money

Reviewed by Erika Rasure
Fact checked by Kirsten Rohrs Schmitt

Cryptocurrency ETFs: An Overview

Cryptocurrency exchange-traded funds (ETFs) track the price performance of cryptocurrencies by investing in a portfolio linked to their instruments. Like other such funds, crypto ETFs trade on regular stock exchanges, and investors can hold them in their standard brokerage accounts.

A growing roster of ETFs—a type of exchange-traded product (ETP)—in early 2024 began offering investors the chance to invest in bitcoin through their holdings. After about a decade of regulatory wrangling, the U.S. Securities and Exchange Commission (SEC), under pressure from a 2023 D.C. Circuit U.S. Court of Appeals ruling, authorized the first spot crypto ETFs in early 2024.

These investments allow retail traders to gain direct exposure to crypto prices without owning the assets directly. This makes it possible to speculate on cryptocurrency prices without doing business on a crypto exchange or dealing with the costs and complexities of directly owning digital assets.

However, crypto ETFs generally have higher fees than other ETFs, and while the funds themselves are regulated, there is no such oversight in the crypto markets where the funds are invested. For example, the SEC has argued that without proper oversight and surveillance-sharing agreements with regulated markets, it’s difficult to prevent fraudulent activities and ensure fair trading practices in the crypto markets.

Below, we take you through how these funds work, what worries the SEC still has around these products, what benefits they might have, and what this all means for everyday investors.

Key Takeaways

• Cryptocurrency exchange-traded funds (ETFs) offer a way to gain exposure to cryptocurrencies without buying and storing the digital assets yourself.
• These funds track cryptocurrency prices by investing in futures contracts rather than cryptocurrency itself.
• Spot ETFs, which invest directly in cryptocurrency, face greater regulatory hurdles due to U.S. Securities and Exchange Commission (SEC) concerns about investor risk.
• The ProShares Bitcoin ETF, the first and largest U.S. cryptocurrency futures ETF, started trading in October 2021.
• The SEC approved the first 11 spot cryptocurrency ETFs for the U.S. market in January 2024.

How Does a Cryptocurrency ETF Work?

While most ETFs replicate how indexes work by holding a basket of underlying assets, crypto ETFs have a couple of ways of tracking the performance of a digital currency. Spot ETFs directly hold the cryptocurrency, building a portfolio that replicates the performance of the digital assets it contains. Other crypto ETFs invest in futures contracts, which are agreements to buy or sell crypto at a preset date and price.

Given their portfolios, these ETFs have share prices that mimic changes in the price of derivatives instead of the cryptocurrencies themselves. Therefore, the price of shares in a given cryptocurrency ETF rises and falls in line with crypto futures contract prices. Like other derivatives, synthetic cryptocurrency ETFs have an additional risk because of the lack of oversight and valuation concerns in the crypto exchanges from where the funds would be pulling crypto.

While U.S. regulators refused to approve crypto ETFs for several years—the SEC turned away some 20 proposals in spot ETFs from 2018 to 2023 alone—they were readily available to investors in Europe and Canada. The SEC approved the first crypto futures ETFs for the U.S. market in October 2021 and the first spot crypto ETFs in January 2024.

Note

The first cryptocurrency ETF, the ProShares Bitcoin ETF (BITO), started trading in October 2021. This is an ETF that tracks bitcoin futures prices.

Cryptocurrency Futures ETFs

An analysis of the ProShares Bitcoin ETF, the first crypto ETF on U.S. markets, shows how crypto futures ETFs work. The fund assigns about half of its portfolio to Chicago Mercantile Exchange (CME) bitcoin futures that expire at the end of the current month and another half to CME bitcoin futures expiring the following month.

As the expiration of the contracts in the portfolio approaches, the fund rolls over its investments, selling the expiring contracts and buying contracts for the coming month. The costs associated with rolling over the contracts may account for some of the differences between the performance of the ETFs and their underlying cryptocurrencies.

ProShares also has the Ether ETF (EETH), an ether futures ETF like the one it provides for bitcoin. The fund tracks the price of ether with futures contracts. ProShares has ETFs that track a mix of bitcoin and ether using equal or market capitalization weighting for investors looking for exposure to several crypto tokens.

There are also inverse ETFs, such as the ProShares Short Bitcoin ETF (BITI). This uses futures to generate the inverse of Bitcoin’s returns, allowing investors to profit on days when cryptocurrency prices decline.

Spot Cryptocurrency ETFs

Investment funds can also directly trade and hold cryptocurrencies. Spot crypto ETFs are funds that buy cryptocurrencies and securitize them. Investors buy and sell shares as needed, just like a traditional ETF. In a spot crypto ETF, the fund can issue and redeem shares, offering retail and other investors a stake in the crypto market.

Starting in 2014, asset managers sought approval from the SEC for spot bitcoin ETFs. From October 2022 to October 2023, the SEC received more than 3,500 crypto-related fund applications. In January 2024, the SEC approved the first 11 spot bitcoin ETFs, opening the door to more spot cryptocurrency ETFs later.

Important

In January 2024, the SEC approved the first 11 spot bitcoin ETFs for U.S. markets. On their first trading day, they had about $4.6 billion in trading volume.

In May 2024, the SEC also started to pave the way for spot ether ETFs. The SEC approved a rule change that would allow for the listing and trading of eight spot ether ETFs.

Prior to this approval, the SEC expressed concerns about Ethereum’s staking feature and its previous worries with Bitcoin for fraud, volatility, and low investor protections in crypto markets.

Staking, which allows ether holders to earn income by locking up their tokens to help validate transactions on the network, is a crucial feature of Ethereum’s consensus mechanism.

This income-generating feature, which began on the ether platform in 2022, raises questions about how staking rewards should be taxed and reported. This gave the SEC another reason to be reluctant to approve spot ether ETFs, given the lack of regulatory clarity about their tax status.

Note that the SEC’s approval of a rule change for spot ether ETFs does not mean that these ETFs can start trading. Applications from the investment managers need to be reviewed, and further approvals need to be given.

The SEC under President Donald Trump is expected to take a friendlier approach to crypto, although how that will apply to crypto ETFs remains to be seen.

Advantages of Crypto ETFs

Cryptocurrency ETFs are a developing asset class, and given the regulatory uncertainty, the market may look different in the future. Nevertheless, owning shares in cryptocurrency ETFs has some advantages when accessing the crypto markets.

Exposure Without Ownership

The most significant benefit of cryptocurrency ETFs is that they provide exposure to crypto without additional ownership expenses or exposure to the risk of owning and holding them in a crypto wallet. For example, there are custody charges for cryptocurrencies, and some secure digital wallets charge an annual fee.

These charges can add up quickly. Cryptocurrencies also come with transaction and network fees, which the ETF providers take care of, even if you pay indirectly through the fund’s expense ratio.

Lowering the Learning Curve

Cryptocurrency jargon, derived mostly from its technological makeup, is still a roadblock to crypto adoption. Average investors often find it difficult to grasp the scope and roles of cryptocurrencies. Plus, these investors might be unfamiliar with networking technology, making crypto-speak, such as halving and blockchain, even more disinviting. Investing in a cryptocurrency ETF makes learning enough to get into crypto much more manageable.

More Security for Investors

Cryptocurrency exchanges, storage devices, wallets, and some poorly designed blockchains have been hacked since they were launched, leading to constant worries in the crypto world about security. Cryptocurrency security can be a tall order for individual investors, who may not be familiar with the required methods. A cryptocurrency ETF takes care of this for you.

