Dec
09
2023
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8 Tips for Asking a Professor for a Letter of Recommendation

By | Debt Payoff, Student Loans, student_loan | Comments Off on 8 Tips for Asking a Professor for a Letter of Recommendation

While a college education can help prepare students for life, taking advantage of the professional network college offers can help launch your career. Whether trying to land a summer internship, get that first job out of college, or apply to graduate school, a letter of recommendation from a professor can be helpful.

Although requesting this is common practice, it can still feel nerve wracking to broach the subject. Keep reading to learn helpful tips to receive a glowing letter of recommendation from a professor.

1. Asking a Professor Who Knows You and Your Work

There are several factors to consider when deciding who you’ll ask for a letter of recommendation. Taking stock of which professors actually know your interests and goals, not just your name, is something to consider right away.

A strong letter of recommendation can involve praising a student’s personal character and highlighting their goals and ambitions. For this reason, choosing a professor you’ve personally interacted with, whether through class discussions or during office hours, could be beneficial.

If you’ve taken several courses with a professor, they may be able to showcase how you’ve grown throughout your time in college.

Since a professor will also be attesting to your academic merit, it can be helpful to start by identifying who has seen samples of your strongest work throughout college. For example, a personal essay or in-person presentation that earned a strong grade might indicate that a professor valued your work.

2. Choosing a Professor Who Specializes in Your Field

Although a letter of recommendation is foremost about your own skills and attributes, also of benefit can be a professor’s own credentials within an industry or academic field you are targeting.

A letter of recommendation from an esteemed and notable professor could help you stand out in a competitive group of applicants.

Many professors have built up extensive networks from academic conferences and working with faculty at other universities and in the private sector.

Though they may not have contacts at the company, organization, or university you’re applying to, their advice and connections in a specific sector or academic discipline could prove valuable as you begin your job search. As academic professionals, they may have insight on the return on education for different graduate degrees and careers.

Often, jobs or graduate school applications require submitting more than one letter of recommendation. Choosing a combination of references who can highlight your strengths and character and carry respect in your desired field could further enhance your candidacy.

3. Asking in Person, if Possible

Given the importance of the request, asking in person can show that you’re serious about your future and respectful of a professor’s time.

For students currently enrolled in school, finding time to ask a professor for a letter of recommendation may be as simple as making an appointment during their office hours.

If you’re studying abroad or have already graduated, reaching out via email may be your only feasible option for starting the conversation. To further demonstrate your commitment, you might ask to arrange a phone or video call.

4. Making a Personalized and Specific Request

The average college has a student to faculty ratio of 14-to-1, so it’s not uncommon for professors to have several students ask for letters of recommendation each year. Still, that doesn’t mean every request is guaranteed a response or agreement to receive a recommendation.

Out of consideration for a professor’s busy schedule, making a request that’s tailored to them and clearly outlines what you need may increase your chances of success.

To personalize the request, consider reminding them which of their courses you took, a key project or assignment, and how they influenced your academic and career goals. Next, providing a concise explanation of the position or program you’re applying for and what it means to you is an opportunity to convey your own professionalism and passion.

Since writing a letter of recommendation is a favor, sending a courteous request that allows a professor to opt out could help avoid a lukewarm reference. A well-crafted request makes it easy for the professor to quickly decide if they have enough knowledge about you and the position to write a letter of recommendation.

5. Providing Information to Write the Recommendation

Even if you have a strong relationship with a professor, the quality of the recommendation can benefit from supplemental information. For instance, providing a resume, college transcripts, personal statement, and a sample of work can help jog their memory and give them a blueprint of your experience and accomplishments to draw from.

It can be helpful to include a job description or, for a graduate program, admissions information. This could help a professor connect your academic knowledge and experience to the job or program’s desired qualifications and skills.

This is also the time to provide information and guidance for submitting a letter of recommendation. Some typical considerations to include are where to send the letter, any relevant deadlines, and to whom it should be addressed.

6. Giving Plenty of Notice

Asking your professor several weeks, if not months, before the recommendation is due can convey respect and appreciation for their time and effort and help ensure submission deadlines are met. Also, it can give you time to regroup and consider other options if a professor or two declines.

7. Keeping Them Updated Though the Process

Professors typically have busy schedules, so probably won’t keep thinking about your job search or grad school application after the letter of recommendation has been written and sent. Letting them know when you have interviews and other updates can help them be prepared should they receive a call from an employer or admissions office.

8. Saying Thanks and Staying in Touch

Besides creating good karma, thanking a professor is another opportunity to foster a good relationship with them. They might become a mentor to you, especially if you’re pursuing a job or education in the same field.

You might apply to another job or a graduate program in the not-so-distant future and want to ask for another recommendation from the same professor.

Instead of starting from scratch each time you apply for a new job, you may want to periodically update academic and professional references along your career path and as your goals change.

Not only can this make for an easier request and stronger recommendation next time around, it may lead to more professional opportunities and meaningful relationships.

The Takeaway

Keeping up with former professors can be a pleasant way to reminisce about college years. Another not-so-pleasant reminder can be student loans.

Like many students, you may have taken out loans to pay for college and/or graduate school. Refinancing your student loans may be an option to help with repayment.

Keep in mind, however, refinancing federal student loans with a private loan means the borrower forfeits all federal loan benefits, such as income-driven repayment plans, loan forgiveness programs, access to deferment or forbearance, and other forms of federal student loan debt relief.

