Plus, the sooner you start saving, the more time you’ll be able to benefit from compound returns, as noted.

Start by setting a goal: At what age would you like to retire? Based on current life expectancy, how many years do you expect to be retired? What do you imagine your retirement lifestyle will look like, and what might that cost?

Then, create a budget, if you haven’t already. Document your income, expenses, and debt. Once you do that, determine how much you can save for retirement, and start saving that amount right now.

💡 Learn more: Savings for Retirement in Your 20s

Starting in Your 30s

If your 20s have come and gone and you haven’t started investing in your retirement, your 30s is the next-best time to start. While there may be other expenses competing for your budget right now — saving for a house, planning for kids or their college educations — the truth remains that the sooner you start retirement savings, the more time they’ll have to grow.

If you’re employed full-time, one easy way to start is to open an employer-sponsored retirement savings plan, like a 401(k). In 2025, you can contribute up to $23,500 in a 401(k), and in 2026, you can contribute up to $24,500.

One benefit to note is that your savings will come out of your paycheck each month before you get taxed on that money. Not only does this automate retirement savings, but it means after a while you won’t even miss that part of your paycheck that you never really “had” to begin with. (And yes, Future You will thank you.)

Learn more: Savings for Retirement in Your 30s

Starting in Your 40s

When it comes to how much you should have saved for retirement by 40, one general guideline is to have the equivalent of your two to three times your annual salary saved in retirement money.

Once you have high-interest debt (like debt from credit cards) paid off, and have a good chunk of emergency savings set aside, take a good look at your monthly budget and figure out how to reallocate some money to start building a retirement savings fund.

Not only will regular contributions get you on a good path to savings, but one-off sources of money (from a bonus, an inheritance, or the sale of a car or other big-ticket item) are another way to help catch up on retirement savings faster.

Starting in Your 50s

In your 50s, a good ballpark goal is to have six times your annual salary in your retirement savings by the end of the decade. But don’t panic if you’re not there yet — there are a few ways you can catch up.

Specifically, the government allows individuals aged 50 and older to make “catch-up contributions” to 401(k), traditional IRA, and Roth IRA plans. That’s an additional $7,500 in 401(k) savings, and an additional $1,000 in IRA savings for 2025, and an extra $8,000 in 401(k) savings, and an extra $1,100 in IRA savings for 2026. (Note that in 2025 and 2026, those aged 60 to 63 may contribute up to an additional $11,250 to a 401(k), instead of $7,500 or $8,000.)

Also, under a new law that went into effect on January 1, 2026 (as part of SECURE 2.0), individuals aged 50 and older who earned more than $150,000 in FICA wages in 2025 are required to put their 401(k) catch-up contributions into a Roth account. With Roth accounts, individuals pay taxes on contributions upfront, but can make qualified withdrawals tax-free in retirement.

The opportunity is there, but only you can manage your budget to make it happen. Once you’ve earmarked regular contributions to a retirement savings account, make sure to review your asset allocation on your own or with a professional. A general rule of thumb is, the closer you get to retirement age, the larger the ratio of less risky investments (like bonds or bond funds) to more volatile ones (like stocks, mutual funds, and ETFs) you should have.

Starting in Your 60s

It’s never too late to start investing, especially if you’re still working and can contribute to an employer-sponsored retirement plan that may have matching contributions. If you’re contributing to a 401(k), or a Roth or traditional IRA, don’t forget about catch-up contributions (see the information above).

In general, when you’re this close to retirement it makes sense for your investments to be largely made up of bonds, cash, or cash equivalents. Having more fixed-income securities in your portfolio helps lower the odds of suffering losses as you get closer to your target retirement date.

💡 Learn more: Savings for Retirement in Your 60s

The Takeaway

Investing in retirement and wealth accounts is a great way to jump-start saving and investing for your golden years, whether you invest $10,000 or just $100 to get started.

The first step is to open an account or use the one that’s already open. You could also increase your contribution. If you’re opening an account, you may want to consider one without fees, to help maximize your bottom line.

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

Is 20 years enough to save for retirement?

It’s never too late to start investing for retirement. If you’re just starting in your 40s, consider contributing to an employer-sponsored plan if you can, so that you can take advantage of any employer matching contributions. In addition to regular bi-weekly or monthly contributions, make every effort to deposit any “windfall” lump sums (like a bonus, inheritance, or proceeds from the sale of a car or house) into a retirement savings vehicle in an effort to catch up faster.

Is 25 too late to start saving for retirement?

It’s not too late to start saving for retirement at 25. Take a look at your budget and determine the max you can contribute on a regular basis — whether through an employer-sponsored plan, an IRA, or a combination of them. Then start making contributions, and consider them as non-negotiable as rent, mortgage, or a utility bill.

Is 30 too old to start investing?

No age is too old to start investing for retirement, because the best time to start is today. The sooner you start investing, the more advantage you can take of compound returns, and potentially employer matching contributions if you open an employer-sponsored retirement plan.

Should I prioritize paying off debt over saving for retirement?

Whether you should prioritize paying off debt over saving for retirement depends on your personal situation and the type of debt you have. If your debt is the high-interest kind, such as credit card debt, for instance, it could make sense to pay off that debt first because the high interest is costing you extra money. The less you owe, the more you’ll be able to put into retirement savings.

And consider this: You may be able to pay off your debt and save simultaneously. For instance, if your employer offers a 401(k) with a match, enroll in the plan and contribute enough so that the employer match kicks in. Otherwise, you are essentially forfeiting free money. At the same time, put a dedicated amount each week or month to repaying your debt so that you continue to chip away at it. That way you will be reducing your debt and working toward saving for your retirement.

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

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

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

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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.

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The Average 401k Balance by Age

The Average 401(k) Balance by Age

By | Growing Wealth, invest, Investing, Preparing for Retirement | Comments Off on The Average 401(k) Balance by Age
Table of Contents

Key Points

•   Establishing the habit of investing in a retirement plan early, even small amounts, may help you benefit from compounding returns.

•   Aim to contribute enough to your 401(k) to get the full employer match, so you don’t leave money on the table.

•   Automating contributions can make it easier to consistently build retirement funds over time.

•   If you’re over 50, making catch-up contributions can boost your retirement savings.

•   Paying attention to asset allocations, investment performance, and fees can help you make regular adjustments to target your goals.

What’s the Average 401(k) Balance?

The average 401(k) balance for all ages is $134,128, according to Vanguard’s How America Saves Report 2024. However, the average 401(k) balance by age of someone in their 20s is very different from the balance of someone in their 50s and 60s. That’s why it’s helpful to know how much you should have saved in your 401(k) at different ages.

Seeing what others are saving in their 20s, 30s, 40s, 50s, and beyond can be a useful way to gauge whether you’re on track with your own retirement plans and what else you can do to maximize this critical, tax-deferred form of savings.

Average and Median 401(k) Balance by Age Group

Pinning down the average 401(k) account balance can be challenging, as only a handful of sources collect information on retirement accounts, and they each have their own methods for doing so.