Lower Costs for Investors

There are more than 9,000 cryptocurrencies available in trading markets worldwide. The infrastructure to buy and sell them is becoming more sound, but it’s still relatively untamed territory compared with securities exchanges.

For example, some tokens are available on certain cryptocurrency exchanges while others are not, and exchanges can operate in some countries but not others. There are also extra costs that come with buying crypto. Cryptocurrency ETFs allow you to diversify your holdings without the fees and hassles of buying and exchanging the tokens yourself.

Disadvantages of Crypto ETFs

The novelty of cryptocurrency ETFs is one of its drawbacks, not least since it’s still unknown how regulations in this area will evolve. Given the likelihood that more crypto ETFs will emerge, it’s important to be aware of their potential issues.

Risk of Tracking Error

Crypto ETFs do not always duplicate the price moves of the underlying digital token. This is especially true for ETFs that depend on futures contracts to track cryptocurrencies, which have to roll over their positions as contracts expire.

Higher ETF Fees

While crypto ETFs help investors avoid some costs of directly owning digital currencies, they have their own fees. Since they are often actively managed, crypto ETFs can have higher expense ratios than other ETFs. For example, the ProShares Bitcoin ETF’s expense ratio is 0.95%. For comparison, the expense ratio for the SPDR S&P 500 ETF is just 0.09%.

Volatility

Although cryptocurrency ETFs simplify some of what’s involved in trading digital currencies, they are still subject to the dramatic price swings of the crypto markets. This means more risk for you, which can be even more worrying if you are more accustomed to the lower volatility of more typical ETFs.

Lack of Direct Ownership

Investors in crypto ETFs are not the owners of the digital assets. While crypto ETFs do bring convenience, you won’t have control or access to the cryptocurrency itself, and the decentralization and anonymity associated with crypto don’t apply to ETF shareholders.

Pros

• Trade on stock exchanges using regular brokerage accounts

• Provide exposure to crypto without direct ownership

• Avoid crypto custody and trading expenses

• Reduce the learning curve

Cons

• Regulatory uncertainty

• Elevated fees and expenses

• Subject to volatility in crypto markets

• No direct ownership or control over underlying cryptocurrency

Alternatives to Cryptocurrency ETFs

In addition to allocating funds to futures and spot ETFs, investors can put their money into several other ETF-like products for crypto exposure. Let’s dig into these options.

Crypto Trusts

While the SEC has only reluctantly approved a handful of crypto ETFs, a similar product has already been available for years: bitcoin investment trusts. These are closed-end funds that resemble the spot crypto ETFs being proposed. They own bitcoins on behalf of investors, and their shares trade in over-the-counter (OTC) markets.

But these are not ETFs. They are open only to investment firms, accredited investors, or high-net-worth individuals (HNWIs) and are not accessible to the retail public. They tend to have a high minimum investment amount, and each purchase of shares is accompanied by a lockup period for investors.

Crypto ETPs

ETFs are one variety of exchange-traded products (ETPs). When discussed, however, crypto ETPs refer to those that specifically hold debt securities issued by special-purpose vehicles (SPVs) that hold the underlying crypto assets. The SPV uses the crypto as collateral to issue the ETPs, which are traded on exchanges.

Crypto ETPs fall under the Securities Act of 1933 and are less regulated than ETFs. Spot crypto ETPs, in other words, are not investment companies registered under the Investment Company Act of 1940. As a result, shareholders do not have the protections associated with ownership of ETF shares.

Another difference is that crypto ETFs can create and redeem shares based on market demand, helping the share price align with the fund’s net asset value. Crypto ETPs typically have a fixed supply of shares that trade at market-based prices, which can deviate from the underlying crypto value.

Companies That Hold Crypto

Investing in companies that hold cryptocurrencies on their balance sheet is another way to invest in crypto without owning the digital tokens. Some publicly listed companies hold a large number of bitcoins. For example, MicroStrategy (MSTR) owned over 528,000 bitcoins as of April 2025. Galaxy Digital Holdings (BRPHF) and Tesla (TSLA) are other publicly listed companies with bitcoins on their balance sheets.

Crypto-Related ETFs

Plenty of ETFs offer diversified exposure to companies that engage with blockchain technology or crypto companies. For example, the Amplify Transformational Data Sharing ETF (BLOK) holds a portfolio of companies that develop and use blockchain technologies.

Is It a Good Idea to Invest in a Crypto ETF?

Crypto ETFs are designed to mimic the assets so investors can gain exposure to significant price fluctuations. However, because prices vary so much, there is more risk involved in crypto ETFs. If you’re considering adding these to your portfolio, speaking with a financial advisor about your specific circumstances and goals is always prudent.

How Do the Taxes Compare for Crypto ETFs and Direct Crypto Investments?

The tax implications for crypto ETFs often differ from directly holding cryptocurrency. In many jurisdictions, crypto ETF gains are treated like capital gains, which can be more favorable than the tax treatment for direct cryptocurrency transactions. Consulting a tax advisor about your specific circumstances is always prudent in cases like this.

Is There a Crypto Index Fund?

There are a few cryptocurrency index funds, such as the Bitwise 10 (BITW) or Galaxy Crypto Index Fund. These funds are only available to non-U.S. investors or in the United States to accredited investors.

Can I Short Crypto ETFs?

Yes, you can short a crypto ETF, as you can with any ETF. Shorting allows you to gain from the decline in an asset’s price. This strategy, especially in the volatile world of cryptocurrencies, involves elevated risks and potentially unlimited losses, so it’s crucial to understand the dangers before going ahead.

The Bottom Line

ETFs are a retail investor-friendly way to gain exposure to assets that might otherwise be too costly. Brokers want to offer ETFs that hold cryptocurrency so that average investors can participate in cryptocurrency investing. However, these funds tend to come with additional risks and expenses, so it is important to research them thoroughly before making an investment decision.

The comments, opinions, and analyses expressed on Investopedia are for informational purposes only. Read our warranty and liability disclaimer for more info.

Reviewed by Michael J Boyle
Fact checked by Pete Rathburn

Yuan vs. Renminbi: An Overview

Chinese money is referred to by two names: the Chinese yuan (CNY) and renminbi (RMB), which translates to “People’s Currency.” The distinction between CNY and RMB is subtle. RMB is the official currency of China. The yuan is the principal unit of account for that currency.

Chinese currency defines the economy of one of the world’s biggest superpowers. It’s also central to one of the most debated issues involving China: its perceived mercantilist policy of artificially undervaluing currency against the U.S. dollar. This is believed to give its exports an unfair price advantage.

Key Takeaways

• The Chinese yuan (CNY) and renminbi (RMB) are closely linked terms for China’s currency.
• Renminbi is the official name of China’s currency.
• The renminbi’s principal unit is the Chinese yuan.
• CNY is the official ISO 4217 abbreviation for China’s currency.
• The yuan character is also used in the names of other currencies such as the New Taiwan Dollar and the Hong Kong Dollar.

Yuan (CNY)

The character yuan is used for round or circular things in Mandarin Chinese. This word was also used for the silver Spanish dollars introduced by European merchants in the 17th and 18th centuries.

China began to mint its own silver yuan coins in 1889. Both the Qing dynasty and early Republican government circulated silver yuan coins and banknotes. The traditional character for yuan is also used in the currencies of other Chinese-speaking regions in the 2020s, including the New Taiwan dollar and the Hong Kong dollar.

The modern-day Chinese yuan uses the abbreviation CNY to distinguish between the mainland currency and other uses of the word. Forex brokers will quote prices with the ticker CNY.

