If you’re in the market to buy, the choice could boil down to a condo or a duplex. But someone who would enjoy condo living — communal, with amenities — wouldn’t necessarily savor duplex living, and vice versa.
The financing can vary substantially, as can the fees.
Let’s look at the main differences between these two popular kinds of houses.
Key Points
• Condo buyers own the interior of their unit, with the HOA owning the larger structure, managing common areas, and performing exterior maintenance.
• Duplexes offer the buyer full ownership of the structure and land, and all maintenance responsibilities.
• A condo or a duplex can be financed with a residential mortgage loan. Condo loans may carry higher interest rates.
• Condos owners must pay HOA fees, while duplex owners have to absorb higher insurance and maintenance costs.
• Condos appreciate in value, but not as quickly as single-family homes; duplexes appreciate due to the rental income they offer.
What Is a Condo?
First, let’s focus on the first of these two types of houses.
You may wonder exactly what a condo is. Short for condominium, a condo is a single, privately owned unit that’s part of a community of these units. They can be combined in a building or built as detached structures.
It also can be a good choice for a first-time homebuyer, who technically is someone who hasn’t owned a primary home in three years.
Overseen by a homeowners association (HOA), condo owners have an interest in common areas, from lobbies and hallways to gyms and pools. A purchaser of a unit owns the condo’s interior.
First-time homebuyers can
prequalify for a SoFi mortgage loan,
with as little as 3% down.
When considering a condo, here are pros and cons to ponder.
Pros
Cons
Condos are usually more affordable than single-family homes.
You’ll need to pay HOA fees and follow the community’s rules. Over time, HOA fees can increase, and special assessments can occur.
You can enjoy community amenities with costs shared by all owners; the community may also host social events.
Privacy can be at a premium. Shared spaces can be noisy and you may see more of your neighbors than you’d like. Some of them might entertain frequently, have work hours opposite yours, and so forth.
The outdoor maintenance is handled by the HOA.
Green space is often limited. So, if you enjoy spending time outdoors by your home, this may not work well for you.
Security, from gates to security staff, may be provided.
If another owner in the condo community sells at a lower price or is foreclosed on, this can affect the value of your unit.
What Is a Duplex?
A duplex is a multifamily home with two units, each with its own entrance. Sometimes a duplex has two units that are side by side, Sometimes one unit is downstairs and the other upstairs. In that case, outside stairs can lead to the second-story unit.
You may decide to buy a duplex, live in half, and rent out the other half for income — or rent both halves.
Pros and Cons of Living in a Duplex
When considering a duplex, here are pros and cons to consider.
Pros
Cons
A duplex tends to be more affordable than a single-family structure.
A duplex isn’t as private as a single-family home and you may hear noise. You’ll also share the driveway and yard.
Buying a duplex allows you to buy a home and get help paying for the mortgage.
You are now a landlord with all of the responsibilities that entails.
Tax write-offs may exist.
If you don’t have a tenant or the tenant falls behind on rent, you still owe your mortgage payment.
What Is the Difference Between a Condo and a Duplex?
If you found a sweet condo and a duplex with potential, it might pose a dilemma. Here’s more info to inform a decision.
Financing
Homes with up to four units are considered residential, so if you plan to occupy one of the units of a duplex, you’re looking at the same types of mortgage loans you would with a single-family home.
A condo buyer will enjoy the same kind of financing that is available to buyers of single-family homes but will face extra steps and slightly higher interest rates. Financing a condo vs. townhouse, for example, involves a lender review of the condo community or inclusion on a list of approved condominium communities.
Cost
A condo may cost less than a duplex, but it will come with HOA fees. Prices can vary considerably based on the location, size, and condition of a property.
Insurance rates can be higher for a duplex because the entire structure needs to be covered. Rates can be more affordable for a condo owner, who is responsible for the interior of their unit only.
Ownership
With a condo, you’d own the interior of your unit, with common areas owned by the HOA. With a duplex, you’d own the entire structure, which includes the lot it’s built on.
Responsibilities
Duplex owners take on all of the typical homeowner responsibilities.The HOA handles maintenance and repairs for condo owners.
Common Areas
Condo owners can use common areas and amenities, which can include a clubhouse, pool, park, and gym.
If you buy a duplex, people living in both units share the yard, with the owner responsible for its maintenance.
The Exterior
As the owner of a duplex, you’re responsible for the entire property.
At a condo complex, the HOA takes care of common areas, including the building exteriors.
Resale Value
Condos tend to appreciate in value, although not as quickly as single-family homes do.
Duplexes also tend to be easier to resell because of the rent received and the lack of HOA fees — but tenants have rights, and you may need to wait for your rental unit to be vacant before you can sell without legal concerns.
Condo vs Duplex: The Verdict
If you like the idea of less maintenance and think that HOA fees are worth what you get in return, you would enjoy the community’s amenities, and you’re fine with less green space, then a condo may make sense for you.
If you don’t want to pay HOA fees (and may not use amenities anyway) and believe that having a yard and more control over what you do with your property is a real plus, a duplex may be a better choice.
The Takeaway
When house hunting, two options may include a condo and a duplex. Each has benefits as well as challenges, which should be explored before you make a financial investment in a property.
Looking for an affordable option for a home mortgage loan? SoFi can help: We offer low down payments (as little as 3% - 5%*) with our competitive and flexible home mortgage loans. Plus, applying is extra convenient: It's online, with access to one-on-one help.
SoFi Mortgages: simple, smart, and so affordable.
FAQ
Is a condo the same as a duplex?
No. A duplex is a detached home that’s divided in half (side by side or up and down) for two sets of residents, while a condo is a single unit within a condominium community.
Which is better: a duplex or a condo?
It depends upon your preferences and lifestyle.
Is living in a duplex noisy?
It could be! You’ll either have a shared wall or a shared ceiling/floor with someone else. So if the residents in the other half have a rambunctious lifestyle, it could get noisy.
Are duplexes cheaper than condos?
In general, a condo may be cheaper than a duplex, but location, size, and condition affect the values.
Photo credit: iStock/william87
Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
SoFi Mortgages
Terms, conditions, and state restrictions apply. Not all products are available in all states. See SoFi.com/eligibility-criteria for more information.
SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.
