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.

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.

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.

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

Fund Fees
If you invest in Exchange Traded Funds (ETFs) through SoFi Invest (either by buying them yourself or via investing in SoFi Invest’s automated investments, formerly SoFi Wealth), these funds will have their own management fees. These fees are not paid directly by you, but rather by the fund itself. these fees do reduce the fund’s returns. Check out each fund’s prospectus for details. SoFi Invest does not receive sales commissions, 12b-1 fees, or other fees from ETFs for investing such funds on behalf of advisory clients, though if SoFi Invest creates its own funds, it could earn management fees there.
SoFi Invest may waive all, or part of any of these fees, permanently or for a period of time, at its sole discretion for any reason. Fees are subject to change at any time. The current fee schedule will always be available in your Account Documents section of SoFi Invest.

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

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.

SOIN0623043
CN-Q425-3236452-54
Q126-3525874-023

Read more
Feb
06
2026

Ways to Build Wealth at Any Age

By | Growing Wealth, Investing | No Comments

There are many time-honored ways to build wealth — at any age — and most of these methods include a few important steps: learning to set goals, save and invest, and avoid high-interest debt.

In other words, it’s possible to build wealth at any age, because almost anyone can learn the fundamental tenets of wealth-building. Embracing smart money-management habits may improve your long-term financial security, whether you use those funds for the purchase of a home, long-term goals such as retirement, or estate planning for after you’re gone.

The key, however, is to start as soon as possible, rather than wait until the right time (which may never come).

Key Points

•   Building wealth can be accomplished at almost any age, because it’s the result of mastering smart money management skills.

•   The common elements of wealth building include learning skills like saving, investing, setting goals, and avoiding certain types of debt.

•   Wealth building also requires learning how to put your money into assets that have the potential to gain value.

•   Being proactive about wealth building means saving and investing for the future, while finding ways to enjoy the present, too.

•   Understanding wealth building at different ages also requires understanding specific challenges that can arise at various times of life.

Set Short- and Long-Term Goals

The first step in building wealth is to set short- and long-term goals that you can revisit and revise at any time, as needed.

Short-term goals focus on achieving near-term results, such as funding next summer’s trip or buying a new car.

In contrast, long-term goals might require several years or more of preparation. For example, you may want to collect enough to pay off your mortgage or send your kid to college . Creating realistic goals gives you direction, so make them as specific as possible.

Create a Budget

Once you know your goals, drafting a monthly budget is the next step.

Document up to three months’ worth of expenses by using a spending-tracker app, or a basic notebook. Then, break the list down into fixed costs, variable costs, necessary costs, and discretionary costs. It’s essential to know where your money is going, in order to make smart decisions about your priorities.

You probably can’t stop paying your utilities, but you will likely find places to save in your discretionary category (think restaurant meals, or entertainment expenses). Making cuts in some areas can help you channel money into your goals.

There are a number of effective budgeting methods and systems. Some rely on an app, others use hands-on strategies such as dividing your spending into separate envelopes. It’s important to try different budgets and find one you can stick with.

Pay Off Debt

To dedicate more money toward building wealth and saving for your goals, you’ll likely need to pay off some debt first. You can use your discretionary income as a tool for minimizing your debt load.

If you have multiple debts, consider using a debt reduction method, such as the avalanche method or the snowball method, to accelerate the process.

The Avalanche Method

The avalanche method prioritizes high-interest debts by ranking the interest rates from highest to lowest. Then, regularly pay the minimum on each of your debts, and put any leftover funds towards the one with the highest interest rate.

Once you pay that off, continue on to the second-highest debt. Follow that pattern to minimize the interest you’re paying as you become debt-free.

Snowball Method

Alternatively, the snowball method is another debt repayment strategy. It’s essentially the opposite of the avalanche approach. List your debts from the smallest balance to largest, ignoring the interest rates. Then, regularly dedicate enough funds to each to avoid penalties, and put any extra money toward the smallest debt.

After the smallest debt is paid, redirect your attention to the next largest debt, and so on. As the number of individual debts shrink, you’ll have more money to apply towards the larger debts. You may still have interests to worry about but picking off the debts one by one can impart a sense of forward movement and accomplishment.

