Thinking about Rolling Your 401(k) into an IRA? 7 Deciding Factors to Consider

The Department of Labor has outlined new rules for advisers to follow when rolling over retirement plans. Whether it is a 401(k) to an IRA or an IRA from one custodian to another, there are several considerations that need to be evaluated before making a change. If you are initiating a rollover on your own, it may be beneficial for you to evaluate these items as well.

You should be able to get all the information you need on your plan from your statements, Annual Participant Fee Disclosure and Summary Plan Description. If you do not have access to these documents, you can usually request them from your human resource department.

All-In Fees and Expenses

Before deciding whether to do a rollover, you will want to compare the fees within your 401(k) plan vs. the fees for the IRA. Fees in the 401(k) could include any mutual fund loads, plan expenses and any underlying fees. Sometimes the fees may be higher in your 401(k), but there may be additional benefits to keeping your funds in the 401(k) wrapper.

It would be up to you to decide whether any benefits are worth the fees. For example, if you are opening an IRA and moving over to an investment adviser there will be additional management fees paid to your adviser, but you may also receive financial advice, retirement planning or wealth management services.

Available Services

Some retirement plans, such as 401(k)s, provide added creditor protection, the ability to take out a loan or take hardship withdrawals, which are not available with IRAs. In certain circumstances you may be able to keep some asset protection if 401(k) funds are rolled into a separate IRA and not commingled with other IRA funds. Some 401(k) providers provide investment education to participants that may be valuable if you are a younger investor.  You will also want to look at your vesting schedule and company match to determine whether they may be affected. In addition, some retirement plans offer Roth 401(k) contributions, which may not be available to you otherwise.

Available Investments and/or Products

Several 401(k)s offer participants limited investment options. On one hand, that could be viewed as a positive, because when there are too many choices it can confuse participants and make it harder to manage the plan. However, some plans’ limited options may be  more expensive, such as actively managed funds, and they might not offer any low-cost index options.

If you roll over funds into an IRA you then have access to a much wider universe of investments. That said, this should not be your only decision criteria. Some company retirement plans offer a “BrokerageLink” option, which allows you to move funds from the “core” 401(k) account to a brokerage account –  another way to access more investment options. Some plans have restrictions on what can be invested in a BrokerageLink so you would want to consult the plan document before deciding.

Guaranteed Income/or Interest Rates

Are you invested in anything earning a guaranteed interest rate that you will lose by moving from a 401(k) to an IRA or other plan? For example, TIAA CREF’s 401(k) offering has TIAA Traditional, which could be earning 3%-4% –  a great return in this environment. You may not want to roll out funds into an IRA and lose access to this option.

Tax Considerations

If you are required distribution age but still working past retirement (providing you are not an over 5% owner in the company), you can defer taking money out of your 401(k). Unfortunately, if you have an IRA on the side, that IRA is subject to required distributions at age 72, even if you continue to work. If you leave the funds in the 401(k) you can still contribute and don’t have to take money out.

One caveat related to the Roth part of a 401(k): If you are age 72 and a greater than 5% owner or retired you have to take a distribution from the Roth side. A way to get around this is to roll the Roth 401(k) balance into a Roth IRA prior to age 72.

Also, if you happen to be in a zero-income year and all you have is retirement funds and need cash, it may make sense to take a taxable distribution rather than do a rollover.

Distribution Considerations

If your 401(k) retirement account is invested in an insurance product or annuity you will want to evaluate whether there are any surrender charges. Usually annuities cannot be moved to IRAs in kind. Some annuity products may have certain benefits that will be lost if liquidated, so you will want to make sure you understand how your product works before making a decision.

Some plans may offer annuity options rather than a lump sum, which would be lost if you roll your 401(k) over to an IRA. You will want to look at the financial implications of the lump sum vs. the annuity options to see which option is better for your situation, especially if you have a spouse who can receive survivor benefits.

You will also want to check if there are any in-service distributions options or guaranteed payment options.

Beneficiary Considerations

If you are married, your 401(k) must list your spouse as beneficiary unless your spouse signs a waiver. You can list anyone on an IRA as a beneficiary, so you may want to review your estate planning and beneficiaries if you make any changes.

Senior Financial Adviser, Evensky & Katz/Foldes Financial Wealth Management

Roxanne Alexander is a senior financial adviser with Evensky & Katz/Foldes Financial handling client analysis on investments, insurance, annuities, college planning and developing investment policies. Prior to this, she was a senior vice president at Evensky & Katz working with both individual and institutional clients. She has a bachelor’s in accounting and business management from the University of the West Indies, she received an MBA at the University of Miami in finance and investments.

Source: kiplinger.com

Dear Penny: Is Using Retirement Money So My Daughter Can Graduate a Mistake?

Dear Penny,
A big advantage of Parent PLUS loans is that you can qualify for something called income-contingent repayment. Basically, your payment is capped at 20% of your disposable income. You’re planning to retire soon, so I’m assuming your income will drop soon as well. That means you could qualify for an extremely low payment once your daughter graduates.
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She is a good kid with some special problems that she overcomes daily. I want her to have this degree and a chance in life. She worked very hard to overcome all of the physical and mental challenges in her life, BUT expenses are starting to affect my retirement. Any advice?
Sometimes I get antsy when parents talk about spending retirement money on their child’s education. But we’re talking about one year of college, not four. I think you’d deeply regret not giving your daughter the financial support she needs to make it through this final year.