The largest banknote is 100 yuan, followed by 50 yuan, 20 yuan, 10 yuan, five yuan, and one yuan. One yuan can be further divided into jiao and fen. There are 10 jiao in a yuan, like dimes in a dollar, and 10 fen in a jiao.

Important

The word “yuan” is frequently used in Mandarin translations of foreign currencies. The U.S. dollar is translated as mei yuan.

Renminbi (RMB)

The People’s Bank of China (PBOC) was established during the Chinese Civil War. It issued the first RMB notes in December 1948, about a year before the Chinese Communist Party defeated the Kuomintang government.

The currency allowed the new administration to unify the Chinese economy, which was then divided among several regional currencies. It also distinguished the new administration from the previous government, whose policies had led to high levels of hyperinflation. The RMB was revalued at a rate of 10,000 to one in 1955. Each yuan in the new series replaced 10,000 old yuan.

The value of the RMB was tightly controlled during the period of the command economy. One yuan was pegged at 2.46 yuan to the U.S. dollar until 1971. The PBOC allowed the yuan to trade on international markets as the Chinese economy began opening to the world market, but the floating exchange rate was still tightly controlled.

Key Differences

One question continues to perplex many as Beijing looks at the internationalization of its currency: Does China have two currencies? Does it use CNY, RMB, or both?

RMB is the official currency of the People’s Republic of China. It means “people’s currency” in Mandarin. CNY is a unit of the currency. A popular analogy draws from British currency: RMB is the name of China’s currency just as sterling is the currency of Great Britain. A unit of renminbi is a CNY just as the pound is the basic unit of sterling.

RMB and CNY are often used interchangeably. A storekeeper in China might also express prices in terms of kuai, which translates into “pieces” and is similar to how Americans use “bucks” to mean dollars.

CNY is the official currency abbreviation for the Chinese yuan under the ISO 4217 standard, but RMB is often used as an unofficial abbreviation.

The Chinese yuan might trade for a different price in offshore markets such as Hong Kong due to China’s cross-border currency controls. The unofficial abbreviation CNH is sometimes used to refer to the offshore price of the Chinese yuan to distinguish between these two prices.

Note

One Chinese yuan can be divided into 10 jiao or 100 fen.

Special Considerations

The Chinese yuan wasn’t considered an international currency for years because of the Chinese government’s rigid controls. This began to change as the Chinese government began to promote international use of the RMB.

China uses currency controls to maintain the value of the Chinese yuan at a favorable level. The PBOC sets a midpoint value against the U.S. dollar every day based on previous trading sessions and movements in international currency markets. The price of the yuan is permitted to trade within 2% of that price. The midpoint might also be adjusted based on undefined countercyclical factors at times.

Some economists believe that these controls keep the yuan artificially devalued, making the country’s exports more attractive. The International Monetary Fund (IMF) reported in the summer of 2018 that the Chinese yuan was in line with fundamentals, only to then witness the yuan reach a 13-month low in response to an escalating tariff war with the United States.

This drop prompted then-U.S. Treasury Secretary Steven Mnuchin to comment that the Treasury was “going to very carefully review whether they have manipulated the currency.” The U.S. Treasury labeled China as a “currency manipulator” in 2019. This designation was removed the following year.

The Chinese yuan lost value during the COVID-19 pandemic, largely due to reduced economic activity and strict lockdowns. The yuan suffered its largest-ever monthly price drop in April 2022, losing 7% of its value over three months.

As of April 2025, the Chinese yuan has fallen to its lowest level vs. the U.S. dollar since 2007 amid an escalating U.S.-China trade war.

The RMB is one of the top five most-used currencies in the 2020s, in addition to the U.S. dollar, euro, yen, and British pound. The IMF increased the weight of the yuan in its Special Drawing Rights (SDRs) basket in 2022, an international reserve asset that the IMF created as a supplement to member countries’ official reserves.

How Many Renminbi Are There in a Dollar?

One USD is worth 7.30 Chinese yuan RMB as of April 11, 2025.

How Much Is One Chinese Yuan Worth?

One Chinese yuan is worth 13.7 U.S. cents as of April 11, 2025.

How Do You Buy Digital Yuan?

Only Chinese citizens can purchase digital yuan or e-CNY. It can be purchased through certain banks in select Chinese cities as well as through online payment services WeChat and Alipay.

The Bottom Line

The currency of China is referred to as either the Chinese yuan (CNY) or renminbi (RMB). The two terms are similar and are often used interchangeably. The key difference is that the RMB is the official currency. The yuan is its principal unit of measurement.

Correction—July 25, 2024: The article has been corrected to state the right currencies that use the yuan character.

Reviewed by Lea D. Uradu
Fact checked by Betsy Petrick

How Does Recording of Real Estate Records Work?

Just as in any transaction, keeping an official paper trail and record of any sale or change in ownership is an important part of verifying the history of a given property or purchase. Recording represents the act of putting a document into official county records, providing a traceable chain of title to a property.

Many types of real estate documents get recorded, depending on the type of property and real estate transaction. These include mortgages, deeds, easements, foreclosures, estoppels, leases, licenses, and fees.

Documents showing ownership, encumbrances, and lien priority also get recorded and help maintain proper real estate transactions.

Key Takeaways

• Recording of real estate represents putting a document into official county records and can provide a traceable chain of title.
• Recorded documents do not establish property ownership but help resolve disputes between parties with competing claims to a property.
• Check with your state and county recording division to determine which documents have been or must be recorded.

Recording Real Estate Documents

Recording real estate or property documents into the county records helps provide information for government authorities and buyers and sellers of real estate property.

Public Notice

Recorded documents are made public to be used to help resolve disputes between parties with competing claims to a property. However, recorded documents do not establish who owns a property.

Property Ownership

Recorded documents do not establish who owns a property since the title defines the asset’s legal owner. However, recording documents show the history or chain of title throughout the property’s history, which can help resolve disputes.

For instance, if two different claimants have conflicting deeds to a property, the date of recording can determine the ownership timeline. In most cases, these public records provide clarity; typically, the owner with the most recent deed would be considered the rightful owner. If issues arise, it would be wise to seek legal counsel.

Liens and Mortgages

A mortgage is the financing or loan that a bank or credit union provides to a homebuyer. However, the lien represents the claim on the property in case the borrower defaults on the mortgage loan. The mortgage lien gets recorded at the county clerk’s office. Courts use the date of a recording to determine the priority for which liens should receive payment first.

Real Estate Recording Systems

Real estate recording systems vary by state and are established by individual state statutes. Not all states use a process of instrument recording to track titles; some states use land registration systems instead. In any case, it is the responsibility of the local county or state to make sure that these official documents are kept on file.

To understand which documents have been or must be recorded, check with your state and county recording division. Some states have also passed recording acts or statutes that establish how official records are kept.

Important

Each state has its own recording system for property records and various requirements that come along with it.

Example of Real Estate Recording Requirements

Since each state and county has its own laws on what must be recorded, there are minute variations in recording requirements on what is required. For example, for Los Angeles County, all “courier services, third-party representatives, attorney services and messengers must drop off Deeds, Deed of Trust, Leases, and Notice of Default submitted for recording.”

What Is the Difference Between a Deed and a Title?

A deed represents the transfer of ownership of a property, while the title represents the proof of legal ownership.

What Types of Real Estate Documents Get Recorded?

The recording of real estate documents shows a history of transactions and a chain of title or ownership of the property. Other documents recorded in the county clerk’s office include deeds, mortgages, liens, and foreclosures.

What Is an Easement?

An easement allows someone to use another’s property for access. For example, a homeowner might have an access easement whereby the driveway can cross the neighbor’s property to access the street.