*SoFi requires Private Mortgage Insurance (PMI) for conforming home loans with a loan-to-value (LTV) ratio greater than 80%. As little as 3% down payments are for qualifying first-time homebuyers only. 5% minimum applies to other borrowers. Other loan types may require different fees or insurance (e.g., VA funding fee, FHA Mortgage Insurance Premiums, etc.). Loan requirements may vary depending on your down payment amount, and minimum down payment varies by loan type.
If you’re looking to save money and time on the purchase of a home, you might have heard that an appraisal waiver can do that for you.
An appraisal waiver substitutes an automated valuation for an in-person assessment of a property you’re buying. It saves time and money, thereby simplifying the buying process. However, only certain transactions qualify for it, and an automated appraisal may miss some of the home’s important details.
This guide will explain why you need a home appraisal in the first place. We’ll also explain what is an appraisal waiver, how to get an appraisal waiver, and the pros and cons of appraisal waivers.
Key Points
• An appraisal waiver means that an automated valuation tool may be used to determine a home’s market value, bypassing professional appraisers.
• Benefits include a faster closing process and savings on appraiser fees.
• Transactions must meet criteria like a single-family residence and a solid credit score.
• Risks include potential overpayment due to inaccuracies in automated valuations.
• Waiving appraisal does not mean a buyer must waive inspection.
Why Do You Need a Home Appraisal?
If you’re financing a home with a mortgage, getting a home appraisal is usually a requirement for the lender. An appraisal is an independent evaluation of the home’s value that protects the borrower’s investment in the property. Consequently, it also helps minimize the lender’s risk when releasing money to the borrower for the property.
A home’s value is critical to a lender since the money they make available as a mortgage uses the home as collateral. If they lend out more money than the home is worth and the home goes into foreclosure, they will be unable to recoup their losses when reselling the home. An appraisal assures the lender that the home is worth at least as much as they think it is when lending money.
An appraisal is also important to borrowers because it assures them the property is worth what they’re contracted to buy it for. If there’s something that hurts the home appraisal and the property is not worth as much as they offered in a real estate contract, the buyer has the option of backing out of the sale. They might also renegotiate the terms of the contract (assuming there’s a financing contingency in place). Or, the buyer could come up with more cash to bridge the appraisal gap if they still want the property.
An appraisal waiver is not a situation when an appraisal is not required. Rather, it allows the use of an automated property valuation tool versus using the services of a professional appraiser to determine the market value of your home. It can be convenient to get one if your transaction qualifies, saving time and money (more on that below).
However, many transactions won’t qualify for this type of property valuation, so it’s important to be prepared to go the route of having a professional appraiser involved.
It’s important to understand that an appraisal waiver is not the same as the following:
• A property inspection waiver. This is something a prospective homebuyer may offer to sweeten a deal. It means they will forgo a home inspection, which could reveal structural or maintenance issues, when proceeding with the purchase of a home.
• An appraisal contingency. This is part of a real-estate transaction that says if a home doesn’t appraise for the purchase price, you can exit the deal and get your deposit back.
Getting an Appraisal Waiver
If you are interested in getting an appraisal waiver, here are some important points to know.
• You need to go through your lender to be considered for an appraisal waiver. Lenders must submit paperwork through the home mortgage loan program you’re applying for and help determine when an appraisal is not required.
• Typically, you can qualify for an appraisal waiver if your lender uses the automated underwriting systems known as Desktop Originator (run by Fannie Mae) or Loan Prospector (run by Freddie Mac). Many lenders do use these systems, but that doesn’t guarantee that you will get approved for a waiver.
• There are likely additional qualifications to get a waiver. For instance, conventional mortgages through Fannie Mae have different rules than other loan types when it comes to appraisal waivers. Check with your lender for details about eligibility for an appraisal waiver. You may need, among other factors:
◦ To be purchasing or refinancing a single-unit property, whether that is a single-family house or a condo.
◦ You may need to pony up a down payment of at least 20%, though there are exceptions, such as people who are applying for homes in what are considered to be high-need rural areas.
Next, take a closer look at the pros and cons of an appraisal waiver.
Benefits of an Appraisal Waiver
Some of the benefits of an appraisal waiver include:
• A shorter time to closing since you don’t need to schedule an in-person appraisal and wait for paperwork to be completed and filed.
• Saving the cost of an appraiser’s fee.
Drawbacks of an Appraisal Waiver
There are some downsides of appraisal waivers, too. For example:
• Automated systems can miss improvements and special features of a home, such as a recent renovation that substantially increases the value of the home.
• Conversely, they can also miss things that substantially decrease the value of the home, such as a recent flood or signs of water damage in an attic. Hiring a professional appraiser can help mitigate valuation issues like these.
• When rental income is used to qualify for the loan
• When an appraisal waiver is not recommended by underwriting
• When the lender believes an appraisal is needed
Fannie Mae states that most transactions are not eligible for an appraisal waiver offer, so if you’re not able to get one, it’s not unusual.
Can a Homeowner Do Their Own Appraisal?
A homeowner cannot order their own appraisal when financing through a lender. The lender must order the appraisal, and it must be impartial, independent, and unbiased.
A homeowner can employ a professional appraiser for their own informational purposes, but the appraisal cannot be used in the lending process.
The Takeaway
Getting an appraisal waiver can help streamline the home loan process and save you money, but if your transaction isn’t eligible, don’t fret. The most important thing is likely getting a reliable, on-target appraisal so that you and your lender feel reassured that the property has at least the value of its purchase price. If you don’t qualify for an appraisal waiver, your lender can usually help you through the home-buying process and every challenge that comes your way.
Looking for an affordable option for a home mortgage loan? SoFi can help: We offer low down payments (as little as 3% - 5%*) with our competitive and flexible home mortgage loans. Plus, applying is extra convenient: It's online, with access to one-on-one help.
SoFi Mortgages: simple, smart, and so affordable.
FAQ
Can I get a home equity loan without an appraisal?
It’s not common, but it may be possible to get a home equity loan (or a home equity line of credit) without an appraisal if you meet one or more of these criteria: You’ve had an appraisal done in the last three to six months (perhaps for another loan application that you didn’t complete); if you have an existing relationship with the lender (maybe it holds your mortgage); if you have excellent credit; and if you aren’t requesting a large loan amount.
Is it risky to waive the appraisal?
