A Guide to Qualified Retirement Plans

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Saving for retirement is an important financial goal and there are different options when it comes to where to invest. A qualified retirement plan can make it easier to build wealth for the long term, while enjoying some significant tax benefits.

Qualified retirement plans must meet Internal Revenue Code standards for form and operation under Section 401(a). If you have a retirement plan at work, it’s most likely qualified. But not every retirement account falls under this umbrella and those that don’t are deemed “non-qualified.”

So just what is a qualified retirement plan and how is it different from a non-qualified retirement plan?
Understanding the nuances of these terms can help you better shape your retirement plan for growing wealth.

What Is a Qualified Retirement Plan?

Qualified retirement plans allow you to save money for retirement from your income on a tax-deferred basis. These plans are managed according to Employment Retirement Income Security Act (ERISA) standards.

The IRS has specific rules for what constitutes a qualified retirement plan and what doesn’t. Public employers can set up a qualified retirement plan as long as these conditions are met:

•  Employer contributions are deferred from income tax until they’re distributed and are exempt from social security and Medicare tax
•  Employer contributions are subject to FICA tax
•  Employee contributions are subject to both income and FICA tax

Following those guidelines, qualified retirement plans can include:

•  Defined benefit plans (such as traditional pension plans)
•  Defined contribution plans (such as 401(k) plans)
•  Employee stock ownership plans (ESOP)
•  Keogh plans

Section 403(b) plans, which you might have access to if you’re a public school or tax-exempt organization employee, mimic some of the characteristics of qualified retirement plans. But because of the way employer contributions to these plans are taxed the IRS doesn’t count them as qualified plans. The same is true for section 457(b) plans, which are available to public employees.

Defined Benefit vs. Defined Contribution Plans

When talking about qualified retirement plans and how to use them to invest for the future, it’s important to understand the distinction between defined benefit and defined contribution plans.

ERISA recognizes both types of plans, though they work very differently. A defined benefit plan pays out a specific benefit at retirement. This can either be a set dollar amount or payments based on a percentage of what you earned during your working career.

This type of defined benefit plan is most commonly known as a pension. If you have a pension from a current (or former) employer, you may be able to receive monthly payments from it once you retire, or withdraw the benefits you’ve accumulated in one lump sum. Pension plans can be protected by federal insurance coverage through the Pension Benefit Guaranty Corporation (PBGC).

Defined contribution plans, on the other hand, pay out benefits based on how much you (and your employer, if you’re eligible for a company match) contribute to the plan during your working years. The amount of money you can defer from your salary depends on the plan itself, as does the percentage of those contributions your employer will match.

Defined contribution plans include 401(k) plans, 403(b) plans, ESOPs and profit-sharing plans. With 401(k)s, that includes options like SIMPLE and solo 401(k) plans. But it’s important to note that while these are all defined contribution plans, they’re not all qualified retirement plans. Of those examples, 403(b) plans wouldn’t enjoy qualified retirement plan tax benefits.

What Is a Non-Qualified Retirement Plan?

Non-qualified retirement plans are retirement plans that aren’t governed by ERISA rules or IRC Section 401(a) standards. These are plans that you can use to invest for retirement outside of your workplace.

Examples of non-qualified retirement plans include:

•  Traditional IRAs
•  Roth IRAs
•  403(b) plans
•  457 plans
•  Deferred compensation plans
•  Self-directed IRAs
•  Executive bonus plans

While these plans can still offer tax benefits, they don’t meet the guidelines to be considered qualified. But they can be useful in saving for retirement, in addition to a qualified plan.

Traditional and Roth Individual Retirement Accounts

Traditional and Roth IRAs allow you to invest for retirement, with annual contribution limits. For 2020 and 2021, the maximum amount you can contribute to either IRA is $6,000, or $7,000 if you’re over 50.

Traditional IRAs allow for tax-deductible contributions. These accounts are funded using pre-tax dollars. When you make qualified withdrawals in retirement, they’re taxed at your ordinary income tax rate. IRAs do have required minimum distributions (RMD) starting at age 72.

Roth IRAs don’t offer the benefit of a tax deduction on contributions. But they do allow you to withdraw money tax-free in retirement. Unlike traditional IRAs, Roth IRAs do not have RMDs, meaning you don’t have to withdraw money until you want to.