Start Investing

Investing is an important way to build wealth at any age. Generally speaking, there are two ways to invest when building wealth. The first step is to max out your retirement savings. The second is to invest on your own.

Investing for Retirement

If you haven’t already, find out what if any employer-sponsored retirement savings plans are available to you, such as a 401(k) plan. These qualified retirement plans offer tax advantages, and typically allow you to direct a portion of your paycheck to your account, thus putting your savings on autopilot.

If your workplace does not offer any retirement accounts, consider whether you want to open an IRA — or a brokerage account to build an investment portfolio.

Generally, investing for retirement when you’re young means you can take on more risks. While a diversified portfolio is a standard strategy, younger investors might have a portfolio that’s heavier on equities , since they may help generate long-term growth.

As you get older and closer to retirement, your risk profile may change and your portfolio will need a rebalancing to incorporate more fixed-income investments, such as bonds, which are considered lower risk than stocks. Understanding stock market basics can help you become a more savvy investor.

Investing on Your Own

While investing for retirement should be a key part of your long-term wealth-building strategy, it’s also possible to open a taxable brokerage or online brokerage account for additional growth potential.

Investing always comes with the risk of loss, but many investors find ways to put their money to work by investing in low-cost mutual funds or exchange-traded funds (ETFs), as well as other types of securities.

One important aspect of active investing is knowing what the costs are. You may have to pay brokerage fees, expense ratios, trading commissions, and other charges. While these may seem small, or may be couched as a tiny percentage, investment fees can add up over time and reduce your returns.

How to Increase Your Income and Save More

You might be getting by on your current income, but there may be ways to boost what you bring home. With an extra-positive cash flow, you could pay down debt and save more, and achieve your goals sooner. Here are a few ways to make that happen.

Ask for a Raise

Asking for a salary increase is one solution for improving your cash flow. All it takes is a few good conversations, a positive work record — and a bit of courage and confidence. Speak to your peers and read up on how to conduct yourself when asking for a raise. Going in with a plan will save you anxiety and help you get your points across clearly.

Start a Side Gig

Additional work is also great to bulk up your resume and create new connections. It seems like everyone is starting up a side hustle these days. From online shops to freelancing, the opportunities are endless. All you have to do is determine your marketable skills and how to advertise them. There might be local opportunities, or you can create a profile online on side hustle-oriented websites.

Cut Expenses

Sometimes it’s not about finding new sources of money, but about creating a larger pool with the money already coming in. Take a second pass at your list of discretionary expenses to pinpoint a few more areas you could cut back on without feeling the impact in your day-to-day life.

One good example: Automatically renewed subscriptions for streaming services and local businesses, like gyms, are convenient. But think about how frequently you use the service. If the answer is “not often,” you’re not getting your money’s worth — and you may want to negotiate a lower fee, or cut the subscription altogether.

How to Build Wealth at Every Stage of Life

While it’s good to have a general strategy in place for building wealth and increasing cash flow, different stages in your life may require you to focus on different things. Taking advantage of the opportunities each decade brings you will help you financially adjust and build a stable lifestyle.

In Your 20s

You may be right out of school and trying to navigate the job market, but don’t wait to start working towards your long-term financial goals. The sooner you start, the sooner you’re likely to reach your goals.

Create an Emergency Fund

Generally, an emergency fund should include about three to six months’ worth of living expenses. Although that sounds like a lot, start small and save what you can. You’ll be grateful for the cushion if you should lose your job, need a car repair, or have a medical emergency.

Unexpected things happen all the time, and an emergency fund will protect you while you get things back up and running. It will also keep you from having to tap your savings accounts.

Eliminate High-Interest Debt

Your student loans aren’t going anywhere, so pay off student debt as soon as possible. The same goes for any other high-interest debt you might have incurred, such as with a credit card. Paying high interest rates will limit your ability to save.

However, don’t be afraid to use your credit cards responsibly. Your 20s are the perfect time to build good credit, which will be vital to certain goals, like purchasing a house. Use them strategically and pay them off immediately to build an upstanding credit history.

In Your 30s

Your 30s may bring some stability into your life, whether it’s a steady career, a partner, and/or kids. However, the costs you’re facing are likely growing with you. Focus on money moves that will benefit you long-term.