On the flip side, refinancing federal student loans might offer lower interest rates or a shorter term.

With SoFi, student loan refinancing could reduce the overall cost of your student loans and get you out of debt sooner when refinancing to a shorter term. Applying online is free and can be done in a matter of minutes.

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

SoFi Student Loan Refinance
If you are a federal student loan borrower, you should consider all of your repayment opportunities including the opportunity to refinance your student loan debt at a lower APR or to extend your term to achieve a lower monthly payment. Please note that once you refinance federal student loans you will no longer be eligible for current or future flexible payment options available to federal loan borrowers, including but not limited to income-based repayment plans or extended repayment plans.


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.

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

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Dec
04
2023
Target Funds vs Index Funds: Key Differences

Target Funds vs Index Funds: Key Differences

By | Growing Wealth, invest, Investing | Comments Off on Target Funds vs Index Funds: Key Differences

Target-date funds and index funds are two common investment vehicles for individuals investing for retirement. Investors may see one or both of these types of investment as options in their 401(k) or other workplace retirement fund. Target-date funds offer a sort of set-it-and-forget-it approach to investing typically tied to an investor’s timeline, while index funds include a basket of investments corresponding to an underlying index.

Understanding the key differences between target date funds and index funds to help investors understand which is right for their portfolio.

Target-Date Funds vs Index Funds: A Comparison

Target-date funds and index funds are both common ways for investors to save for future goals, especially retirement. Target-date funds offer what can feel like a hands-off approach to saving for retirement. In a way, they’re like a retirement plan inside a single investment vehicle. Investors do not have to choose the funds held by target date funds or reallocate the fund as it nears its target date.

Target-date funds may include index funds. Index funds track specific indices and typically perform in line with the broader market.

Here’s a quick look at the main differences between these two types of funds.

Target Date Funds

 Index Funds

•   Reallocated automatically. Portfolios typically become more conservative as a target date approaches.

•   A fund of funds that provides investors with diversification and a single set-it-and-forget-it solution to retirement savings.

•   Passive management translates into lower fees.

•   Designed to track an index, such as the S&P 500, and provide returns similar to the movements of the index.

•   Allows investors more flexibility in choosing the funds in their portfolios.

Target-Date Funds

A target date fund is a type of investment that holds a mix of different mutual funds, usually including stock and bond funds. When choosing a target date fund, investors must decide on a target date, often offered in five-year intervals and included in the name of the fund and corresponding with the year in which they want to retire. For example, someone in their early 30s might choose a target date of 2055 with a goal of retiring around age 65.

You could, in theory, use target date funds to save for any point in the future. However, they’re a popular type of financial security for saving for retirement and often appear on the menu of investments available to employees through their 401(k)s.

As an individual nears their target date, the fund automatically rebalances from high-risk, high-reward investments into low-risk, low-reward investments. For example, the rebalancing might include shifting a greater proportion of its holdings into bonds to help preserve accrued increases in a portfolio’s value.

Pros of Target-Date Funds

There are several reasons investors might choose a target date fund.

First, they essentially provide a ready-made portfolio of diversified stock and bond funds, making it easy to save for retirement. This may appeal to beginner investors or those who don’t want to design their own portfolios or those who find a hand-on approach to researching and choosing investments difficult.

Additionally, target-date funds provide automatic rebalancing. As the market shifts up and down, different investments may move off track from their initial allocations. When that happens, the fund will rebalance itself so that the allocation remains in line with its original allocation plan. The target date fund also automatically shifts its allocation to more conservative investments as the target date approaches.

Recommended: When Can I Retire? This Formula Will Help You Know

Cons of Target-Date Funds

Investors who want more control over their portfolios may not like target-date funds, which don’t allow investors any control over their mix of investments or when and how rebalancing takes place.

Target-date funds build portfolios using a variety of investments. Some may use index mutual funds that come with relatively low fees. Others might use managed mutual funds, which may come with higher fees. It’s important to look closely at target-date fund holdings to understand what types of fees they might charge.

Here are the pros and cons of target date funds at a glance.

Pros

 Cons

•   Ready-made portfolio.

•   Diversification through a basket of mutual funds.

•   Automatic rebalancing, including a shift to more conservative assets over time.

•   Lack of control over investments and when portfolio is rebalanced.

•   Potentially higher fees for funds that hold managed mutual funds.



💡 Quick Tip: How do you decide if a certain trading platform or app is right for you? Ideally, the investment platform you choose offers the features that you need for your investment goals or strategy, e.g., an easy-to-use interface, data analysis, educational tools.

Index Funds

An index fund is a type of mutual fund or exchange-traded fund (ETF). It’s built to follow the returns of a market index, of which there are many.

These indexes track a basket of securities meant to represent the market as a whole or certain sectors. For example, the S&P 500 is a market capitalization weighted index that tracks the top 500 U.S. stocks.

An index fund may follow a market index using several strategies. Some index funds may hold all of the securities included in the index. Others may include only a portion of the securities held by an index, and they may have the leeway to include some investments not tracked by the index.

Because index funds are attempting to follow an index rather than beat it, they don’t require as much active management as fully managed funds. As a result, they may charge lower fees, making them a low-cost option for investors.

Index funds are popular choices for retirement savings accounts. They offer diversification through exposure to a wide range of securities, they’re easy to manage, and they offer the potential for steady long-term growth.