A self-directed IRA is another type of IRA you might consider if you want to invest in stock or mutual fund alternatives, such as real estate. These IRAs require you to follow specific rules for how the money is used to invest, and engaging in any prohibited transactions could result in the loss of IRA tax benefits.

Advantages of Qualified Retirement Plans

Qualified retirement plans can benefit both employers and employees who are interested in saving for retirement.
On the employer side, the benefits include:

•  Being able to claim a tax deduction for matching contributions made on behalf of employees
•  Tax credits and other tax incentives for starting and maintaining a qualified retirement plan
•  Tax-free growth of assets in the plan

Additionally, offering a qualified retirement plan, such as a 401(k), can also be a useful tool for attracting and retaining talent. Employees may be more motivated to accept a position and stay with the company if their benefits package includes a generous 401(k) match.

Employees also enjoy some important benefits by saving money in a qualified plan. Specifically, those benefits include:

•  Tax-deferred growth of contributions
•  Ability to build a diversified portfolio
•  Automatic contributions through payroll deductions
•  Contributions made from taxable income each year
•  Matching contributions from your employer (aka “free money”)
•  ERISA protections against creditor lawsuits

Qualified retirement plans can also feature higher contribution limits than non-qualified plans, such as an IRA. If you have a 401(k), for example, you can contribute up to $19,500 for the 2020 and 2021 tax years, with an additional catch-up contribution of $6,500 for individuals 50 and older.

If you’re able to max out your annual contribution each year, that could allow you to save a substantial amount of money on a tax-deferred basis for retirement. Depending on your income and filing status, you may also be able to make additional contributions to a traditional or Roth IRA.

Making Other Investments Besides a Qualified or Non-Qualified Retirement Plan

Saving money in a qualified retirement plan or a non-qualified retirement plan doesn’t prevent you from investing money in a taxable account. With a brokerage account, you can continue to build your portfolio with no annual contribution limits. The trade-off is that selling assets in your brokerage account could trigger capital gains tax at the time of the sale, whereas qualified accounts allow you to defer paying income tax until retirement.

But an online brokerage account could help with increasing diversification in your portfolio. Qualified plans offered through an employer may limit you to mutual funds, index funds, or target-date funds as investment options. With a brokerage account, on the other hand, you may be able to trade individual stocks or fractional shares, exchange-traded funds, futures, options, or even cryptocurrency. Increasing diversification can help you better manage investment risk during periods of market volatility.

The Takeaway

While a qualified retirement plan allows investors to put away pre-tax money for retirement, a non-qualified plan doesn’t offer tax-deferred benefits. But both can be important parts of a retirement saving strategy.

Regardless of whether you use a qualified retirement plan or a non-qualified plan to grow wealth, the most important thing is getting started. Your workplace plan might be an obvious choice, but if your employer doesn’t offer a qualified plan, you do have other options.

Opening a traditional or Roth IRA online with SoFi Invest®, for example, can help you get a jump on retirement saving. Members can choose from a wide range of investment options or take advantage of a custom-build portfolio to invest.

Find out how an online IRA with SoFi might fit in to your financial plan.


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 . The umbrella term “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) Digital Assets—The Digital Assets platform is owned 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, http://www.sofi.com/legal.

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.
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.
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.
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How to Invest in Real Estate with Less than $10,000

I recently wrote an article about how to make $10,000 a month with rental properties. I have personally surpassed that number and will keep going, but not everyone is at that stage in their investing life. What about those who do not have much money and are looking to get started investing in real estate? … Read more

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What is a Good Hashrate?

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When it comes to bitcoin mining, a good hash rate is a higher hash rate. The more computing power going towards maintaining a network, the more secure it will be and the more transactions it will be able to handle. Investor confidence in the coin is also likely to be higher.

The bitcoin hash rate is one of the most important concepts to understand, especially for anyone considering investing in cryptocurrency.

What is a Hash Rate?

To understand what is meant by the term “hash rate,” we must first briefly explain the process of bitcoin mining.

Mining is the method by which crypto transactions are processed. As a reward for processing transactions, miners are rewarded with new Bitcoins.

A group of transactions is called a block. Every ten minutes or so, a new block is mined, and the reward goes to the miner who can prove they did the most work toward creating the block, in a process called proof-of-work.