Plan for College Expenses

If you have children, saving for their education is a big step. Use opportunities like a 529 account to help provide the funding. A 529 plan is a tax-advantaged savings plan you can use to pay for future tuition and related costs. While saving for college is important, it’s essential to balance this with funding your retirement — which is an even bigger priority.

Pad the Nest Egg

By some popular estimates, by age 30 you should have at least one year’s worth of your annual salary saved for your retirement — and twice that by 35. Incrementally increasing the amount you put towards your savings will help boost that number as well. While these targets may seem big, the more important thing is to save steadily over time — that’s how real wealth-building happens.

In Your 40s, 50s and Beyond

By 40, conventional wisdom holds that you should be well on your way to a growing nest egg with three times your annual salary saved up. Again, this is just a target — but it can help you stay on track.

At this stage, you may also have other assets to your name, such as a home. If you have kids, they might be nearing college age, and retirement might not seem quite as far away as it once did. This will motivate you to save for your goals.

Protect Your Self and Your Wealth

It’s always smart to protect your assets — and yourself. Make sure you have insurance covering both you and your estate (through health and life insurance). Insurance can take a burden off of your family’s shoulders in case anything happens to you.

Capitalize on Make-Up Contributions

Maximizing your retirement savings is a key part of wealth-building at every age.

A make-up, or catch-up, contribution, is an additional payment that anyone over age 50 can make to their 401(k) or IRA account. If you’re in a financial position to contribute these extra funds, it can help bulk up those savings to help prepare for retirement.

For 2025, you can contribute up to $23,500 per year, and if you’re 50 or older, the maximum allowable catch-up contribution to 401(k) plans per year is $7,500, for a total of $31,000. In 2026, you can contribute up to $24,500 per year, and if you’re 50 or older, you can make a catch-up contribution of up to $8,000, for a total of $32,500.

However, there’s also something called a super catch-up contribution, which allows employees aged 60 to 63 to contribute an extra $11,250 in both 2025 and 2026 (instead of $7,500 and $8,000).

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.

The annual IRA contribution limit for 2025 is $7,000, with those 50 and above allowed to contribute another $1,000 per year. In 2026, the limit if $7,500, with those 50 and older allowed to contribute an extra $1,100 per year. In total, anyone 50 or older can put $8,000 into their traditional or Roth IRA annually in 2025, and $8,600 in their IRA annually in 2026.

There are other types of retirement accounts for self-employed people that allow you to save more than in ordinary IRAs. Choosing the type of plan that matches your needs and helps you save and invest more is key to building wealth long term.

Wait to Take Social Security

Did you know you could receive a higher Social Security benefit if you wait to claim your benefits? Those who hold off collecting Social Security until age 67 — the full retirement age for people born in 1960 or afterward — get 108% of their benefits, and those who wait until the age of 70 can receive 132% of their monthly benefit.

On the other hand, if you begin taking benefits early, at age 62, you’ll receive 25% less in monthly benefits.

Shift Your Asset Allocation

Investors should periodically revisit their portfolio and reassess their investments and risk level. As you get closer to retirement, you may decide to allocate a larger part of your portfolio to safer choices like bonds and other fixed-income assets. This may not increase your nest egg, but it can help prevent losses.

The Takeaway

Building wealth at any age starts with a close look at your current income and expenditures, a detailed list of short-term and long-range goals — and a little follow-through based on where you are in life.

Some ways to start building wealth are to take on a side gig or side hustle, find ways to cut expenses and increase savings rates, and to start investing. There are numerous ways to do any of these, and it may take some experimenting to see what works for you.

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 are the key principles for building wealth?

The basic tenets of building wealth may seem simple, but they require discipline. Spending less than you make, setting goals and saving toward those goals, learning to invest, and avoiding high-interest debt are generally good places to start.

Is 40 too late to start building wealth?

Even if you start at age 40, you should have enough runway to build wealth that can help support you later in life.

Does investing build wealth?

Investing involves risk, and there are no guarantees that investing your money will help it grow. That said, learning the ropes of how to invest and manage your money may help build wealth over time.