Pros of Index Funds

Low fees and full transparency are among the benefits of holding index funds. Investors can review all of the securities held by the fund, which can help them identify and weigh risk. Also, because they track an index, which updates its numbers constantly, it is unlikely fund managers will be blindsided by something they were unable to anticipate.

Index funds also potentially offer better returns than their actively managed counterparts, especially after factoring in fees.

Recommended: Index Funds vs Managed Funds: Key Differences

Cons of Index Funds

Some of the drawbacks to index funds include the fact that they are often fairly inflexible. If they follow an index that requires them to hold a certain mix of stocks, fund managers will hang on to them even if they are performing poorly. In actively managed funds, fund managers can swap out slumping securities in favor of those that are outperforming. In fact, by design, index funds rarely beat the market.

Here’s a look at the pros and cons of index funds at a glance.

Pros

 Cons

•   Diversification through a basket of securities that tracks an index.

•   Transparency.

•   Lower fees. Passive management makes it cheaper to operate funds, which results in lower management fees passed on to investors.

•   Steady gains and potentially better returns than actively managed funds.

•   Lack of flexibility. Index fund managers follow stricture mandates about what can and can’t be included in the fund.

•   Index funds do not typically outperform the market.

Index Funds for Retirement

You can use index funds to build a retirement portfolio as well as to save for other goals. If you’re using them for retirement, you may want a mix of index funds covering a range of asset classes that can provide some diversity within your overall portfolio. Unlike a target-date fund, if that allocation strays from your goals, you’ll need to handle the rebalancing on your own.

Recommended: Are Mutual Funds Good for Retirement?

The Takeaway

Index funds and target-date funds are funds used by retail investors for different purposes. Investors choosing between the two will need to consider their personal financial circumstance and needs. Index funds may be an option for investors looking for passive, long-term investments that they can choose based on their own goals, risk tolerance, and time horizon. They may also be right for beginners who are looking for simple, low-cost investment options.

Target date funds, on the other hand, may be another option for long-term investors who do not want to have to rethink their portfolio allocations on a regular basis. These investors may not want to or know how to pick funds themselves.

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


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

Photo credit: iStock/Ridofranz

SoFi Invest®
INVESTMENTS ARE NOT FDIC INSURED • ARE NOT BANK GUARANTEED • MAY LOSE VALUE
SoFi Invest encompasses two distinct companies, with various products and services offered to investors as described below: Individual customer accounts may be subject to the terms applicable to one or more of these platforms.
1) Automated Investing and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser (“SoFi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC.
2) Active Investing and brokerage services are provided by SoFi Securities LLC, Member FINRA (www.finra.org)/SIPC(www.sipc.org). Clearing and custody of all securities are provided by APEX Clearing Corporation.
For additional disclosures related to the SoFi Invest platforms described above please visit SoFi.com/legal.
Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform.

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.

Claw Promotion: Customer must fund their Active Invest account with at least $25 within 30 days of opening the account. Probability of customer receiving $1,000 is 0.028%. See full terms and conditions.

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Dec
04
2023
Solo 401(k): The Retirement Plan Built for the Self-Employed

Navigating Solo 401(k) Plans: A Complete Guide for the Self-Employed

By | invest, Investing, Preparing for Retirement | Comments Off on Navigating Solo 401(k) Plans: A Complete Guide for the Self-Employed

Being self-employed offers many perks, including freedom and flexibility. What it doesn’t offer is an employer-sponsored retirement plan. But when you don’t have access to a 401(k) at work, opening a solo 401(k) can make it easier to stay on track with retirement planning.

Before you establish a solo 401(k) for yourself, it’s important to understand how these plans work and the pros and cons involved.

What Is a Solo 401(k)?

A solo 401(k) is a type of 401(k) that’s designed specifically with self-employed individuals in mind. This retirement savings option follows many of the same rules as workplace 401(k) plans in terms of annual contribution limits, tax treatment, and withdrawals. But it’s tailored to individuals who run a business solo or only employ their spouses.

It’s one of several self-employed retirement options you might consider when planning a long-term financial strategy.

Definition and Overview

A solo 401(k) is a tax-advantaged retirement account that’s for self-employed individuals and business owners who have zero employees, or no employees other than their spouse. This type of 401(k) plan is also known by a few other names:

•   Solo-k

•   Uni-k

•   One-participant plan

Traditional solo 401(k) contributions are made using pre-tax dollars. However, it’s possible to open a Roth solo 401(k) instead. In the case of a Roth solo 401(k), you’d make contributions using after-tax dollars and be able to withdraw the money tax-free in retirement.

A self-employed 401(k) plan works much the same as a regular 401(k). For instance, you may be able to take loans from your savings if needed. Catch-up contributions are also allowed. The biggest difference is that there is no matching contribution from an outside employer.

You can start investing in a solo 401(k) for yourself through an online brokerage. There’s some paperwork you’ll need to fill out to get the process started, but once your account is open you can make contributions year-round.

At the end of the year, the IRS requires solo 401(k) plan owners to file a Form 5500-EZ if the account has $250,000 or more in assets.


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Contribution Limits in Solo 401(k) Plans

Much like workplace 401(k)s, there are annual contribution limits that apply to solo 401(k) plans.

The IRS caps total contributions to a solo 401(k) account at $66,000 for 2023 and $69,000 for 2024. That doesn’t include catch-up contributions for those age 50 and over, which are an additional $7,500 for each year.

As both the employee and employer of your own business, you can contribute both elective salary deferrals and employer nonelective contributions (you are both the employer and the employee in this scenario). Each has different contribution caps.