The amount of new coins created with each block gets cut in half every four years in a process known as “the halving.” This process is set in stone through computer code known as the bitcoin protocol.

When bitcoin was conceived in 2009, the block reward was 50 coins. In 2012, this was reduced to 25, then to 12.5 in 2016, and to 6.25 in 2020. In this way, Bitcoin is a “deflationary” currency, as opposed to fiat currencies created by central banks which are inflationary and can be created in infinite amounts at will.

Why Does Hash Rate Matter?

Hash rate refers to the amount of computing power being contributed to the network at any given time. The more mining going on, the higher the hash rate.

bitcoin remains scarce while also keeping mining competitive. In 2020, the bitcoin hash rate hit several new all-time highs, signaling confidence in the largest cryptocurrency by market cap.

Bitcoin has a lot more hashing power behind it than all the other cryptocurrencies combined. Perhaps that’s why so many people have invested in bitcoin since it began.

Altcoins and Hash Rate

Other cryptocurrencies also need hashing power to run their networks, but the exact way they accomplish this varies.

While Bitcoin and many others use the PoW consensus algorithm, some coins use different algorithms, like proof-of-stake (PoS).

Rather than using powerful computers to contribute hashing power toward proof-of-work, proof-of-stake block rewards are distributed according to whoever has the most tokens “staked” on the network. Staking tokens involves locking them up for a period of time, sort of like a long-term savings account.

This method of consensus is considered to be less energy-intensive, although some also argue it’s less fair and less secure.

Some cryptocurrency exchanges now allow for automatic staking of tokens that utilize PoS. Users can hold the tokens in their wallet and automatically receive rewards.

There are many different ways coins secure their networks, but the important thing to know is that the total hash rate of all other coins combined pales in comparison to the bitcoin hash rate.

How to Calculate Hash Rate

Unless they’re mining or speculating, calculating a cryptocurrency’s hash rate isn’t something most people will ever have to do. Luckily the information has been collected and displayed in publicly available charts and graphs .

For users interested in mining cryptocurrency, it could be useful to calculate the expected hash rate of a mining rig. The two primary factors that determine the profitability of mining bitcoin are the hash rate and electricity costs involved.

Miners can insert the appropriate variables into a hash rate calculator and receive a result right away.

Investors considering speculating in altcoins could think about looking at the hash rates of different cryptos, as this may be one of the few fundamental factors available for analysis.

Benefits of a High Hash rate

The more computing power contributing to a network, the harder it becomes for potential bad actors to do bad things, because doing so requires more power. To take control of a network and do things like reverse or double-spend transactions, an individual needs to own 51% of the hash rate. And at this point, having enough power to control 51% of the bitcoin hash rate seems very unlikely.

That’s the main benefit of a high hash rate—increased security. This can also lead to increased confidence in a coin, higher user volume, and potentially higher currency prices. For investors looking to build their crypto portfolio, security can be extremely important.

Bitcoin’s excellent hash rate has a lot to do with its continued success and increasing value. Many people argue that BTC is the only reliable store of value for investment purposes for this very reason.

Bitcoin Hash Rate vs Price

There tends to be a correlation between the bitcoin hash rate and the bitcoin price. When a hash rate moves higher, prices tend to rise, although it’s not clear which causes which. It’s somewhat of a chicken-or-the-egg kind of scenario, and the topic has been much debated.

buy cryptocurrency, although the trend has not been proven.

The Takeaway

What is a bitcoin hash rate? It’s simply the amount of times per second that computers on the bitcoin network are hashing data to perform the encryption that secures the network. This is how transactions are processed.

A good hash rate is one that keeps a cryptocurrency network secure. Higher hash rates mean more computing power would be needed to take control of a network. Therefore, a good hash rate is a high hash rate.

With SoFi Invest®, investing in crypto is simple, secure, and easy to get started with as little as $10.

Find out how SoFi can help you with your cryptocurrency investments.


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 . The umbrella term “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) Digital Assets—The Digital Assets platform is owned 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, http://www.sofi.com/legal.

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.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
Third Party Brand Mentions: No brands or products mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third party trademarks referenced herein are property of their respective owners.
External Websites: The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.

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