Robin Hartill is a certified financial planner and a senior writer at The Penny Hoarder. Send your tricky money questions to [email protected].
Contact the financial aid office for your daughter’s school if you haven’t already done so. The Free Application for Federal Student Aid, or FAFSA, bases financial aid on income from two years earlier. For example, aid for the 2022-23 school year will be based on 2020 income. But some schools offer a process called professional judgment where administrators can adjust FAFSA information based on major life changes, like a parent’s retirement, on a case-by-case basis.
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Your daughter has no doubt overcome her challenges thanks to her own grit, but also because of your love and support as a parent. You’re making a sacrifice to pay for her last year of school because you believe in her. Once she graduates, paying off any debt you’ve incurred will be another challenge you’ll need to conquer together.
-J.
Keep in mind, a Parent PLUS loan is only an option if your daughter is considered a dependent student. For example, if she’s 24 or older or she has dependent children of her own, unfortunately, you wouldn’t be eligible.
Ready to stop worrying about money?
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Dear J.,
With private student loans — whether you take them out in your name or co-sign for your daughter — you’re at the mercy of your lender if you’re struggling with payments. So I’d vote in favor of a Parent PLUS loan, even if you find a private loan with a lower interest rate.
If you can’t get a Parent PLUS loan, I’d suggest splitting taking half from your retirement funds and a private loan for the other half. Neither is an ideal option, but sometimes life forces us to choose between less-than-perfect options.
What makes me nervous about using retirement money is that virtually everyone’s investments have taken a hit in recent months. You want to limit your withdrawals as much as possible right now so that your money can recover. But at least since you’re 67, you won’t pay an early withdrawal penalty.
Now let’s address your daughter’s role. I don’t know if she currently has a job. If she is able to work some to help defray costs without jeopardizing her studies, that should be on the table.
My daughter is in her last year of college. I don’t have any more money to pay for it. So for her last year, should I take from retirement monies or get a loan? 
If financial aid can’t make up the shortfall, a Parent PLUS loan is a good solution. A Parent PLUS loan is a federal student loan that you, as the parent, are responsible for repaying.
Source: thepennyhoarder.com

But I want her to focus on her studies so that she can actually complete her final year of coursework in a year. Stretching out the timeline further could pose a greater risk to your retirement. So I wouldn’t ask your daughter to get a job if she’s not already working or work more hours if she has a job.

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By taking half from your retirement and half as a loan, you can minimize the damage to your nest egg while taking less debt into retirement. If you’re able to work just a bit longer to pay some of these expenses in cash, even better.

Margin Trading vs Futures: Compared and Explained

Trading crypto on margin in the spot market is different from using futures to control crypto positions. Margin trading involves using money borrowed from a broker to go long or short crypto. With futures, traders can post margin as collateral to take on large long or short positions on contracts with a specific delivery date. Another type of crypto futures contract, perpetual futures, does not come with a delivery date, but it comes with daily fees.

It’s important for crypto investors to understand the fundamental concept of margin vs. futures. Though there are key differences between trading margin vs. futures, there are also similarities between them, and pros and cons to consider. If you recognize how futures vs. margin trading operates, then you can better decide which of these investing strategies — margin vs. futures — to use when building a cryptocurrency portfolio.

Margin vs Futures

Margin vs. futures feature many similarities, but there are also differences to consider. Analyzing both can help you know if these trading techniques could work with your investing style and tolerance for risk. You might decide to have a margin or a futures account, one of each, or neither.

Similarities

Futures vs. margin trading share some characteristics. For one thing, both methods would allow you to control more of a crypto position than would trading the cash, or spot market, using only your equity. The futures market and a margin account simply go about it differently. Both might entice prospective market participants with potentially big quick gains, but losses can be dramatic too.

It is important to remember that cryptocurrencies are usually much more volatile than stock market indexes. So if you trade with margin or futures, you could expect to see fast movements (either up or down) in your profit and loss numbers.

Differences

As we said earlier, identifying the differences between trading with margin vs. futures could help determine the best investing strategy for your risk tolerance and return objectives. For starters, futures trading requires a good faith deposit to access contracts, often with quarterly maturity, while a crypto margin account lets you leverage the spot market. The futures market might require that you pay closer attention to liquidity — that is, how easily you can trade while still receiving a competitive price.

With a crypto margin account, liquidity is generally not a problem in the spot market; knowing how much you can borrow might be the greater issue to consider. Because the spot market is perpetual, you also must determine for how long you want to own a coin. With futures, by contrast, expiring contracts set a limit on how long you can hold a position; however, you may bypass this by using perpetual futures.

It’s also important to analyze is the premium over the spot price that you are paying or are being paid. Further, trading on an unregulated platform or one with a sketchy reputation could result in possible liquidity failures or liquidation.

Similarities Differences
Margin and futures offer the chance to trade large positions with a small amount of capital Using margin requires paying a broker interest on your loan
Both can result in large and fast losses Futures trading requires a good-faith deposit
With perpetual futures, you can keep an open position indefinitely, similar to how the spot market works, but you also might owe The futures crypto market can experience premiums to spot prices

Margin vs Futures Trading in Crypto

Knowing the differences between margin and futures, as well as the similarities, goes a long way toward protecting yourself from unforeseen risks when trading crypto. You can find out more about crypto trading specifically in SoFi’s Guide to Crypto for Beginners. What’s more, you can learn about other ways that margin trading and futures differ and overlap in the crypto world. For now, here are several key points to consider:

Trading Crypto With Margin Trading Crypto With Futures
Incurs daily expenses via interest owed on borrowed funds Quarterly futures contracts can avoid fees and might be better for long-term holders
Liquid spot prices help ensure a fair price when buying and selling Futures’ basis can fluctuate
It is common to trade with between 3x-to-0x leverage Often higher leverage is employed than with margin trading

Investing and Trading Crypto With SoFi

Trading cryptocurrency on margin, and using futures contracts (including perpetual futures) to control crypto positions are commonly used, through advanced, trading methods.

Each has its own advantages and risks. While crypto margin trading offers exposure to the spot market using borrowed funds, trading with crypto futures lets investors deposit margin as collateral to control large positions for future delivery.

All it takes is at least $10 to buy and sell crypto on SoFi. You can earn a bonus of $10 in Bitcoin by doing so. A benefit of cryptocurrencies is that you can trade outside of standard stock market hours, as the crypto market is open 24/7. SoFi takes security seriously and uses a variety of tools to keep investors’ crypto assets safe.