There is risk involved in waiving the appraisal. You could end up overpaying for the property. An automated valuation may miss a problem that an in-person appraisal would reveal (though, bear in mind, an appraisal is not the same thing as an inspection). If you are anxious to close on your new home with speed, however, risking an appraisal waiver may be worth it to you.
Photo credit: iStock/Prostock-Studio
SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.
SoFi Mortgages
Terms, conditions, and state restrictions apply. Not all products are available in all states. See SoFi.com/eligibility-criteria for more information.
*SoFi requires Private Mortgage Insurance (PMI) for conforming home loans with a loan-to-value (LTV) ratio greater than 80%. As little as 3% down payments are for qualifying first-time homebuyers only. 5% minimum applies to other borrowers. Other loan types may require different fees or insurance (e.g., VA funding fee, FHA Mortgage Insurance Premiums, etc.). Loan requirements may vary depending on your down payment amount, and minimum down payment varies by loan type.
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, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.
²SoFi Bank, N.A. NMLS #696891 (Member FDIC), offers loans directly or we may assist you in obtaining a loan from SpringEQ, a state licensed lender, NMLS #1464945. All loan terms, fees, and rates may vary based upon your individual financial and personal circumstances and state. You should consider and discuss with your loan officer whether a Cash Out Refinance, Home Equity Loan or a Home Equity Line of Credit is appropriate. Please note that the SoFi member discount does not apply to Home Equity Loans or Lines of Credit not originated by SoFi Bank. Terms and conditions will apply. Before you apply, please note that not all products are offered in all states, and all loans are subject to eligibility restrictions and limitations, including requirements related to loan applicant’s credit, income, property, and a minimum loan amount. Lowest rates are reserved for the most creditworthy borrowers. Products, rates, benefits, terms, and conditions are subject to change without notice. Learn more at SoFi.com/eligibility-criteria. Information current as of 06/27/24. In the event SoFi serves as broker to Spring EQ for your loan, SoFi will be paid a fee.
This article is not intended to be legal advice. Please consult an attorney for advice.
Checking Your Rates: To check the rates and terms you may qualify for, SoFi conducts a soft credit pull that will not affect your credit score. However, if you choose a product and continue your application, we will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and may affect your credit.
If you’re planning to become a nurse, you may be wondering how long it takes to go to nursing school. The answer to that question depends on the degree you’d like to earn and what type of nurse you want to be. For instance, becoming a registered nurse (RN) with a bachelor of science in nursing degree (BSN) takes longer than becoming a licensed practical nurse (LPN).
If you’re wondering, how long is nursing school?, read on to learn how the type of degree you pursue and the kind of nurse you’d like to become affect how many years of school it takes to become a nurse.
Key Points
• The length of time it takes to complete nursing school depends on the type of nurse a student wants to be and the type of degree earned.
• Licensed practical nurse (LPN) programs are typically one year, preparing students for basic practical nursing roles.
• Associate nursing (ADN) programs require two years of study, qualifying graduates for RN positions but potentially fewer opportunities for career advancement.
• Bachelor of science in nursing (BSN) programs span four years, offering broader career and leadership opportunities post-RN licensure.
• Master of science in nursing (MSN) programs take 2-3 years post-BSN, enhancing specialized knowledge and advanced practice skills.
Length of Nursing School by Degree and Program
Nursing school program length varies by the type of degree you’re working toward and the program you choose. Here are some common programs and degrees for students and the nursing school timeline for each.
LPN/LVN Program
An LPN, a licensed practical nurse — referred to as an LVN, licensed vocational nurse in California and Texas — is a nurse that performs basic tasks such as checking patients’ vital signs, administering basic comfort care, keeping records, and maintaining communication with patients and their families. LPNs and LVNs work in nursing homes, extended care facilities, hospitals, physicians’ offices, and in home health care under the supervision of registered nurses (RNs) and doctors.
To become an LPN or LVN, you must have a high school diploma or General Equivalency Diploma (GED) and enroll in an accredited practical nursing program at a community college or vocational school.
• Number of credit hours required: Between 36 and 40
• Program length: Typically one year if you attend school full-time, and up to two years for part-time students
Once a nurse completes an LPN/LVN program, they must apply for testing authorization through their local board of nursing and the National Council of State Boards of Nursing. After receiving authorization, they can take the National Council Licensure Examination for Practical Nurses (NCLEX-PN). A nurse must pass the exam to receive their license to work.
Nursing Diploma
Diplomas or certificate programs were the standard for nursing training until the 1950s. Students can still become RNs by attending a hospital nursing school instead of a college or university, but there are no longer many accredited programs available in the U.S.
These programs typically focus on clinical training rather than general education. You won’t earn a degree with this program, and your academic credits generally won’t transfer to a degree program. Instead, you’ll qualify to take the NCLEX-RN exam. If you pass, you’ll become a licensed RN, which qualifies you for entry-level jobs. However, job opportunities for those with a nursing diploma may be limited. This is something to keep in mind when you think about life after school and living on a budget as a nurse.
To get a nursing diploma, you’ll need a high school diploma or GED certificate and be enrolled in an accredited hospital nursing school.
• Number of credit hours required: 50
• Program length: One year
Associate Degree in Nursing
You might consider an associate degree in nursing (ADN) to become an RN if you want to finish nursing school quickly or you’re concerned about paying for the cost of nursing school. Plus, you could always go back to school later — an ADN allows you to apply credits toward a future bachelor of science in nursing (BSN) or master of science in nursing (MSN).
However, ADN students may find that their advancement and salary opportunities as a nurse are limited. So think carefully about whether an ADN makes sense for your goals.
To gain admittance to an ADN program, you must have a high school diploma or GED certificate, take math and science courses in high school, and meet GPA requirements to enter a nursing program.
• Number of credit hours required: 60 to 75
• Program length: Two years
ADN students must also complete a certain number of clinical hours at a health-care site. Graduates must pass the NCLEX-RN exam to start working as a nurse.
Bachelor of Science in Nursing
A bachelor of science in nursing (BSN) program allows students to become an RN and offers them more career opportunities, including leadership positions. While BSN programs take longer and are more costly to complete than ADN programs, students can earn a combination of credits through online, hybrid, and in-person classes.
To qualify for a BSN program, you need to have taken high school math and science courses and earned a high school diploma or GED certificate. You also must meet a school’s GPA requirements, which is typically at least a 3.0.