Vanguard is one of the largest 401(k) providers in the U.S., with nearly 5 million participants. For this review of the average and median 401(k) balance by age, we use data from Vanguard’s How America Saves Report 2024.

It’s important to look at both the average balance amounts, as well as the median amounts. Here’s why: Because there are people who save very little, as well as those who have built up very substantial balances, the average account balance only tells part of the story. Comparing the average amount with the median amount — the number in the middle of the savings curve — provides a reality check as to how other retirement savers in your age group may be doing.

Age Group

 Average 401(k) Balance

 Median 401(k) Balance
Under 25 $7,351 $2,816
25-34 $37,557 $14,933
35-44 $91,281 $35,537
45-54 $168,646 $60,763
55-64 $244,750 $87,571
65+ $272,588 $88,488

Source: Vanguard’s How America Saves Report 2024

Average 401(k) Balance for Ages 25 and Under

•   Average 401(k) Balance: $7,351

•   Median 401(k) Balance: $2,816

•   Key Challenges for Savers: Because they are new to the workforce, this age group is likely to be making lower starting salaries than those who have been working for several years. They may not have the income to put towards a 401(k). In addition, debt often presents a big challenge for younger savers, many of whom may be paying down student loan debt, credit card debt, or both.

•   Tips for Savers: While being debt-free is a priority, it’s also crucial to establish the habit of saving now — even if you’re not saving a lot. The point is to save steadily, whether that’s by contributing to your 401(k) or an investment account, and to automate your savings.

By starting early, even small contributions have the potential to grow over time because of the power of compounding returns.

Average 401(k) for Ages 25 to 34

•   Average 401(k) Balance: $37,557

•   Median 401(k) Balance: $14,933

•   Key Challenges for Savers: At this stage, savers may still be repaying student loans, which can take a chunk of their paychecks. At the same time, they may also be making big — and expensive — life changes like getting married or starting a family.

•   Tips for Savers: You’ve got a lot of competing financial responsibilities right now, but it’s vital to make saving for your future a priority. Contribute as much as you can to your 401(k). If possible, aim to contribute at least the amount needed to get your employer’s matching contribution, which is essentially free money. And when you get a raise or bonus at work, direct those extra funds into your 401(k) as well.

Average 401(k) for Ages 35 to 44

•   Average 401(k) Balance: $91,281

•   Median 401(k) Balance: $35,537

•   Key Challenges for Savers: While your late 30s and early 40s may be a time when salaries range higher, it’s also typically a phase of life when there are many demands on your money. You might be buying a home, raising a family, or starting a business, and it could feel more important to focus on the ‘now’ rather than the future.

•   Tips for Savers: Even if you can’t save much more at this stage than you could when you were in your early 30s, you still may be able to increase your savings rate a little. Many 401(k) plans offer the opportunity to automatically increase your contributions each year. If your plan has this feature, take advantage of it. A 1% or 2% increase in savings annually can add up over time. And because the money automatically goes directly into your 401(k), you won’t miss it.

Average 401(k) for Ages 45 to 54

•   Average 401(k) Balance: $168,646

•   Median 401(k) Balance: $60,763

•   Key Challenges for Savers: These can be peak earning years for some individuals. However, at this stage of life, you may also be dealing with the expense of sending your kids to college and helping ailing parents financially.

•   Tips for Savers: The good news is, that starting at age 50, the IRS allows you to start making catch-up contributions to your 401(k). For 2025, the regular contribution limit is $23,500, but individuals ages 50 and up can make an additional $7,500 in 401(k) catch-up contributions for a total of $31,000. For 2026, while those under age 50 can contribute up to $24,500, individuals who are 50 and up can contribute an additional $8,000 for a total of $32,500.

Under a new law that went into effect on January 1, 2026 as part of SECURE 2.0, individuals aged 50 and older who earned more than $150,000 in FICA wages in 2025 are required to put their 401(k) catch-up contributions into a Roth 401(k) account, meaning they’ll pay taxes on catch-up contributions upfront, but can make qualified withdrawals tax-free in retirement.

While money may be tight because of family obligations, this may be the perfect moment — and the perfect incentive — to renew your commitment to retirement savings because you can save so much more.

If you max out your 401(k) contributions, you may also want to consider opening an IRA. An individual retirement account is another vehicle to help you save for your future, and depending on the type of IRA you choose, there are potential tax benefits you could take advantage of now or after you retire.

Average 401(k) for Ages 55 to 64

•   Average 401(k) balance: $244,750

•   Median 401(k) balance: $87,571

•   Key Challenges for Savers: As retirement gets closer, this is the time to save even more for retirement than you have been. That said, you may still be paying off your children’s college debt and your mortgage, which can make it tougher to allocate money for your future.

•   Tips for Savers: In your early 60s, it may be tempting to consider dipping into Social Security. At age 62, you can begin claiming Social Security retirement benefits to supplement the money in your 401(k). But starting at 62 gives you a lower monthly payout for the rest of your life. Waiting until the full retirement age, which is 66 or 67 for most people, will allow you to collect a benefit that’s approximately 30% higher than what you’d get at 62. And if you can hold off until age 70 to take Social Security, that can increase your benefit as much as 32% versus taking it at 66.

In 2025 and 2026, those in their early 60s can also take advantage of an additional catch-up to their 401(k). Specifically, those aged 60 to 63 can contribute an additional $11,250 in catch-up contributions (instead of $7,500) to their 401(k) in 2025, and an additional $11,250 in 2026 (instead of $8,000), thanks to SECURE 2.0. Again, because of the new law regarding catch-up contributions, individuals aged 50 and older with FICA wages exceeding $150,000 in 2025 are required to put their catch-up contributions into a Roth 401(k) account.

Average 401(k) for Ages 65 and Older

•   Average 401(k) balance: $272,588

•   Median 401(k) balance: $88,488

•   Key Challenges for Savers: It’s critical to make sure that your savings and investments will last over the course of your retirement, however long that might be. You may be underestimating how much you’ll need. For instance, healthcare costs can rise in retirement since medical problems can become more serious as you get older.

•   Tips for Savers: Draw up a retirement budget to determine how much you might need to live on. Be sure to include healthcare, housing, and entertainment and travel. In addition, consider saving money by downsizing to a smaller, less costly home, and continue working full-time or part-time to supplement your retirement savings. And finally, keep regularly saving in retirement accounts such as a traditional or Roth IRA, if you can.

Recommended: When Can I Retire?

How Much Should I Have in My 401(k)?

The amount you should have in your 401(k) depends on a number of factors, including your age, income, financial obligations, and other investment accounts you might hold. According to Fidelity’s research on how much is needed to retire , an individual should aim to save about 15% of their income a year (including an employer match) starting at age 25.

