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Q: Do Roth 401(k)s Have RMDs?

Yes, Roth 401(k) plans do have required minimum distributions, and this is an important distinction between Roth 401(k)s and Roth IRAs. Even though the funds you contribute to a Roth 401(k) are already taxed, you are still required to take RMDs, following the same life expectancy factor charts provided by the IRS for traditional 401(k)s and IRAs.

Dec

2024

Required Minimum Distribution (RMD) Rules for 401(k)s

By Samuel Becker | Growing Wealth, invest, Investing, Preparing for Retirement | Comments Off

When you turn 73, the IRS requires you to start withdrawing money from your 401(k) each year. These withdrawals are called required minimum distributions (or RMDs), and those who don’t take them face potential financial penalties.

The 401(k) RMD rules also apply to other tax-deferred accounts, including traditional IRAs, SIMPLE and SEP IRAs. Roth accounts don’t have RMDs for the account holder.

What’s important to know, as it relates to RMDs from 401(k)s, is that there can be tax consequences if you don’t take them when they’re required — and there are also tax implications from the withdrawals themselves.

Key Points

• The IRS mandates that individuals must begin withdrawing funds from their 401(k) accounts as required minimum distributions (RMDs) starting at age 73.

• RMD amounts are determined using IRS life expectancy tables, and failing to withdraw the required amount can result in a 50% penalty on the missed distribution.

• Although RMDs generally apply to various tax-deferred accounts, Roth IRAs do not require distributions while the owner is alive.

• Individuals can delay their first RMD until April 1 of the year following their 73rd birthday, but this may lead to higher taxes due to two distributions in one year.

• Inheriting a 401(k) requires RMDs as well, with specific rules differing for spouses versus non-spouses, including timelines for withdrawals.

What Is an RMD?

While many 401(k) participants know about the early withdrawal penalties for 401(k) accounts, fewer people know about the requirement to make minimum withdrawals once you reach a certain age. Again, these are called required minimum distributions (or RMDs), and they apply to most tax-deferred accounts.

The “required distribution” amount is based on specific IRS calculations (more on that below). If you don’t take the required distribution amount (aka withdrawal) each year you could face another requirement: to pay a penalty of 50% of the withdrawal you didn’t take. However, if you withdraw more than the required minimum each year, no penalty applies.

All RMDs from tax-deferred accounts, like 401(k) plans, are taxed as ordinary income. This is one reason why understanding the amount — and the timing — of RMDs can make a big difference to your retirement income.

What Age Do You Have to Start RMDs?

Prior to 2019, the age at which 401(k) participants had to start taking RMDs was 70½. Under the SECURE Act that was raised to age 72. But the rules have changed again, and the required age to start RMDs from a 401(k) is now 73 — for those who turn 72 after December 31, 2022.

However for those who turned 72 in the year 2022, at that point age 72 was still technically the starting point for RMDs.

But if you turn 72 in 2023, you must wait until you turn 73 (in 2024) to take your first RMD.

In 2033, the age to start taking RMDs will be increased again, to age 75.

How Your First Required Distribution Is Different

There is a slight variation in the rule for your first RMD: You actually have until April 1 of the year after you turn 72 to take that first withdrawal. For example, say you turned 72 in 2022. you would have until April 1, 2023 to take your first RMD.

But you would also have to take the normal RMD for 2023 by December 31 of the same year, too — thus, potentially taking two withdrawals in one year.

Since you must pay ordinary income tax on the money you withdraw from your 401(k), just like other tax-deferred accounts, you may want to plan for the impact of two taxable withdrawals within one calendar year if you go that route.

Why Do Required Minimum Distributions Exist?

Remember: All the money people set aside in defined contribution plans like traditional IRAs, SEP IRAa, SIMPLE IRAs, 401(k) plans, 403(b) plans, 457(b) plans, profit-sharing plans, and so on, is deposited pre-tax. That’s why these accounts are typically called tax-deferred: the tax you owe is deferred until you retire.

So, requiring people to take a minimum withdrawal amount each year is a way to ensure that people eventually pay tax on the money they saved.

How Are RMDs Calculated?

It can get a bit tricky, but 401(k) RMDs are calculated by dividing the account balance in your 401(k) by what is called a “life expectancy factor,” which is basically a type of actuarial table created by the IRS. You can find these tables in Publication 590-B from the IRS.

If you’re married, there are two different tables to be aware of. If you are the original account owner, and if your spouse is up to 10 years younger than you, or is not your sole beneficiary, you’d consult the IRS Uniform Lifetime Table.

