Jul
16
2025
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Should You Use Your 401(k) as a First-Time Home Buyer?

By | Growing Wealth, Investing, Preparing for Retirement | Comments Off on Should You Use Your 401(k) as a First-Time Home Buyer?

There are two options if you want to use your 401(k) to buy a house and not incur a penalty: a 401(k) loan or a hardship withdrawal. These options come with many rules and restrictions — and given the potential risk to your retirement savings, it’s wise to consider some alternatives.

Among the requirements: If you borrow money from your 401(k) to buy a primary residence, you’d have to pay back that loan with interest. If you take what’s known as a hardship withdrawal for a down payment on your principal residence, you have to meet the strict IRS criteria for “immediate and heavy financial need” for doing so.

You won’t owe tax on a 401(k) loan, but it generally must be repaid within five years. A hardship withdrawal (if you qualify) still requires that you pay income tax on the withdrawal. In addition, every workplace plan is different and may have different rules.

Before you consider using your 401k to buy a home, which could permanently reduce your retirement savings, explore alternatives like withdrawing funds from a traditional or Roth IRA, seeking help from a Down Payment Assistance Program (DAP), or seeing if you qualify for other types of home loans.

Key Points

•   Many 401(k) plans allow employees to withdraw funds, but an early withdrawal, i.e., before age 59 ½ , comes with a 10% penalty (on top of income tax).

•   If your plan allows it, you may avoid the 10% penalty by taking a 401(k) loan or a hardship withdrawal (assuming you meet strict IRS requirements).

•   You don’t have to repay a hardship withdrawal, but you will owe income tax on the amount you withdraw.

•   Taking out a 401(k) loan may be easier than borrowing from a bank, but the loan typically must be repaid within five years, or you could owe tax and a penalty.

•   Before using your 401(k) to help buy a house, consider the serious impact it might have on your retirement savings.

Can You Use a 401(k) to Buy a House?

A 401(k) is generally a type of employer-sponsored retirement plan, which you may be able to manage through the plan sponsor’s website (similar to investing online).

If your employer plan allows it, you can use your 401(k) to help buy a house, and it won’t be seen as an early 401(k) withdrawal with a 10% penalty. Here’s what you need to know.

2 Ways to Use Your 401(k) to Buy a House

There are only two ways you can use a 401(k) to buy a house, penalty free. Note that the following rules generally apply to other employer-sponsored plans as well, like a 403(b) or 457(b). But all retirement plans have different rules, so be sure to check the terms.

•   401(k) loan. If your plan allows you to borrow from your 401(k) to buy a house, you’ll avoid the 10% early withdrawal penalty, and you won’t owe tax on the loan. But you must repay the loan to yourself, plus interest.

•   Hardship withdrawal. If you’re under 59 ½, you may be able to take out a hardship withdrawal without incurring a 10% penalty, but only if you meet specific IRS requirements for “an immediate and heavy financial need.”

There are several conditions that qualify as a hardship, one of them is for the purchase of a primary residence, but not a second home.

You’ll owe income tax on a hardship withdrawal, regardless of the circumstances.

How Much of Your 401(k) Can Be Used for a Home Purchase?

The amount you can take out of a 401(k) depends on the method you use.

•   401(k) loan. You can generally borrow up to 50% of your vested balance, up to $50,000, whichever amount is less. If 50% of your vested balance is less than $10,000, you may be able to borrow up to $10,000.

Note that after you open an IRA, the rules for taking a withdrawal from these individual retirement accounts are different. You cannot take a loan from an IRA, for example. But you may be able to take an early withdrawal for a first-time home purchase, which is discussed below.

•   Hardship withdrawal. The limits on hardship withdrawals can be determined by your specific plan, but these withdrawals are generally limited to the amount needed to cover the financial hardship in question, plus the necessary taxes.

Depending on plan rules, a hardship withdrawal may include your elective contributions (savings) as well as earnings on those deposits. But in some cases you’re not allowed to withdraw earnings.

First-time homebuyers can
prequalify for a SoFi mortgage loan,
with as little as 3% down.

How a 401(k) Loan Works

It’s possible to take a loan from an existing 401(k), and in some ways this option may seem easier. Chiefly, borrowing from a 401(k) doesn’t come with the same level of credit scrutiny as taking out a conventional bank loan, and interest rates can be favorable as well.

Your employer generally sets the rules for 401(k) loans, but you typically must pay back the loan, with interest, within five years. If a person leaves their job before the loan is repaid, the balance owed could be deducted from the remainder of their 401(k) funds.

You don’t owe any income tax on a 401(k) loan. But you pay yourself interest to help offset the loss of investment growth, since the funds are no longer invested in the market. (Although having a 401(k) is different than a self-directed brokerage account, because it’s typically tax deferred, you do invest your savings in different investment options.)

You can take out a 401(k) loan for a few different reasons (e.g., qualified educational expenses, medical expenses), depending on your plan’s policies. Those using a loan to purchase a residence may have more than five years to pay back the loan.

How a 401(k) Hardship Withdrawal Works

While it’s possible to withdraw funds from your 401(k) and most other employer-sponsored plans at any time, if you do so before age 59 ½ it’s considered an early withdrawal. And though you’d owe income tax on any 401(k) withdrawal, in the case of an early withdrawal, you’d also face a 10% penalty.

There are some exceptions to the 10% penalty, one of which is for a hardship withdrawal.

In the case of an “immediate and heavy financial need,” the IRS may permit a 401(k) hardship withdrawal under specific circumstances — including for the purchase of a primary residence. Hardship withdrawals do not cover mortgage payments, but using a 401(k) for a down payment may be allowed.

Generally, the allowable amount of the hardship withdrawal is determined by the circumstances, plus applicable taxes.

The IRS has strict rules about qualifying for a hardship withdrawal. If you don’t meet them, the funds you withdraw will be subject to income tax and a 10% early withdrawal penalty. And unlike a 401(k) loan, you can’t repay the amount you withdraw, so you permanently lose that chunk of your nest egg.

Pros and Cons of Using a 401(k) to Buy a House

Here are the pros and cons of using a hardship withdrawal or a 401(k) loan, at a glance:

Pros of Using a Hardship Withdrawal
Cons of Using a Hardship Withdrawal
If you qualify, a hardship withdrawal can provide quick access to funds for a home purchase in an emergency, without a penalty. A hardship withdrawal cannot be repaid, so the money you withdraw permanently depletes your nest egg.
A hardship withdrawal isn’t a loan, so it doesn’t have to be repaid. You owe ordinary income tax on the amount of the withdrawal.
If you don’t qualify for a hardship withdrawal, and you’re under 59 ½, it’s considered an early withdrawal and would be subject to income tax and a 10% penalty.
Pros of Using a 401(k) Loan
Cons of Using a 401(k) Loan
When using a 401(k) loan, individuals repay themselves, so they don’t owe interest to a bank or other institution. Because the loan lowers your account balance, your nest egg sees less growth.
You don’t pay a penalty or tax on a 401(k) loan, as long as you repay the loan as required. You must repay the loan with interest, typically within five years, or you’ll owe tax and penalties.
You don’t have to meet any credit requirements, and interest rates on 401(k) loans may be lower than for conventional loans. If a person leaves their job before the loan is repaid, the balance owed could be deducted from the remainder of their 401(k) funds. For those under 59 ½, the amount of the offset would also be considered a distribution and the borrower would likely owe taxes and a 10% penalty.
If you miss payments or default on a 401(k) loan, it will not impact your credit score. In some cases, your plan may not permit you to continue contributing to your 401(k) during the time that you’re repaying the loan — which can dramatically impact your retirement savings over time.