Start trading crypto today on SoFi Invest.

FAQ

Are margin trading and futures the same?

Margin trading and futures trading are two different trading techniques. It’s key to understand both approaches before using them because they are considered advanced. Margin accounts usually involve traders opening crypto positions with borrowed money. You can control more capital with your portfolio, which allows you to leverage positions. You can experience amplified gains and losses with margin trading, so it is riskier than trading without leverage.

Futures contracts work differently in that they are binding agreements where you agree to buy or sell an underlying asset at a pre-specified price in the future. You can go long or short futures depending on your directional wager. With crypto trading, futures are often quarterly or perpetual contracts.

Do you need margin to trade futures?

You need margin to trade futures. Margin in futures trading refers to a good faith deposit used as collateral to open positions. It does not involve borrowing money from a broker, so there is nothing to repay, but you might owe funding rate fees when you own perpetual futures. Your futures account collateral also represents your maintenance margin — a minimum amount of equity needed to continue trading.

What are futures contracts and how do they work?

While margin traders participate in the spot crypto market, futures traders place trades on assets to be delivered in the future. You can think of futures vs. margin as a difference in the price of crypto in the spot market versus futures prices at some point later. Participants in the crypto futures market speculate on the future price of a coin.

You can use leverage in the futures market — some exchanges allow a leverage ratio of as much as 125:1 — using margin as collateral to open positions. Crypto futures might trade at a large premium to the spot market, and it might take a long time to exit a futures position at a competitive price.


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.
Crypto: Bitcoin and other cryptocurrencies aren’t endorsed or guaranteed by any government, are volatile, and involve a high degree of risk. Consumer protection and securities laws don’t regulate cryptocurrencies to the same degree as traditional brokerage and investment products. Research and knowledge are essential prerequisites before engaging with any cryptocurrency. US regulators, including FINRA , the SEC , and the CFPB , have issued public advisories concerning digital asset risk. Cryptocurrency purchases should not be made with funds drawn from financial products including student loans, personal loans, mortgage refinancing, savings, retirement funds or traditional investments. Limitations apply to trading certain crypto assets and may not be available to residents of all states.
*Borrow at 2.5% through 5/31/22 and 5% starting 6/1/22. Utilizing a margin loan is generally considered more appropriate for experienced investors as there are additional costs and risks associated. It is possible to lose more than your initial investment when using margin. Please see SoFi.com/wealth/assets/documents/brokerage-margin-disclosure-statement.pdf for detailed disclosure information.
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The information provided is not meant to provide investment or financial advice. Investment decisions should be based on an individual’s specific financial needs, goals and risk profile. SoFi can’t guarantee future financial performance. Advisory services offered through SoFi Wealth, LLC. SoFi Securities, LLC, member FINRA / SIPC . SoFi Invest refers to the three investment and trading platforms operated by Social Finance, Inc. and its affiliates (described below). Individual customer accounts may be subject to the terms applicable to one or more of the platforms below.
1) Automated Investing—The Automated Investing platform is owned by SoFi Wealth LLC, an SEC Registered Investment Advisor (“Sofi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC, an affiliated SEC registered broker dealer and member FINRA/SIPC, (“Sofi Securities).

2) Active Investing—The Active Investing platform is owned by SoFi Securities LLC. Clearing and custody of all securities are provided by APEX Clearing Corporation.

3) Cryptocurrency is offered by SoFi Digital Assets, LLC, a FinCEN registered Money Service Business.

For additional disclosures related to the SoFi Invest platforms described above, including state licensure of Sofi Digital Assets, LLC, please visit www.sofi.com/legal.
Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform. Information related to lending products contained herein should not be construed as an offer or pre-qualification for any loan product offered by SoFi Lending Corp and/or its affiliates.
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Source: sofi.com

Why Are Bitcoin and Other Cryptos So Volatile?

Bitcoin’s most defining feature might well be that its price always seems to be rising.

In reality, however, the price of Bitcoin doesn’t always go up. To get these screaming vertical price increases, there needs to be some death-defying falls as well. Bitcoin’s very volatility makes this popular crypto a tempting investment for some, and a quite dangerous one for others. Trading in cryptocurrencies might not be for all investors — especially those with a low tolerance for risk.

Bitcoin Price Volatility

There’s no denying that cryptocurrencies, including Bitcoin, are volatile. For instance, in the first half of 2021, Bitcoin doubled in value, reaching a record-breaking high price of $64,000. But it tumbled back to less than $30,000 during the summer months. Then in November, Bitcoin’s price soared again; this time to $68,000 (for another all-time high) only to slip to below $35,000 in January 2022.

And this is just one example. Since its launch in 2009, Bitcoin has posted an impressive price history, and experienced more than a few conspicuous crashes.

Volatility is essentially a given across all types of cryptocurrencies, given the general air of legal, political, institutional, and technological uncertainty that floats around them. But it’s more noticeable with Bitcoin. Bitcoin was the very first cryptocurrency created. Not only is it the most expensive crypto, but likely the most visible, and has become a flagship for the entire crypto/blockchain space. Arguably, Bitcoin could be the coin that led the government, the public, and traditional financial services companies to take cryptocurrencies seriously. Increasingly, millions of ordinary people view Bitcoin as a vehicle for investing, trading, and saving. But before investing in cryptocurrency, an investor would want to consider its volatility seriously.

Why Does Cryptocurrency Volatility Matter?

There’s a reason that nearly anyone who’s well-versed in cryptocurrency would caution novice investors to invest no more than you’re willing to lose. With a highly volatile asset like cryptocurrency, an investor’s overall portfolio value could suddenly shoot much higher or much lower than they would expect, or are prepared for, based on big changes in its price.

Bitcoin is not the only cryptocurrency to experience big price swings that can lead to large gains or losses for investors. Volatility does not play favorites, and most crypto coins, even more familiar assets, like plain vanilla stocks, can experience the phenomenon of volatility. From the second-largest crypto, Ethereum — and popular established coins like Dogecoin, Uniswap, and Filecoin — to crypto projects you might not know, all have experienced price volatility.