The Bottom Line

The recording of real estate documents constitutes the process of placing documents in the county records to establish a public record of activity or transactions regarding a property. Recording allows the public to trace the history of ownership of a property and help resolve disputes over the legal status of the property.

In 1913, John D. Rockefeller’s fortune peaked at an estimated $900 million (about $29.3 billion in today’s dollars). In 2024, the Rockefeller family’s estimated net worth was $10.3 billion. What has happened to the money?

Key Takeaways

• In 1913, John D. Rockefeller’s net worth was estimated around $900 million (about $29.3 billion in today’s dollars).
• As of 2024, the family fortune was worth around $10.3 billion. 
• The family’s wealth was protected and transferred to future generations through a series of irrevocable trusts established by Rockefeller’s son, John D. Rockefeller Jr. 
• John D. Rockefeller donated much of his wealth to various causes during his lifetime, a practice his descendants continued to honor.

Family Trusts

In 1934, John D. Rockefeller Jr. set up irrevocable trusts for his children and then did the same for his grandchildren in 1952. These trusts allowed the largely tax-free transfer of wealth through the generations.

Now, the Rockefeller fortune is divided among about 200 family members. Some of the family’s wealth is also managed by Rockefeller Capital Management, where John D. Rockefeller’s great-grandson, David Rockefeller Jr., is a former chairperson and current board member.

Over the generations, much of the family’s wealth has been contributed to philanthropic causes.

A Philanthropic Legacy

Philanthropy has always been a major part of the Rockefeller legacy. For example, John D. Rockefeller helped establish the University of Chicago by providing a large portion of the initial endowment. Between 1890 and 1910, he contributed $35 million to the university.

From 1901 to 1909, Rockefeller established various institutions and initiatives relating to medicine, education, and public health. In 1901, he founded the Rockefeller Institute for Medical Research (which would eventually become Rockefeller University). By the 1930s, his gifts to the Institute totaled $50 million.

In 1902, he created the General Education Board to promote national education “without the distinction of race, sex or creed.” In 1919, he donated $50 million to the cause to raise academic salaries, which were very low then.

In 1909, he established the Rockefeller Sanitary Commission for the Eradication of Hookworm Disease, which launched a public health campaign across 11 states.

In 1913, Rockefeller incorporated the Rockefeller Foundation with the following statement of purpose: “To promote the well-being of mankind throughout the world.”

Shortly after, he made gifts to the Foundation totaling $35 million. A year later, he did so again, but this time, totaling $65 million. Today, the foundation has a worldwide impact, focusing on energy, food, health, and innovation efforts.

Rockefeller’s commitment to philanthropy was such that, when he died in 1937, his estate was worth $26,410,837. However, he also passed much of his wealth to his son and other heirs.

Rockefeller’s last surviving grandson, David Rockefeller, continued his commitment to philanthropy in many different ways during his lifetime, including signing the Giving Pledge to give away more than half of his wealth. His son, David Rockefeller Jr., is currently heavily involved in the family’s wealth management and philanthropic giving. He served as chairperson for four different Rockefeller foundations over the years.

The Bottom Line

Many of the foundations established by Rockefeller family members are still going strong today. For example, the Rockefeller Foundation, the Rockefeller Brothers Fund, and the David Rockefeller fund have a combined endowment of over $5 billion. 

David Rockefeller Jr. attributes the family’s philanthropic impact to their commitment to shared values and practices. As he told CNBC, “I think the family has tried its best to live those values, to whom much is given, much is expected.”

Reviewed by Andy Smith
Fact checked by Hans Daniel Jasperson

Lump-Sum vs. Pension Payments: An Overview

Monthly pension payments are a fixed dollar amount. They begin at retirement and last until a retiree’s death. Some plans offer a survivor’s benefit for a living spouse. A lump sum distribution is a one-time cash disbursement at retirement. The retiree is solely responsible for managing the funds throughout their retirement years.

Those who are approaching retirement and who are eligible for a pension often weigh the choice between accepting the traditional, lifetime monthly payments or taking a lump-sum distribution.

Key Takeaways

• Pension payments are made for the remainder of a retiree’s life.
• Lump-sum distributions allow individuals to spend or invest the money.
• Those who take a lump sum might outlive their money.
• Pension payments can stop if a pension administrator goes bankrupt.

Lump-Sum Distributions

A lump-sum distribution is a one-time payment from a pension administrator. Individuals have access to a large sum of money that they can spend or invest.

A pension payment annuity is commonly a fixed payment but a lump sum offers flexibility. It may also provide regular income if it’s invested properly. Those who take a lump-sum distribution can name a beneficiary to receive any money that’s left after their deaths.

Income from pensions is taxable but individuals can roll over a lump sum into an IRA and control when to withdraw the funds and pay income tax. Retirees will eventually have to take required minimum distributions (RMDs) from their IRA but that won’t happen until age 73.

Note

Rolling a lump sum pension payment into an IRA lets individuals plan when they’ll take their distributions and when they’ll pay the associated taxes.

Pension Payments

A pension payment is a set monthly payment to a retiree for life and for the life of a surviving spouse in some cases. Some pensions include cost-of-living adjustments (COLA) so payments are indexed for inflation.

A regular pension check can help retirees budget and control overspending. Retirees with company health insurance may have to opt for pension payments because coverage might stop if an employee takes a lump sum.

Retirees with pension income were more likely to remain financially stable in 2020 than those who cashed out the lump sum, according to research from the Consumer Financial Protection Bureau. Of those with regular payments, 73% could maintain the same spending level after five years compared to only 56% of those who had chosen the lump sum.

Important

Pension payments could stop if a pension administrator goes bankrupt but the Pension Benefit Guaranty Corporation (PBGC), a federal agency, provides insurance that covers most people.

One threat to pensions is that an employer fails to pay long-term. However, pension benefits are safeguarded by the Pension Benefit Guaranty Corporation (PBGC), a government entity that collects insurance premiums from employers sponsoring insured pension plans. The PBGC only covers defined-benefit plans, not defined contribution plans like 401(k)s.

The maximum annual benefit was $85,295.40 in 2024 for a straight-life annuity for a 65-year-old retiree.

Key Differences

Lump Sum

• All pension money is distributed at once at retirement

• The retiree must manage the funds throughout retirement

• Lump sum money can be rolled over into an IRA

• Retirees can designate beneficiaries of the funds

Pension Payments

• Payments are made monthly to the retiree until death

• The PBGC provides insurance in case the pension administrator is unable to pay

• Monthly payments may cease once the retiree dies unless there are survivor’s benefits

• Companies may require retirees to take monthly payments to keep health insurance benefits

How Will I Use This in Real Life?

Planning for retirement can be a challenge because real life has a way of being unpredictable but the decision between taking a lump sum distribution or pension payments can come down to how well you know yourself.

That lump sum payment might not be the right choice for you if your risk tolerance is minimal and the thought of investing the money in the stock market gives you indigestion. You might consider a safer investment, however, or roll the money over into an IRA. Accepting a lump sum payment might be a disaster if spending freely and lavishly is your vice. You could deplete your retirement cushion if you treat it as an unexpected windfall.

Taking pension payments may be your best option if you value safe, steady income above all else, especially with the added benefit of PBGC insurance. And you may be able to keep your health insurance benefits if you continue taking your monthly payments.

It may help to make a checklist of all pertinent factors and organize them according to what’s most important to you.

How Do Companies Calculate Pension Payments and Lump Sum Distributions?

The typical recipient receives approximately the same amount of money whether choosing the pension or a lump sum. The pension administrator calculates the commuted value using the average lifespan of retirees and adjusts the payment schedule accordingly. Retirees with a longer-than-average lifespan will probably receive more money by taking lifetime payments.