Annual Contribution Limits

As an employee, you can contribute up to 100% of your earned income up to the annual contribution limit: $22,500 in 2023 and $23,000 in 2024, plus an additional $7,500 for those age 50+ in elective salary deferrals.
In addition, you can make employer nonelective contributions. These come directly from the “employer” (aka you) and are not deducted from the employee’s (your) salary. As an employer, you can contribute up to 25% of your self-employment income (business income – ½ self-employment tax and elective salary deferrals), in pre-tax dollars.

Setting Up a Solo 401(k) Plan

If you’re interested in setting up a solo 401(k) for yourself, you can do so through an online brokerage. Here’s a step-by-step guide for how to open a solo 401(k).

Steps to Establish Your Plan

1. Choose a Plan Administrator

A plan administrator is the person responsible for managing your solo 401(k). It’s their job to make sure the plan is meeting reporting and other requirements established by the IRS. If you’re self-employed, you can act as your own plan administrator or you could choose your accountant instead.

2. Choose a Brokerage

Once you know who’s going to manage the plan, the next step is deciding where to open it. A number of brokerages offer solo 401(k) plans so you may want to spend some time comparing things like:

•   Account setup process

•   Investment options

•   Fees

You may be able to start the solo 401(k) account setup process online, though some brokerages require you to call and speak to a representative first. And you may need to finalize your account opening by mailing or faxing in any supporting documents the brokerage needs to complete the application.

3. Fill Out a Solo 401(k) Application

Before you can start a 401(k) account for yourself, you’ll need to give your brokerage some information about your business. A typical solo 401(k) application may ask for your:

•   First and last name

•   Employer Identification Number (EIN)

•   Plan administrator’s name and contact information

•   Social Security number

•   Mailing address

•   Citizenship status

•   Income information

You’ll also need to disclose any professional associations or affiliations that might result in a conflict of interest with the brokerage. In completing the application, you’ll be asked to name one or more beneficiaries. You may also be asked to provide bank account information that will be used to make your initial contribution to the plan.

4. Choose Your Investments

Once you’ve returned your solo 401(k) account application and it’s been approved, you can choose your investments. The type of investments offered can depend on the brokerage and the plan. But typically, you may be able to choose from:

•   Target-date funds

•   Index funds

•   Actively managed funds

•   Exchange-traded funds (ETFs)

Whether you have access to individual stocks, bonds, CDs, or alternative investments such as commodities can depend on the platform that’s offering the plan.

5. Decide How Much to Contribute

You may choose to schedule automatic investments or make them manually according to a schedule that works for you.

Choosing Between Traditional and Roth Solo 401(k)s

You can opt for a traditional solo 401(k), which is made with pre-tax dollars, or a Roth solo 401(k), which is made with after-tax dollars. Which plan is better for you may depend on what you expect your income to be in retirement.

If you believe your income will be higher in retirement than it is now, in general, a Roth could be a better choice since you can take the distributions tax-free at that time. But if you think your income may be less in retirement than it is now, you might be better off with a traditional solo 401(k), which allows you to take the tax deduction now and have your distributions taxed in retirement.

Advantages and Disadvantages of Solo 401(k) Plans

When considering retirement account options, it can be helpful to look at the pros and cons to determine what works best for your personal situation.

Benefits of Having a Solo 401(k)

There are different reasons why opening a 401(k) for self employed individuals could make sense.

•   Bigger contributions. Compared to other types of self-employed retirement plans, such as a SEP IRA or SIMPLE IRA, solo 401(k) contribution limits tend to be more generous. Neither a SEP IRA or SIMPLE IRA, for instance, allows for catch-up contributions.

•   Roth contributions. You also have the option to open a Roth solo 401(k). If you anticipate being in a higher tax bracket when you retire, you may prefer being able to withdraw contributions tax-free with a Roth.

•   Flexible withdrawal rules. A solo 401(k) can also offer more flexibility with regard to early withdrawals than a SEP IRA, SIMPLE IRA, traditional IRA, or Roth IRA. If your solo 401(k) plan allows it, you could take out a loan in place of an early withdrawal. This could help you to avoid early withdrawal penalties and taxes. An IRA-based plan wouldn’t allow for loans.

Considerations and Potential Drawbacks

There are also a few potential downsides of investing in a solo 401(k).

•   Eligibility restrictions. If you run a small business and you have at least one employee other than a spouse, you won’t be able to open a solo 401(k) at all.

•   Complicated reporting. Calculating contributions and filing can be more complicated with a solo 401(k) vs. a SEP IRA or SIMPLE IRA. If your plan has more than $250,000 in assets you’ll need to file Form 5500-EZ with the IRS each year.

•   Administrative costs. Depending on where you open a solo 401(k) plan, the cost of maintaining it year to year may be higher compared to other self employed retirement plans. And an early 401(k) withdrawal can trigger taxes and penalties.

It’s important to consider the range of investment options offered through a solo 401(k). What you can invest in at one brokerage may be very different from another. The individual cost of those investments can also vary if some mutual funds or exchange-traded funds offered come with higher expense ratios than others.


💡 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.

Withdrawals and Loan Provisions

There are certain requirements for withdrawals and/or loans from a solo 401(k).

Rules for Withdrawing Funds

You can make withdrawals from a solo 401(k) without penalty at age 59 ½ or older. Distributions may be allowed before that time in the case of certain “triggering events,” such as a disability, but you may owe a 10% penalty as well as income taxes on the withdrawal.