What Are the Rules & Penalties for Using 401(k) Funds to Buy a House?

Here’s a side-by-side look at some key differences between taking out a 401(k) loan versus taking a hardship withdrawal from a 401(k). Bear in mind that all employer-sponsored plans have their own rules, so be sure to understand the terms.

401(k) loans
401(k) withdrawals

•   May or may not be allowed by the 401(k) plan.

•   Relatively easy to obtain, no credit score required, versus conventional loans.

•   Qualified loans are penalty free and tax free, unless the borrower defaults or leaves their job before repaying the loan.

•   You must repay the loan with interest within a specified period. The interest is also considered tax deferred until you retire.

•   If the borrower doesn’t repay the loan on time, the loan is treated as a regular distribution (a.k.a. withdrawal), and subject to taxes and an early withdrawal penalty of 10%.

•   The maximum loan amount is 50% of the vested account balance, or $50,000, whichever is less. (If the vested account balance is less than $10,000, the maximum loan amount is $10,000.)

•   May or may not be allowed by the 401(k) plan.

•   Funds are relatively easy to access, assuming you meet the IRS standards for a hardship withdrawal.

•   If you meet IRS criteria, you may avoid the 10% penalty normally incurred by an early withdrawal.

•   You will owe income tax on the amount of the withdrawal.

•   Withdrawals cannot be repaid, so your account is permanently depleted.

•   With a hardship withdrawal, you can withdraw only enough to cover the immediate expense (e.g., a down payment, not mortgage payments), plus taxes to cover the withdrawal.

What Are the Alternatives to Using a 401(k) to Buy a House?

For some homebuyers, there may be other, more attractive options for securing a down payment instead of taking money out of a 401(k) to buy a house, depending on their situation. Here are a few of the alternatives.

Withdrawing Money From a Traditional or Roth IRA

Using a traditional or a Roth IRA to help buy a first home can be an alternative to borrowing from a 401(k) that might be beneficial for some home buyers, because you may be able to avoid the 10% penalty.

If you’re at least 59 ½, you can take a withdrawal from a traditional or Roth IRA without incurring a penalty. You will owe tax on money from a traditional IRA account, but not from a Roth IRA, as long as you’ve had the account for five years.

If you’re under 59 ½, you could face a 10% early withdrawal penalty. One exception is that a first-time home buyer can borrow up to $10,000 from an IRA without incurring a penalty. But the tax treatment differs according to the type of IRA.

•   Traditional IRA. A withdrawal for a first-time home purchase may be penalty free, but you will owe tax on the amount you withdraw.

•   Roth IRA. Contributions (i.e., deposits) can be withdrawn at any time, tax free. But earnings on contributions can only be withdrawn without a penalty starting at age 59 ½ or older, as long as you’ve held the Roth account for at least five years (a.k.a. the Roth five-year rule).

After the account has been open for five years, Roth IRA account holders who are buying their first home are allowed to withdraw up to $10,000 with no taxes or penalties. The $10,000 is a lifetime limit for a first-time home purchase, for both a traditional and a Roth IRA.

IRA funds can be used to help with the purchase of a first home not only for the account holders themselves, but for their children, parents, or grandchildren.

One important requirement to note is that time is of the essence when using an IRA to purchase a first home: The funds have to be used within 120 days of the withdrawal.

Low- and No-Down-Payment Home Loans

There are certain low- and no-down-payment home loans that homebuyers may qualify for that they can use instead of using a 401(k) for a first time home purchase. This could allow them to secure the down payment for a first home without tapping into their retirement savings.

•   FHA loans are insured by the Federal Housing Administration and allow home buyers to borrow with few requirements. Home buyers with a credit score lower than 580 qualify for a government loan with 10% down, and those with credit scores higher than 580 can get a loan with as little as 3.5% down.

•   Conventional 97 loans are Fannie Mae-backed mortgages that allow a loan-to-value ratio of up to 97% of the cost of the loan. In other words, the home buyer could purchase a house for $400,000 and borrow up to $388,000, leaving only a down payment requirement of 3%, or $12,000, to purchase the house.

•   VA loans are available for U.S. veterans, active duty members, and surviving spouses, and they require no down payment or monthly mortgage insurance payment. They’re provided by private lenders and banks and guaranteed by the United States Department of Veterans Affairs.

•   USDA loans are a type of home buyer assistance program offered by the U.S. Department of Agriculture to buy or possibly build a home in designated rural areas with an up-front guarantee fee and annual fee. Borrowers who qualify for USDA loans require no down payment and receive a fixed interest rate for the lifetime of the loan. Eligibility requirements are based on income, and vary by region.

Other Types of Down Payment Assistance

For home buyers who are ineligible for no-down payment loans, there are a few more alternatives instead of using 401(k) funds:

•   Down Payment Assistance (DAP) programs offer eligible borrowers financial assistance in paying the required down payment and closing costs associated with purchasing a home. They come in the form of grants and second mortgages, are available nationwide, can be interest-free, and sometimes have lower rates than the initial mortgage loan.

•   Certain mortgage lenders provide financial assistance by offering credits to cover all or some of the closing costs and down payment.

•   Gifted money from friends or family members can be used to cover a down payment or closing costs on certain home loans. As the recipient of the gift, you won’t owe taxes on the gift; the giver may have to pay a gift tax if the amount exceeds $19,000 for 2025.

Using Gift Funds for a Down Payment

By and large there are no restrictions on using gift funds — money given to you as a gift, not a loan — for a down payment on a home. The use of gift funds as part of a home buyer’s down payment has become more common, in fact. Nearly 40% of borrowers included some gift money as part of their downpayment, according to a 2023 survey by Zillow.

Gifts are allowed when applying for a conventional mortgage, as well as for Fannie Mae and FHA loans. In some cases, you may be required to provide a gift letter that documents that the money is a gift and not a loan. Again, the recipient generally doesn’t owe federal tax on a monetary gift, but the giver may owe a gift tax, depending on the amount.

How Using a 401(k) for a Home Purchase Affects Retirement Savings

Using your 401(k) money for anything but retirement has a very real down side, which is that it reduces the amount of money in your retirement account, even if that’s temporary, as it is with a 401(k) loan. As a result, you also lose out on any potential growth from your retirement investments.

With a 401(k) loan, you repay the amount of the loan with interest (and if you don’t you’ll owe taxes and penalties). Even so, you’ve depleted your account for a period of time, and, depending on the rules of your particular plan, you could be prohibited from making any contributions while you repay the loan.

The impact of a hardship withdrawal can be even more severe, because you’re not allowed to repay the amount you withdrew. So you lose a chunk of your savings, and you forgo the growth on that amount as well. In addition, some employer-sponsored plans may prohibit you from making contributions after taking a hardship withdrawal.

Impact on Long-Term Investment Growth

In other words, while there’s no 10% tax penalty for taking out a 401(k) loan or a hardship withdrawal, you do face a potential missed opportunity in that the amount you take out of the account is no longer invested in the market.

Thus, you lose out on any potential long-term investment growth — which can significantly cut into your potential retirement savings, when you think of the money you’re not earning, perhaps for many years.