About the author

Ashley Kilroy

Ashley Kilroy

Ashley Kilroy is a seasoned personal finance writer with 15 years of experience simplifying complex concepts for individuals seeking financial security. Her expertise has shined through in well-known publications like Rolling Stone, Forbes, SmartAsset, and Money Talks News. Read full bio.


INVESTMENTS ARE NOT FDIC INSURED • ARE NOT BANK GUARANTEED • MAY LOSE VALUE

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

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

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

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

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

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

Disclaimer: The projections or other information regarding the likelihood of various investment outcomes are hypothetical in nature, do not reflect actual investment results, and are not guarantees of future results.

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

SOIN-Q225-056
Q126-3525874-027

Read more
Feb
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.

SOIN-Q325-094
CN-Q425-3236452-46
Q126-3525874-019

Read more
Feb
05
2026
What Is a SIMPLE IRA? How Does it Work?

The Ultimate Guide to SIMPLE IRAs for Employees and Small Businesses

By | Growing Wealth, invest, Investing | Comments Off on The Ultimate Guide to SIMPLE IRAs for Employees and Small Businesses

SIMPLE IRA is a tax-advantaged retirement account that can help self-employed individuals and small business owners save and invest for the future.

You may already be familiar with traditional individual retirement accounts (IRAs). A SIMPLE IRA, or Saving Incentive Match Plan for Employees, is similar to a traditional IRA in that it’s also a tax-deferred account. But the contribution limits for SIMPLE IRAs are higher, and the tax treatment of these plans is slightly different.

Also, SIMPLE IRAs require employers to provide a matching contribution.

What Is a SIMPLE IRA?

SIMPLE IRA plans are employer-sponsored retirement accounts for businesses with 100 or fewer employees. They are also retirement accounts for the self-employed and sole proprietors. If you’re your own boss, and thus self-employed, you can set up a SIMPLE IRA for yourself.

For small business owners and the self-employed, SIMPLE IRAs are an easy-to-manage, low-cost way to contribute to their own retirement — while at the same time helping employees to contribute to their savings as well, both through tax-deferred, elective contributions, and a required employer match.

SIMPLE IRAs offer higher contribution limits than traditional IRAs (see below), but employers and employees still benefit from tax advantages like tax-deferred growth and contributions that are either deductible (for the employer) or reduce taxable income (for the employee).

How Does a SIMPLE IRA Work?

A SIMPLE IRA is one of many different types of retirement plans available, but it can be appealing for small business owners and those who are self-employed owing to the lower administrative burden.

That’s because, unlike a 401(k) plan (which requires a plan sponsor and a plan administrator, as well as a custodian for employee assets), a SIMPLE IRA basically enables the employer to set up IRA accounts at a financial institution for eligible employees — or allow employees to do so at the financial institution of their choice.

Once the plan is set up and contributions are made, the employee is fully vested (i.e., they have ownership of all SIMPLE IRA funds, per IRS rules), which is helpful when saving for retirement.

Employee Eligibility

In order for an employee to participate in a SIMPLE IRA, they must have earned at least $5,000 in compensation over the course of any two years prior to the current calendar year, and they must expect to make $5,000 in the current calendar year.

It’s possible for employers to set less restrictive rules for SIMPLE IRA eligibility. For example, they could lower the amount employees are required to have made in a previous two-year time. However, they cannot make participation rules more restrictive.

Employers can exclude certain types of employees from the plan, including union members who have already bargained for retirement benefits and nonresident aliens who don’t receive their compensation from the employer.

Employee Contribution Limits

Those who have a SIMPLE IRA can contribute up to $16,500 in 2025 (plus an extra $3,500 in catch-up contributions for those 50 and older). In 2026, they can contribute up to $17,000 (plus an extra $4,000 in catch-up contributions for those 50 and older). In both 2025 and 2026, those aged 60 to 63 can contribute $5,250 (instead of $3,500 and $4,000 respectively), thanks to SECURE 2.0.

Contributions reduce employees’ taxable income, which lowers their income taxes in the year they contribute. Contributions can be invested inside the account, and may grow tax-deferred until an employee makes withdrawals when they retire.

IRA withdrawal rules are particularly important to pay attention to as they can be a bit complicated. Withdrawals made after age 59 ½ are subject to income tax. If you make withdrawals before then, you may be subject to an additional 10%, with some exceptions, or 25% penalty (if you’ve had the account for less than two years).