• Number of credit hours required: 120
• Program length: Four years
BSN students must fulfill clinical hour requirements based on their program and state to graduate. They will then need to pass the NCLEX-RN exam to begin working as a nurse. If they choose to, they can apply their BSN credits toward a master of science in nursing (MSN).
Master of Science in Nursing
Earning an MSN allows you to work as an advanced practice nurse, such as a nurse practitioner, clinical nurse specialist, certified nurse-midwife, nurse educator, or nurse administrator.
If you’re wondering, how long is nursing school after undergraduate school?, it typically depends on the type of degree you already have, which dictates the type of MSN program you can take.
• BSN to MSN: These programs are for those who already have a BSN and at least one year of RN experience. To earn an MSN you must meet clinical and practice requirements at a health-care facility.
Program length: Two to three years
• MSN bridge program: This option is for RNs with associate degrees. It combines the last two years of a BSN program with an MSN program.
Program length: Three years
• Direct-entry master’s degree: Qualified applicants with a non-nursing bachelor’s or graduate degree may pursue a direct-entry graduate nursing program. It counts existing college credits, especially those earned in STEM courses, toward the MSN. Students must take a condensed BSN curriculum for a year, pass the NCLEX-RN, and earn an RN license before advancing to the MSN part of the program.
Program length: 18 to 36 months
• Dual master’s degree: RNs pursuing advanced leadership roles such as nursing administrator or clinical informatics manager, can pursue a dual master’s degree program, such as an MSN/MBA. The degree combines business, nursing practice, and administration.
Program length: Three to four years
Doctor of Nursing Practice
A Doctor of Nursing Practice (DNP) degree is for nurses who seek the highest level of expertise and leadership in the field. These nurses work to influence health-care outcomes through leadership, health policy implementation, and direct patient care. They often work in nurse management, organizational leadership, and health policy, or in health informatics systems functioning as nurse midwives, nurse anesthetists, and nurse practitioners.
To earn a DNP, a nurse must have a license as an RN and an MSN or more advanced degree, or they must hold a BSN and master’s degree in another discipline.
Number of credit hours required: 33 to 43 and at least 500 clinical practice hours
Program length: One to two years of full-time coursework or two to three years of part-time coursework
There are multiple pathways to becoming an RN, and depending on the program you opt for, you can become an RN in one year, two years, or four years.
In one year: you can become an RN by earning a nursing diploma from an accredited school
In two years: you can become an RN by earning an ADN
In four-years: you can become an RN by earning a BSN degree
In each case, after earning your degree, you will need to take and pass the NCLEX-RN exam and then obtain a nursing license in your state before you can start working as an RN.
How Long to Become a Nurse Practitioner?
If you’re thinking about a more specialized or advanced degree, you might be interested in becoming a nurse practitioner (NP). NPs have many professional responsibilities, including assessing and diagnosing patients, creating treatment plans, and prescribing medication.
NPs must have either a master’s or doctoral degree in nursing. That means it takes between six to eight years of schooling to become a licensed nurse practitioner.
The Cost of Nursing School
As you’re thinking about a nursing school timeline, you’ll also want to consider the cost of earning your degree. The average cost of nursing school is approximately $30,884 annually for a four-year BSN degree.
Fortunately, there are options to help nursing students afford their schooling, including federal student loans, scholarships and grants, and private student loans. Be sure to fill out the Free Application for Federal Student Aid (FAFSA) to see what you qualify for.
Also, keep in mind that there are ways to make paying your student loans more manageable, including income-driven repayment plans for federal student loans, loan repayment assistance programs offered by various states and organizations, and student loan refinancing.
When you refinance student loans, you replace your current loans with a new loan from a private lender such as a bank, credit union, or online lender. Ideally, the new loan will have a lower interest rate and more favorable loan terms.
If you can secure a lower interest rate, refinancing student loans to save money may make sense for you to help pay for nursing school. Be sure to explore all your options.
How long nursing school takes to complete depends on your career goals. It generally takes just one year for a nursing diploma, but it can take as long as eight years for a doctoral degree. Think carefully about the program and career path that makes the most sense for you.
Nursing school can be expensive, and many students use federal student loans to help pay for it. They might also fill any funding gaps with private student loans.
Looking to lower your monthly student loan payment? Refinancing may be one way to do it — by extending your loan term, getting a lower interest rate than what you currently have, or both. (Please note that refinancing federal loans makes them ineligible for federal forgiveness and protections. Also, lengthening your loan term may mean paying more in interest over the life of the loan.) SoFi student loan refinancing offers flexible terms that fit your budget.
With SoFi, refinancing is fast, easy, and all online. We offer competitive fixed and variable rates.
FAQs
How many years is nursing school?
The nursing school timeline depends on the type of degree you pursue. If you’d like to become a licensed practical nurse (LPN), which is called a licensed vocational nurse (LVN) in some states, it can take just one year to meet all the requirements. However, if you want to earn a bachelor of science in nursing degree (BSN), it typically takes four years, while a doctoral degree (DNP) can take up to eight years.
What is the shortest schooling for nursing?
The quickest way to become a nurse is to earn a licensed practical nurse (LPN)/licensed vocational nurse (LVN) degree, which generally takes one year to complete. However, the degree doesn’t necessarily offer as many opportunities for career advancement. Typically, the more education you have, and the more advanced the degree, the better your chances to move up in your career and earn a higher salary. Explore the different degrees, types of nurses, and schooling options to determine what is the best fit for you.
Is nursing school hard?
Nursing school is rigorous and demanding. It requires you to take challenging classes like physiology, pharmacology, and ethics. In addition, clinical rotations require working with patients in health-care scenarios, where you’ll juggle multiple responsibilities. You’ll also have to take and pass the National Council Licensure Examination (NCLEX) to get your license to practice.
Photo credit: iStock/FatCamera
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SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.
Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.
Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
Many people figure that paying bank fees is simply an unavoidable part of life. Recent surveys say the average American shells out anywhere from $167 to $288 per year in fees. But take note: Some or even all of those may be avoidable.
For many financial institutions, fees are a way that banks make money. They can help cover the cost of being in business, and they can also cover situations that require more of their team’s time (say, dealing with an overdrafted account).
However, these charges can become expensive for many customers, and they can eat away at any interest earned. That can foil a customer’s efforts to grow their wealth.
Next, learn about the specific fees that many banks assess and how you can lower or avoid them.