The Takeaway

Generally speaking, a 401(k) can be used to buy a principal residence, either by taking out a 401(k) loan and repaying it with interest, or by making a 401(k) withdrawal (which is subject to income tax and a 10% withdrawal fee for people under age 59 ½).

If you meet the IRS criteria for a hardship withdrawal, though, you may avoid the 10% penalty, if your plan allows this option.

However, using a 401(k) for a home purchase is usually not advisable. Both qualified loans and hardship withdrawals have some potential drawbacks, including owing taxes and a penalty in some cases, and the potential to lose out on market growth on your savings. Fortunately, there are less risky options, as noted above. Making these choices depends on your financial situation and your goals, as well as your stomach for risk — especially where your future security is concerned.

Ready to invest in your goals? It’s easy to get started when you open an investment account with SoFi Invest. You can invest in stocks, exchange-traded funds (ETFs), mutual funds, alternative funds, and more. SoFi doesn’t charge commissions, but other fees apply (full fee disclosure here).

Invest with as little as $5 with a SoFi Active Investing account.

FAQ

What are the downsides of using a 401(k) to buy a house?

The main drawback of using funds from your 401(k), or any retirement account, is the potential loss of savings and investment earnings on that savings, which could substantially reduce your retirement nest egg.

When can you withdraw from a 401(k) without penalty?

If your plan permits a 401(k) loan, or if you qualify for a hardship withdrawal from your 401(k), you won’t be on the hook for a 10% penalty. But you would have to repay the loan with interest, and you would owe tax on the money taken for a hardship withdrawal.

Can you withdraw money from a 401(k) for a second house?

While it’s technically possible to withdraw money from a 401(k) for a second home, you would owe taxes and a 10% penalty on the amount you withdrew, so it’s not advisable.

How much can you take out of an individual IRA to buy a home?

You can withdraw up to $10,000 from an IRA for the purchase of a first home, but you would owe tax on that money (although you might avoid a 10% penalty).

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

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

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

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

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

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

SOIN-Q225-095

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Jul
16
2025

How to Set Up a College Fund

By | Going to College, Student Loans, student_loan | Comments Off on How to Set Up a College Fund

No doubt you’re aware that sending a child to college is expensive. The current cost of attending a private college is $58,628 per year for students who live on campus ($38,421 of it on tuition and fees), according to the Education Data Initiative. Public universities are generally more affordable, with tuition and fees averaging $9,750 per year (for in-state students) and $28,386 (for out-of-state students). But those numbers don’t include room and board.

As a parent, sometimes just thinking about the cost of college for your kid (or kids) can feel bleak. Fortunately, there are a number of college fund options that can make it easier to save a sizable sum by the time your child goes to college. Generally, the earlier you start, the better, but it’s never too late to get going. Read on for a closer look at how to set up the best type of college fund for your child.

Key Points

•   College tuition is increasingly expensive, with private institutions averaging over $58,000 annually and public universities varying widely based on residency and institution type.

•   Various college fund options, such as 529 plans and Coverdell Education Savings Accounts, offer tax advantages and help families save for educational expenses.

•   Scholarships, grants, and federal work-study programs provide financial assistance, while federal and private student loans can help cover remaining costs for higher education.

•   Parents may consider Direct PLUS Loans for additional funding, which have fixed interest rates but can be more costly than other federal loan options.

•   Starting a college savings plan early can significantly ease financial burdens, but it’s never too late to begin saving for a child’s education.

How to Set up College Funds: Getting Started

When it comes to setting up a college fund, there are a few savings plans and investment accounts that are specifically designed to help people save for their child’s education expenses. Here’s a closer look at your options.

529 Plans

529 plans, also known as qualified tuition plans, are named after an IRS code section and give parents the option to save for college in the name of a child while providing certain tax advantages.

There are two kinds of 529 plans: prepaid tuition plans and education savings plans.

Prepaid tuition plans let you buy future credits or course units at participating colleges or universities. These credits are used to help cover the cost of tuition for the beneficiary. Most prepaid tuition plans have residency requirements and are often sponsored by state governments.

Education savings plans are investment accounts that can be used to save for the beneficiary’s qualified education expenses. The funds can be used to pay for higher education or private elementary or high schools. A 529 plan allows your savings to grow tax-free, and some states even offer a tax deduction on your contributions.

If your child decides not to go to school, it’s possible to roll the account over into the name of another family member. If the funds aren’t used for education-related expenses, there may be taxes and penalties.

Generous family and friends can also contribute to a child’s college savings plan. They may choose to make deposits to an existing 529 account or set up one themselves, naming a beneficiary of their choosing.

Coverdell Education Savings Account

A Coverdell Education Savings Account (ESA) has more limitations but may work well for some families. Individuals who have a modified gross adjusted income (MAGI) that falls below $110,000 ($220,000 if married and filing jointly) may be eligible to save for college using a Coverdell Education Savings Account.

You can contribute up to $2,000 for a single beneficiary in a given year. Funds saved in this type of account can be used for eligible elementary and secondary expenses, in addition to higher education expenses. Contributions are made after taxes and must be made in cash. Typically, the funds can be withdrawn without a fee if they are used for qualified education expenses.

Recommended: Paying for College: A Parent’s Guide

The Uniform Gift to Minors Act (UGMA) Account

This custodial account allows your child to own stocks and mutual funds. The custodian still controls the account until the minor reaches legal age. Note that it’s not tax-free.

Annual contributions that exceed $19,000 ($38,000 for a married couple) may be subject to a gift tax. It’s possible that a UGMA may reduce the amount of financial aid eligibility. Additionally, there is no penalty should the funds not be used for education expenses.

Roth IRA

Although generally used for retirement savings, a Roth IRA can be used to pay for the cost of college. Contributions to Roth IRAs are made with after-tax dollars but earnings grow tax-free.

Generally, to make fee-free withdrawals from an IRA, the account holder needs to be at least 59 ½ years old. However, if you made the first contribution to your Roth IRA at least five years before, you can also withdraw the growth for qualified education expenses, including tuition, books, and supplies.

Keep in mind that while there may not be an early withdrawal fee, the earnings withdrawn may still be subject to income tax.

Easing the Financial Burden

Even after years of diligent saving, paying the full cost of college tuition isn’t affordable for some families. Fortunately, there are a few options to fill the gaps and help parents and students pay for college.

Students getting ready to start college or those who are already enrolled could look into options like scholarships, grants, or private student loans.

You’ll want to be sure to fill out the Free Application for Federal Student Aid (FAFSA®). This is the first step in qualifying for federal aid, including scholarships and grants, work-study, and federal student loans.

Scholarships

These can be a powerful asset when paying for college since it’s money that doesn’t have to be paid back.

Scholarships are typically merit-based and can be offered through a variety of different types of organizations like local nonprofits, corporations, or even sometimes directly from universities. There are a number of searchable scholarship databases that compile different scholarship opportunities.

Grants

In addition to scholarships, there are thousands of grants available to students. Grants are issued by the federal government, the Pell program, and individual states. Some are need-based, while others are merit-based. To find out if you qualify and to become eligible for grants, you need to fill out the FAFSA.

Work-Study Programs

The Federal Work-Study Program provides part-time jobs for undergraduate, graduate, and professional students with financial needs. These jobs allow them to earn money to help pay education expenses. To be eligible for work-study, you must fill out the FAFSA.