Account holders must make required minimum distributions, or RMDs, from their accounts when they reach age 73 (as long as they turn 72 after December 31, 2022).

Matching Contributions

An employer is required to provide a matching contribution to employees in one of two ways. They can match up to 3% of employees’ compensation. Or they can make a non-elective contribution of 2% of employees’ compensation.

If an employee doesn’t participate in the SIMPLE IRA plan, they would still receive an employer contribution of 2% of their compensation, up to the annual compensation limit, which is $350,000 for 2025, and $360,000 for 2026.

This two-tiered structure allows employers to choose whatever matching structure suits them.

SIMPLE IRA vs Traditional IRA

When it comes to a SIMPLE IRA vs. a traditional IRA, the two plans are similar, but there are some key differences between the two. A SIMPLE IRA is for small business owners and their employees. A traditional IRA is for anyone with earned income.

To be eligible for a SIMPLE IRA, an employee generally must have earned at least $5,000 in compensation over the course of two years prior — and expect to make $5,000 in the current calendar year. With a traditional IRA, an individual must have earned income in the past year.

Contribution Limits

One of the biggest differences between the two plans is the contribution limit amount.

While individuals can contribute $7,000 in 2025 to a traditional IRA (or $8,000 if they are 50 or older), and $7,500 in 2026 (or $8,600 if they are 50 or older), those who have a SIMPLE IRA can contribute $16,500 in 2025, plus an extra $3,500 in catch-up contributions for those 50 and older, for a total of $20,000, and they can contribute $17,000 in 2026 plus an extra $4,000 in catch-up contributions, for a total of $21,000. Those aged 60 to 63 can contribute a catch-up of $5,250 for both 2025 and 2026 (instead of $3,500 and $4,000), for a total of $21,750 in 2025, and $22,250 in 2026.

Tax Treatment

And while both types of IRAs are considered tax deferred, SIMPLE IRAs use two different tax treatments.
For example: a traditional IRA generally allows individuals to make tax-deductible contributions. With a SIMPLE IRA, the employer or sole proprietor can make tax-deductible contributions to a SIMPLE IRA — while employees benefit from having their elective contributions withheld from their taxable income.

Both methods can help lower taxable income, potentially providing a tax benefit. But withdrawals are taxed as income, as they are with a traditional IRA.

Dive deeper: SIMPLE IRA vs Traditional IRA

SIMPLE IRA vs 401(k)

SIMPLE IRAs have some similarity to employer-sponsored 401(k) plans. Contributions made to both are made with pre-tax dollars, and the money in the accounts grows tax-deferred.

But while a 401(k) gives an employer the option of providing matching contributions to employees’ plans, a SIMPLE IRA requires matching contributions by the employer, as noted above.

Another major difference between the two plans is that individuals can contribute much more to a 401(k) than they can to a SIMPLE IRA.

•   In 2025, they can contribute $23,500 to their 401(k) and an additional $7,500 if they’re 50 or older. Those aged 60 to 63 can contribute $11,250 instead of $7,500 to their 401(k), thanks to SECURE 2.0. In 2026, they can contribute $24,500 and an additional $8,000 if they are 50 or older. Those aged 60 to 63 can again contribute $11,250 instead of $8,000.

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. With Roth accounts, individuals pay taxes on contributions upfront, but can make qualified withdrawals tax-free in retirement.

•   In comparison, individuals can contribute $16,500 to a SIMPLE IRA in 2025, plus an additional $3,500 if they are 50 or older, and in 2026, they can contribute $17,000, plus an additional $4,000 if they are 50 or older. Those aged 60 to 63 can contribute $5,250 (instead of $3,500 and $4,000) in 2025 and 2026, thanks to SECURE 2.0.

How to Run a SIMPLE IRA Plan

SIMPLE IRAs are relatively easy to put in place, since they have no filing requirements for employers. Employers cannot offer another retirement plan in addition to offering a SIMPLE IRA.

If you’re interested in setting up a SIMPLE IRA, banks and brokerages may have a plan, known as a prototype plan, that’s already been approved by the IRS.