Loan Options and Conditions

Some solo 401(k) plans may be set up to allow loans. If yours does, you could take out a loan in place of an early withdrawal. This could help you to avoid early withdrawal penalties and taxes. Just be sure to find out the loan terms and conditions, which can vary by plan.

Testing and Compliance for Solo 401(k)s

Unlike workplace 401(k)s, solo 401(k)s have no testing compliance requirements involved.

Alternatives to Solo 401(k) Plans

Instead of a solo 401(k), self employed individuals can consider another type of retirement account. Here’s how different options stack up.

Comparing a Solo 401(k) to a SEP IRA and Other Retirement Options

A SEP IRA is designed for small businesses. However, unlike a solo 401(k), a SEP IRA allows no catch-up contributions and there is no Roth version of the plan.

A SIMPLE IRA is for businesses with no more than 100 employees. It has much lower contribution limits than a solo 401(k) and once again, there is no Roth option.

Pros and Cons of a Solo 401(k)

A solo 401(k) has advantages and disadvantages. Here’s a side-by-side comparison of the benefits and drawbacks.

Solo 401(k) Pros

 Solo 401(k) Cons
Catch-up contributions may allow older investors to save more for retirement versus a SEP IRA or SIMPLE IRA. Only self-employed individuals who have no employees or just employee their spouses can contribute.
It’s possible to choose between a traditional solo 401(k) or Roth solo 401(k), based on your investing goals and tax situation. Annual reporting requirements may be more complicated for a solo 401(k) compared to other self employed retirement plans.
Solo 401(k) plans may allow for loans, similar to workplace plans. Early withdrawals from a solo 401(k) are subject to taxes and penalties.

The Takeaway

A solo 401(k) can be a worthwhile investment vehicle for self-employed people who want to save for retirement. It has more generous contribution limits than some other retirement options. In addition, there is a Roth version of the plan, and a solo 401(k) plan may also offer flexibility in terms of early withdrawals. For individuals who are self-employed, opening a solo 401(k) is one potential way to start saving for their golden years.

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

Easily manage your retirement savings with a SoFi IRA.

FAQ

Can I contribute 100% of my salary to a solo 401(k)?

As an employee, you can contribute up to 100% of your earned income to a solo 401(k) up to the annual contribution limit, which is $22,500 in 2023, and $23,000 in 2024, plus an additional $7,500 for those age 50 and up in elective salary deferrals.

Is a solo 401(k) taxable income?

You will pay taxes with a solo 401(k), but the type of plan you open determines when you’ll pay those taxes. If you have a traditional 401(k), your contributions are tax-deferred, and they reduce your taxable income for the year in which you make them. However, you will pay taxes on distributions when you take them in retirement. If you have a Roth 401(k), you pay taxes on your contributions when you make them, but your distributions in retirement are tax-free.

What is the average return on a solo 401(k)?

The return on a solo 401(k) depends on the investments in your portfolio. However, in general, a solo 401(k) invested in a mix of bonds, stocks, and cash assets can have an average rate of return ranging between 3% and 8%. But again, it depends on what your investments are, and how much you allocate to those different assets. You may want to compare your plan’s performance to plans with similar funds to get a general sense of what the average return might be.

Who qualifies for a solo 401(k)?

To be eligible for a solo 401(k), you must be self-employed or a small business owner with no employees other than a spouse. To open a solo 401(k) you will need an Employee Identification Number (EIN), which is available from the IRS.

Photo credit: iStock/visualspace

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

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

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.

SoFi Invest®
INVESTMENTS ARE NOT FDIC INSURED • ARE NOT BANK GUARANTEED • MAY LOSE VALUE
SoFi Invest encompasses two distinct companies, with various products and services offered to investors as described below: Individual customer accounts may be subject to the terms applicable to one or more of these platforms.
1) Automated Investing and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser (“SoFi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC.
2) Active Investing and brokerage services are provided by SoFi Securities LLC, Member FINRA (www.finra.org)/SIPC(www.sipc.org). Clearing and custody of all securities are provided by APEX Clearing Corporation.
For additional disclosures related to the SoFi Invest platforms described above please visit SoFi.com/legal.
Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform.

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Nov
30
2023
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Where Do You Pay off Student Loans?

By | Debt Payoff, Student Loans, student_loan | Comments Off on Where Do You Pay off Student Loans?

If you’re wondering where you go to pay off your student loans, you’ll first need to contact your loan servicer. If you aren’t sure who your loan servicer or loan holder is, you can contact the U.S. Department of Education for federal loans. For private student loans, you can contact the bank or lender who originated your loans.

Contact Your Student Loan Servicer

Before paying back student loans, graduates will have to figure out who their student loan servicer is. A student loan servicer is the company assigned by the U.S. Department of Education (federal student loan creator) to take care of the day to day servicing of a federal student loan. If a person needs to talk to someone about their federal student loan, they can reach out to the servicers instead of traveling to a government office.

Students don’t have to do anything for their loan to be transferred to a loan servicer. The federal student loan will be transferred to a servicer after its first disbursement. Once that happens, students should expect to be contacted by the servicer.

But, unexpected moves or outdated contact information could mean the servicer doesn’t reach you. If a student needs help figuring out who their servicer is, one option is to call the Federal Student Aid Information Center (FSAIC): 1-800-433-3243.

However, the FSAIC can only help students figure out their servicer if they hold federal student loans, not private student loans.