What Are the Disadvantages of Taking a Lump Sum?

Taking a lump-sum payment can be very risky. Perhaps the greatest risk of cashing out a pension early is the prospect of running out of money. A monthly payment offers a steady income for the remainder of one’s life instead and it can also be passed on to a spouse in some cases. Retirees who choose a lump sum could put part of the money into a fixed annuity with the help of a financial advisor.

Is a Pension Plan the Same As a Defined Benefit Plan?

Yes, a private pension plan is a defined benefit plan where the employer makes most contributions on behalf of the employee toward their retirement.

The Bottom Line

A lump-sum pension payment makes sense for some. Having less upfront capital is better for others. Pension payments should align with a retiree’s personal goals in either case. A financial advisor can guide those who are considering whether to choose a monthly payment or invest a lump sum for the long term.

Fact checked by Michael Logan
Reviewed by Ebony Howard

Refinancing your mortgage involves taking out a new loan to pay off your existing mortgage, and, in doing so, hopefully getting a lower interest rate. However, there are several scenarios where refinancing wouldn’t be the best decision, such as if you’d end up with a longer repayment term or save too little to offset the costs.

Key Takeaways

• Refinancing will sometimes cost you more in interest in the long run, particularly if you extend your repayment term.
• The upfront costs of refinancing could mean that, even if your monthly payments decrease, you won’t break even before eventually moving.
• A cash-out refinance can provide you with additional funds for investing, but this is typically a risky move.

1. Consolidating Debt

When you get a cash-out refinance, you can leverage some or all of your home equity to take out a larger loan amount. In addition to repaying your old mortgage, this means you’ll also have excess funds that can be used to pay off your other outstanding debt. If you’re able to secure a lower interest rate, then consolidating debt in this manner can simplify your monthly payments and save you money in the long run.

However, if the reason you had so much outstanding debt was due to poor spending habits (presumably with a credit card), then refinancing will only provide a temporary solution. If you rack up new credit card debt on top of your now larger mortgage balance, you may be unable to afford your monthly payments for the latter, which might mean losing your home.

Refinancing may still be a good option if you need to pay down debt that’s grown out of control, but first you’ll need to address your spending habits to reduce your reliance on credit.

2. Getting a Longer Repayment Term

In addition to securing a different interest rate, you can also get a new repayment term when you refinance. While increasing your repayment term typically coincides with lower monthly payments, since they’re spread out over an extended period, you’ll also likely pay more over the life of the loan due to the interest having more time to accrue.

For some, having outstanding debt for a longer period is worth the breathing room it provides their monthly budgets. However, if you’re refinancing simply to get that lower monthly payment without thinking about the long-term costs, you could be inadvertently setting yourself back.

In order to determine how different repayment terms and interest rates affect your monthly and total payments, consider using a mortgage calculator.

3. Saving a Little Each Month

Refinancing just to save a little money each month sounds good in theory, but it’s easy to overlook the total costs in favor of small savings. When you add up expenses like appraisal fees and closing costs, refinancing typically costs around 3%–6% of the loan amount.

So if you’re refinancing a $500,000 mortgage, you might pay around $15,000 to $30,000 upfront. That means if you’re able to save $100 per month on your mortgage payment by securing a slightly lower interest rate, it would take around 12.5 to 25 years to offset those costs. Even if you ultimately come out ahead, you may not want to wait that long to break even.

4. Saving for a New Home

Refinancing your mortgage can potentially help you save for a new home. For example, if you can reduce your monthly payments via a lower interest rate and/or longer repayment term, you’ll have a little extra each month that you can put toward a down payment.

However, if you’re expecting to move within a few years of refinancing, you could end up costing yourself more than you’d save. As previously mentioned, it can take a couple of years to recoup the upfront costs of refinancing. So if you move before reaching your breakeven point, you’ll lose money on the refinance.

5. Changing the Loan Type

Another common reason to refinance is to get a different kind of mortgage, such as swapping an adjustable-rate mortgage (ARM) for a fixed-rate one, or vice versa.

Switching to a fixed-rate mortgage means you won’t have to worry about your interest rate rising, but you could still end up overpaying if interest rates eventually fall. Even if you decide to refinance again in the future to secure that lower rate, the additional closing costs could eat into those savings.

Meanwhile, if you’re switching to an ARM, then the risks are a bit more complex. Maybe you’ll get lucky and your rates will stay low throughout the life of your loan, but that’s unlikely. Since it’s difficult to predict whether rates will rise or fall, there’s no way to know exactly how much you’ll owe each month. So not only could you end up paying more than you would with a fixed rate, that uncertainty will make budgeting trickier.

6. Freeing Up Money for Investing

If you need money, you may be tempted to tap your home equity. However, when you get a cash-out refinance, those funds technically aren’t yours to keep. You can use them as you see fit, but you’ll still need to pay that amount back.

So if you invest that money, there’s an inherent risk you’ll lose it (or won’t earn sufficient returns). Should your investment falter, you’ll then have less capital to pay back your now larger mortgage.

7. Getting a No-Cost Mortgage

With a no-cost mortgage, you won’t be charged any upfront closing costs when refinancing. That may sound like a good deal, but you’ll most likely still end up paying those costs, they’ll just be rolled into the new loan amount or the interest rate will be raised to compensate.

You could still come out ahead in this scenario, but you’ll need to run the numbers and see what makes sense for your situation, rather than letting the offer lure you in.

Are There Limits on How Often You Can Refinance Your Mortgage?

Technically, there’s no limit on how many times you can refinance your home, at least from a legal perspective. That said, lenders may impose their own limits, typically to prevent borrowers overwhelmed by debt from constantly refinancing.

Moreover, each time you apply to refinance your mortgage, lenders will look at factors like your credit score, home equity, and debt-to-income (DTI) ratio. If you’re found lacking in these areas, you might not get approved for the refinance anyway. Additionally, you may not want to refinance too many times, as each time you do lenders will usually pull your credit report, which causes a temporary dip in your credit score

The Bottom Line

Refinancing your mortgage isn’t a decision to make lightly. While there’s plenty of situations when doing would work out in your favor, it’s easy to fall into the trap of lowering your monthly debt payments at the expense of your long-term savings. So before refinancing, be sure to calculate the total costs and confirm that this would be the best choice for your financial situation.

First determine what type of annuity you have

Fact checked by Suzanne Kvilhaug
Reviewed by David Kindness

Recurring or ongoing payments are technically annuities. Whether making a series of fixed payments over a period, such as rent or car loan, or receiving periodic income from a bond or certificate of deposit (CD), you can calculate the present value (PV) or future value (FV) of an annuity.

Key Takeaways

• Recurring payments like rent on an apartment or interest on a bond can be considered annuities.
• Ordinary annuities and annuities due differ in the timing of those recurring payments.
• The future value of an annuity is the total value of payments at a future point in time.
• The present value is the money required now to produce those future payments.

Types of Annuities

Annuities as ongoing payments can be defined as ordinary annuities or annuities due.

• Ordinary Annuities: An ordinary annuity makes (or requires) payments at the end of a particular period. For example, bonds generally pay interest at the end of every six months.
• Annuities Due: An annuity due, by contrast, involves payments made at the beginning of each period. Rent or loan payments required at the beginning of each month are examples.

With ordinary annuities, payments are made at the end of a specific period. Annuities due are made at the beginning of the period.

Future Value of an Ordinary Annuity

FV measures how much a series of regular payments will be worth at some point in the future, given a specified interest rate. If you plan to invest a certain amount each month or year, FV will tell you how much you will accumulate. If you are making regular payments on a loan, the FV helps determine the total cost of the loan.