Is Bitcoin Particularly Volatile?

There are at least a few reasons why Bitcoin’s price is so unstable.

Liquidity

In financial markets, liquidity is a concept that relates how much a given purchase or sale of an asset will move its overall price. Liquidity, in general, supports overall asset values. Say you have an item that costs $500 but when you go to sell it, there’s no one to buy it; In that case, the $500 price tag is not very meaningful. Low liquidity may be rendering the price of Bitcoin unstable.

A particular concern with Bitcoin is that a huge portion of all the Bitcoin circulating in the world — at this writing, more than 18.5 million bitcoin — will never be bought or sold by anyone. This could be because the coin is stranded in wallets for which the private keys have been forgotten or because they’re held by investors who will never sell, no matter the price. Moreover, Bitcoin’s existence is finite; no more than 21 bitcoin will ever be mined.

By shrinking the amount of Bitcoin in circulation beyond the limits built into the system, Bitcoin’s liquidity could dry up. This means that movements to buy or sell could quickly influence its price, driving it up or down violently.

Speculation

One of the biggest debates surrounding cryptocurrencies is, what’s it for, exactly? Why are people buying it? For individuals who live in countries with unstable or despotic governments, Bitcoin can be a lifeline of stable value. But for many, it is not an especially convenient payment mechanism compared to the fiat currency of existing banking systems.

And yet, many people are buying Bitcoin and willing to pay ever-higher prices for it. The main reason seems that they expect the price to get even higher in time. Some people think the price will go up because Bitcoin is protected against inflation because of its 21-million cap on coin. Some expect wider adoption of Bitcoin as a payment protocol. And some expect it to become widely used by financial services institutions as a store of value.

The FOMO Factor

Essentially, interest in Bitcoin is generated by the idea that other people are going to buy it in the future, at a higher price than it’s selling for today. This expectation is fed by regular headlines about a company or celebrity buying into Bitcoin and the massive profits people are generating from Bitcoin they bought years — or even weeks — ago. In the crypto community, this behavior is known as fear of missing out (FOMO). Speculative investing like this often leads to volatility, because the price can turn down as sharply as it turns up.

At this time, many analysts believe that the questions surrounding cryptocurrency, as well as FOMO, are precisely what are keeping Bitcoin’s prices high. An asset’s price likely would swing if a large portion of investors are trying to get in front of buyers who come in later. Those who buy a crypto immediately when it comes to market could dump the coin just as quickly. This could happen if an investor made a profit, or they no longer believe that more investors will buy into the crypto.

The Takeaway

Bitcoin’s volatility is based on at least two factors: its potentially low liquidity, and the plethora of unanswered questions about crypto, a still-new asset class. Investors and anyone who follows the news are aware of shocking highs and lows in Bitcoin’s value.

Interested in trading crypto? With SoFi Invest® crypto trading, members can buy and sell popular coins like Bitcoin, Filecoin, and Ethereum. With the convenient mobile app, you can trade crypto 24/7 – even on weekends, holidays, middle of the night.

Find out how to get started with SoFi Invest today.

FAQ

In general, are cryptocurrencies more volatile than stocks?

Yes. Investing in the stock market has been a mainstay of the U.S. economy since the late 1700s. Stocks are also regulated, subject to oversight by the SEC, and other government agencies. Cryptocurrencies as an asset class are quite new, not fully regulated, and do not yet have a proven track record in U.S. markets. As we discussed, crypto is considered a speculative investment. Complex assets — like high-yield bonds, options, mortgage-backed securities, and other derivatives, including crypto — are subject to greater volatility than are plain vanilla stocks.

Which cryptocurrency is the most volatile?

The answer: It changes every day. And, volatility is not selective. Popular coins, like Bitcoin (BTC) and Ethereum (ETH), take their turns at being “most-volatile” just as often as do the tiny cryptos you might not have heard of . Cryptocurrency’s volatility has spawned a number of reliable indexes that track and report its daily price fluctuations, including Yahoo Finance and Shufflup .

Is volatility a good thing for crypto?

Volatility is neither good nor bad. Rather, it’s a phenomenon that exists in all financial markets for a mix of reasons. Cryptocurrency skeptics might see crypto’s volatility as a danger sign, a reason to stay away. However, sometimes volatility can benefit a new fast-growing asset, like crypto.

This is happening currently, with profit-seeking traders and wealthy venture capitalists streaming toward crypto. Venture capital funding can help seed new start-ups and advance technical innovation. And new money flowing into a sector often brings heightened liquidity, which makes for healthy financial markets.

The FOMO factor, which we discussed above, and just plain curiosity also can have a positive effect on crypto. For example, some large traditional financial services (TradFi) institutions that were prior crypto-naysayers are now showing an interest in the crypto sector.


Crypto: Bitcoin and other cryptocurrencies aren’t endorsed or guaranteed by any government, are volatile, and involve a high degree of risk. Consumer protection and securities laws don’t regulate cryptocurrencies to the same degree as traditional brokerage and investment products. Research and knowledge are essential prerequisites before engaging with any cryptocurrency. US regulators, including FINRA , the SEC , and the CFPB , have issued public advisories concerning digital asset risk. Cryptocurrency purchases should not be made with funds drawn from financial products including student loans, personal loans, mortgage refinancing, savings, retirement funds or traditional investments. Limitations apply to trading certain crypto assets and may not be available to residents of all states.
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.
SoFi Invest®
The information provided is not meant to provide investment or financial advice. Investment decisions should be based on an individual’s specific financial needs, goals and risk profile. SoFi can’t guarantee future financial performance. Advisory services offered through SoFi Wealth, LLC. SoFi Securities, LLC, member FINRA / SIPC . SoFi Invest refers to the three investment and trading platforms operated by Social Finance, Inc. and its affiliates (described below). Individual customer accounts may be subject to the terms applicable to one or more of the platforms below.
1) Automated Investing—The Automated Investing platform is owned by SoFi Wealth LLC, an SEC Registered Investment Advisor (“Sofi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC, an affiliated SEC registered broker dealer and member FINRA/SIPC, (“Sofi Securities).