To get a sense of how this looks at various ages, the chart below shows the average 401(k) balance by age, according to Vanguard’s research, as well as Fidelity’s rule of thumb for what your target 401(k) balance should roughly be at that age. Note that these are just guidelines, but they can give you a goal to work toward.

Age Group

 Average 401(k) Balance*

 Approximate Target 401(k) Balance**
Under 25 $7,351 Less than 1x your salary
25-34 $37,557 1x your salary by age 30
35-44 $91,281 2x your salary by age 35
3x your salary by age 40
45-54 $168,646 4x your salary by age 45
6x your salary by age 50
55-64 $244,750 7x your salary by 55
8x your salary by 60
65+ $272,588 10x your salary by age 67

*Source: Vanguard’s How America Saves Report 2024
**Source: Fidelity Viewpoints: How Much Do I Need to Retire?

Tips for Catching Up If You’re Behind

If your savings aren’t where they should be for your stage of life, take a breath — there are ways to catch up. These seven strategies can help you build your nest egg.

1. Automate your savings.

Automating your 401(k) contributions ensures that the money will go directly from your paycheck into your 401(k). You may also be able to have your contribution amount automatically increased every year, which can help accelerate your savings. Check with your employer to see if this is an option with your 401(k) plan.

2. Maximize 401(k) contributions.

The more you contribute to your 401(k), the more growth you can potentially see. At the very least, aim to contribute enough to qualify for the full employer matching contribution if your company offers one.

3. Make catch-up contributions if you’re eligible.

As mentioned, once you turn age 50, you can contribute even more money to your 401(k). If you can max out the regular contributions each year, making additional catch-up contributions to your 401(k) may help you grow your account balance faster.

4. Consider opening an IRA.

If you’ve maxed out all your 401(k) contributions, you could open a traditional or Roth IRA to help save even more for retirement. For 2025, those under age 50 can contribute up to $7,000 to an IRA or up to $8,000 if they’re 50 and older. For 2026, they can contribute up to $7,500 to an IRA or up to $8,600 if they’re 50 or older.

5. Make sure you have the right asset allocations.

The younger you are, the more time you have to recover from market downturns, so you may choose to be a little more aggressive with your investments. On the other hand, if you have a low risk capacity, you may opt for more conservative investments.

Either way, you want to save and invest your money wisely. Consider using a mix of investment vehicles, such as stocks, bonds, exchange-traded funds (ETFs), and mutual funds, to help diversify your portfolio. Just be aware that investing always involves some risk.

6. Pay Attention to Fees.

Fees can erode your investment returns over time and ultimately reduce the size of your nest egg. As you choose investments for your 401(k), consider the cost of different funds. Specifically, look at the expense ratio for any mutual funds or ETFs offered by the plan. This reflects the cost of owning the fund annually, expressed as a percentage. The higher this percentage, the more you’ll pay to own the fund.

7. Conduct an Annual Financial Checkup.

It can be helpful to check in with your goals periodically to see how you’re doing. For example, you might plan an annual 401(k) checkup at year’s end to review how your investments have performed, what you contributed to the plan, and how much you’ve paid in fees. This can help you make smarter investment decisions for the upcoming year.

The Takeaway

The average and median 401(k) balances and the target amounts noted above reflect some important realities for different age groups. Some people can save more, others less — and it’s crucial to understand that many factors play into those account balances. It’s not simply a matter of how much money you have, but also the choices you make.

For instance, starting early and saving regularly can help your money grow. Contributing as much as possible to your 401(k) and getting an employer match are also smart strategies to pursue, if you’re able to. And opening an IRA or an investment account are other potential ways to help you save for the future.

With forethought and planning, you can put, and keep, your retirement goals on track.

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


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

FAQ

What is a good 401(k) balance?

A good 401(k) balance is different for everyone and depends on their age, specific financial situation, and goals. The general rule of thumb is to have 401(k) savings that’s equivalent to your salary by age 30, three times your salary by age 40, six times your salary by age 50, 8 times your salary by age 60, and 10 times your salary by age 67.

How much do most people retire with?

According to the Federal Reserve’s most recent Survey of Consumer Finances, the average 401(k)/IRA account balance for adults ages 55 to 64 was $204,000. Keep in mind, however, that when it comes to savings, one rule of thumb, according to Fidelity, is for an individual to have 8 times their salary saved by age 60 and 10 times their salary saved by age 67.

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/kate_sept2004

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.

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

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

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

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06
2026
Why You Should Start Retirement Planning in Your 20s

Why You Should Start Retirement Planning in Your 20s

By | invest, Investing, Preparing for Retirement | Comments Off on Why You Should Start Retirement Planning in Your 20s

When you’re in your 20s, retirement may be the last thing on your mind. But thinking about retirement now can help ensure your financial security in the future.

The longer you have to save for retirement, the better. Here’s why you should start retirement planning and investing in your 20s.

Key Points

•   Starting retirement planning in their 20s allows individuals more time to build savings and benefit from compound returns.

•   Compound returns may help early savers grow their money exponentially over a longer period.

•   Calculate retirement savings goals and choose suitable savings vehicles, such as a 401(k), traditional IRA, or Roth IRA.

•   Young investors with a long time horizon can generally afford a more aggressive portfolio than older investors.

•   As retirement approaches, individuals can shift investments to less risky assets to help protect savings.

Main Reason to Start Saving for Retirement Early

When you start investing in your 20s, even if you begin with just a small amount, you have more time to build your nest egg. Typically, having a long time horizon means you have time to weather the ups and downs of the markets.

What’s more — and this is critical — the earlier you start investing, the more time you have to take advantage of the power of compound returns, which can help your investment grow over time.

Here’s how compound returns work: If the money you invest sees a return, and that profit is reinvested, you earn money not only on your original investment, but also on the returns. In other words, both your principal and your earnings could gain value over time. And the more time you have to invest, the more time your returns may compound.

Compound Returns Example

Imagine you are 25 with plans to retire at 65. That gives you 40 years to save up your nest egg. Now, let’s say you invest $5,000 in a mutual fund in your retirement account, and the fund has an annual rate of return of 5%. After a year you would have $5,250, including $250 of earnings (minus any investment or account fees). The following year, assuming the same rate of return, you would have $5,512.50, including $262.50 of earnings on the $5,250.

While there are no guarantees that the money would continue to gain 5% every year — investments involve risk and can lose money — historically, the average return of the S&P 500 is about 10% per year, or about 7% adjusted for inflation.

That might mean you earn 3% one year and 8% another year, and so on. But over time your principal would likely continue to grow, and the earnings on that principal would also grow. Imagine that playing out over 40 years and you can see why it’s important to start investing early for your retirement.


💡 Quick Tip: Before opening an investment account, know your investment objectives, time horizon, and risk tolerance. These fundamentals will help keep your strategy on track and with the aim of meeting your goals.

How to Start Saving for Retirement in Your 20s

If you’re new to saving, starting a retirement fund requires a little bit of planning.