Another option for borrowers with federal student loans is to log into their Federal Student Aid account. From this portal, borrowers can access information on their student loan servicer.

Federal student loan borrowers can also check the National Student Loan Data System to find information about their loan servicer.

Once a student figures out their loan student servicer and contacts them, they can begin sorting through the repayment process. A loan servicer should help a student figure out how to repay loans free of charge.

Be warned, any federal loan servicer that asks for payment may be a scam, warns the U.S. Department of Education.

Recommended: How to Find Out Who Your Student Loan Lender Is

Grace Periods

A loan servicer can help students and graduates figure out when their loan repayment will begin. Most, but not all, federal student loans have a six-month grace period, or an allotted amount of time before a student has to start paying back the loan.

The student loan grace period generally begins once a student graduates, leaves school, or enrolls in class less than part-time. This time is meant for students to get in contact with their loan servicer and begin setting up a repayment plan so they don’t have to scramble post-graduation when so many other changes are happening.

Students should be aware that interest on their unsubsidized loans may be accruing during their grace period. For that reason, some students may decide to begin repayment before the grace period is up in order to keep the interest capitalization down.

Borrowers with subsidized student loans will not accrue interest on their loans during their grace period.

There are some circumstances that can extend or end a grace period early:

•   Being called into active military duty. This will restart the grace period, which will begin again once the student returns.

•   Going back to school before the end of the grace period. If a student goes back to school at least part-time, then they won’t have to repay their loans until they finish school, in which case they’ll have another six-month grace period.

•   Consolidating loans. If a student decides to consolidate or refinance a loan before the end of the grace period, they’ll start their repayment as soon as the paperwork is processed.

Selecting a Repayment Plan

During the grace period, students can work with their loan servicer and other online tools to figure out the right repayment plan for them.

There are several student loan repayment plans a student can choose from, depending on their finances and the type of federal student loans they have.

•   Standard Repayment Plan. All federal loan borrowers are eligible for this repayment plan. Payments are in a fixed amount each month and sets borrowers up to pay off their loan within 10 years.

•   Graduated Repayment Plan. This plan starts out with low monthly payments that gradually increase every two years. Payments are made monthly for up to 10 years for most loans (10-30 years for consolidated loans).

•   Extended Repayment Plan. In this plan, standard or graduated payments are made monthly, but at a lower rate over a longer period of time, typically 25 years.

•   SAVE. The Saving on a Valuable Education (SAVE) Plan is the newest income-driven repayment plan. Payments are calculated as 10% of a person’s discretionary income; starting in July 2024, that will drop to 5%, and some participating borrowers will see their loan balances forgiven in as little as 10 years.

•   Income-Based Repayment Plan. The income-based repayment plan allows for monthly payments that are roughly 10-15% of a person’s monthly income, but borrowers must have a high debt-to-income ratio to qualify.

•   Income-Contingent Repayment Plan. In the Income-Contingent Repayment Plan, eligible borrowers will make monthly payments based on the lesser value of either 20% of their income, or the “amount you would pay on a repayment plan with a fixed payment over 12 years, adjusted according to your income,” according to the Department of Education.

•   Income-Sensitive Repayment Plan. This plan is only available under a few federal loan programs. Payments are based on annual income, and the loan will be paid off within 15 years.

Depending on a borrower’s income and the type of loan they took out, they can work with their servicer to determine which student loan repayment plan might be the best course of action. If a borrower doesn’t reach out to their servicer to coordinate a repayment plan before the end of the grace period, they will be on the Standard Repayment Plan by default.

Start Repaying Student Loans

Once a repayment plan is selected and the grace period draws to a close, borrowers will begin making payments on their student loans.

Where a borrower will make their payment is dependent upon who their student loan servicer is. Most student loan servicers make it possible for borrowers to make monthly payments online, but it’s best to confirm that with the servicer before payments begin.

Most servicers also have an automatic payments set-up, where monthly payments are automatically debited out of borrowers’ accounts each month. Setting up automatic payments can help borrowers avoid missing a payment or racking up late fees.

Additionally, some federal student loans provide a discount when a borrower sets up automatic repayment online. For example, if a borrower has a Direct Loan, their interest rate is reduced by 0.25% when they choose automatic debit.

Repaying Private Student Loans

Private student loans are generally repaid directly to the bank or financial institution that issued them. Borrowers can check their statements to see who the loan servicer is. Generally, payments can be made online.

Refinancing with SoFi

When a borrower works with their student loan servicer, they can take advantage of free tools that might help them pay back their student loans quicker.

But, for some student loan borrowers, the existing interest rates and repayment plans offered by a servicer might not be the best fit.

In that case, borrowers may have the option of refinancing student loans. This can be helpful when there are multiple loans to pay off since refinancing allows borrowers to combine multiple loans into a new single loan and qualifying borrowers may be able to secure a lower interest rate.

Refinancing federal student loans eliminates them from all federal benefits and borrower protections, such as income-driven repayment plans and deferment. If you are or plan on using federal benefits, it is not recommended to refinance student loans.

SoFi’s student loan refinancing offers flexible terms and competitive interest rates. With no hidden fees or pre-payment penalties, borrowers can apply for refinancing in an easy online process — no phone calls required.

The first step to figuring out student loan repayment is figuring out who holds the loan, but with the right help, borrowers can have a plan set up to conquer their loans before the grace period is even finished.