2) Active Investing—The Active Investing platform is owned by SoFi Securities LLC. Clearing and custody of all securities are provided by APEX Clearing Corporation.

3) Cryptocurrency is offered by SoFi Digital Assets, LLC, a FinCEN registered Money Service Business.

For additional disclosures related to the SoFi Invest platforms described above, including state licensure of Sofi Digital Assets, LLC, please visit www.sofi.com/legal.
Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform. Information related to lending products contained herein should not be construed as an offer or pre-qualification for any loan product offered by SoFi Lending Corp and/or its affiliates.
Stock Bits
Stock Bits is a brand name of the fractional trading program offered by SoFi Securities LLC. When making a fractional trade, you are granting SoFi Securities discretion to determine the time and price of the trade. Fractional trades will be executed in our next trading window, which may be several hours or days after placing an order. The execution price may be higher or lower than it was at the time the order was placed.

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Source: sofi.com

Fidelity Offers Bitcoin in 401(k)s: What Retirement Savers Should Know

For the average investor, this can mean allocating no more than 5% of your portfolio to a volatile asset like bitcoin.
People with extremely high risk tolerances may go up to 10% or even 20%, while conservative investors may not exceed 1% or 2%.
Supporters also believe the value of bitcoin will increase as a new wave of investors pours into the cryptocurrency market.
Fidelity will give the 23,000 employers it works with the option to add so-called digital assets accounts to their 401(k)s, and workers will pay between 0.75% and 0.90% in annual fees for these special bitcoin accounts.
A few reasons people hold bitcoin is because they see it as a store of value like gold, view it as a hedge against inflation or an asset class traditionally uncorrelated with the stock market.
Ready to stop worrying about money?
“There is growing interest from plan sponsors for vehicles that enable them to provide their employees access to digital assets,” said Dave Gray, head of workplace retirement offerings at Fidelity Investments.
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The closer you get to retirement age, the less risk you generally want to take with your portfolio. That’s because you have fewer years to recoup money if your investments tank.
Understanding why you want to invest can help keep you focused on your goals instead of being pulled in by a price drop or breaking news.
“These investments present significant risks and challenges to participants’ retirement accounts, including significant risks of fraud, theft and loss,” the DOL noted in its March 20 letter.
Finally, it’s essential to have a secure financial foundation before you allocate 401(k) funds to cryptocurrency. Having a cash emergency fund and minimal debt is just as important as creating a clear investment plan.
In March, the Department of Labor asked plan fiduciaries to “exercise extreme care” before they consider adding a cryptocurrency option to a 401(k) plan’s investment menu.
Rachel Christian is a Certified Educator in Personal Finance and a senior writer for The Penny Hoarder.
“Trillions of dollars are wrapped up in 401(k)s that previously couldn’t be invested in crypto,” Kline said. “It could serve as a major rally for bitcoin’s price later this year.”
“Having (bitcoin) in a retirement account by definition makes it a long-term investment,” Blumberg said.
Fidelity Investments announced plans Tuesday to begin offering bitcoin as an investment option in its 401(k) retirement plans starting later this year.
Source: thepennyhoarder.com
So younger investors (35 and younger) have longer investing time horizons — which can make bitcoin an appealing 401(k) prospect.
“If I’m very close to retirement and bitcoin crashes 10% to 20%, that’s really bad if I need to withdraw money from that account in the next year or so,” said Adam Blumberg, a certified financial planner and founder of Interaxis, a cryptocurrency education platform.
“As consumer demand grows, more providers will jump in,” said Kline, whose company began offering cryptocurrency within individual retirement accounts back in 2016. “It’s going to take a powerhouse like Fidelity to get other big players on board.”
Employers will also set limits on how much of their savings a participant can earmark for bitcoin, up to a 20% cap.

What to Consider Before Buying Bitcoin With Your 401(k)

That could be appealing to some investors, with stocks down 12% this year, inflation at a 40-year high and concern over an impending economic recession mounting.
Consumers have been able to invest in cryptocurrency using self-directed IRAs for years, but Fidelity’s move streamlines the process for workers, who will now be able to take advantage of employer contribution matches and automatic payroll deductions.
But deciding whether to invest in cryptocurrency also depends on your own personal risk tolerance.
It’s a big move for Fidelity, which oversees more than .7 trillion in 401(k) plan assets — and a significant milestone in the mainstreaming of cryptocurrency.
Enthusiasts may be bullish, but bitcoin remains highly controversial as a long-term investment.
More investors will soon be able to add bitcoin to their 401(k) accounts.
You should also consider how much you want to invest.
More retail investors also see bitcoin playing a bigger role in their long-term investment strategy.
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First, experts say you shouldn’t put cryptocurrency in your retirement account just because you can. You need to make sure it fits in with your long-term financial goals.
Some people believe in the blockchain technology bitcoin pioneered. Others simply want to diversify their portfolio with a new — yet increasingly mainstream — asset.
Regulators have also signaled disapproval about making cryptocurrency available to 401(k) participants.
The retirement giant said employer interest spurred the move.
“Employers will probably survey their staff to gauge interest,” Kline said.

Many financial experts are skeptical about its place in 401(k)s and other retirement accounts due to its risk and volatility.
Should you add bitcoin to your 401(k) or other retirement accounts? And what should you know before investing? <!–

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Bitcoin’s price is a rollercoaster ride: It’s down 27% from this time last year and the digital asset is known to fluctuate by 5% plus or minus on any given day.

3 Strategies to Help You Plan a Successful Semi-Retirement

For decades, the goal has been to work hard, earn money and then retire! However, in recent years, the traditional retirement model seems to be changing. So what’s the alternative?