Step 1: Calculate how much you need to save

Set a goal. Consider your target retirement date and how long you’ll expect to be retired based on current life expectancy. What kind of lifestyle do you want to lead? And what do you expect your retirement expenses to be?

Step 2: Choose an investment vehicle

When it comes to where to put your savings, you have a number of options. For example, you can participate in your workplace 401(k) if you have one. You could also open an individual retirement account (IRA). Read more about both these options and how they work below.

Many retirement savers also opt to use an investing account, such as a taxable brokerage account.

Keep in mind that investments in stocks or other securities involve risk, but they may allow for the possibility of better returns. Young investors may be better positioned than older investors to take on additional risk, since they have time to recover after a market decline. However, the amount of risk you’re willing to take on is an important consideration and a personal choice.

Step 3: Start investing

Once you’ve opened an account, your investment strategy depends on age, goals, time horizon and risk tolerance. For example, the longer you have before you retire, the more money you might consider investing in riskier assets such as stock, since you’ll have longer to ride out any rocky period in the market. As retirement approaches, you may want to re-allocate more of your portfolio to typically less risky assets, such as bonds.

Types of Retirement Plans

If you’re interested in opening a tax-advantaged retirement plan, there are three main account types to consider: 401(k)s, traditional IRAs, and Roth IRAs.

401(k)

A 401(k) plan is an employer sponsored retirement account that you invest in through your workplace, if your employer offers it. You make contributions to 401(k)s with pre-tax funds (meaning contributions lower your taxable income), usually deducted from your paycheck. Your 401(k) will typically offer a relatively small menu of investments from which you can choose.

Employers may also contribute to your 401(k) and often offer matching contributions. Consider saving enough money to at least meet your employer’s match, which is essentially free money and an important part of your total compensation.

Some companies also offer a Roth 401(k), which uses after-tax paycheck deferrals.

Individuals under age 50 can contribute up to $23,500 in their 401(k) in 2025. Those age 50 and up can make an additional catch-up contribution of up to $7,500. In 2026, those under age 50 can contribute up to $24,500 in their 401(k), and those 50 and older can contribute an additional catch-up contribution of up to $8,000. And thanks to SECURE 2.0, in both 2025 and 2026, individuals ages 60 to 63 can make a higher catch-up contribution of up to $11,250 instead of $7,500 for 2025 and $8,000 for 2026.

Under a new law that went into effect on January 1, 2026 as part of SECURE 2.0, individuals aged 50 and older with FICA wages exceeding $150,000 in 2025 are required to put their 401(k) catch-up contributions into a Roth 401(k) account, meaning they’ll pay taxes on catch-up contributions upfront, but can make qualified withdrawals tax-free in retirement.

Money invested inside a 401(k) grows tax-deferred, and you’ll pay regular income tax on withdrawals that you make after age 59 ½. If you take out money before then, you could owe both income taxes and a 10% early withdrawal penalty.

You must begin making required minimum distributions (RMDs) from your account by age 73.

Traditional IRA

Traditional IRAs are not offered through employers. Anyone can open one as long as they have earned income. Depending on your income and access to other retirement savings accounts, you may be able to deduct contributions to a traditional IRA on your taxes.

As with 401(k) contributions, you will owe taxes on traditional IRA withdrawals after age 59 ½ and you may have to pay taxes and a penalty on early withdrawals.

In 2025, traditional IRA contribution limits are $7,000 a year or $8,000 for those age 50 and up. In 2026, contribution limits are $7,500 a year, or $8,600 for those age 50 and older. Compared to 401(k)s, IRAs typically offer individuals the ability to invest in a broader range of investments. These investments can then grow tax-deferred inside the account. Traditional IRAs are also subject to RMDs typically starting at age 73.

Roth IRA

Unlike 401(k)s and traditional IRAs, contributions to Roth IRAs are made with after-tax dollars. While they provide no immediate tax benefit, the money inside the account grows tax-free and it isn’t subject to income tax when withdrawals are made after age 59 ½.

You can also withdraw your contributions (but not the earnings) from a Roth at any time without a tax penalty as long as the Roth has been open for at least five tax years. The first tax year begins on January 1 of the year the first contribution was made and ends on the tax filing deadline of the next year, such as April 15. Any contribution made during that time counts as being made in the prior year.

So, for instance, if you made your first contribution on April 10, 2025, it counts as though it were made at the beginning of 2024. Therefore, your Roth would be considered open for five tax years in January 2029.

Roth IRAs are not subject to RMD rules. Contribution limits are the same as traditional IRAs.

Investing in Multiple Accounts

Individuals can have both a traditional and Roth IRA. But it’s important to note that the contribution limits apply to total contributions across both. So if you’re 25 and put $3,500 in a traditional IRA in 2025, you could only put up to $3,500 in your Roth in that same year.

You can also contribute to both a 401(k) and an IRA, however if you have access to a 401(k) at work (or your spouse does) you may not be able to deduct all or any of your IRA contributions, based on your modified adjusted gross income and tax filing status.

Retirement Plan Strategies

The investment strategy you choose will depend largely on three things: your goals, time horizon, and risk tolerance. These factors will help you determine your asset allocation — what types of assets you hold and in what proportion. Your retirement portfolio as a 20-something investor will likely look very different from a retirement portfolio of a 50-something investor.

For example, those with a high risk tolerance and long time horizon might hold a greater portion of stocks. This asset class is typically more volatile than bonds, but it also provides greater potential for growth.

Generally speaking, the shorter a person’s time horizon and the less risk tolerance they have, the greater proportion of bonds they may want to include in their portfolio. Here’s a look at some portfolio strategies and the asset allocation that might accompany them:

Sample Portfolio Style

 Asset allocation
Aggressive 85% stocks, 15% bonds
Moderately Aggressive 80% stocks, 20% bonds
Moderate 60% stocks, 40% bonds
Moderately Conservative 30% stocks, 70% bonds
Conservative 20% stocks, 80% bonds

The Takeaway

Even if you don’t have a lot of room in your budget in your 20s to start investing, putting away as much as you can as early as you can, can go a long way toward helping you save for retirement. As you start to earn a bigger salary, you can increase the amount of money you save over time.

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

Help build your nest egg with a SoFi IRA.

FAQ

How much should a 25 year old have in a 401(k)?

There is no one specific amount a 25-year-old should have in their 401(k), but a common guideline suggests having about half your annual salary saved by age 25. So if you earn $30,000 a year, you’d aim to save approximately $15,000 by age 25, using this benchmark.

At what age should you have $50,000 saved?

You should aim to have saved $50,000 by about age 30. Here’s why: According to one rule of thumb, you should have the equivalent of one year’s salary saved by age 30. The average salary for individuals ages 25 to 34 is approximately $59,000, according to the latest data from the Bureau of Labor Statistics. So if you save $50,000 by around age 30, you are more or less in line with that target.

Is 26 too late to start saving for retirement?

No, age 26 is not too late to start saving for retirement. In fact, it’s never too late to start saving, but the sooner you start, the better. The earlier you start putting money away for retirement, the more time your money has to grow.