Costs vary by institution. Checking accounts may also charge other fees, including account inactivity fees, early account closure fees, check ordering fees, and debit card replacement fees. Before opening a new bank account, always read the fee schedule closely.
Key Points
• Some checking accounts charge fees which can eat away at your money on deposit.
• Strategies to avoid fees include maintaining minimum balances, using in-network ATMs, meeting direct deposit or debit card usage requirements, or choosing a fee-free bank.
• Monthly maintenance fees can often range from $5 to $12.
• Nonsufficient funds (NSF) fees average $17.72, while overdraft fees, averaging $27 in 2024, should be capped at $5 as of October 2025.
• Out-of-network ATM fees average $4.77, while paper statements cost about $2 per month.
1. Monthly Maintenance Fees
Average monthly maintenance fee: $5 to $15
One of the most ubiquitous fees banks charge for checking and savings accounts is the monthly maintenance or service fee. This is a fee you pay each month to cover the cost of account management and customer service. These fees typically run between $5 and $15 per month and are usually automatically deducted from your account.
How to avoid monthly maintenance fees: Some banks offer account holders ways to get these monthly service fees waived. Common waiver requirements include: maintaining a certain minimum monthly balance, completing a certain number of debit card transactions per month, or receiving a specified amount of money via direct deposit for each statement period.
2. ATM Fees
Average out-of-network ATM fee: $4.73
Both traditional and online-only banks typically offer a network of ATMs where you can make deposits and withdrawals free of charge. If you deposit or withdraw money at an ATM outside your bank’s network, however, the bank will typically charge you am atm fee. On top of that, the owner of the ATM will likely also tack on a charge. On average, total combined ATM fees run close to $5.
How to avoid ATM fees: To reduce how much you could pay in ATM fees, planning ahead might help. You could research locations of in-network ATMs and only make withdrawals there. Or use an ATM that’s in-network to get cash before you go shopping or out to eat at a cash-only location so you don’t have to use whichever ATM is nearby.
Here’s another idea for avoiding ATM fees: Many grocery stores and some big box stores will let you get cash back when you make purchases there. This could be another way to circumvent ATM fees.
3. Overdraft Fees
Average overdraft fee: $26.61
How to avoid overdraft fees: Many banks offer overdraft protection as an add-on service. If you choose to opt in, the bank will allow transactions to go through, even if you don’t have sufficient funds in your account to cover them. Depending on the type of overdraft protection you sign up for, the bank may lend you the money to cover the overage, or they may pull funds from a linked account. This can avoid NSF fees, late fees, and bounced check fees, but can trigger an overdraft fee.
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4. Nonsufficient Funds (NSF) Fees
Average nonsufficient funds fee: $20
Nonsufficient funds (NSF) fees, also known as insufficient funds or returned item fees, can occur when a bank declines to make an electronic payment or cash a check that would bring your checking account to a negative balance. Instead, the transaction gets denied or returned unpaid and the bank will typically charge you an NSF fee (also known as a returned item fee). The average NSF fee is currently around $20.
If you don’t opt in to have overdraft protection on an account, banks typically decline, or bounce, the transaction if there aren’t enough funds to cover a transaction.
Besides the problems associated with a bounced check (that is, the payee not getting their funds), there is typically a returned item fee, averaging around $30 for each occurrence. And, unfortunately, sometimes a returned item fee can take an account balance to the point where another check may bounce, causing the situation to become increasingly worse.
How to avoid nonsufficient funds fees: Many banks allow you to sign up for text alerts that let you know when your balance has fallen below a certain level. When you get the alert, you can avoid making a debit card purchase that will overdraw your account. You can also quickly transfer funds to cover any impending automatic payments or outstanding checks.
5. Wire Transfer Fees
Average wire transfer fee: $20+ for domestic; $35+ for international
If you use your checking account to send or receive a wire transfer, you’ll typically pay a wire transfer fee. Fees vary by institution, but they are usually at least $20 for domestic transfers and $35 or more for international transfers. Some banks don’t charge you for incoming wire transfers (when someone sends you money), but others charge a wire transfer fee whether you are sending or receiving funds.
How to avoid wire transfer fees: A few ideas on avoiding these fees, if your financial institution charges them: Ask your bank if they will waive the surcharge; in some cases, they may. Use a payment service like Zelle, or, if you often make and receive international payments, you might look into getting a multicurrency or foreign currency bank account.
6. Inactivity Fees
Average inactivity fee: $5-$20
If you have a bank account that you don’t use often, you might get charged what’s known as an inactivity fee or a dormancy if it sits untouched for a while. There are varying state laws that specify when a bank must turn dormant funds over to the state, as a form of unclaimed funds. Dormancy fees try to trigger account holders into action so that this handoff of funds to the government doesn’t happen.
Inactivity fees can typically range from $5 to $20, and the amount of time that must elapse before they are assessed will vary.
How to avoid inactivity fees: To avoid these fees, it’s wise to only have as many accounts as you can frequently manage. If you have an account you barely use, it can be a smart move to close it and transfer any funds to an active account.
7. International Transactions Fees
Average international transaction fee: 1% to 3% of the transaction amount
If you travel outside of the U.S. and use your debit card to make a purchase or withdraw funds at an ATM, you may get hit with an international (or foreign) transaction fee. These fees are typically up to 3% of the purchase or withdrawal amount.
How to avoid international transaction fees: To help mitigate or avoid these bank fees (especially if you are a frequent traveler), you could check with your bank to see if it charges these fees. If it does, you might consider opening an account at a financial institution that doesn’t.
Also, perhaps your bank has affiliate banks in regions where you’re traveling, and you could withdraw from those ATMs without paying the additional international fees. You could also ask if your bank reimburses fees that you’ve paid.
You could exchange US dollars to foreign currency before you leave the country, perhaps eliminating the need for ATM withdrawals while traveling. Your bank might do this with no fees. However, then you do risk loss or theft of your funds.
Many banks have shifted to e-statements in an effort to reduce waste and save on printing and mailing costs. If you choose to receive paper statements for your checking account, you may get hit with a monthly surcharge, which is often around $2.
How to avoid paper statement fees: Switching to electronic statements can help you avoid monthly paper statement fees. Banks typically allow you to sign up for this option through their online banking platforms. If you prefer a paper format, you can always print out your e-statements.
How Are Checking Account Fees Changing Over Time?