More retirees are deciding to slowly leave the workforce by reducing their hours or finding more fulfilling jobs, even if they pay less. This trend is known as semi-retirement. In a recent survey by Express Employment Professionals, most retirees said they would choose semi-retirement if their employer offered it.

If you feel this lifestyle suits you, there are some steps you can start taking now to ensure you’re ready to transition to a semi-retired life.

Prepare Your Finances

Before you consider transitioning to a partially retired life, make sure you have a plan for your finances. Even though you will still be bringing in money each month, make sure to check with your financial adviser to see how much money you have in your retirement accounts and how you can adjust your budget as needed.

If you’ve already started taking Social Security before your full retirement age and are still working, you will get a reduction in your benefits if you make more than the exemption amount laid out by the Social Security Administration. In 2022, that amount is $19,560. Fortunately, you will only see this reduction until you reach your full retirement age.

If you haven’t started taking Social Security benefits but you’re thinking about it, there are some things you’ll want to consider. You can start claiming benefits as early as age 62, but the longer you can afford to wait for those benefits, the larger your payments will be each month. Once you turn 70, those benefits won’t increase anymore, so it doesn’t always make sense to wait longer than that.

You will also want to consider your health care costs. If you are eligible for Medicare but decide to stay employed, you can hold off on taking Medicare Part B and D benefits and take advantage of your company’s health care plan if you work for a company with 20 or more employees. Since Medicare usually covers basic health care needs, using an employer plan could give you some financial support when you are paying for medications, hearing aids, dental care and even long-term care.

If you work for a company with less than 20 employees, you will need to apply for Medicare. In most small businesses, after age 65 your health expenses will be covered by Medicare first and any other employer-based plan second. Generally, your employer-based insurance at a small business may not cover all of your expenses.

Assess Your Employment Options

There are a number of employment options to consider when planning for semi-retirement. If you want to stay with your company, see if they offer semi-retirement options. You could reduce your hours and stay in your role, or use your knowledge to become a consultant or mentor for up-and-coming employees who could eventually slide into your current role. Not all employers offer this option, so make sure you do your research and talk to your boss.

With so many work-from-home options, you could also find a new job that is less demanding or is a passion project. You could work with your favorite non-profit in a part-time role or get involved with a local university and share your expertise with a new generation of professionals.

If starting a small business has always been your dream, this approach to retirement might be a good option. After breaking away from the 9-to-5 grind, you will have more time and money to turn your hobby into a business. With any new business, be prepared that you may have to spend more hours than you thought to get the business off the ground. Also, consider how much of your retirement funds you can reasonably spend. A financial professional can help you sort out what you need to live on and what you can put toward your new venture.

Plan for Taxes

If you are working in a part-time position during retirement and you aren’t bringing in enough income to live on, you may need to withdraw money from your retirement accounts, like a 401(k) or IRA. If you do, you will need to pay taxes on that income as well.

If you start withdrawing from your retirement accounts before age 59½, you will also have to factora 10% early withdrawal penalty into your budget. Make sure you adjust the hours you are working or the amount you are planning to withdraw to make sure you aren’t surprised by your tax situation when it’s time to file.

No matter what you decide to do in your retirement, a financial professional can help you navigate all your options and create a plan that fits your lifestyle. At the end of the day, it’s your retirement, so choose what makes YOU happy!

Founder & CEO, Drake and Associates

Tony Drake is a CERTIFIED FINANCIAL PLANNER™and the founder and CEO of Drake & Associates in Waukesha, Wis. Tony is an Investment Adviser Representative and has helped clients prepare for retirement for more than a decade. He hosts The Retirement Ready Radio Show on WTMJ Radio each week and is featured regularly on TV stations in Milwaukee. Tony is passionate about building strong relationships with his clients so he can help them build a strong plan for their retirement.

Source: kiplinger.com

The Deadline for Your First RMD is April 1

If there’s one thing my father complains about every year, it’s having to take required minimum distributions (RMDs) from his IRAs and 401(k) plan. He did a good job saving money for retirement when he was younger, so he doesn’t really need to withdraw much from his retirement accounts each year. He has reluctantly been taking RMDs for several years now, but if you turned 72 in 2021, you’re just getting started. In fact, if you turned 72 in last year, you might have to take your first RMD by April 1, 2022, if you haven’t done so already. That’s this week, so you better act now!

And please take the deadline seriously. If you don’t withdraw your first RMD by the April 1 due date, or if your distribution isn’t large enough, you could be hit with a big IRS penalty. That’s something you really want to avoid.

Due Dates for Required Minimum Distributions

As the IRS tells us, “you cannot keep retirement funds in your account indefinitely.” That’s why you’re generally required to start taking money out of your retirement accounts each year (except Roth IRAs) once you reach 72 years of age. (Distributions from a Roth IRA are not required until after the owner’s death.)

Normally, you must take your annual RMD by December 31. However, you can delay your first RMD until April 1 of the year following the year in which you reach age 72. You don’t have to delay the RMD, but it’s an option.

If you’re still working and don’t own at least 5% of the company, you can also delay taking RMDs from your current employer’s 401(k) plan until April 1 of the year after the year you retire. Again, it’s your choice.

Delaying your first RMD can work for you or against you. If you delay your first RMD to the following April 1, you’ll have to take two RMDs in that year: One for the year you delayed the RMD (i.e., for the year you turned 72), plus the one you’d normally have to take by December 31 for the year. This could trigger unintended consequences that increase your tax bill. For example, two RMDs in one year might kick you into a higher tax bracket or affect the amount of Social Security benefits that are subject to tax. One the other hand, if you had a lot of income in the year you turned 72 or retired, it might make sense to delay your first RMD to avoid similar problems that year. It all depends on your circumstances.