Photo credit: iStock/izusek

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.

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

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®

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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Feb
06
2026
3D house model and percentage sign on a coral background, representing what the average down payment on a house costs.

What Is the Average Down Payment on a House?

By | Home Ownership, mortgage | No Comments

You may have heard that 20% is the ideal down payment on a house, but that doesn’t mean you must pony up that amount to become a homeowner. In truth, the average house down payment is a bit smaller. Currently, the median down payment for a house is 19%, according to data from the National Association of Realtors® (NAR).

Here, you’ll learn more about down payments so you can house-hunt like an insider. Getting a sense of what others are paying and how that differs based on geographic area is helpful. We’ll also share how you might access help if you can’t come up with 20%. Armed with this intel, you’ll be better prepared to navigate that major rite of passage: purchasing a home.

  • Key Points
  • •   The median down payment for a house in the U.S. ranges widely from 10% to 35% of the purchase price.
  • •   The amount of the down payment can vary based on factors like loan type, credit score, and lender requirements.
  • •   A larger down payment can result in lower monthly mortgage payments and potentially better loan terms.
  • •   Down payment assistance programs and gifts from family members can help with affordability.
  • •   It’s important to save and plan for a down payment to achieve homeownership goals.

Average Down Payment Statistics

As of 2025, the median down payment for a house was 19%, or $81,333 if you consider that the median national home price in 2025 was $428,071, according to Redfin.

This 19% figure shows that the conventional wisdom that you need 20% down to purchase a home is, to a large extent, untrue. In fact, in an April 2024 SoFi survey of prospective homebuyers, many planned to put down far less than 20%. Almost a third of respondents (29%) said they planned to put down 10% or less, and 7% of those surveyed were exploring zero-down-payment options.

A 20% down payment will lower your mortgage amount and monthly payments vs. a smaller down payment, and will allow you to avoid private mortgage insurance (PMI), but it’s not the only game in town.

Average Down Payment on a House for First-Time Buyers

First-time buyers make about 21% (a record low) of all home purchases, and the typical down payment for first-time buyers in the NAR survey was 10%, while repeat buyers’ typical down payment was 23%. (Repeat buyers often have money from the sale of their first residence to put toward the purchase of their next one.)

Down Payment Requirements by Mortgage Loan Type

The amount of money you put down on a home may be governed in part by the type of mortgage loan you choose (and conversely, how much money you have saved for a down payment could dictate the type of mortgage you qualify for). Let’s take a look at the different loan types and their down payment requirements.

Remember that if you are buying your first home or you haven’t purchased a residence in three or more years, you may qualify as a first-time homebuyer and be eligible for special first-time homebuyer programs.

Conventional Loan

This is the kind of loan favored by most buyers, and for first-time homebuyers some conventional home loans can allow for as little as 3% down on a home purchase. A repeat homebuyer might need to put down a bit more — say 5%.

FHA Loan

An FHA loan, acquired through private lenders but guaranteed by the Federal Housing Administration, allows for a 3.5% minimum down payment if the borrower’s credit score is at least 580.

VA Loan and USDA Loan

These loans usually require no down payment, although there are still other hoops to jump through to qualify for one of these loans.

A VA loan, backed by the Department of Veterans Affairs, is for eligible veterans, service members, Reservists, National Guard members, and some surviving spouses. The VA also issues direct loans to Native American veterans or non-Native American veterans married to Native Americans. For a typical VA loan borrower, no down payment is required.

A USDA loan backed by the U.S. Department of Agriculture is for households with low to moderate incomes buying homes in eligible rural areas. The USDA also offers direct subsidized loans for households with low and very low incomes. Typically, a credit score of 640 or higher is needed. While borrowers can make a down payment, one is not required.

Jumbo Loan

A jumbo loan is a loan for an amount over the conforming loan limit, which is set by the Federal Housing Finance Agency (FHFA). In most U.S. counties, the conforming loan limit for a single-family home in 2026 is $832,750. Minimum down payment rules for jumbo loans vary by lender but are generally higher than those for conforming loans. Some lenders require a 10% down payment, and others require as much as 20%.

For all of the above types of mortgage loans, the home being purchased must be a primary residence in order to qualify for the minimum down payment, but a homebuyer can use a conventional or VA loan to purchase a multifamily property with up to four units if one unit will be owner-occupied.

Average Down Payment by Age Group

The latest NAR Home Buyers and Sellers Generational Trends Report breaks down by age the percentage of a home that was financed by homebuyers in 2025.

Older buyers tend to use proceeds from the sale of a previous residence to help fund the new home. Buyers 60 to 69 years old, for instance, put a median of 28% down, the NAR report shows.

Most younger buyers depend on savings for their down payment. Buyers ages 26 to 34 put down a median of 10%, and those ages 35 to 44, 14%. A fortunate 27% of the younger homebuyers (those age 26-34) received down payment help from a friend or relative.

Percentage of Home Financed

All buyers Ages 26-34 Ages 35-44 Ages 45-59 Ages 60-69 Ages 70-78 Ages 79-99
< 50% 19% 8% 11% 17% 30% 35% 32%
50-59% 6% 2% 4% 6% 9% 11% 15%
60-69% 8% 5% 8% 8% 8% 9% 13%
71-79% 13% 14% 14% 12% 14% 15% 1%
80-89% 20% 22% 22% 22% 18% 12% 22%
90-94% 11% 16% 14% 11% 6% 4% 4%
95-99% 12% 22% 15% 12% 5% 5% 1%
100% (financed the whole purchase) 11% 11% 12% 13% 10% 9% 11%

Average Down Payment by State

The average house down payment in any given state is tied to home prices in that location. You can look into the cost of living by state for an overview and then find the median home value in a particular state at a given point in time and estimate what your down payment might be.

The least expensive states in which to buy a home? Iowa, Ohio, Oklahoma, West Virginia, and Michigan are among them, according to Redfin.

Average Down Payment On a House in California

California, the most populous state and one of the largest by area, is joined by Hawaii and Massachusetts on many lists of the most expensive states in which to buy a house. Redfin shows a median sales price of $792,800 in California in December 2025. A 3% down payment would be $23,784; 10% down, $79,280; and 20% down, $158,560.

Recommended: How to Afford a Down Payment on Your First Home

First-time homebuyers can
prequalify for a SoFi mortgage loan,
with as little as 3% down.

Questions? Call (888)-541-0398.

Source of Down Payment

You’re probably wondering where homebuyers get the money to afford a down payment, especially first-time homebuyers. NAR has polled buyers to probe that question. Not surprisingly, nearly half of buyers (49%) simply say they have saved up the money — which of course isn’t simple at all.

Savings is especially likely to fund a home purchase for those ages 26-34. Almost three-quarters of younger buyers rely on it for their down payment. Older buyers also use savings but are more likely to draw on the sale of a primary residence. This is especially true after age 59.