If your spouse is the primary beneficiary, and is more than 10 years younger, you’d consult the IRS Joint and Last Survivor table. Here, the RMD might be lower.

How does the life expectancy factor work?

As a simple example, let’s say a 75-year-old has a life expectancy factor of 24.6, according to the IRS. If that person has a portfolio valued at $500,000, they’d have to take an RMD of $20,325 ($500,000/24.6) from their account that year.

RMDs can be withdrawn in one sum or numerous smaller payments over the course of a year, as long as they add up to the total amount of your RMD requirement for that calendar year.

RMD Rules for 401(k) Plans

So just to recap, here are the basic RMD rules for 401(k) plans. Because these rules are complicated and exceptions may apply, it may be wise to consult with a professional.

Exceptions to Required Distributions

There aren’t many exceptions to 401(k) RMDs. In fact, there’s really only one.

If you’re working for the company sponsoring your 401(k) when you turn 73 years old (as of 2023), and you don’t own more than 5% of the firm, you may be able to skirt RMDs. That is, so long as you keep working for the company, and as long as your plan allows you to do so — not all will.

This only applies to 401(k)s. So if you’re weighing your options as it relates to a 401(a) vs 401(k), for instance, you’ll find they’re limited.

At What Age Do RMDs Start?

As mentioned, you must take your first RMD the same year you turn age 73, with the new rules being applied for 2023 under the SECURE ACT 2.0. Again: for your first RMD only, you are allowed to delay the withdrawal until April 1 of the year after you turn 73.

This has pros and cons, however, because the second RMD would be due on December 31 of that year as well. For tax purposes, you might want to take your first RMD the same year you turn 73, to avoid the potentially higher tax bill from taking two withdrawals in the same calendar year.

What Are RMD Deadlines?

Aside from the April 1 deadline available only for your first RMD, the regular deadline for your annual RMD is December 31 of each year. That means that by that date, you must withdraw the required amount, either in a lump sum or in smaller increments over the course of the year.

Calculating the Correct Amount of Your RMD

Also as discussed, the amount of your RMD is determined by tables created by the IRS based on your life expectancy, the age of your spouse, marital status, and your spouse’s age.

You’re not limited to the amount of your RMD, by the way. You can withdraw more than the RMD amount at any point. These rules are simply to insure minimum withdrawals are met. Also keep in mind that if you withdraw more than the RMD one year, it does not change the RMD requirement for the next year.

Penalties

The basic penalty, if you miss or forget to take your required minimum distribution from your 401(k), is 25% of the amount you were supposed to withdraw — or 10% if the amount is corrected within two years. (The penalty used to be 50%, but in 2023, under SECURE 2.0, it was reduced.)

For example, let’s say you were supposed to withdraw a total of $10,500 in a certain year, but you didn’t; in that case you could potentially get hit with a 25% penalty, or $2,625. But let’s say you’ve taken withdrawals all year, but you miscalculated and only withdrew $7,300 total.

Then you would owe a 25% penalty on the difference between the amount you withdrew and the actual RMD amount: $10,500 – $7,300 = $3,200 x .25 = $800. However, if you corrected the mistake within two years, you would only owe a 10% penalty, which is $325.

How Did COVID Change RMD Rules?

The pandemic ushered in some RMD rule changes for a time, and it may be easy to get mixed up given those changes. But you should know that things are more or less back to “normal” now (as of 2021) as it relates to RMD rules, so you’ll need to plan accordingly.

As for that rule change: There was a suspension of all RMDs in 2020 owing to COVID. Here’s what happened, and what it meant for RMDs at the time:

• First, in 2019 the SECURE Act changed the required age for RMDs from 70½ to 72, to start in 2020.

• But when the pandemic hit in early 2020, RMDs were suspended entirely for that year under the CARES Act. So, even if you turned 72 in the year 2020 — the then-new qualifying age for RMDs that year — RMDs were waived.

Again, as of early 2021, required minimum distributions were restored. So here’s how it works now, taking into account the 2020 suspension and the new age for RMDs.

• If you were taking RMDs regularly before the 2020 suspension, you needed to resume taking your annual RMD by December 31, 2021.

• If you were eligible for your first RMD in 2019 and you’d planned to take your first RMD by April 2020, but didn’t because of the waiver, you should have taken that RMD by December 31, 2021.

• If you turned 72 in 2020, and were supposed to take an RMD for the first time, then you could have had until April 1, 2022 to take that first withdrawal. (But you could have taken that first withdrawal in 2021, to avoid the tax burden of taking two withdrawals in 2022.)