Student Loans

There are two types of student loans: federal and private. Federal student loans are awarded as a part of a student’s financial aid package and can either be subsidized or unsubsidized.

Subsidized Federal Student Loans

Subsidized student loans are awarded to eligible undergraduate students based on need. The federal government covers the interest on these loans during the time the student is in school at least half-time, during the six-month grace period after leaving school, and during deferment periods.

Unsubsidized Federal Student Loans

Unsubsidized student loans are not awarded based on financial need, and are available to both undergraduate and graduate students. Interest on these loans begins to accrue as soon as the loan is disbursed. If the borrower chooses not to pay the interest while in school, during grace periods, or while in deferment, the interest will be added to the loan principal.

Private Student Loans

Private student loans are available through private lenders, including banks, credit unions, and online lenders. Typically, for someone to get a private student loan, lenders will evaluate the borrower’s credit history, which isn’t the case with most federal student loans. This is why some borrowers rely on a cosigner to secure private student loans.

Many private student loans require payments while the student is still in school, but some do allow you to defer payments until after you graduate (interest will continue to accrue, however).

Recommended: Do I Need a Student Loan Cosigner?

An Alternative Way to Finance College

Some parents might consider taking out a parent-student loan to help their kids pay for college. The federal government makes Direct PLUS Loans available to parents and graduate students.

Parent PLUS Loan interest rates and fees are set by the Education Department and are higher than other types of federal student loans. The interest rate for the 2025-26 school year on a Direct PLUS Loan is 8.94% and is fixed for the life of the loan.

Some private lenders also offer parent student loans. Private parent loan interest rates can be fixed or variable and are based on the borrower’s creditworthiness. Private loans may offer lower rates than federal PLUS Loans for well-qualified applicants.

Recommended: Private Student Loans vs Federal Student Loans

The Takeaway

There’s no time like now to start saving for college. There are a variety of accounts that are specifically designed to help families save for their children’s future college education, including 529 savings plans and Coverdell Education Savings Accounts.

Beyond savings, students and their families rely on things like scholarships, grants, and student loans to help cover the cost of higher education.

If you’ve exhausted all federal student aid options, no-fee private student loans from SoFi can help you pay for school. The online application process is easy, and you can see rates and terms in just minutes. Repayment plans are flexible, so you can find an option that works for your financial plan and budget.


Cover up to 100% of school-certified costs including tuition, books, supplies, room and board, and transportation with a private student loan from SoFi.

FAQ

How much money do you need to start a college fund?

Starting a college fund can begin with any amount, even as little as $25. The key is to start early and be consistent. Regular contributions, no matter how small, can grow significantly over time with compound interest.

What is the biggest downside to a 529 plan?

The biggest downside to a 529 plan is the penalty for non-qualified withdrawals. If funds are used for purposes other than education, you’ll face a 10% penalty and pay taxes on the earnings. This can be a significant drawback if plans change.

Can you open a 529 plan without a child?

Yes, you can open a 529 plan without a child. You can name yourself or anyone else as the beneficiary. This flexibility allows you to save for your own education or for a future child, relative, or friend.


SoFi Private Student Loans
Please borrow responsibly. SoFi Private Student loans are not a substitute for federal loans, grants, and work-study programs. We encourage you to evaluate all your federal student aid options before you consider any private loans, including ours. Read our FAQs.

Terms and conditions apply. SOFI RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE. SoFi Private Student loans are subject to program terms and restrictions, such as completion of a loan application and self-certification form, verification of application information, the student's at least half-time enrollment in a degree program at a SoFi-participating school, and, if applicable, a co-signer. In addition, borrowers must be U.S. citizens or other eligible status, be residing in the U.S., Puerto Rico, U.S. Virgin Islands, or American Samoa, and must meet SoFi’s underwriting requirements, including verification of sufficient income to support your ability to repay. Minimum loan amount is $1,000. See SoFi.com/eligibility for more information. Lowest rates reserved for the most creditworthy borrowers. SoFi reserves the right to modify eligibility criteria at any time. This information is subject to change. This information is current as of 4/22/2025 and is subject to change. SoFi Private Student loans are originated by SoFi Bank, N.A. Member FDIC. NMLS #696891 (www.nmlsconsumeraccess.org).

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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.

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

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

SOISL-Q325-007

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Jul
15
2025
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What Is the Spot Market & How Does It Work?

By | Growing Wealth, invest, Investing, Terminology | Comments Off on What Is the Spot Market & How Does It Work?

A spot market is a market where buyers meet sellers and make an immediate exchange. In other words, delivery takes place at the same time payment is made. That can include stock exchanges, currency markets, or commodity markets.

But often when discussing spot markets, we’re talking about commodities. Commodity markets are somewhat different from the markets for stocks, bonds, mutual funds, and ETFs, all of which trade exclusively through brokerages. Because they represent a physical good, commodities have an additional market — the spot market. This market represents a place where the actual commodity gets bought and sold right away.

Key Points

  • Spot markets involve instant trades and immediate delivery.
  • Spot prices reflect real-time supply and demand.
  • Spot markets are less susceptible to manipulation.
  • OTC and centralized exchanges facilitate spot trades.
  • Futures markets are speculative, while spot markets are organic.

Spot Markets Definition

If you’re trying to define the spot markets, it may be helpful to think of it as a public financial market, and one on which assets or commodities are bought and sold. They’re also bought and sold for immediate, or quick, delivery. That is, the asset being traded changes hands on the spot.

Prices quoted on spot markets are called the spot price, accordingly.

One example of a spot market is a coin shop where an individual investor goes to buy a gold or silver coin. The prices would be determined by supply and demand. The goods would be delivered upon receipt of payment.

Understanding Spot Markets

Spot markets aren’t all that difficult to understand from a theoretical standpoint. There can be a spot market for just about anything, though they’re often discussed in relation to commodities (perhaps coffee, corn, or construction materials), and specific things like precious metals.

But again, an important part of spot market transactions is that trades take place on the spot — immediately.

Which Types of Assets Can Be Found on Spot Markets?

As noted, all sorts of assets can be found on spot markets. That ranges from food items or other consumables, construction materials, precious metals, and more. If you were, for instance, interested in investing in agriculture from the sense you wanted to trade contracts for oranges or bananas, you could likely do so on the spot market.

Some financial instruments may also be traded on spot markets, such as Treasuries or bonds.

How Spot Market Trades Are Made

In a broad sense, spot market trades occur like trades in any other market. Buyers and sellers come together, a price is determined by supply and demand, and trades are executed — usually digitally, like most things these days. In fact, a spot market may and often does operate like the stock market.

As noted, stock markets are also, in fact, spot markets, with financial securities trading hands instantly (in most cases).

What Does the Spot Price Mean?

As mentioned, the spot price simply refers to the price at which a commodity can be bought or sold in real time, or “on the spot.” This is the price an individual investor will pay for something if they want it right now without having to wait until some future date.

Because of this dynamic, spot markets are thought to reflect genuine supply and demand to a high degree.

The interplay of real supply and demand leads to constantly fluctuating spot prices. When supply tightens or demand rises, prices tend to go up, and when supply increases or demand falls, prices tend to go down.

The Significance of a Spot Market

The spot market of any asset holds special significance in terms of price discovery. It’s thought to be a more honest assessment of economic reality.