Other down payment sources include gifts from relatives or friends, sale of stock, a loan or draw from a 401K or pension, or an inheritance. For those who don’t have generational wealth or savings to rely on, first-time homebuyer programs can make home ownership possible.

City, county, and state down payment assistance programs are also out there. They may take the form of grants or second mortgages, some with deferred payments or a forgivable balance.

How Does Your Down Payment Affect Your Monthly Payments?

Curious to see what your potential mortgage would look like based on different down payments? Start with a home affordability calculator to get a feel for how much you’ll need to put down and other expenses.

Or use this mortgage calculator to estimate how much your mortgage payments would be, depending on property value, down payment, interest rate, and repayment term.

Should You Aim for 20% Down?

You’re probably wondering if you should try to put 20% down to get a mortgage loan? Here are some things to consider:

If Your Down Payment Is 20% or More

Putting down at least 20% has benefits:

•  You won’t have to pay for mortgage insurance: If you put down 20% or more with a conventional loan, you won’t be required to pay for PMI, which protects the lender if you were to stop making payments.

•  Your loan terms may be better: Lenders look at an applicant’s credit history, employment stability, income, debt-to-income ratio, and savings. They’ll calculate the loan-to-value (LTV) ratio, or what percentage of the home’s purchase price will be covered by the mortgage.

Lenders often provide a better rate to borrowers who have an LTV ratio of 80% or lower — in other words, at least a 20% down payment — because they consider them less of a risk.

•  You have instant equity in the property: You borrowed less than you could have, which translates to a lower mortgage payment, less interest paid over the life of the loan, and the potential later to take out a home equity loan.

Recommended: What Do I Need to Buy a House?

If Your Down Payment Is Less Than 20%

If your down payment will be less than 20%, you now know that you’ll have plenty of company. (In SoFi’s survey, 14% of would-be buyers said not having an adequate down payment was their primary challenge.) Consider these ways to optimize the situation:

•  A government loan could be the answer: FHA loans are popular with some first-time buyers because of the lenient credit requirements. The down payment for an FHA loan is just 3.5% if you have a credit score of 580 or more. Just know that upfront and monthly mortgage insurance premiums (MIP) always accompany FHA loans, and remain for the life of the loan if the down payment is under 10%. If you put 10% or more down, you’ll pay MIP for 11 years.

•  You may be able to improve your loan terms: If you can’t pull together 20% for a down payment, you can still help yourself by showing lenders that you’re a good risk. You’ll likely need a FICO® score of at least 620 for a conventional loan. If you have that and other positive factors, you may qualify for a more attractive interest rate or better terms.

•  You can eventually cancel PMI: Lenders are required to automatically cancel PMI when the loan balance gets to 78% LTV of the original value of the home. You also can ask your lender to cancel PMI on the date when the principal balance of your mortgage falls to 80% of the original home value.

Dream Home Quiz

The Takeaway

The average down payment on a house is currently 19% of the home’s purchase price, which usually means mortgage insurance and higher payments for the buyer. But buyers who put less than 20% down on a house unlock the door to homeownership every day. If you want to join them, you can be helped along by low down payments for first-time homebuyers, as well as government loans, down payment assistance, and other programs.

Looking for an affordable option for a home mortgage loan? SoFi can help: We offer low down payments (as little as 3% - 5%*) with our competitive and flexible home mortgage loans. Plus, applying is extra convenient: It's online, with access to one-on-one help.

SoFi Mortgages: simple, smart, and so affordable.

FAQ

Is 10% down payment enough for a house?

Yes. More than a third of all buyers put down 10% or even less to buy a home. Lower down payments are especially common among younger and/or first-time homebuyers.

What is the minimum you should put down on a house?

Conventional wisdom says the minimum down payment is 20%, but most buyers put down less. Younger buyers and first-time homebuyers, especially, often put down far less and some home loans allow you to finance 97% or even 100% of the home’s cost.

What factors can affect my down payment requirements?

The amount of down payment you’ll need to come up with depends on your loan type, credit history and credit score, the cost of the property you’re buying, and whether you are a first-time homebuyer.

What are the pros and cons of putting down less than 20% on a house?

Putting down less than 20% on a house might allow you to buy a home sooner. It might also permit you to set aside money for renovations or to pay off other debts. The disadvantage is that those who put down less than 20% usually have to pay for private mortgage insurance which adds to their monthly costs. (Those with FHA loans who put down less than 20% will pay a mortgage insurance premium.)

SoFi Mortgages
Terms, conditions, and state restrictions apply. Not all products are available in all states. See SoFi.com/eligibility-criteria for more information.

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SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.


*SoFi requires Private Mortgage Insurance (PMI) for conforming home loans with a loan-to-value (LTV) ratio greater than 80%. As little as 3% down payments are for qualifying first-time homebuyers only. 5% minimum applies to other borrowers. Other loan types may require different fees or insurance (e.g., VA funding fee, FHA Mortgage Insurance Premiums, etc.). Loan requirements may vary depending on your down payment amount, and minimum down payment varies by loan type.
¹FHA loans are subject to unique terms and conditions established by FHA and SoFi. Ask your SoFi loan officer for details about eligibility, documentation, and other requirements. FHA loans require an Upfront Mortgage Insurance Premium (UFMIP), which may be financed or paid at closing, in addition to monthly Mortgage Insurance Premiums (MIP). Maximum loan amounts vary by county. The minimum FHA mortgage down payment is 3.5% for those who qualify financially for a primary purchase. SoFi is not affiliated with any government agency. †Veterans, Service members, and members of the National Guard or Reserve may be eligible for a loan guaranteed by the U.S. Department of Veterans Affairs. VA loans are subject to unique terms and conditions established by VA and SoFi. Ask your SoFi loan officer for details about eligibility, documentation, and other requirements. VA loans typically require a one-time funding fee except as may be exempted by VA guidelines. The fee may be financed or paid at closing. The amount of the fee depends on the type of loan, the total amount of the loan, and, depending on loan type, prior use of VA eligibility and down payment amount. The VA funding fee is typically non-refundable. SoFi is not affiliated with any government agency. Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.
Checking Your Rates: To check the rates and terms you may qualify for, SoFi conducts a soft credit pull that will not affect your credit score. However, if you choose a product and continue your application, we will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and may affect your credit.
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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Feb
05
2026
Solo 401(k) vs SEP IRA: Key Differences and Considerations

Solo 401(k) vs SEP IRA: An In-Depth Comparison for Self-Employed Retirement Planning

By | Growing Wealth, invest, Investing | Comments Off on Solo 401(k) vs SEP IRA: An In-Depth Comparison for Self-Employed Retirement Planning

Self-employment has its perks, but an employer-sponsored retirement plan isn’t one of them. Opening a solo 401(k) or a Simplified Employee Pension Individual Retirement Account (SEP IRA) allows the self-employed to save for retirement while enjoying some tax advantages.