Consider a series of five $1,000 payments made at regular intervals.

Because of the time value of money—the concept that any given sum is worth more now than it will be in the future because it can be invested in the meantime—the first $1,000 payment is worth more than the second, and so on.

Suppose you invest $1,000 annually for five years at 5% interest. Below is how much you would have at the end of the five years.

Or use the Future Value formula:

$begin{aligned} &text{FV}_{text{Ordinary~Annuity}} = text{C} times left [frac { (1 + i) ^ n – 1 }{ i } right] \ &textbf{where:} \ &text{C} = text{cash flow per period} \ &i = text{interest rate} \ &n = text{number of payments} \ end{aligned}$​FVOrdinary Annuity​=C×[i(1+i)n−1​]where:C=cash flow per periodi=interest raten=number of payments​

Using the example above, here’s how it would work:

$begin{aligned} text{FV}_{text{Ordinary~Annuity}} &= $1,000 times left [frac { (1 + 0.05) ^ 5 -1 }{ 0.05 } right ] \ &= $1,000 times 5.53 \ &= $5,525.63 \ end{aligned}$FVOrdinary Annuity​​=$1,000×[0.05(1+0.05)5−1​]=$1,000×5.53=$5,525.63​

The one-cent difference in these results, $5,525.64 vs. $5,525.63, is due to rounding in the first calculation.

Present Value of an Ordinary Annuity

In contrast to the FV calculation, the PV calculation tells you how much money is required now to produce a series of payments in the future, again assuming a set interest rate.

Using the same example of five $1,000 payments made over five years, here is how a PV calculation would look. It shows that $4,329.48, invested at 5% interest, would be sufficient to produce those five $1,000 payments.

This is the applicable formula:

$begin{aligned} &text{PV}_{text{Ordinary~Annuity}} = text{C} times left [ frac { 1 – (1 + i) ^ { -n }}{ i } right ] \ end{aligned}$​PVOrdinary Annuity​=C×[i1−(1+i)−n​]​

If we plug the same numbers as above into the equation, here is the result:

$begin{aligned} text{PV}_{text{Ordinary~Annuity}} &= $1,000 times left [ frac {1 – (1 + 0.05) ^ { -5 } }{ 0.05 } right ] \ &=$1,000 times 4.33 \ &=$4,329.48 \ end{aligned}$PVOrdinary Annuity​​=$1,000×[0.051−(1+0.05)−5​]=$1,000×4.33=$4,329.48​

Future Value of an Annuity Due

​The annuity due’s payments are made at the beginning, rather than the end, of each period.

To account for payments occurring at the beginning of each period, the ordinary annuity FV formula above requires a slight modification. It then results in the higher values shown below.

The reason the values are higher is that payments made at the beginning of the period have more time to earn interest. For example, if the $1,000 was invested on January 1 rather than January 31, it would have an additional month to grow.

The formula for the FV of an annuity due is:

$begin{aligned} text{FV}_{text{Annuity Due}} &= text{C} times left [ frac{ (1 + i) ^ n – 1}{ i } right ] times (1 + i) \ end{aligned}$FVAnnuity Due​​=C×[i(1+i)n−1​]×(1+i)​

Here, we use the same numbers as in our previous examples:

$begin{aligned} text{FV}_{text{Annuity Due}} &= $1,000 times left [ frac{ (1 + 0.05)^5 – 1}{ 0.05 } right ] times (1 + 0.05) \ &= $1,000 times 5.53 times 1.05 \ &= $5,801.91 \ end{aligned}$FVAnnuity Due​​=$1,000×[0.05(1+0.05)5−1​]×(1+0.05)=$1,000×5.53×1.05=$5,801.91​

The one-cent difference in these results, $5,801.92 vs. $5,801.91, is due to rounding in the first calculation.

Present Value of an Annuity Due

Similarly, the formula for calculating the PV of an annuity due considers that payments are made at the beginning rather than the end of each period.

For example, you could use this formula to calculate the PV of your future rent payments as specified in your lease. Let’s say you pay $1,000 a month in rent. Below, we can see what the next five months cost at present value, assuming you kept your money in an account earning 5% interest.

This is the formula for calculating the PV of an annuity due:

$begin{aligned} text{PV}_{text{Annuity Due}} = text{C} times left [ frac{1 – (1 + i) ^ { -n } }{ i } right ] times (1 + i) \ end{aligned}$PVAnnuity Due​=C×[i1−(1+i)−n​]×(1+i)​

So, in this example:

$begin{aligned} text{PV}_{text{Annuity Due}} &= $1,000 times left [ tfrac{ (1 – (1 + 0.05) ^{ -5 } }{ 0.05 } right] times (1 + 0.05) \ &= $1,000 times 4.33 times1.05 \ &= $4,545.95 \ end{aligned}$PVAnnuity Due​​=$1,000×[0.05(1−(1+0.05)−5​]×(1+0.05)=$1,000×4.33×1.05=$4,545.95​

What Is an Example of an Ordinary Annuity Payment?

An ordinary annuity is a series of recurring payments made at the end of a period, such as payments for quarterly stock dividends.

What Is the Difference Between Amortization and Annuity Due?

Amortization schedules are given to borrowers by a lender, like a mortgage company. They outline the payments needed to pay off a loan and how the portion allocated to principal versus interest changes over time. An annuity due is the total payment required at the beginning of the payment schedule, such as the 1st of the month.

What Is a Deferred Annuity?

A deferred annuity is a contract with an insurance company that promises to pay the owner a regular income or lump sum at a future date. Deferred annuities differ from immediate annuities, which begin making payments right away.

The Bottom Line

Present value and future value formulas help individuals determine what an ordinary annuity or an annuity due is worth now or later. Such calculations and their results help with financial planning and investment decision-making.

Reviewed by Charlene Rhinehart

Quicken is one of several well-known, widely used, and highly successful financial software programs developed by Intuit, Inc. (INTU). Intuit subsequently sold its personal financial management tool to private equity firm H.I.G. Capital in 2016.

Quicken offers users services from basic checking and savings account management and budgeting, all the way to portfolio analysis and management features such as capital gains tracking. There are Windows-based versions of the program available as well as for Mac that’s compatible with Apple’s operating system.

Although manufactured for a number of global markets, Quicken remains focused largely on a North American customer base. While Quicken has dominated its niche market since its first release in 1984, there are a number of similar, alternative products available and which are increasingly challenging its dominance.

Key Takeaways

• While Quicken still dominates the financial software program universe, several alternatives exist.
• Another rival, Empower, offers investment management services.
• Banktivity, developed specifically for Apple products, serves as a personal or small business financial management program, allowing users to monitor accounts across several devices.

1. Empower

Empower represents an attractive and less expensive alternative to Quicken for individuals who prefer a cloud-based program—and one that offers extensive investment management tools. In fact, as of February 2025, it had $1.8 trillion in assets under management (AUM).

The basic Empower financial services package, which includes account tracking, budgeting, bill paying, and other basic services, is free. However, Empower makes its money primarily from individuals, with a minimum of $100,000 in assets, who choose to upgrade to the personal wealth management services the company offers. Fees begin at 0.89% for the first $1 million of assets managed and range down to 0.49% (for accounts over $10 million) per year. Empower’s fees are significantly lower than average for full wealth management services.

With the paid wealth management service, clients are assigned a personal financial advisor and receive all the usual services a client expects from a wealth management company, including tax and estate planning, tax-loss harvesting, advice on insurance, educational funds for children, and any other necessary services to provide full financial management for clients.