Along with the rising cost of many consumer goods and services, many checking account fees have also increased in recent years. This includes monthly account maintenance fees and ATM fees, along with higher balances required to avoid the fees. But there is some good news: Two common checking account fees — overdraft and NSF fees — have been moving in the other direction.
According to Bankrate’s annual checking account and ATM fee study, the average overdraft fee in 2023 was $26.61, down 11% from $29.80 in the previous year. In that same time period, the average NSF fee dropped a full 25%, from $26.58 in 2022 to a record low of $19.94 in 2023.
Despite the drop in average amounts, overdraft and NSF fees are still charged by 91% percent of accounts and 70% of accounts, respectively, according to the survey.
The Takeaway
Many checking accounts charge fees for everything from keeping your account open to overdrafts to ATM usage. Fortunately, you can avoid many of these charges by keeping a certain minimum balance in your account, signing up for direct deposits, going paperless, or looking for a bank that charges lower, or no, fees for checking accounts.
Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their paycheck up to two days early.
Better banking is here with SoFi, NerdWallet’s 2024 winner for Best Checking Account Overall.* Enjoy up to 3.80% APY on SoFi Checking and Savings.
FAQs
Are there fees for checking accounts?
Yes, checking accounts often come with various fees, including monthly maintenance fees, overdraft fees, ATM fees, and fees for paper statements or nonsufficient funds. These fees vary by bank and can add up over time if you’re not careful. Some banks offer fee-free checking accounts, but these might have specific requirements like maintaining a minimum balance or setting up direct deposits.
How do you avoid checking account fees?
You may be able to avoid or minimize checking account fees by:
• Maintaining the required minimum balance
• Signing up for direct deposit
• Using your debit card a certain number of times per month
• Using in-network ATMs
• Opting for electronic statements
• Setting up low-balance alerts (to avoid overdraft and nonsufficient funds fees)
• Choosing a bank that offers fee-free checking accounts
What is the most common checking account fee?
The most common checking account fees include:
• Monthly maintenance fees (these may be avoidable by keeping a certain minimum balance or signing up for regular direct deposits).
• Fees for using out-of-network automatic teller machines (ATMs)
*Awards or rankings from NerdWallet are not indicative of future success or results. This award and its ratings are independently determined and awarded by their respective publications.
SoFi members with Eligible Direct Deposit activity can earn 3.80% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Eligible Direct Deposit means a recurring deposit of regular income to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government benefit payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Eligible Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below).
Although we do our best to recognize all Eligible Direct Deposits, a small number of employers, payroll providers, benefits providers, or government agencies do not designate payments as direct deposit. To ensure you're earning 3.80% APY, we encourage you to check your APY Details page the day after your Eligible Direct Deposit arrives. If your APY is not showing as 3.80%, contact us at 855-456-7634 with the details of your Eligible Direct Deposit. As long as SoFi Bank can validate those details, you will start earning 3.80% APY from the date you contact SoFi for the rest of the current 30-day Evaluation Period. You will also be eligible for 3.80% APY on future Eligible Direct Deposits, as long as SoFi Bank can validate them.
Deposits that are not from an employer, payroll, or benefits provider or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Eligible Direct Deposit activity. There is no minimum Eligible Direct Deposit amount required to qualify for the stated interest rate. SoFi members with Eligible Direct Deposit are eligible for other SoFi Plus benefits.
As an alternative to Direct Deposit, SoFi members with Qualifying Deposits can earn 3.80% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant. SoFi members with Qualifying Deposits are not eligible for other SoFi Plus benefits.
SoFi Bank shall, in its sole discretion, assess each account holder’s Eligible Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving an Eligible Direct Deposit or receipt of $5,000 in Qualifying Deposits to your account, you will begin earning 3.80% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Eligible Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.
SoFi Bank reserves the right to grant a grace period to account holders following a change in Eligible Direct Deposit activity or Qualifying Deposits activity before adjusting rates. If SoFi Bank grants you a grace period, the dates for such grace period will be reflected on the APY Details page of your account. If SoFi Bank determines that you did not have Eligible Direct Deposit activity or $5,000 in Qualifying Deposits during the current 30-day Evaluation Period and, if applicable, the grace period, then you will begin earning the rates earned by account holders without either Eligible Direct Deposit or Qualifying Deposits until SoFi Bank recognizes Eligible Direct Deposit activity or receives $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Eligible Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Eligible Direct Deposit.
Separately, SoFi members who enroll in SoFi Plus by paying the SoFi Plus Subscription Fee every 30 days can also earn 3.80% APY on savings balances (including Vaults) and 0.50% APY on checking balances. For additional details, see the SoFi Plus Terms and Conditions at https://www.sofi.com/terms-of-use/#plus.
Members without either Eligible Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, or who do not enroll in SoFi Plus by paying the SoFi Plus Subscription Fee every 30 days, will earn 1.00% APY on savings balances (including Vaults) and 0.50% APY on checking balances.
Interest rates are variable and subject to change at any time. These rates are current as of 1/24/25. There is no minimum balance requirement. Additional information can be found at http://www.sofi.com/legal/banking-rate-sheet.
We do not charge any account, service or maintenance fees for SoFi Checking and Savings. We do charge a transaction fee to process each outgoing wire transfer. SoFi does not charge a fee for incoming wire transfers, however the sending bank may charge a fee. Our fee policy is subject to change at any time. See the SoFi Checking & Savings Fee Sheet for details at sofi.com/legal/banking-fees/. 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, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.
What’s the Difference Between a 403(b) and a Roth IRA?
A 403(b) and a Roth IRA account are both tax-advantaged retirement plans, but they are quite different — especially regarding the amount you can contribute annually, and the tax implications for each.
Generally speaking, a 403(b) allows you to save more, and your taxable income is reduced by the amount you contribute to the plan (potentially lowering your tax bill). A Roth IRA has much lower contribution limits, but because you’re saving after-tax money, it grows tax free — and you don’t pay taxes on the withdrawals.
In some cases, you may not need to choose between a Roth IRA vs. a 403(b) — the best choice may be to contribute to both types of accounts. In order to decide, it’s important to consider how these accounts are structured and what the rules are for each.
Comparing How a 403(b) and a Roth IRA Work
When it comes to a 403(b) vs Roth IRA, the two are very different.