Calculating Your RMD

Generally, the minimum amount you’re required to withdraw each year is calculated by dividing the account balance at the end of the previous year by a life expectancy factor that the IRS publishes in Publication 590-B. To help with the computation of RMDs for 2022, we’ve created an easy-to-use tool that calculates RMDs for you. (Note: For first-time RMDs that are due April 1, 2022, for people who turned 72 in 2021, use Publication 590-B for the 2020 tax year.)

If you have more than one traditional IRA, you need to determine a separate RMD for each IRA, but you can add up the RMD amounts and take the total from any one or more of your IRAs. However, if you have multiple 401(k) accounts, you have to calculate and take the RMD from each plan separately. (Your 401(k) plan sponsor or administrator should calculate the RMD for you.)

Penalty for Failing to Take RMD

There’s a stiff penalty for failing to follow the RMD rules. If your retirement plan distributions are less than the RMD for the year, you may have to pay an excise tax equal to 50% of the RMD amount that was not distributed.

You may, however, be able to get out of paying the penalty tax. You can request a waiver if your failure to take the RMD is due to a reasonable error and take whatever steps are necessary to increase your distribution to the required level. To request a waiver, submit Form 5329 with a statement explaining the error and the steps you’re taking make things right.

Beating the Clock

If your first RMD is due April 1 and you haven’t withdrawn the necessary funds yet, don’t delay. Contact the financial institution administering your retirement account right away and set up a distribution. Most large financial institutions allow you to set up an RMD online. Some companies will even process an RMD automatically if they don’t receive a completed form or online request before the deadline (so you aren’t hit with a penalty). You can also decide how much, if any, to withhold from your RMD for income taxes. But do it now!

Source: kiplinger.com

What Is Cryptography and How Does It Work?

Cryptography is a science that has evolved over time since the ancient Egyptians used it to communicate. Today, it takes many forms, with quantum computer scientists just one group who uses this coded system. Throughout history and into the digital age, the purpose of cryptography has remained the same: It is a means to transmit data in a secure form so that only the recipient can access the information.

Modern cryptography is front and center in advancements in computer science and cryptocurrency ecosystems. Sophisticated encryption algorithms protect data, but the threat levels continue to rise as quantum computers offer a new arsenal to adversaries.

In this article, we’ll explore how cryptography originated, how it has transformed over time, and how it is applied in the world of cryptocurrencies. We’ll delve deep into:

•   Cryptography Definition

•   The History of Cryptography

•   How Cryptography Works

•   Cryptography and Cryptocurrencies

•   Cryptographic Algorithms

•   Cryptography and Quantum Computing

Cryptography Definition

Cryptography is a way to transmit information and data so that only the intended recipient can access it. The message, content, or data is encrypted by the sender and then decrypted by the receiver using codes or other methods.

In computer science, the process of encryption typically takes plaintext, or unencrypted text, and scrambles it into ciphertext. In the context of cryptocurrency, the cryptography definition is the process by which digital assets are transacted and verified without a trusted third party.

Cryptography is the technology that underpins cryptocurrency protocols. One large appeal of cryptocurrencies, such as Bitcoin (BTC) and Ethereum (ETH), is that transactions are anonymous.They occur on a secure, decentralized, peer-to-peer network without the need for a central authority, like a bank or financial institution.

Bank transactions rely on certain protocols and policies to protect transactions and reduce fraud: the signature on a check issued by a bank must be verifiable and counterfeit-proof (not forged), and the signer cannot later go back on the commitment the check represents. Cryptocurrency transactions rely on different protective measures: Cryptography and encryption keys allow cryptocurrencies to be traded without real-world signatures.

The History of Cryptography

Cryptography, derived from the Greek words “kryptos” (meaning hidden) and “graphein” (meaning to write), existed long before the digital age. The history of cryptography dates back to the year 1900 BC, with cryptographic symbols appearing in hieroglyphics found in tombs in ancient Egypt.

Later, around 40 BC, Julius Caesar encrypted messages using a system that became known as “Caesar’s cipher”. He used letter substitution to scramble a message so that only the person who knew the secret could unscramble the letters and read the text.

Giovan Battista Bellaso created the first encryption in the 16th century. It was called the Vigenere cipher (falsely attributed to diplomat Blaise de Vigenere), and featured a grid with the alphabet written across 26 rows. The written encryption matched the length of the message, and Bellaso used the grid to create the code to encrypt the message, letter by letter. The sender shared the secret key word and the encrypted message with the recipient, who possessed the same grid and could decode the message.

Modern computers have made encryption commonplace and much more sophisticated, but the intention is the same: to ensure that only intended parties can access the information.

How Cryptography Works

While cryptography methods have evolved from ancient times, the art has always served the same purposes: confidentiality, integrity, non-repudiation, and authentication.

•   Confidentiality ensures that only the intended recipient can access the information.

•   Integrity ensures that the data cannot be altered in transit or storage without the change being detected.

•   Non-repudiation ensures that the intentions of the sender of the information cannot be denied later.

•   Authentication ensures that the sender and receiver can confirm each other’s identity and the origin and destination of the information.

There are three forms of cryptography, each with different levels of sophistication for data protection: hash functions, asymmetric encryption, and symmetric encryption.

Hash Functions

Hash functions secure information using algorithms. Instead of using traditional keys, this approach relies on algorithms to turn data into a fixed-length string of characters. Hash functions are one-way encryption because it’s impossible to decode a hash into its original data.

Blockchain technology uses hash to encrypt large quantities of information without compromising the original data. Hashes create organized, structured, encrypted data that act like digital fingerprints. Any unauthorized modifications that may occur during transport through networks can be verified, and changes to the original data result in a new hash. That new hash would not match the original source and would not be verifiable on the blockchain.

SHA-1 (Secure Hash Algorithm 1), SHA-2, and SHA-3 are cryptography examples of hash functions.

Asymmetric Encryption

Asymmetric encryption, also known as public-key encryption, uses a pair of keys. One key is a public key that can be exchanged with anybody over any network. This key shows how to encrypt the data and anyone can access it. The second key is a private key. The private key explains how to decrypt the message, but only the private key holder has access.