The reason is that spot markets tend to be more reliant on real buyers and sellers, and therefore should more accurately reflect current supply and demand than futures markets (which are based on speculation and can be manipulated, as recent legal cases have shown. More on this later.)

Types of Spot Markets

There’s only one type of spot market — the type where delivery of an asset takes place right away. There are two ways this can happen, however. The delivery can take place through a centralized exchange, or the trade can happen over the counter.

Over-the-counter

Over-the counter, or OTC trades, are negotiated between two parties, like the example of buying coins at a coin shop.

Market Exchanges

There are different spot markets for different commodities, and some of them work slightly differently than others.

The spot market for oil, for example, also has buyers and sellers, but a barrel of oil can’t be bought at a local shop. The same goes for some industrial metals like steel and aluminum, which are bought and sold in much higher quantities than silver and gold.

Agricultural commodities like soy, wheat, and corn also have spot markets as well as futures markets.

Spot Market vs Futures Market

One instance that makes clear the difference between a spot market and a futures market is the price of precious metals.

Gold, silver, platinum, and palladium all have their own spot markets and futures markets. When investors check the price of gold on a mainstream financial news network, they are likely going to see the COMEX futures price.

COMEX is short for the Commodity Exchange Inc., a division of the New York Mercantile Exchange. As the largest metals futures market in the world, COMEX handles most related futures contracts.

These contracts are speculatory in nature — traders are making bets on what the price of a commodity will be at some point. Contracts can be bought and sold for specific prices on specific dates.

Most of the contracts are never delivered upon, meaning they don’t involve delivery of the actual underlying commodity, such as gold or silver. Instead, what gets exchanged is a contract or agreement allowing for the potential delivery of a certain amount of metal for a certain price on a certain date.

For the most part, futures trading only has two purposes: hedging bets and speculating for profits. Sophisticated traders sometimes use futures to hedge their bets, meaning they purchase futures that will wind up minimizing their losses in another bet if it doesn’t go their way. And investors of all experience levels can use futures to try to profit from future price action of an asset. Predicting the exact price of something in the future can be difficult and carries high risk.

The spot market works in a different manner entirely. There are no contracts to buy or sell and no future prices to consider. The market is simply determined by what one party is willing to purchase something for.

Spot Market vs Futures Market
Spot Market

 Futures Market
No contracts to buy or sell Contracts are bought and sold outlining future prices
Trades occur instantly Trades may never actually occur at all
Non-speculative Speculative by nature

Another important concept to understand is contango and backwardation, which are ways to characterize the state of futures markets based on the relationship between spot and future prices. Some background knowledge on those concepts can help guide your investing strategy.

Note, too, that some investors may be confused by the concepts of margin trading and futures contracts. Margin and futures are two different concepts, and don’t necessarily overlap.


💡 Quick Tip: Distributing your money across a range of assets — also known as diversification — can be beneficial for long-term investors. When you put your eggs in many baskets, it may be beneficial if a single asset class goes down.

Example of a Spot Market

Consider the spot and futures markets for precious metals.

Precious-metal prices that investors see on financial news networks will most often be the current futures price as determined by COMEX. This market price is easy to quote. It’s the sum of all futures trading happening on one central exchange or just a few central exchanges.

The spot market is more difficult to pin down. In this case, the spot market could be generally referred to as the average price that a person would be willing to pay for a single ounce of gold or silver, not including any premiums charged by sellers.

Sometimes there is a difference between prices in the futures market and spot market. The difference is referred to as the “spread.” Under ordinary circumstances, the difference will be modest. During times of uncertainty, though, the spread can become extreme.

Futures Market Manipulation

As for trying to define what spot price means, it’s important to include one final note on futures markets. This will illustrate a key difference between the two markets.

Recent high-profile cases brought by government enforcement agencies like the Securities and Exchange Commission and Commodities and Futures Trading Commission highlight the susceptibility of futures markets to manipulation.

Some large financial institutions have been convicted of engaging in practices that artificially influence the price of futures contracts. Again, we can turn to the precious-metals markets for an example.

During the third quarter of 2020, JP Morgan was fined $920 million for “spoofing” trades and market manipulation in the precious metals and U.S. Treasury futures markets. Spoofing involves creating large numbers of buy or sell orders with no intention of fulfilling the orders.[1]

Because order book information is publicly available, traders can see these orders, and may act on the perception that big buying or selling pressure is coming down the pike. If many sell orders are on the books, traders may sell, hoping to get ahead of the trade before prices fall. If many buy orders are on the books, traders may buy, thinking the price is going to rise soon.

Cases like this show that futures markets can be heavily influenced by market participants with the means to do so.

Spot markets, on the other hand, are much more organic and more difficult to manipulate.

3 Tips for Spot Market Investing

For those interested in trying their hand in the spot market, here are a few things to keep in mind.

1. Know What’s Going On

Often, prices in the spot market can change or be volatile in relation to the news or other current events. For that reason, it’s important that investors know what’s happening in the world, and use that to assess what’s happening with prices for a given asset or commodity.

2. Keep Your Emotions in Check

Emotional investing or trading is a good way to get yourself into financial trouble, be it in the spot market, or any other type of trading or investing. You’d likely do well to keep your emotions in check when trading or investing on the spot market, as a result.

3. Understand the Market

It’s also a good idea to do some homework and make a solid attempt at trying to understand the market you’re trading in. There may be jargon to learn, terms to understand, price discovery mechanisms that could otherwise be foreign to even a seasoned investor — do your best to do your due diligence.

The Takeaway

Spot markets are where commodities are traded, instantly. There are numerous types of spot markets, and there are numerous types of commodities that might be traded on them. Investors would be wise to know the basics of how they work, and come armed with a bit of background knowledge about the given commodity they’re trading, in order to reach their goals.

Spot market trading can be a part of an overall trading strategy, but again, investors should know the ropes a bit before getting in over their heads. It may be a good idea to speak with a financial professional before investing.

Ready to invest in your goals? It’s easy to get started when you open an investment account with SoFi Invest. You can invest in stocks, exchange-traded funds (ETFs), mutual funds, alternative funds, and more. SoFi doesn’t charge commissions, but other fees apply (full fee disclosure here).

¹Opening and funding an Active Invest account gives you the opportunity to get up to $3,000 in the stock of your choice.

FAQ

What is spot market vs a futures market?

Trades on a spot market occur instantly, on the spot. Trades in the futures market involve contracts for commodities with prices outlined for some time in the future — if they occur at all.

What does spot market mean?

The term spot market refers to a financial market where assets or commodities are bought and sold by traders. The trades occur on the spot, or instantly, for immediate delivery.

What is the difference between spot market and forward market?

Forward markets involve trading of futures contracts, or transactions that take place at some point in the future, whereas spot market trades occur instantly, often for cash.

Article Sources
  1. Commodity Trading Futures Commission. CFTC Orders JPMorgan to Pay Record $920 Million for Spoofing and Manipulation.

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Jul
15
2025

19 Top Side Hustles to Fund Your Early Retirement

By | Budgeting & Goals, invest, Life & Career, Preparing for Retirement | Comments Off on 19 Top Side Hustles to Fund Your Early Retirement

If you’ve always dreamed about quitting the rat race and retiring early, you may want to take on a side hustle to help bring in extra money. While a side hustle is usually a part-time job, some side hustles have the potential to turn into a career or business that can provide a significant source of income.