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

SoFi Student Loan Refinance
If you are a federal student loan borrower, you should consider all of your repayment opportunities including the opportunity to refinance your student loan debt at a lower APR or to extend your term to achieve a lower monthly payment. Please note that once you refinance federal student loans you will no longer be eligible for current or future flexible payment options available to federal loan borrowers, including but not limited to income-based repayment plans or extended repayment plans.


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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.

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

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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Nov
30
2023
Understanding Economic Indicators

Understanding Economic Indicators

By | Growing Wealth, invest, Investing | Comments Off on Understanding Economic Indicators

An economic indicator is a statistic or piece of data that offers insight into an economy. Analysts use economic indicators to gauge where an economic system is in the present moment, and where it might head next. Governments use economic indicators as guideposts when assessing monetary or fiscal policies, and corporations use them to make business decisions. Individual investors can also look to these indicators as they shape their portfolios.

There are different types of economic indicators and understanding how they work can make it easier to interpret them, and fold them into your investing strategy.

What Is an Economic Indicator?

An economic indicator is typically a macroeconomic data point, statistic, or metric used to analyze the health of an individual economy or the global economy at large. Government agencies, universities, and independent organizations can collect and organize economic indicator data.

In the United States, the Census Bureau, Bureau of Economic Analysis (BEA) and the Bureau of Labor Statistics (BLS) are some of the entities that aggregate economic indicator data.

Some of the most recognizable economic indicators examples include:

•   Gross domestic product (GDP)

•   Personal income and real earnings

•   International trade in goods and services

•   U.S. import and expert prices

•   Consumer prices (as measured by the Consumer Price Index or CPI)

•   New residential home sales

•   New home construction

•   Rental vacancy rates

•   Home ownership rates

•   Business inventories

•   Unemployment rates

•   Consumer confidence

Private organizations also regularly collect and share economic data investors and economists may use as indicators. Examples of these indicators include the Fear and Greed Index, existing home sales, and the index of leading economic indicators.

Together, these indicators can provide a comprehensive picture of the state of the economy and shine light on potential opportunities for investors.

How Economic Indicators Work

Economic indicators work by measuring a specific component of the economy over a set time period. An indicator may tell you what patterns are emerging in the economy — or confirm the presence of patterns already believed to be established. In that sense, these indicators can serve as a thermometer of sorts for gauging the temperature of the economic environment or where an economy is in a given economic cycle.

Economic indicators can not predict future economic or market movements with 100% accuracy. But they can be useful when attempting to identify signals about which way the economy (and the markets) might head next.

For example, an investor may study an economic indicator like consumer prices when gauging whether inflation is increasing or decreasing. If the signs point to a steady rise in prices, the investor might then adjust their portfolio to account for higher inflation. As prices rise, purchasing power declines but investors who are conscious of this economic indicator could take action to minimize negative side effects.

Recommended: How to Invest and Profit During Inflation

Types of Economic Indicators

Economic indicators are not all alike in terms of what they measure and how they do it. Different types of economic indicators can provide valuable information about the state of an economy. Broadly speaking, they can be grouped into one of three categories: Leading, lagging, or coincident.

Leading Indicators

Leading indicators are the closest thing you might get to a crystal ball when studying the markets. These indicators pinpoint changes in economic factors that may precede specific trends.

Examples of leading indicators include:

•   Consumer confidence and sentiment

•   Jobless claims

•   Movements in the yield curve

•   Stock market volatility

A leading indicator doesn’t guarantee that a particular trend will take shape, but it does suggest that conditions are ripe for it to do so.

Lagging Indicators

Lagging indicators are the opposite of leading indicators. These economic indicators are backward-looking and highlight economic movements after the fact.

Examples of lagging indicators include:

•   Gross national product (GNP)

•   Unemployment rates

•   Consumer prices

•   Corporate profits

Analysts look at lagging indicators to determine whether an economic pattern has been established, though not whether that pattern is likely to continue.

Coincident Indicators

Coincident indicators measure economic activity for a particular area or region. Examples of coincident indicators include:

•   Retail sales

•   Employment rates

•   Real earnings

•   Gross domestic product

These indicators reflect economic changes at the same time that they occur. So they can be useful for studying real-time trends or patterns.


💡 Quick Tip: Investment fees are assessed in different ways, including trading costs, account management fees, and possibly broker commissions. When you set up an investment account, be sure to get the exact breakdown of your “all-in costs” so you know what you’re paying.

Popular Economic Indicators

There are numerous economic indicators the economists, analysts, institutional and retail investors use to better understand the market and the direction in which the economy may move. The Census Bureau, for example, aggregates data for more than a dozen indicators. But investors tend to study some indicators more closely than others. Here are some of the most popular economic indicators and what they can tell you as an investor.

Gross Domestic Product

Gross domestic product represents the inflation-adjusted value of goods and services produced in the United States. This economic indicator offers a comprehensive view of the country’s economic activity and output. Specifically, gross domestic product can tell you:

•   How fast an economy is growing

•   Which industries are growing (or declining)

•   How the economic activity of individual states compares

The Bureau of Economic Analysis estimates GDP for the country, individual states and for U.S. territories. The government uses GDP numbers to establish spending and tax policy, as well as monetary policy, at the federal levels. States also use gross domestic product numbers in financial decision-making.