Both keys are generated by an algorithm composed of large prime numbers to create two unique keys that are linked mathematically. Anyone with access to the public key can encrypt a message, but only the private key holder can decode the message.

Rivest-Shamir-Adleman (RSA) is an example of public-key cryptography and is typically used for VPNs, email, web browsers, and chat.

Symmetric Encryption

Symmetric encryption — also called secret-key encryption — relies on a single key. For symmetric encryption, the sender and receiver of the data share the same key used both to encrypt and decrypt the information.

To encrypt data, the secret key is agreed upon in advance. Because there is only one key, and one less layer of security, this level of encryption is riskier than symmetric encryption.

Advanced Encryption Standard (AES) is a cryptography example of symmetric and single-key encryption. AES was established in November 2001 by the National Institute of Standards and Technology (NIST). It is a Federal Information Processing Standard (FIPS 197) for encryption in the private sector mandated by the U.S. government.

Cryptography and Cryptocurrencies

Cryptography is what makes cryptocurrency appealing. Crypto transactions are encrypted as they travel across a blockchain and are both secure and transparent.

Bitcoin creator Satoshi Nakamoto devised blockchain technology to solve the “double-spend” problem, where the same currency unit could potentially be spent twice, and a currency’s value as an online payment solution would therefore be extinguished. Bitcoin’s time-stamped, peer-to-peer distributed ledger is secured cryptographically to prevent double-spending.

This was the beginning of blockchain technology and the evolution of the different types of cryptocurrencies we see today.

Learn more about how cryptocurrency works with SoFi’s Crypto Guide for Beginners.

Cryptographic Algorithms

Cryptographic algorithms, also called ciphers, are used to code messages (like those from Julius Caesar and Giovan Battista Bellaso). Algorithms are derived from mathematical and rule-based calculations. The algorithms are used for keys, digital signing and verification, internet web browsing, confidential email, and secure credit transactions.

An algorithm or cipher suite (also known as a cryptosystem) uses one algorithm for encryption, a second for message authentication, and a third for key exchange.

Cryptography and Quantum Computing

Sophisticated algorithms are not impervious to hackers, and there is growing concern of the threat that quantum computing represents with powers to break current cryptography encryption standards.

The length of encryption keys is gradually increasing — as much as 256 bits (32 bytes) — and the algorithms are becoming more sophisticated in order to stop hackers from decoding them. But even the most complicated algorithms may be no match for quantum computers.

Quantum computing uses quantum bits (qubits) that can process an enormous number of potential results in parallel. These supercomputers can carry out integer factorization (breaking down large composite numbers into smaller numbers) at lightning speed, which is what makes current cryptographic algorithms so vulnerable.

The Future of Quantum Computers

Currently, the simple, small-scale quantum computers that have been created have had limited capabilities. But it may only be a matter of time before more powerful quantum computers are successfully developed.

Jason Soroko, CTO of PKI, Sectigo, explained it like this in an interview with EE Times : “A traditional binary computer solves that mathematical problem slowly, whereas a quantum computer with an efficient algorithm can solve that problem much more quickly. That efficient algorithm known as ‘Shor’s Algorithm’, when coupled with a quantum computer with enough stable qubits, will theoretically be able to break current cryptographic algorithms such as RSA and Elliptic Curve (ECC).”

Large-scale quantum computers are still a few years from existence, but the threat that these machines pose to symmetric algorithms like AES and asymmetric algorithms like RSA are real and causing NIST to seek more robust solutions.

The Takeaway

Cryptographic techniques are the cornerstone of the cryptocurrency market and the very reason market participation remains active. Encryption techniques ensure confidentiality, integrity, non-repudiation, and authentication — so that crypto transactions remain secure and anonymous.

Encryption techniques are growing ever-more sophisticated to combat cyber threats, and these threats are expected to intensify in the future with the development of quantum computers. However, focused scientific work is developing advanced algorithms to maintain protection even from the threat of quantum supercomputers.

If you’re ready to start buying and selling cryptocurrency, SoFi Invest® makes it easy, with more than two dozen coins to choose from, including Bitcoin, Chainlink, Ethereum, Dogecoin, Solana, Litecoin, Cardano, and Enjin Coin.

Find out how to get started with SoFi Invest.

FAQ

What is cryptography used for?

Cryptography is used for secure communications and as protection from adversarial third parties. In computer science, cryptography is a process of encryption using an algorithm and a key to transform an input (plaintext) into an encrypted output (ciphertext).

Cryptographic techniques allow cryptocurrencies to be traded anonymously. These techniques ensure confidentiality and that only the intended recipient can access information.They ensure integrity so that the data cannot be altered in transit and the intentions of the sender of the information cannot be denied later. Cryptography also allows the sender and receiver to confirm both each other’s identity and the origin and destination of the information.

How does cryptography relate to computer security?

Cryptography ensures secure computer networks and systems. The science of cryptography ensures the confidentiality of data, protects data from unauthorized modification during storage and transit, and allows data authentication.

How is cryptography used in the cryptocurrency space?

Three cryptography methods are used for cryptocurrencies: symmetric cryptography, asymmetric cryptography, and hashing. Symmetric cryptography uses a single key to encrypt the message at the source, transmit the encrypted message, and decrypt the message at the recipient’s destination. This method is simple to implement, but the shared key implies greater security risks.

Asymmetric cryptography uses two different keys — public and private — to encrypt and decrypt data. The public key — for example, the address of the receiver — is known openly, but the private key is known only to the receiver. The message can only be decrypted by the receiver’s private key. This method facilitates authentication and encryption for cryptocurrency transactions.

Hashing verifies the integrity of the data for network transactions by maintaining the structure of blockchain data. Hashes create organized, structured, encrypted data that resemble digital fingerprints. Any unauthorized modifications during transactions can be identified because they would create a new hash that would not match the original source and would not be verifiable on the blockchain.


Photo credit: iStock/MStudioImages

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Source: sofi.com