Read on to learn more about early retirement side hustles, including some easy side hustle ideas that could help you secure your financial future.

Key Points

  • To retire early, taking on a side hustle can provide extra income to boost long-term financial security and retirement savings.
  • Leveraging existing skills and passions to find a side hustle enhances chances of success and enjoyment.
  • Many side hustles offer flexibility, require no special equipment, and are easy to start. Examples include online tutoring and pet sitting.
  • For individuals with design and web-based skills, graphic design and web development for small businesses may be lucrative side hustles.
  • Virtual assistant roles are one of the more recent side hustle opportunities. Virtual assistants support business owners by performing tasks such as customer service, and are in high demand.

Why Are Side Hustles Your Secret Weapon for Early Retirement?

The average retirement age in the U.S. is currently 62, according to a 2024 study from MassMutual.[1] If you are hoping to retire early — in your 50s, say — a side hustle can serve as a tool to help generate extra income.

An early retirement side hustle, which is sometimes referred to as an early retirement job, doesn’t have to involve a lot of time and effort. Even a small side hustle that you do on weekends can give you some extra money you can use to build your retirement accounts. A profitable side hustle may even give you enough funds to set up an additional retirement account — for instance, you could open an IRA — which can add even more money to your retirement savings overall.

The F.I.R.E Movement

The concept of early retirement is so appealing that it has launched movements. For example, the F.I.R.E. movement has attracted a community of people who are looking to retire early. F.I.R.E. stands for “Financial Independence, Retire Early,” and many of its followers hope to retire in their 40s or even their 30s.

The basic idea of the movement is to save a significant amount of your income as a young adult so that you can become financially independent and achieve retirement early. To reach this goal, proponents of F.I.R.E. put 50% to 75% of their income into retirement savings. That can be challenging because after that money is directed to their retirement accounts and their bills are paid, there typically isn’t much left over for fun stuff, like going out to dinner or to the movies.

Individuals planning for early retirement, like those in the F.I.R.E. movement, may find a side hustle especially appealing. It could help them generate extra income for their retirement savings accounts.

19 Easy Side Hustles to Fund Early Retirement

Whether you’re a follower of F.I.R.E. or not, and no matter what your preferred age for early retirement, having a successful side hustle can help you get there faster. Here are some easy jobs for early retirement to consider.

1. Freelance Writing

One of the benefits of having a side hustle is the flexibility to be able to work on your own schedule. If you have a knack for writing, becoming a freelance writer might be a good side hustle for you. With most freelance writing gigs, you can work whenever you like as long as assignments are done by a certain date.

Look for brands or clients who specialize in industries or fields where you already have skills or experience. For instance, if you love to knit, check out opportunities to contribute articles to knitting websites or blogs. Be sure to have examples of your work to share with potential employers so they can see what you are capable of.

2. Online Tutoring

If you’re in college and already thinking about early retirement, good for you! It’s never too soon to start planning and saving for the future. You can even find a side hustle that plays to your current strength — teaching others what you’ve learned in school.

One of the best side hustles for college students is online tutoring. You could tutor other college students or even high school or middle school students. Tutoring can typically be done on evenings or weekends, so you can fit it around your classes.

3. Graphic Design

If you have graphic design skills, another potential side hustle is doing graphic design work for small businesses and individuals. Think about specific services you might be able to offer, such as marketing layout, logo creation, and adding design elements to blogs, videos, or online articles.

Create a portfolio of your design work or set up a website to showcase your work. Then, look for freelance side hustle opportunities on platforms like Upwork or Fiverr.

4. Web Development

In this digital age, web development is another side hustle that can be done remotely, from wherever you are. Many small businesses and individuals need simple websites created and/or maintained for them, and many people don’t know how to do it themselves.

If you work in web development and have the skills and knowledge to create online platforms, you could be just what these clients are looking for. You can show them samples of your work, such as other websites you’ve designed.

5. Virtual Assistant Services

Becoming a Virtual Assistant (VA) is a newer side hustle that has recently increased in popularity. In fact the demand for virtual assistants increased by 35% in 2024, according to market research.[2]

A VA can help a small business by performing tasks like data entry, scheduling, bookkeeping, and customer support so that business owners can focus on their core business. According to one estimate, entrepreneurs gain up to 15 hours a week by using a virtual assistant to perform such tasks.

Some of the industries using virtual assistants are health care, real estate, and e-commerce businesses. You could start your search for a VA side hustle by concentrating on these fields and/or looking for opportunities on Upwork and FlexJobs.

6. Creating and Selling Online Courses

Another side hustle option you might consider if you’re an expert on a particular subject is creating and selling online courses. For example, maybe you’re a talented amateur pastry chef, a photographer, or you’re skilled at DIY home improvement projects. You could create courses showing other people how to achieve some of the things you’ve mastered, whether it’s decorating a cake, taking wedding photos, or remodeling a bathroom.

In fact, you may be able to combine two side hustles in one. If you’re good with plants and flowers, for instance, you might get a side hustle planting gardens for people on weekends, and then create videos to share your tips and tricks with an online audience. That way you’ve got even more money to save for early retirement, perhaps in an investment account.

7. Starting a Blog

A blog can be a way to share your passion or knowledge on a certain subject with others. While many blogs are passion projects where it might be difficult to make a lot of money, it all depends on your subject, how diligent you are with your blog, and how you choose to monetize it.

For example, you could host display ads on your blog (you can talk directly to companies to see if they’d like to advertise with you or use an online advertising platform), write sponsored content, or include affiliate links to products you mention so that you can earn commission whenever a reader clicks on the link and buys the product.

8. Starting a Podcast

If you want to share your knowledge on a topic, and you love to talk and interact with other people, starting a podcast may be a fitting side hustle for you. Podcasts are hugely popular: In the U.S., approximately 158 million people listen to podcasts every month.[3]

Almost anyone can start a podcast. All you need to do is decide on a topic (pick a subject you love to talk about), identify what makes your podcast unique, and determine who your audience is. Next, figure out the format (interview, roundtable, or whatever), and then get ready to start recording. You may be able to produce the podcast using only your computer and some headphones. Finally, decide how you’ll distribute your podcast — via Spotify, YouTube, Apple Podcasts, and so on.

The amount you can earn by podcasting varies widely. In general, podcasters may earn $25 to $50 per 1,000 downloads.[4]

9. Offering Coaching Services

If you’re an expert in business or in a specific area like fitness or human resources, you may want to explore the idea of launching an online coaching service. You can take the skills you’ve learned and teach them to others during online coaching sessions. You’ll need to determine who your clients might be and develop a coaching program. Then, you can figure out how much to charge for your services.

For instance, if you’ve worked in HR, you might offer your services as a career coach helping people land new jobs or move up the ladder in their current job. Try to pick a topic that will engage an audience and offer them valuable content that they’re willing to pay for.

10. Offering Consulting Services

Like a coaching service, starting a side gig in consulting is a side hustle that can be a good fit for someone with expertise in a given field. For example, maybe you’ve worked as a project manager in construction. You could offer your consulting services to people who are renovating their home and looking for guidance and someone to oversee the job.

Or maybe you’ve worked in the admissions office at a college. You might be able to provide consulting services to people applying to school to earn their degree. Think about what your skills are and what valuable services you can offer to others.