A 403(b) account is quite similar to a 401(k), as both are tax-deferred types of retirement plans and have similar contribution limits. A Roth IRA, though, follows a very different set of rules.
403(b) Overview
Similar to a 401(k), a 403(b) retirement plan is a tax-deferred account sponsored by an individual’s employer. An individual may contribute a portion of their salary and also receive matching contributions from their employer.
An employee’s contributions are deducted — this is known as a salary reduction contribution and deposited in the 403(b) pre-tax, where they grow tax-free, until retirement (which is why these accounts are called “tax deferred”). Individuals then withdraw the funds, and pay ordinary income tax at their current rate.
Although 403(b) accounts share some features with 401(k)s, there are some distinctions.
Eligibility
The main difference between 403(b) and 401(k) accounts is that 401(k)s are offered by for-profit businesses and 403(b)s are only available to employees of:
• Public schools, including public colleges and universities
• Churches or associations of churches
• Tax-exempt 501(c)(3) charitable organizations
Early Withdrawals
Typically, individuals face a 10% penalty if they withdraw their money before age 59 ½. Exceptions apply in some circumstances. Be sure to consult with your plan sponsor about the rules.
Contribution Limits and Rules
There are also some different contribution rules for 403(b) accounts. The cap for a 403(b) is the same as it is for a 401(k): $23,000 in 2024 and $23,500 in 2025. And if you’re 50 or older you can also make an additional catch-up contribution of up to $7,500 in 2024 and 2025. (In 2025, those aged 60 to 63 can contribute an extra $11,250, instead of $7,500.)
In the case of a 403(b), though, if it’s permitted by the 403(b) plan, participants with at least 15 years of service with their employer can make another catch-up contribution above the annual limit, as long as it’s the lesser of the following options:
• $15,000, reduced by the amount of employee contributions made in prior years because of this rule
• $5,000, times the number of years of service, minus the employee’s total contributions from previous years
• $3,000
The wrinkle here is that if you’re over 50, and you have at least 15 years of service, you must do the 15-year catch-up contribution first, before you can take advantage of the 50-plus catch-up contribution of up to $7,500.
Roth IRA Overview
Roth IRAs are different from tax-deferred accounts like 403(b)s, 401(k)s, and other types of retirement accounts. With all types of Roth accounts — including a Roth 401(k) and a Roth 403(b) — you contribute after-tax money. And when you withdraw the money in retirement, it’s tax free.
Eligibility
Unlike employer-sponsored retirement plans, Roth IRAs fall under the IRS category of “Individual Retirement Arrangements,” and thus are set up and managed by the individual. Thus, anyone with earned income can open a Roth IRA through a bank, brokerage, or other financial institution that offers them.
• For 2024, if you’re married filing jointly, you can contribute the maximum to a Roth if your modified adjusted gross income (MAGI) is less than $230,000. If your income is between $230,000 and $240,000 you can contribute a reduced amount.
• For single filers in 2024, your income must be less than $146,000 to contribute the maximum to a Roth, with reduced contributions up to $161,000.
• For 2025, if you’re married filing jointly, you can contribute the maximum to a Roth if your modified adjusted gross income (MAGI) is less than $236,000. If your income is between $236,000 and $246,000 you can contribute a reduced amount.
• For single filers in 2025, your income must be less than $150,000 to contribute the maximum to a Roth, with reduced contributions up to $165,000.
Get a 1% IRA match on rollovers and contributions.
Double down on your retirement goals with a 1% match on every dollar you roll over and contribute to a SoFi IRA.1
1Terms and conditions apply. Roll over a minimum of $20K to receive the 1% match offer. Matches on contributions are made up to the annual limits.
Roth 403(b) vs Roth IRA: Are They the Same?
No. A Roth 403(b) does adhere to the familiar Roth structure — the individual makes after-tax contributions, and withdraws their money tax free in retirement — but otherwise these accounts are similar to regular 403(b)s.
• The annual contribution limits are the same: $23,000 with a catch-up contribution of $7,500 for those 50 and older for 2024; $23,500 with a catch-up contribution of $7,500 for those 50 and older for 2025 ($11,250 instead of $7,500, in 2025, for those aged 60 to 63).
• There are no income limits for Roth 403(b) accounts.
Also, a Roth 403(b) is like a Roth 401(k) in that both these accounts are subject to required minimum distribution rules (RMDs), whereas a regular Roth IRA does not have RMDs.
One possible workaround: You may be able to rollover a Roth 403(b)/401(k) to a Roth IRA — similar to the process of rolling over a regular 401(k) to a traditional IRA when you leave your job or retire.
That way, your nest egg wouldn’t be subject to 401(k) RMD rules.
Finally, another similarity between Roth 403(b) and 401(k) accounts: Even though the money you deposit is after tax, any employer matching contributions are not; they’re typically made on a pre-tax basis. So, you must pay taxes on those matching contributions and earnings when taking retirement withdrawals. (It sounds like a headache, but your employer deposits those contributions in a separate account, so it’s relatively straightforward to know which withdrawals are tax free and which require you to pay taxes.)
💡 Quick Tip: Investment fees are assessed in different ways, including trading costs, account management fees, and possibly broker commissions. When you set up an investment account, be sure to get the exact breakdown of your “all-in costs” so you know what you’re paying.
Which Is Better, a 403(b) or Roth IRA?
It’s not a matter of which is “better” — as discussed above, the accounts are quite different. Deciding which one to use, or whether to combine both as part of your plan, boils down to your tax and withdrawal strategies for your retirement.
To make an informed decision about which retirement plan is right for you, it can be helpful to conduct a side-by-side comparison of both plans. This chart breaks down some of the main differences, giving you a better understanding of these types of retirement plans, so that you can weigh the pros and cons of a Roth IRA vs. 403(b).
403(b)
Roth IRA
Who can participate?
Employees of the following types of organizations:
• Public school systems, if involved in day-to-day operations
• Public schools operated by Indian tribal governments
• Cooperative hospitals and
• Civilian employees of the Uniformed Services University of the Health Sciences
• Certain ministers and chaplains
• Tax-exempt charities established under IRC Section 501(c)(3)
Individuals earning less than the following amounts:
• Single filers earning less than $146,000 for 2024 (those earning $146,000 or more but less than $161,000 may contribute a reduced amount)
• Married joint filers earning less than $230,000 for 2024 (those earning $230,000 or more but less than $240,000 may contribute a reduced amount)
• Single filers earning less than $150,000 for 2025 (those earning $150,000 or more but less than $165,000 may contribute a reduced amount)
• Married joint filers earning less than $236,000 for 2025 (those earning $236,000 or more but less than $246,000 may contribute a reduced amount)
Are contributions tax deductible?