So, which is better for you? The answer can depend largely on whether your business has employees or operates as a sole proprietorship and which plan yields more benefits, in terms of contribution limits and tax breaks.

Weighing the features of a solo 401(k) vs. SEP IRA can make it easier to decide which one is more suited to your retirement savings needs.

Key Points

•   Solo 401(k) allows tax-deductible contributions, employer contributions, employee contributions, and offers the option for Roth contributions and catch-up contributions.

•   SEP IRA allows tax-deductible contributions, employer contributions, but does not allow employee contributions, Roth contributions, catch-up contributions, or loans.

•   Withdrawals from traditional solo 401(k) plans and SEP IRAs are taxed in retirement.

•   Solo 401(k) plans allow loans, while SEP IRAs do not.

•   Solo 401(k) plans offer more flexibility and options compared to SEP IRAs.

Understanding the Basics

A solo 401(k) is similar to a traditional 401(k), in terms of annual contribution limits and tax treatment. A SEP IRA follows the same tax rules as traditional IRAs. SEP IRAs, however, typically allow a higher annual contribution limit than a regular IRA.

What Is a Solo 401(k)?

A solo 401(k) covers a business owner who has no employees or employs only their spouse. Simply, a Solo 401(k) allows you to save money for retirement from your self-employment or business income on a tax-advantaged basis.

These plans follow the same IRS rules and requirements as any other 401(k). There are specific solo 401(k) contribution limits to follow, along with rules regarding withdrawals and taxation. Regulations also govern when you can take a loan from a solo 401(k) plan.

A number of online brokerages offer solo 401(k) plans for self-employed individuals, including those who freelance or perform gig work. You can open a retirement account online and start investing, no employer other than yourself needed.

If you use a solo 401(k) to save for retirement, you’ll also need to follow some reporting requirements. Generally, the IRS requires solo 401(k) plan owners to file a Form 5500-EZ if it has $250,000 or more in assets at the end of the year.

What Is a SEP IRA?

A SEP IRA is another option to consider if you’re looking for retirement plans for the self-employed. This tax-advantaged plan is available to any size business, including sole proprietorships with no employees. SEP IRAs work much like traditional IRAs, with regard to the tax treatment of withdrawals. They do, however, allow you to contribute more money toward retirement each year above the standard traditional IRA contribution limit. That means you could enjoy a bigger tax break when it’s time to deduct contributions.

If you have employees, you can make retirement plan contributions to a SEP IRA on their behalf. SEP IRA contribution limits are, for the most part, the same for both employers and employees. If you’re interested in a SEP, you can set up an IRA for yourself or for yourself and your employees through an online brokerage.

💡 Quick Tip: Did you know that you must choose the investments in your IRA? Once you open a new IRA and start saving, you get to decide which mutual funds, ETFs, or other investments you want — it’s totally up to you.

Diving Deeper: Pros and Cons of Each Plan

As you debate between a solo 401(k) vs. a SEP IRA as ways to build wealth for retirement, it’s helpful to learn more about how these plans work, including their benefits and drawbacks.

Advantages of Solo 401(k)s

In terms of differences, there are some things that set solo 401(k) plans apart from SEP IRAs.

With a solo 401(k), you can choose a traditional or Roth. You can deduct your contributions in the year you make them with a traditional solo 401(k), but you’ll pay taxes on your distributions in retirement. With a Roth solo 401(k) you pay taxes on your contributions in the year you make them, and in retirement, your distributions are tax free. You can choose the plan that gives you the best tax advantage.

Another benefit of a solo 401(k) is that those age 50 and older can make catch-up contributions to this plan. In addition, you may be able to take a loan from a solo 401(k) if the plan permits it.

Advantages of SEP IRAs

One of the benefits of a SEP IRA is that contributions are tax deductible and you can make them at any time until your taxes are due in mid-April of the following year.

The plan is also easy to set up and maintain.

If you have employees, you can establish a SEP IRA for yourself as well as your eligible employees. You can then make retirement plan contributions to a SEP IRA on your employees’ behalf. (All contributions to a SEP are made by the employer only, though employees own their accounts.)

SEP IRA contribution limits are, for the most part, the same for both employers and employees. This means that you need to make the same percentage of contribution for each employee that you make for yourself. That means if you contribute 15% of your compensation for yourself, you must contribute 15% of each employee’s compensation (subject to contribution limits).

A SEP IRA also offers flexibility. You don’t have to contribute to it every year.

However, under SEP IRA rules, no catch-up contributions are allowed. There’s no Roth option with a SEP IRA either.

Eligibility and Contribution Limits

Here’s what you need to know about who is eligible for a SEP IRA vs. a Solo 401(k), along with the contribution limits for both plans for 2024 and 2025.

Who Qualifies for a Solo 401(k) or SEP IRA?

Self-employed individuals and business owners with no employees (aside from their spouse) can open and contribute to a solo 401(k). There are no income restrictions on these plans.

SEP IRAs are available to self-employed individuals or business owners with employees. A SEP IRA might be best for those with just a few employees because IRS rules dictate that if you have one of these plans, you must contribute to a SEP IRA on behalf of your eligible employees (to be eligible, the employees must be 21 or older, they must have worked for you for three of the past five years, and they must have earned at least $750 in the tax year).

Plus, the amount you contribute to your employees’ plan must be the same percentage that you contribute to your own plan.

Contribution Comparison

With a solo 401(k), there are rules regarding contributions, including contribution limits. For 2025, you can contribute up to $70,000, plus an additional catch-up contribution of $7,500 for those age 50 and older. In 2026, you can contribute up to $72,000, plus an extra catch-up contribution of $8,000 for those age 50 and older. Also, in 2025 and 2026, those aged 60 to 63 may contribute an additional catch-up of $11,250 instead of $7,500 and $8,000 respectively, thanks to SECURE 2.0.

Under a new law that went into effect on January 1, 2026 (as part of SECURE 2.0), individuals aged 50 and older who earned more than $150,000 in FICA wages in 2025 are required to put their catch-up contributions into a Roth 401(k) account. Because of the way Roth accounts work, these individuals will pay taxes on their catch-up contributions upfront, but can make eligible withdrawals tax-free in retirement.

For the purposes of a solo 401(k) you play two roles — employer and employee. As an employee, you can contribute the lesser of 100% of your compensation or up to $23,500 in 2025 and up to $24,500 in 2026. If you’re 50 or older, you can contribute the $7,500 catch-up contribution in 2025, and $8,000 in 2026. And if you’re aged 60 to 63, in 2025 and 2026, you may contribute an additional $11,250 instead of $7,500 (in 2025) or $8,000 (in 2026). Again, under the new law regarding catch-up contributions, if you are aged 50 and older with FICA wages exceeding $150,000 in 2025, you are required to put your catch-up contributions into a Roth 401(k) account. As an employer, you can make an additional contribution of 25% of your compensation (up to $350,000 in 2025, and up to $360,000 in 2026) or net self-employment income.