11. Driving for Ride-Sharing or Food Delivery Services

Ride-sharing and food delivery services like Uber, Lyft, Grubhub and DoorDash have become ubiquitous, and these companies are always looking for new drivers. Essentially, all you need is an eligible car, a valid driver’s license, at least a year’s worth of driving experience, and auto insurance.

In 2025, the average hourly pay for a rideshare driver is slightly more than $21, according to ZipRecruiter. Exactly what you can earn depends on where you live and what you earn in tips.[5]

Just be sure to take into account the expenses involved, including gas, and wear and tear on your vehicle.

12. Affiliate or Influencer Marketing

Affiliate and influencer marketing is another popular side hustle today. The job involves promoting products or services on social media or a website and earning a commission or fee for driving sales or audience engagement.

If you have a large social media following or online audience, this may be an avenue to explore. Talk to brands you know and like and see if you might be able to work with them to help promote their products or offerings.

13. Pet Sitting or Dog Walking

Love pets? You could earn extra money by starting a side hustle as a pet sitter or dog walker. Basically, you need to be responsible and good with animals for a job like this. You’ll do such tasks as walk pets, clean up after them, feed them, give them medication if necessary, and possibly stay overnight with them if their owners are out of town.

To find clients, reach out to friends and neighbors who have pets, or join platforms like Wag or Rover to find freelance dog walking and pet sitting opportunities in your area.

14. Renting Out a Spare Room (e.g., Airbnb)

Whether you join Airbnb or rent out a spare room on your own, offering rental space to others can be a lucrative side hustle, especially when it comes to passive income ideas. This is a gig that allows you to earn money for early retirement without requiring a lot of work on your part.

Once you get set up and start renting out your space, your main responsibilities will be vetting prospective renters and maintaining the room or space.

15. Selling Crafts or Handmade Goods Online (e.g., Etsy)

Another platform that you can use to start a good side hustle is Etsy or another similar platform. You can sell almost anything on Etsy, from homemade crafts to jewelry to wedding invitations. The platform does charge fees including processing and transaction fees, but using it can be a good way to reach an audience interested in buying what you’re selling. Over 96 million people are active buyers on Etsy.[6]

16. Testing Websites and Apps

Websites and apps need people to test them to make sure they work properly and provide a good experience. For individuals looking to earn extra income for early retirement, this could be an interesting and flexible side hustle.

The job typically involves evaluating the functionality, usability, and design of digital products before they’re launched. Many companies pay users to perform specific tasks and provide feedback, and report bugs or user-experience issues. This side hustle often requires only basic tech skills.[7]

17. Participating in Online Surveys

There are a number of websites and platforms such as Swagbucks, Opinion Outpost, and MySurvey, that will pay you to fill out online surveys. The surveys can be on just about any topic, and they may be tailored to you based on your interest and demographics. While most surveys don’t pay very much — sometimes just a few dollars per survey and some surveys only offer points that you can eventually redeem for cash — they do offer flexibility since you can do them anytime.[8]

18. Offering Neighborhood Tours

A unique side hustle if you live in an area that tourists like to visit is to become a neighborhood tour guide. For example, if you live in a historic area, a place with a unique heritage, or a locale with interesting geographic landmarks, you may be able to offer your services by giving neighborhood tours to those who are interested.

Be sure to bring your expertise into the equation as well. If you are a foodie or an architecture enthusiast, you could share your passion with others by introducing them to remarkable spots in your area and giving them insider information about each one. Whatever your interest or specialty is, you’ll need to develop a tour itinerary and market it to potential customers.

19. Lawn Mowing or Landscaping Services

Mowing lawns and landscaping yards is one of the original side hustles — it’s one that many of us did as kids. And it can be a lucrative side hustle for adults to earn some easy extra money for early retirement. The average price of mowing a half-acre yard is $50 to $75.[9]

All you need to get started is a lawnmower, a trimmer, and a blower. You can find clients by talking to neighbors, reaching out to friends and family, and going door to door in different neighborhoods near you.

Factors to Consider When Choosing the Right Side Hustle or Career

While there are many potential side hustles to choose from, choosing the right one for you depends largely upon your skills and interests. While it may be possible to succeed in any particular side hustle with enough hard work and determination, picking a side hustle where you already have some experience may set you up for a higher likelihood of success. And the more you like the work you’re doing, the greater the chance you’ll stick with it.

In addition, weigh the potential money you could make with the side hustle against the effort and possible expenses required. If you’ll be putting in hours for a side hustle that doesn’t net you all that much, it probably isn’t worth it. And if you have to buy a lot of extra equipment upfront for a gig that may or may not be successful, you may want to think twice.

How to Integrate Side Hustles Into Your Early Retirement Plan

When you are working at achieving financial freedom, a side hustle can play an important role in helping you reach your goal. Having a job on the side can provide extra money so that you can put more dollars into your retirement accounts or open a new account so that you can reach your retirement goal faster, and potentially with more money.

Plus, if a side hustle becomes very successful, it may be able to help supplement or even replace your income if you quit your “real” job. It might even be something you want to keep doing after you’ve finished saving for retirement because you enjoy it so much.

The Takeaway

When you’re hoping to retire early, a side hustle can help you earn extra money to make that dream a reality. Having the income from a side hustle, along with your salary from your regular full-time job can help you amass more savings so you can retire at a younger age.

With the money you earn from a side hustle, you can contribute more to your retirement accounts or open a new account to help save. The more you can save and invest now, the better your chances of achieving financial security for retirement.

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

Do I need to find a high-paying side hustle to quit my main career early?

Deciding when you can quit your main career depends on a number of different factors, including your age, your family situation, your financial obligations, and how much you have saved for retirement. If your personal and financial circumstances are right, a side hustle that pays well may help give you enough of a financial cushion to retire early.

How much extra money can a side hustle realistically contribute to my retirement savings?

The amount that a side hustle can contribute to your retirement savings can vary drastically, depending on what the side hustle is and how much time and effort you put into it. But consider this: Money that you earn from a side hustle now and put into a retirement savings account can potentially grow over time, thanks to the power of compounding returns. The sooner you start saving for retirement, the better.

What are some flexible jobs that I can continue even after I retire?

Flexible jobs you can start now and continue in retirement include pet sitting, freelance writing and graphic design, and online coaching and consulting. Each of these jobs offers flexible hours and convenience so that you can work when it suits you best.

What is the best side hustle?

What’s the best side hustle for you depends on your skills, interests, and life situation. The best side hustles are ones you enjoy and that make good use of the skills you have. The best side hustles also pay you enough to make them worth your while and offer flexibility so you can do them when you choose.

What is the easiest side hustle to get into?

Some side hustles are particularly easy to get into. Examples include pet sitting and dog walking, working as a virtual assistant, and renting out a room. With each of these side hustles, you can find money-making opportunities through online platforms so that you don’t have to go out and drum up business yourself. Plus they don’t require special equipment.

Article Sources
  1. MassMutual. 2024 MassMutual Retirement Happiness Study.
  2. There Is Talent. Virtual Assistant Statistics 2025: Insights and Trends.
  3. Podcast Statistics. Podcast Statistics 2025.
  4. Castmagic. How Much Money Can Podcasters Make? 20 Proven Methods to Make Money.
  5. ZipRecruiter. Rideshare Driver Salary.
  6. Business of Apps. Etsy Revenue and Usage Statistics (2025).
  7. Tester Work. Homepage.
  8. Indeed. 20 Companies That Will Pay You To Take Surveys Online.
  9. Jobber. How Much to Charge For Lawn Mowing: Pricing Charts and Formula.