But even the free personal finance services offered are extensive and competitive with what is offered by Quicken. Included are services such as budgeting, a retirement planner, net worth analyzer, and an investment allocation target checker. The budgeting component includes a cash flow tool that allows individuals to input income and spending, and then receive weekly, monthly, or annual analyses of their projected cash flows.

The retirement planner can be used to map out a retirement plan, and then to monitor how closely the user is adhering to the plan. This feature allows users to set spending and savings goals, track income events, and project the future value of their investment portfolios. Its asset allocation component determines a user’s risk tolerance profile and then makes appropriate investment allocation recommendations. The comprehensive features and the flexibility of input variables offered in this module compare favorably to any comparable service, free or paid.

Empower has received good reviews on a number of levels, one being that it offers better account synchronization than most programs of this type. It also receives high marks for customer service, a rare plus for a free financial services software program. Empower offers much more in-depth investment analysis and planning than Quicken. It also offers enhanced security through its use of multi-factor authentication.

Empower services are accessible by computer, tablet, or cellphone.

2. Banktivity (iBank)

Debuting in 2003, iBank was designed by IGG Software specifically for Apple’s operating systems—at first, macOS (for desk- and laptops), and later iOS (for iPhones and iPads). IGG re-christened it Banktivity in 2016.

Aiming to serve as a personal or small business financial management program, Banktivity offers a myriad of financial services, including bank, credit card, loan, and investment account management. Features not included in Quicken but that come standard with Banktivity include multicurrency functionality and variable loan amortization. Its platform for reviewing all of an individual’s financial accounts can be found on one central dashboard: checking, savings, money market, equity and fixed-income investments, retirement accounts, loan accounts, and brokerage accounts.

With its continually updated charts, Banktivity stands out for the detailed income, expense, and investment performance analysis it offers, tracking buys and sells of stock shares, dividends, and stock options.

The program also allows for easy production and printing of custom financial reports.

Research shows Gen X is invested in—but worried about—their later years.

Fact checked by Vikki Velasquez

Generation X is represented by Americans born between 1965 and 1980, and they number approximately 64 million. Full retirement age is looming for many of them, but numerous reports indicate that they’re nowhere near ready financially.

The Schroders 2024 U.S. Retirement Survey found that Gen Xers anticipate having $602,944 in retirement savings when the time comes. Yet they believe they’ll need $1,069,746 to fund a comfortable retirement. That’s a difference of $466,802.

Another finding is even more alarming: 48% of them said that they don’t have any sort of retirement plan or strategy at all.

Key Takeaways

• Only about 14% of Gen Xers felt that they had saved enough for retirement, according to a December 2024 survey.
• The Internal Revenue Code includes retirement plan catch-up provisions for those who’ve gotten a late start on saving.
• The Congressional Budget Office anticipates that the Social Security Trust Fund will run dry by fiscal year 2033.
• Taxes can reduce returns so tax-advantaged investing is crucial.
• Gen Xers stress about their coming retirement years but have healthy financial behaviors.

Why Is Generation X Worried About Retirement?

“The future for Gen X retirees looks very different than it did for our parents,” notes Melissa Murphy Pavone, Certified Financial Planner and founder of Mindful Financial Partners.

“We’re facing the uncertain future of Social Security, rising healthcare costs, increased longevity, and more individual responsibility for retirement savings.”

Only 53% of Gen Xers felt that they would be able to retire on their own terms, according to Fidelity Investments’ 2025 State of Retirement Planning.

The Schroders survey also revealed that only 14% felt that they’d saved enough, and 54% worried that they would deplete their assets before their deaths.

Social Security

Old-Age and Survivors Insurance (OASI), commonly known as Social Security, provides benefits to retired U.S. workers.

However, the Congressional Budget Office anticipates that the OASI Trust Fund will run dry by fiscal year 2033.

Gen Xers’ plans reflect their worries. Schroders found that 43% intend to begin collecting Social Security as soon as possible, compared to 10% who plan to wait until age 70 for their maximum monthly payouts.

How Generation X Can Prepare for Retirement

Solid Financial Behavior

According to an October 2024 report by FINRA’s Investor Education Foundation, while Generation X perceives its financial situation as worrisome, it actually reports fairly healthy financial behavior.

About 55% have a retirement account at work. Overall, they’re contributing yearly to these accounts (and individual retirement accounts), and just 10% report taking loans from them.

They have debt, but it’s primarily related to asset accumulation, such as home and auto loans. And they’re managing it well. However, about a quarter of Gen Xers have student loans, which is a source of strain for them.

Better Resources for Saving

It’s not all doom and gloom for Gen Xers, or at least it may not have to be, according to Chad Parks, CEO & founder of Ubiquity, a leading small business retirement solutions provider.

“The bright side here is that Gen Xers no longer need to be seen as the ‘vulnerable generation’ because they do have access to more retirement planning and savings resources than any generation before them,” Parks says.

“From more diverse investment options (stocks, bonds, ETFs) to higher contribution limits and virtual education and fintech tools, Gen Xers have multiple pathways to take control of their financial journeys through their employer-sponsored 401(k).”

Pavone agrees. “It’s not too late to prepare,” she says, “but the clock is ticking. A CFP® can help Gen Xers take proactive steps like maximizing retirement account contributions, including catch-up provisions at 50-plus.”

Important

Shroders found that 35% of Gen X workers were holding their retirement savings in cash in 2024 and 64% reported that they were doing so because they were afraid of stock market losses.

Annual and Catch-Up Contributions

One sure way to prepare for retirement is to contribute as much as allowed to your retirement accounts.

For 2025, Gen Xers who have reached age 50 can contribute an additional $1,000 beyond the annual limit ($7,000) for their individual retirement accounts (IRAs). That’s a total of $8,000 for the year.

Similarly, 401(k) participants can contribute an additional $7,500 catch-up amount beyond the annual limit of $23,500, which means a total contribution of $31,000.

Taking advantage of their retirement accounts’ maximum contribution amounts, as well as the tax benefits and compounding, can help Gen Xers better position themselves for retirement as the clock ticks down.

Ways to Catch Up

Gen Xers may be at the top of their careers by now, with higher salaries and fewer expenses as childcare costs are no longer an issue. So they should focus on putting more money away.

After maxing out their retirement accounts, they can consider taxable brokerage accounts (which have no limits on deposits and no required minimum distributions).

There are also investments available through their banks, such as certificates of deposit (CDs) and high-yield savings accounts.

Just be sure to use these other options after stashing as much as possible in work and individual retirement accounts.

“They need to sign up for and utilize everything their employer’s plan offers: catch-up contributions, tax deductions, all of it,” Parks says.

Avoid Taxes Where Possible

Taxes eat away at investment returns. That’s why tax-advantaged retirement accounts are so vital for Gen Xers.

Traditional IRAs and 401(k)s offer a tax deduction for the money you contribute. That reduces your taxable income. Then, your account’s contributions and earnings grow undiminished by taxes for years until you take withdrawals in retirement. At that point, they’re taxed as ordinary income.

A Roth IRA or Roth 401(k) is slightly different. The money you contribute to a Roth is money you’ve already paid taxes on. So there’s no tax break there. However, your contributions and earnings grow tax-free, and you’ll owe no taxes on your withdrawals in retirement.

Tax-free, compounding growth is an exceptional way to grow the value of your savings. So Gen Xers should max out their retirement account contributions whenever possible.

Alternative Investments

Pavone stresses the idea of diversifying beyond traditional retirement investments. The National Association of Realtors indicates that Generation X is doing just that.