Consumer Price Index

The Consumer Price Index or CPI measures the change in price of goods and services consumed by urban households. The types of goods and services the CPI tracks include:

•   Food and beverages

•   Housing

•   Apparel

•   Transportation

•   Medical care

•   Recreation

•   Education

•   Communications

CPI data comes from 75 urban areas throughout the country and approximately 23,000 retailers and service providers. This economic indicator is the most widely used tool for measuring inflation. According to the Bureau of Labor Statistics, which compiles the consumer price index, it’s a way to measure a government’s effectiveness in managing economic policy.

Producer Price Index

The Producer Price Index or PPI measures the average change over time in the selling prices received by domestic producers of goods and services. In simpler terms, this metric measures wholesale prices for the sectors of the economy that produce goods, including:

•   Mining

•   Manufacturing

•   Agriculture

•   Fishing

•   Forestry

•   Construction

•   Natural gas and electricity

The Producer Price Index can help analysts estimate inflation, as higher prices will show up on the wholesale level first before they get passed on to consumers at the retail level.

Unemployment Rate

The unemployment rate is an economic indicator that tells you the number of people currently unemployed and looking for work. The BLS provides monthly updates on the unemployment rate and nonfarm payroll jobs. Together, the unemployment rate and the number of jobs added or lost each month can indicate the state of the economy.

Higher unemployment, for example, generally means that the economy isn’t creating enough jobs to meet the demand by job seekers. When the number of nonfarm payroll jobs added for the month exceeds expectations, on the other hand, that can send a positive signal that the economy is growing.

Consumer Confidence

The Consumer Confidence Index can provide insight into future economic developments, based on how households are spending and saving money today. This indicator measures how households perceive the economy as a whole and how they view their own personal financial situations, based on the answers they provide to specific questions.

When the indicator is above 100, this suggests consumers have a confident economic outlook, which may make them more inclined to spend and less inclined to save. When the indicator is below 100, the mood is more pessimistic and consumers may begin to curb spending in favor of saving.

The Consumer Confidence Index is separate from the Consumer Sentiment Index, which is also used to gauge how Americans feel about the economy. This index also uses a survey format and can tell you how optimistic or pessimistic households are and what they perceive to be the biggest economic challenges at the moment.

Retail Sales

Retail sales are one of the most popular economic indicators for judging consumer activity. This indicator measures retail trade from month to month. When retail sales are higher, consumers are spending more money. If more spending improves company profits, that could translate to greater investor confidence in those companies, which may drive higher stock prices.

On the other hand, when retail sales lag behind expectations the opposite can happen. When a holiday shopping season proves underwhelming, for example, that can shrink company profits and potentially cause stock prices to drop.

Housing Starts

Census Bureau compiles data on housing starts. This economic indicator can tell you at a glance how many new home construction projects in a given month. This data is collected for single-family homes and multi-family units.

Housing starts can be useful as an economic indicator because they give you a sense of whether the economy is growing or shrinking. In an economic boom, it’s not uncommon to see high figures for new construction. If the boom goes bust, however, new home start activity may dry up.

It’s important to remember that housing starts strongly correlate to mortgage interest rates. If mortgage rates rise in reaction to a change in monetary policy, housing starts may falter, which makes this economic indicator more volatile than others.

Interest Rates

Federal interest rates are an important economic indicator because of the way they’re used to shape monetary policy. The Federal Reserve makes adjustments to the federal funds rate — which is the rate at which commercial banks borrow from one another overnight–based on what’s happening with the economy overall. These adjustments then trickle down to the interest rates banks charge for loans or pay to savers.

For example, when inflation is rising or the economy is growing too quickly, the Fed may choose to raise interest rates. This can have a cooling effect, since borrowing automatically becomes more expensive. Savers can benefit, however, from earning higher rates on deposits.

On the other hand, the Fed may lower rates when the economy is sluggish to encourage borrowing and spending. Low rates make loans less expensive, potentially encouraging consumers to borrow for big-ticket items like homes, vehicles, or home improvements. Consumer spending and borrowing can help to stimulate the economy.

Stock Market

The stock market and the economy are not the same. But some analysts view stock price and trading volume as a leading indicator of economic activity. For example, investors look forward to earnings reports as an indicator of a company’s financial strength and health. They use this information about both individual companies and the markets as a whole to make strategic investment decisions.

If a single company’s earnings report is above or below expectations, that alone doesn’t necessarily suggest where the economy might be headed. But if numerous companies produce earnings reports that are similar, in terms of meeting or beating expectations, that could indicate an economic trend.

If multiple companies come in below earnings expectations, for example, that could hint at not only lower market returns but also a coming recession. On the other hand, if the majority of companies are beating earnings expectations by a mile, that could signal a thriving economy.


💡 Quick Tip: The best stock trading app? That’s a personal preference, of course. Generally speaking, though, a great app is one with an intuitive interface and powerful features to help make trades quickly and easily.

The Takeaway

Economic indicators can provide a significant amount of insight into the economy and the trends that shape the markets. Having a basic understanding of the different types of economic indicators could give you an edge if you’re better able to anticipate market movements when you start investing.

Economic indicators aren’t perfect, and while they can be a helpful part of an investing strategy, investors should always do as much research as they can before making specific moves. Discussing a strategy with a financial professional may be a good idea, too.

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

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

FAQ

What are the leading economic indicators?

There are several leading economic indicators in the U.S., and they include consumer confidence and sentiment, jobless claims, movements in the yield curve, and stock market volatility.

What are the big three macro indicators?

While they may not be “the” big three macro indicators, a few of the key macroeconomic indicators that are often cited are gross domestic product (GDP), the unemployment rate, and the Consumer Price Index (CPI).

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