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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.

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Jul
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2025

Guide to Unfreezing Your Credit Report

By | Credit, credit card, Family Finances | Comments Off on Guide to Unfreezing Your Credit Report

If you have frozen your credit to protect your sensitive information from fraudsters, you may at some point want to unfreeze it. That will typically be necessary if you are applying for a new credit card or a loan. A credit freeze provides you with an extra layer of security because it prevents anyone (even a legitimate entity) from running a hard inquiry on your report or potentially opening a new line of credit without your permission.

In this guide, you’ll learn all about how to unfreeze credit.

Key Points

•   A credit freeze blocks access to your credit report, preventing new credit lines or loans from being opened.

•   Unfreezing can be done via phone, online, or mail.

•   Phone and online unfreeze requests are processed within an hour.

•   Mail unfreeze requests take up to three business days after receipt.

•   Existing credit cards remain usable during a credit freeze.

What Does it Mean to Unfreeze Credit?

When you freeze your credit report, you can’t open a new line of credit, whether that’s a credit card, mortgage, auto loan, or something else. At the same time, no one can run a hard inquiry on your credit report — so lenders, landlords, even potential employers can’t access it. While there are limits on who can legally look at your credit report, a credit freeze can provide peace of mind that no one can open an account in your name.

When you unfreeze your credit, it’s like you’re turning back on access to the credit report. Once your credit is unfrozen, you can once again open a new line of credit or apply for a loan, and lenders can run a hard pull on your report.

How a Credit Freeze Works

Also known as a security freeze, a credit freeze restricts access to your credit file. Credit freezes don’t happen automatically. You have to reach out to each of the three credit bureaus — Experian®, Equifax® and TransUnion® — to ask for a credit freeze. Thanks to the Fair Credit Reporting Act, if you request a credit freeze over the phone or online, the credit bureaus are required to freeze your report within 24 hours. If you send the request via mail, they have up to three business days.

Thanks to the Fair Credit Reporting Act, if you request a credit freeze over the phone or online, the credit bureaus are required to freeze your report within 24 hours. If you send the request via mail, they have up to three business days.

When you make a credit freeze request, each bureau will give you a PIN (personal identification number) or password that you need when you decide to lift the freeze.

A credit freeze is often confused with a credit lock, but they’re two separate things. A credit lock is a service you sign up for, and there’s usually a subscription fee. It’s similar to a credit freeze as you block access from most lenders. However, you can freeze or unfreeze it at any time on your phone or computer, and you don’t have to wait for it to go into effect.

A credit freeze is free, and you have to go through the credit bureaus to thaw your credit, and it takes about an hour to go into effect.

Types of Credit Freeze Lifts

At some point you may think about unlocking your credit freeze. When the time comes, there are two main types of credit freeze lifts:

Temporary Lift

A temporary lift will unfreeze your credit report for a designated time period. You can choose how long you’d like your credit to be thawed.

You can thaw your credit freeze temporarily to apply for new credit, take out a loan, or apply to rent an apartment. But once you’re done with that financial task, the freeze restarts.

Permanent Lift

A permanent lift will thaw your credit freeze for an indefinite amount of time. You might want to go this route if you don’t want to go through the steps of freezing and unfreezing your credit and find that the trouble isn’t worth the benefits.

Recommended: How to Read and Understand Your Credit Report

Ways to Unfreeze Credit Using Bureaus

If you are ready to unfreeze your credit, you need to contact each of the credit bureaus. You can do it in one of three ways:

•   Phone: If you request a lift by phone, the credit bureaus are required to thaw your credit within an hour.

•   Online: If you make the request online, your credit freeze will also be lifted within the hour.

•   Mail: You can also request a credit thaw by mail. If you go this route, expect the lift to happen within three business days after receipt of your request.

Recommended: How to Dispute a Credit Report and Win Your Case

When You Should Unfreeze Your Credit

Generally, you need to unfreeze your credit anytime someone needs to review your credit report, like if you’re opening a new line of credit or applying for a loan. Some common scenarios of when you’ll need to unfreeze your credit:

•   Applying for a credit card

•   Applying for a mortgage, personal loan, or car loan

•   Applying for a line of credit

•   Hunting for an apartment

Recommended: Common Credit Report Errors and How to Dispute Them

Credit Freeze vs. Fraud Alert

If you’re at high risk for fraud, suspect you’ve been a victim of a credit card scam, or just want to take extra precautions, you can set up a fraud alert on your credit report. When you have a fraud alert in place, a lender or creditor needs to verify your identity before they can issue you a new line of credit or approve you for a loan.

To place a fraud alert, you only need to reach out to one of the three credit bureaus. By law, that credit bureau must let the other two credit bureaus know you placed a fraud alert. In turn, all three credit bureaus will place a fraud alert on your credit file.

Initial fraud alerts are free, and initial fraud alerts last one year. After one year, you can renew it. Extended fraud alerts last for seven years, but they are for victims of identity theft, and you must submit a police report to qualify.

A credit freeze, on the other hand, blocks any party, including lenders and creditors, from accessing your credit. You need to place a credit freeze separately with each of the three credit bureaus, which lasts indefinitely. They can only be lifted when you make a request.


💡 Quick Tip: On-time payments are key to building your credit score. To ensure that you make your payments in time, consider setting up automatic payments or set a calendar reminder of your due date.

The Takeaway

Unfreezing your credit report is relatively simple, and it’s easy to set up a temporary lift should you decide you want to apply for a new credit card or personal loan. There are a few different ways you can go about thawing your credit as needed, and the credit bureaus have to unfreeze your credit within an hour of you making the request by phone or online.

Whether you're looking to build credit, apply for a new credit card, or save money with the cards you have, it's important to understand the options that are best for you. Learn more about credit cards by exploring this credit card guide.

FAQ

Can I unfreeze my credit?

You can unfreeze your credit anytime by going through each of the three credit bureaus — Experian, Equifax, and TransUnion — and requesting a lift on your credit freeze. You can ask for either a permanent or temporary lift. The thaw usually lasts anywhere from one to 30 days if it’s temporary.

Can you freeze your credit automatically?

Credit freezes don’t happen automatically. You will need to contact the three credit bureaus and make a specific request. You can do so online, by telephone, or via snail mail.

How soon can I unfreeze my credit after freezing?

You can unfreeze your credit as frequently as you like and request a credit lift as soon as you freeze it. If you made the request online or over the phone, it can take up to an hour to unfreeze your credit. If you send the request in the mail, it can take up to three business days after receipt of your request.

How long does it take to unfreeze your credit?

It depends on the credit bureau and how you made your request. If you requested your credit to unfreeze or “thaw” over the phone or email, the credit bureaus must lift it within an hour. If you made the request by mail, the credit bureaus must unfreeze your credit within three business days of receipt of your request.

Can I still use my credit card after freezing my credit?

Freezing your credit doesn’t impact your ability to use your credit card. You can freely make purchases on your card, book trips, redeem your cash-back points, and so forth. But if you want to do something that requires a hard pull of your credit — apply for new credit, say, or submit a rental application for an apartment — you’ll need to unfreeze your report first.

Photo credit: iStock/nortonrsx

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.

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