They account for about 24% of all homebuyers and many own additional properties for investment and income-generating purposes.

In addition, a diversified portfolio of stocks and bonds can provide a higher annual return over the long term even if returns don’t consistently boom early on.

Interest in Crypto

Another way Gen Xers are working to increase their savings and investments is by investing in cryptocurrencies. In fact, as of December 2024, 24% of them were so invested.

According to a Morgan Stanley October 2024 article, Bitcoin had an eye-catching 49% average annual return from 2014 through 2024. But the firm warned that this probably would not be sustained over the next 10 years.

In fact, it estimated future 10-year annualized returns for bitcoin at 1% to 10%. This can be a comfortable range if you reinvest rather than spend your profits.

The Bottom Line

Generation X is heading toward retirement. These 45- to 60-year-olds face a looming Social Security crisis, and almost half of them have no retirement strategy in place.

But Gen Xers have solid options. Investing is easier than ever with internet access. They may have more cash available to invest as their children fly the nest.

Once they reach age 50, they can make sizable catch-up contributions to their retirement accounts. And they can invest additional money through brokerage accounts. So they may be in better shape than they perceive.

However, if you feel overwhelmed by a lack of savings and your retirement timeline, seek advice from a financial professional to stay focused and on track.

It can be done, but do it only as a last resort

Reviewed by Ebony Howard
Fact checked by Kirsten Rohrs Schmitt

If your employer allows it, getting money from a 401(k) plan before age 59½ is possible. However, early withdrawals deplete retirement savings permanently and, minus a few exceptions, carry a 10% penalty and an income tax bill. Your company’s human resources department can help you explore your options.

Key Takeaways

• If you withdraw money from a 401(k) plan before age 59½, you may incur a 10% early withdrawal penalty along with income taxes on the distribution.
• The IRS allows certain exceptions to the penalty, such as for medical bills and natural disasters.
• You may qualify for a hardship withdrawal for certain expenses, but you will still owe the 10% penalty unless it meets one of the exceptions.
• Even if the IRS permits an early distribution, your 401(k) plan may not, so check your plan document for specifics.

Penalties for Early Withdrawals

Withdrawing money from a 401(k) early means you will owe income taxes on the distribution along with a 10% tax penalty on the amount withdrawn unless it qualifies for an exception to the penalty under IRS rules.

Taking an early withdrawal “really should be your last resort,” says Eric Droblyen, CEO of 401(k) provider Employee Fiduciary. “Once you take that money out, it can’t keep earning compound interest.”

Even though the IRS does allow penalty-free withdrawals in certain cases, those distributions come with a large cost in future retirement income. “If you take a $10,000 distribution now, it could have been $20,000 or $30,000 by the time you retire,” Droblyen adds.

$6,300

The approximate amount you will clear on a $10,000 withdrawal from a 401(k) if you are under age 59½ and subject to a 10% penalty and taxes.

Exceptions to Early Withdrawal Penalty

The IRS permits early withdrawals without a penalty for medical bills, natural disasters, and certain other contingencies. In addition, if you leave or lose your job before age 59½, the age threshold drops to 55.

You may also withdraw up to $5,000 without penalty to pay expenses related to the birth or adoption of a child under the terms of the Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019.

Here’s the full list of possible exceptions:

Exceptions to Early Withdrawal Penalties
Reason	Notes
Birth or Adoption	Up to $5,000 per child for qualified expenses
Automatic enrollment	Participants can choose to withdraw contributions if they are automatically enrolled in the plan, but must do so by their second pay date (or within 30 days of the first pay date, whichever is sooner)
Corrective Distributions	If you exceed contribution limits, you can withdraw the excess without penalty within time limits
Death or disability	If the account owner dies or becomes totally and permanently disabled
Disaster recovery	Up to $22,000, if you sustain losses because of a federally declared disaster where you live
Domestic Abuse	Up to $10,000 or 50% of the account, whichever is lower.
Domestic relations	When a marriage is dissolved, a court may order distributions to a former spouse or dependent.
Emergency personal use	One distribution per year, up to $1,000 for personal or family medical emergencies.
Equal payments	As part of a substantially equal periodic payments (SEPP) plan
Dividends	If received through an employee stock ownership plan
Levy	If the IRS levies the plan
Medical expenses	The amount of unreimbursed medical expenses, exceeding 7.5% of your AGI
Military	For qualified reservists called to active duty
Rollovers	Within 60 days of distribution
Separation	If the employee leaves their job after age 55
Terminal illness	If certified by a physician as being terminally ill prior to the distribution

Note, however, that even if a distribution is covered by one of these exceptions, it may not be permitted under the terms of your 401(k) plan. Check your plan document to determine what types of withdrawals are allowed.

Hardship Distributions

A retirement plan may also allow early distributions in the event of an “immediate and heavy financial need.” These are called hardship distributions. An employee is automatically considered to qualify for a hardship distribution to pay for the following expenses:

• Medical expenses for the employee or their family (spouse, children, dependents, or beneficiary)
• Purchase of a primary residence (excluding mortgage payments)
• Tuition and related expenses for the employee, their spouse, or their children or dependents
• Payments to prevent foreclosure or eviction
• Funeral expenses for the employee or their family members
• Certain expenses to repair damage to the primary residence

Note, however, that these distributions are limited to the amount needed to cover the financial need, along with any tax they incur. Hardship withdrawals are still subject to the 10% penalty, unless they meet one of the exceptions. In addition, hardship distributions cannot be repaid to the plan or rolled into another tax-advantaged plan.

Important

With an early distribution, you will still owe the income taxes on the distribution even if the penalty is waived. If it’s a traditional 401(k), you will owe taxes on the entire withdrawal. For a Roth 401(k), you’ll only pay taxes on the earnings.

Withdrawal Alternatives

Loan: You can take a 401(k) loan to make an early withdrawal. Essentially, you’re loaning money to yourself, with a commitment to pay it back. A loan allows you to replace the money, which you can do through payments deducted from your paycheck. Check with your employer to see if you’re eligible.

SEPP withdrawals: Substantially equal periodic payments (SEPPs) are an option for withdrawing funds from an IRA without paying the early distribution penalty of a 401(k). Withdrawals are not allowed while working for your employer. If the funds are from an Individual Retirement Account (IRA), you may start SEPP withdrawals at any time.SEPP must be calculated using one of three methods approved by the IRS: fixed amortization, fixed annuitization, or required minimum distribution (RMD).

Do I Have To Pay Back a 401(k) Loan?

Any money not repaid on a 401 (k) loan, plus interest will be considered a plan distribution. Some plans may even require you to repay the entire loan if you leave your job.

How Much Tax Do I Pay on an Early 401(k) Withdrawal?

With a traditional withdrawal, the money will be taxed as regular income, just as it would in retirement. That’s from 10% to 37%, depending on your taxable income. The taxes will be due for the tax year you take the distribution. If your withdrawal does not meet the qualifications for a penalty-free distribution, you will also pay an additional 10% tax.

What Are the Pros and Cons of a Withdrawal vs. a 401(k) Loan?

A withdrawal is a permanent hit to your retirement savings. By pulling out money early, you’ll miss long-term growth. Though you won’t have to pay the money back, you will have to pay the income taxes due, plus a 10% penalty if the money does not meet the IRS rules for a hardship or an exception. A loan against your 401(k) has to be paid back. If the money is repaid on time, you won’t lose much of that long-term growth.

The Bottom Line

To withdraw from your 401(k), speak to your human resources department first to explore your options. Withdrawing money early from your 401(k) can carry serious financial penalties, tax implications, and missed long-term growth.