The contribution limits for a SEP IRA are the lesser of 25% of your compensation or $70,000 in 2025 and $72,000 in 2026. As mentioned earlier, there are no catch-up contributions with this plan.

And remember, per the IRS, if you have a SEP IRA, you must contribute to the plan on behalf of your eligible employees. The amount you contribute to your employees’ plan must be the same percentage that you contribute to your own plan.

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Key Differences That Could Influence Your Decision

When you’re deciding between a solo 401(k) vs. a SEP IRA, consider the differences between the two plans carefully. These differences include:

Roth Options and Tax Benefits

With a solo 401(k), you can choose between a traditional and Roth solo 401(k), depending on which option’s tax benefits make the most sense for you. If you expect to be in a higher tax bracket when you retire, a Roth may be more advantageous since you can pay taxes on your contributions upfront and get distributions tax-free in retirement.

On the other hand, if you anticipate being in a lower tax bracket at retirement, a traditional solo 401(k) that lets you take deductions on your contributions now and pay tax on distributions in retirement could be your best option.

Loan Options and Investment Flexibility

You may also be able to take a loan from a solo 401(k) if your plan permits it. Solo 401(k) loans follow the same rules as traditional 401(k) loans.

If you need to take money from a SEP IRA before age 59 ½, however, you may pay an early withdrawal penalty and owe income tax on the withdrawal.

Both solo 401(k)s and SEP IRA offer more investment options than workplace 401(k)s. So you can choose the investment options that best suit your needs.

The Impact of Having Employees

Whether you have employees or not will help determine which type of plan is best for you.

A solo 401(k) is designed for business owners with no employees except for a spouse.

A SEP IRA is for those who are self-employed or small business owners. A SEP IRA may be best for those who have just a few employees since, as discussed above, you must contribute to a SEP IRA on behalf of all eligible employees and you must contribute the same percentage of compensation as you contribute for yourself.

The Financial Implications for Your Business

The plan you choose, solo 401(k) vs. SEP IRA, does have financial and tax implications that you’ll want to consider carefully. Here’s a quick comparison of the two plans.

Solo 401(k) vs SEP IRA at a Glance

Both solo 401(k) plans and SEP IRAs make it possible to save for retirement as a self-employed person or business owner when you don’t have access to an employer’s 401(k). And both can potentially offer a tax break if you’re able to deduct contributions each year.

Here’s a rundown of the main differences between a 401(k) vs. SEP IRA.

Solo 401(k)

 SEP IRA
Tax-Deductible Contributions Yes, for traditional solo 401(k) plans Yes
Employer Contributions Allowed Yes Yes
Employee Contributions Allowed Yes No
Withdrawals Taxed in Retirement Yes, for traditional solo 401(k) plans Yes
Roth Contributions Allowed Yes No
Catch-Up Contributions Allowed Yes No
Loans Allowed Yes No

How These Plans Affect Your Bottom Line

Both solo 401(k)s and SEP IRAs are tax-advantaged accounts that can help you save for retirement. With a SEP IRA, contributions are tax deductible, including contributions made on employees’ behalf, which offers a tax advantage. Solo 401(k)s give you the option of choosing a traditional or Roth option so that you can pay tax on your contributions upfront and not in retirement (traditional), or defer them until you retire (Roth).

Making the Choice Between SEP IRA and Solo 401(k): Which Is Right for You?

An important part of planning for your retirement is understanding your long-term goals. Whether you choose to open a solo 401(k) or make SEP IRA contributions can depend on how your business is structured, how much you want to save for retirement, and what kind of tax advantages you hope to enjoy along the way.

When to Choose a Solo 401(k)

If you’re self-employed and have no employees (or if your only employee is your spouse), you may want to consider a solo 401(k). A solo 401(k) could allow you to save more for retirement on a tax-advantaged basis compared to a SEP IRA. A solo 401(k) allows catch-up contributions if you are 50 or older, and you can also take loans from a solo 401(k).

Just be aware that a solo 401(k) can be more work to set up and maintain than a SEP IRA.

When to Choose a SEP IRA

If you’re looking for a plan that’s easy to set up and maintain, a SEP IRA may be right for you. And if you have a few employees, a SEP IRA can be used to cover them as well as your spouse. However, you will need to cover the same percentage of contribution for your employees as you do for yourself.

Remember that a SEP IRA does not allow catch-up contributions, nor can you take loans from it.

Step-by-Step Guide to Opening Your Account

You can typically set up a SEP IRA with any financial institution that offers other retirement plans, including an online bank or brokerage. The institution you choose will guide you through the set-up process and it’s generally quick and easy.

Once you establish and fund your account, you can choose the investment options that best suit your needs and those of any eligible employees you may have. You will need to set up an account for each of these employees.

To open a Solo 401(k), you’ll need an Employee Identification Number (EIN). You can get an EIN through the IRS website. Once you have an EIN, you can choose the financial institution you want to work with, typically a brokerage or online brokerage. Next, you’ll fill out the necessary paperwork, and once the account is open you’ll fund it. You can do this through direct deposit or a check. Then you can set up your contributions.

Additional Considerations for Retirement Planning

Besides choosing a SEP IRA or a solo 401(k), there are a few other factors to consider when planning for retirement. They include:

Rollover Process

At some point, you may want to roll over whichever retirement plan you choose — or roll assets from another retirement plan into your current plan. A SEP IRA allows for either option. You can generally roll a SEP IRA into another IRA or other qualified plan, although there may be some restrictions depending on the type of plan it is. You can also roll assets from another retirement plan you have into your SEP.

A solo 401(k) can also be set up to allow rollovers. You can roll other retirement accounts, including a traditional 401(k) or a SEP IRA, into your solo 401(k). You can also roll a solo 401(k) into a traditional 401(k), as long as that plan allows rollovers.

Can You have Both a SEP IRA and a Solo 401(k)?

It is possible to have both a SEP IRA and a solo 401(k). However, how much you can contribute to them depends on certain factors, including how your SEP was set up. In general, when you contribute to both plans at the same time, there is a limit to how much you can contribute. Generally, your total contributions to both are aggregated and cannot exceed more than $70,000 in 2025 and $72,000 in 2026.

Preparing for Retirement Beyond Plans

Choosing retirement plans is just one important step in laying the groundwork for your future. You should also figure out at what age you can retire, how much money you’ll need for retirement, and the typical retirement expenses you should be ready for.

Working on building your retirement savings is an important goal. In addition to opening and contributing to retirement plans, other smart strategies include creating a budget and sticking to it, paying down any debt you have, and simplifying your lifestyle and cutting unnecessary spending. You may even want to consider getting a side hustle to bring in extra income.

The Takeaway

Saving for retirement is something that you can’t afford to put off. And the sooner you start, the better so that your money has time to grow. Whether you choose a solo 401(k), SEP IRA, or another savings plan, it’s important to take the first step toward building retirement wealth.

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

Help grow your nest egg with a SoFi IRA.

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/1001Love

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