Otherwise you’ll need to fill out one of two forms to set up your plan:

•   Form 5304-SIMPLE allows employees to choose the financial institutions that will receive their SIMPLE IRA contributions.

•   You can also fill out Form 5305-SIMPLE, which means employees will deposit SIMPLE IRA contributions at a single financial institution chosen by the employer.

Once you have established the SIMPLE IRA, an account must be set up by or for each employee, and employers and employees can start to make contributions.

Notice Requirements for Employees

There are minimal paperwork requirements for a SIMPLE IRA. Once the employer opens and establishes the plan through a financial institution, they need to notify employees about it. This should be done by October 1 of the year the plan is intended to begin. Employees have 60 days to make their elections.

Eligible employees need to be notified about the plan annually. Any changes or new terms to the plan must be disclosed. At the beginning of each annual election period, employers must notify their employees of the following:

•   Opportunities to make or change salary reductions.

•   The ability to choose a financial institution to receive SIMPLE IRA contribution, if applicable.

•   Employer’s decisions to make nonelective or matching contributions.

•   A summary description provided by the financial institution that acts as trustee of SIMPLE IRA fund, and notice that employees can transfer their balance without cost of penalty if the employer is using a designated financial institution.

Participant Loans and Withdrawals

Participants cannot take loans from a SIMPLE IRA. Withdrawals made before age 59 ½ are typically subject to a 10% penalty, or 25% if the account is less than two years old, in addition to any income tax due on the withdrawal amount.

Rollovers and Transfers to Other Retirement Accounts

For the first two years of participating in a SIMPLE IRA, participants can only do a tax-free rollover to another SIMPLE IRA. After two years, they may be able to roll over their SIMPLE IRA to a traditional IRA or an employer-sponsored plan such as 401(k).

A rollover to a Roth IRA would require paying taxes on any untaxed contributions and earnings in the accounts.

The Advantages and Drawbacks of a SIMPLE IRA Plan

While SIMPLE IRAs may offer a lot of benefits, including immediate tax benefits, tax-deferred growth, and employer contributions, there are some drawbacks. For example, SIMPLE IRAs don’t allow employees to save as much as other retirement plans such as 401(k)s and Simplified Employee Pension (SEP) IRAs.

In 2025, employees can contribute up to $23,500 to a 401(k), plus an additional $7,500 for those 50 and over. Those aged 60 to 63 can contribute $11,250 instead of $7,500 to their 401(k), thanks to SECURE 2.0.

In 2026, they can contribute $24,500 to a 401(k), plus an additional $8,000 for those 50 or older. Those aged 60 to 63 can contribute $11,250 instead of $8,000 to their 401(k), thanks to SECURE 2.0.

Individuals with a SEP IRA account can contribute up to 25% of their employee compensation, or $70,000, whichever is less, in 2025, and up to 25% of their employee compensation, or $72,000, whichever is less, in 2026.

The good news is, employees with SIMPLE IRAs can make up some of that lost ground. Employers may be wondering about the merits of choosing between a SIMPLE and traditional IRA, but they can actually have both.

Employers and employees can open a traditional or Roth IRA and fund it simultaneously with a SIMPLE IRA. For 2025, total IRA contributions can be up to $7,000, or $8,000 for those 50 and over. In 2026, total IRA contributions can be up to $7,500, or $8,600 for those 50 or older.

Here some pros and cons of starting and funding a SIMPLE IRA at a glance:

Pros of a SIMPLE IRA

 Cons of a SIMPLE IRA
Employers are required to provide a matching contribution for all eligible employees. Lower contribution limits than other plans, such as 401(k)s and SEP IRAs.
Lower cost and less paperwork than other retirement accounts; there are no filing requirements with the IRS. Withdrawals made before age 59 ½ are subject to a possible 10% or 25% penalty, depending on how long the account has been open.
Contributions are tax deductible for employers and pre-tax for employees (both lower taxable income). Participants cannot take out a loan from a SIMPLE IRA.
A SIMPLE IRA may offer more investment options than a 401(k) or other employer plan. There is no Roth option to allow employees to fund a SIMPLE account with after-tax dollars that would translate to tax-free withdrawals in retirement.

Eligibility and Participation in a SIMPLE IRA

As mentioned previously, there are some rules about who can participate in a SIMPLE IRA. Here’s a quick recap.