Yes
No
Are qualified distributions taxed?
Yes
No (if not qualified, distribution may be taxable in part)
Annual individual contribution limit
$23,000 for 2024 (plus catch-up contributions of $7,500 for those 50 and older)
$23,500 for 2025 (plus catch-up contributions up to $7,500 for those age 50 and older; $11,250 instead of $7,500 for those aged 60 to 63)
$7,000 for 2024 (individuals 50 and older may contribute $8,000)
$7,000 for 2025 (individuals 50 and older may contribute $8,000)
Are early withdrawals allowed?
Depends on individual plan terms and may be subject to a 10% penalty
Yes, though account earnings may be subject to a 10% penalty if funds are withdrawn before account owner is 59 ½
Plan administered by
Employer
The individual’s chosen financial institution
Investment options
Employee chooses based on investments available through the plan
Up to the individual, though certain types of investments (collectibles, life insurance) are prohibited
Fees
Varies depending on plan terms and investments
Varies depending on financial institution and investments
Portability
As with other employee-sponsored plans, individual must roll their account into another fund or cash out when switching employers
Yes
Subject to RMD rules
Yes
No
Pros and Cons of a 403(b) and a Roth IRA
There are positives to both a 403(b) and a Roth IRA — and because it’s possible for qualified individuals to open a Roth IRA and a 403(b), some people may decide that their best strategy is to use both. Here’s a side-by-side comparison of a 403(b) vs. a Roth IRA:
403(b)
Roth IRA
Pros
• Contributions are automatically deducted from your paycheck
• Earning less during retirement may mean an individual pays less in taxes
• Employer may offer matching contributions
• Higher annual contribution limit than a Roth IRA
• More investment options to choose from
• Withdrawal of contributions are not taxed; withdrawal of earnings are not taxed under certain conditions and/or after age 59 ½
• Account belongs to the owner
Cons
• May have limited investment options
• May charge high fees
• There may be a 10% penalty on funds withdrawn before age 59 ½
• Has an income limit
• Maximum contribution amount is low
• Contributions aren’t tax deductible
Pros of 403(b)
• Contributions are automatically deducted by an employer from the individual’s paycheck, which can make it easier to save.
• If an individual earns less money annually in retirement than during their working years, deferring taxes may mean they ultimately pay less in taxes.
• Some employers offer matching contributions, meaning for every dollar an employee contributes, the employer may match some or all of it, up to a certain percentage.
• Higher annual contribution limit than a Roth IRA.
Pros of Roth IRAs
• Individuals can invest with any financial institution and thus will likely have many more investment options when opening up their Roth IRA.
• Withdrawal of contributions are not taxed; withdrawal of earnings are not taxed under certain conditions and/or after age 59 ½.
• Account belongs to the owner and is not affected if the individual changes jobs.
There are also some disadvantages to both types of accounts, however.
💡 Quick Tip: How much does it cost to set up an IRA? Often there are no fees to open an IRA, but you typically pay investment costs for the securities in your portfolio.
Cons of 403(b)s
• There are limited investment options with 403(b)s.
• Some 403(b) plans charge high fees.
• Individuals typically pay a 10% penalty on funds withdrawn before age 59 ½. However, there may be some exceptions under the rule of 55 for retirement.
Cons of Roth IRAs
• There’s an income limit to a Roth IRA, as discussed above.
• The maximum contribution amount is fairly low.
• Contributions are not tax deductible.
Choosing Between a Roth IRA and 403(b)
When considering whether to fund a 403(b) account or a Roth IRA, there’s no right choice, per se — the correct answer boils down to which approach works for you. You might prefer the automatic payroll deductions, the ability to save more, and, if it applies, the employer match of a 403(b).
Or you might gravitate toward the more independent setup of your own Roth IRA, where you have a wider array of investment options and greater flexibility around withdrawals (Roth contributions can be withdrawn at any time, although earnings can’t).
Or it might come down to your tax strategy: It may be more important for you to save in a 403(b), and reduce your taxable income in the present. Conversely, you may want to contribute to a Roth IRA, despite the lower contribution limit, because withdrawals are tax free in retirement.
Really, though, it’s possible to have the best of both worlds by investing in both types of accounts, as long as you don’t exceed the annual contribution limits.
Investing With SoFi
Because 403(b)s and Roth IRAs are complementary in some ways (one being tax-deferred, the other not), it’s possible to fund both a 403(b) and a Roth IRA.
Ready to invest for your retirement? It’s easy to get started when you open a traditional or Roth IRA with SoFi. SoFi doesn’t charge commissions, but other fees apply (full fee disclosure here.)
Easily manage your retirement savings with a SoFi IRA.
FAQ
Which is better: a 403(b) or a Roth IRA?
Neither plan is necessarily better. A 403(b) and a Roth IRA are very different types of accounts. A 403(b) has automatic payroll deductions, the possibility of an employer match, and your contributions are tax deductible. A Roth IRA gives you more control, a greater choice of investment options, and the ability to withdraw contributions (but not earnings) now, plus tax free withdrawals in retirement. It can actually be beneficial to have both types of accounts, as long as you don’t exceed the annual contribution limits.
Should you open a Roth IRA if you have a 403(b)?
You can open a Roth IRA if you have a 403(b). In fact it may make sense to have both, since each plan has different advantages. You may get an employer match with a 403(b), for instance, and your contributions are tax deductible. A Roth IRA gives you more investment options to choose from and tax-free withdrawals in retirement. In the end, it really depends on your personal financial situation and preference. Be sure to weigh all the pros and cons of each plan.
When should you convert your 403(b) to a Roth IRA?
If you are leaving your job or you’re at least 59 ½ years old, you may want to convert your 403(b) to a Roth IRA to avoid taking the required minimum distributions (RMDs) that come with pre-tax plans starting at age 73. However, because you are moving pre-tax dollars to a post-tax account, you’ll be required to pay taxes on the money. Speak to a financial advisor to determine whether converting to a Roth IRA makes sense for you and ways you may be able to minimize your tax bill.
SoFi Invest®
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