Who Can Establish and Participate in a SIMPLE IRA?

Small business owners with fewer than 100 employees and self-employed individuals can set up and participate in a SIMPLE IRA, along with any eligible employees.

Employers can’t offer any other type of employer-sponsored plan if they set up a SIMPLE IRA.

Employees’ Eligibility and Participation Criteria

In order for an employee to be eligible to participate, they must have earned at least $5,000 in compensation over the course of any two years prior to the current calendar year, and they must expect to make $5,000 in the current calendar year.

Employees can choose less restrictive requirements if they choose. They may also exclude certain individuals from a SIMPLE IRA, such as those in unions who receive benefits through the union.

Investment Choices and Account Maintenance

Because the employer doesn’t have to set up investment options for the SIMPLE IRA, employees have the advantage of setting up a portfolio from the investments available at the financial institution that holds the SIMPLE IRA.

Investment Choices for a SIMPLE IRA

Typically, there may be more investment choices with a SIMPLE IRA than there with a 401(k) because the SIMPLE IRA account may be held at a financial institution with a wide array of options.

Investment choices can include stocks, bonds, mutual funds, exchange-traded funds (ETFs), target-date funds, and more.

Understanding SIMPLE IRA Distributions

There are particular rules for SIMPLE IRA distributions, as there are with all types of retirement accounts.

Withdrawal Rules and Tax Consequences

As discussed previously, withdrawals made before age 59 ½ are subject to income tax plus a potential 10% or 25% penalty, depending on how long the account has been open.

Withdrawals made after age 59 ½ are subject to income tax only and no penalty. Account holders must make required minimum distributions from their accounts when they reach age 73 (as long as they turn 72 after Dec. 31, 2022).

The 2-Year Rule and Early Withdrawal Penalties

There is a two-year rule for withdrawals from a SIMPLE IRA. If you make a withdrawal within the first two years of participating in the plan, the penalty may be increased from 10% to 25%, with some exceptions (e.g., for a first-time home purchase, for higher education expenses, and more). In addition, all withdrawals are subject to ordinary income tax.

The Takeaway

SIMPLE IRAs are one of the easiest ways that self-employed individuals and small business owners can help themselves and their employees save for retirement, whether they’re experienced retirement investors or they’re opening their first IRA.

These accounts can even be used in conjunction with certain other retirement accounts and investment accounts to help individuals save even more.

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.

Photo credit: iStock/shapecharge

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.

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

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.

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.

SOIN-Q324-054
CN-Q425-3236452-28
Q126-3525874-009

Read more
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.

💡 Quick Tip: Look for an online brokerage with low trading commissions as well as no account minimum. Higher fees can cut into investment returns over time.

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

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.

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.

SOIN-Q424-114
CN-Q425-3236452-33
Q126-3525874-011

Read more
Close modal

See what SoFi can do for you and your finances.

Select a product below and get your rate in just minutes.

Student Loan
Refinancing

Personal
Loans

Online
Investments

Other

Terms and conditions apply. SOFI RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE. To qualify, a borrower must be a U.S. citizen or other eligible status, be residing in the U.S., and meet SoFi's underwriting requirements. Not all borrowers receive the lowest rate. Lowest rates reserved for the most creditworthy borrowers. If approved, your actual rate will be within the range of rates at the time of application and will depend on a variety of factors, including term of loan, evaluation of your creditworthiness, income, and other factors. If SoFi is unable to offer you a loan but matches you for a loan with a participating bank, then your rate may be outside the range of rates listed above. Rates and Terms are subject to change at any time without notice. SoFi Personal Loans can be used for any lawful personal, family, or household purposes and may not be used for post-secondary education expenses. Minimum loan amount is $5,000. The average of SoFi Personal Loans funded in 2023 was around $33K. Information current as of 2/26/24. SoFi Personal Loans originated by SoFi Bank, N.A. Member FDIC. NMLS #696891 (www.nmlsconsumeraccess.org). See SoFi.com/legal for state-specific license details. See SoFi.com/eligibility for details and state restrictions.

✝ 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.

©2026 Social Finance, LLC All rights reserved.
TLS 1.2 Encrypted
Equal Housing Lender