RMDs When You Have Multiple Accounts

If you have multiple accounts — e.g. a 401(k) and two IRAs — you would have to calculate the RMD for each of the accounts to arrive at the total amount you’re required to withdraw that year. But you would not have to take that amount out of each account. You can decide which account is more advantageous and take your entire RMD from that account, or divide it among your accounts by taking smaller withdrawals over the course of the year.

What Other Accounts Have RMDs?

While we’re focusing on 401(k) RMDs, there are numerous other types of accounts that require them as well. As of 2023, RMD rules apply to all employer-sponsored retirement accounts, according to the IRS — a list that includes IRAs (SEP IRAs, SIMPLE IRAs, and others), but not Roth IRAs while the owner is alive (more on that in a minute).

So, if you have an employer-sponsored retirement account, know that the IRA withdrawal rules are more or less the same as the rules for a 401(k) RMD.

Allocating Your RMDs

Individuals can also decide how they want their RMD allocated. For example, some people take a proportional approach to RMD distribution. This means a person with 30% of assets in short-term bonds might choose to have 30% of their RMD come from those investments.

Deciding how to allocate an RMD gives an investor some flexibility over their finances. For example, it might be possible to manage the potential tax you’d owe by mapping out your RMDs — or other considerations.

Do Roth 401(k)s Have RMDs?

No, Roth 401(k) plans no longer have required minimum distributions, similar to Roth IRAs. But if you bequeath a Roth IRA it’s another story. Since the rules surrounding inherited IRAs can be quite complicated, it’s wise to get advice from a professional.

Can You Delay Taking an RMD From Your 401(k)?

As noted above, there is some flexibility with your first RMD, in that you can delay your first RMD until April 1 of the following year. Just remember that your second RMD would be due by December 31 of that year as well, so you’d be taking two taxable withdrawals in the same year.

Also, if you are still employed by the sponsor of your 401(k) (or other employer plan) when you turn 73, you can delay taking RMDs until you leave that job or retire.

RMD Requirements for Inherited 401(k) Accounts

Don’t assume that RMDs are only for people in or near retirement. RMDs are usually required for those who inherit 401(k)s as well. The rules here can get quite complicated, depending on whether you are the surviving spouse inheriting a 401(k), or a non-spouse. In most cases, the surviving spouse is the legal beneficiary of a 401(k) unless a waiver was signed.

Inheriting a 401(k) From Your Spouse

If you’re the spouse inheriting a 401(k), you can rollover the funds into your own existing 401(k), or you can rollover the funds into what’s known as an “inherited IRA” — the IRA account is not inherited, but it holds the inherited funds from the 401(k). You can also continue contributing to the account.

Then you would take RMDs from these accounts when you turned 73, based on the IRS tables that apply to you.

Inheriting a 401(k) From a Non-Spouse

If you inherit a 401(k) from someone who was not your spouse, you cannot rollover the funds into your own IRA.

You would have to take RMDs starting Dec. 31 of the year after the account holder died. And you would be required to withdraw all the money from the account within five or 10 years, depending on when the account holder passed away.

The five-year rule comes into play if the person died in 2019 or before; the 10-year rule applies if they died in 2020 or later.

Other Restrictions on Inherited 401(k) Accounts

Bear in mind that the company which sponsored the 401(k) may have restrictions on how inherited funds must be handled. In some cases, you may be able to keep 401(k) funds in the account, or you might be required to withdraw all funds within a certain time period.

In addition, state laws governing the inheritance of 401(k) assets can come into play.

As such, if you’ve inherited a 401(k), it’s probably best to consult a professional who can help you sort out your individual situation.

How to Avoid RMDs on 401(k)s

While a 401(k) grows tax-free during the course of an investor’s working years, the RMDs withdrawal is taxed at their current income tax rate. One way to offset that tax liability is for an investor to consider converting a 401(k) into a Roth IRA in the years preceding mandatory RMDs. Roth IRAs are not subject to RMD rules.

What Is a Roth Conversion?

A Roth conversion can be done at any point during an investor’s life, and can be done with all of the 401(k) funds or a portion of it.

Because a 401(k) invests pre-tax dollars and a Roth IRA invests after-tax dollars, you would need to pay taxes right away on any 401(k) funds you converted to a Roth. But the good news is, upon withdrawing the money after retirement, you don’t have to pay any additional taxes on those withdrawals. And any withdrawals are at your discretion because there are no required distributions.

Paying your tax bill now rather than in the future can make sense for investors who anticipate being in a higher tax bracket during their retirement years than they are currently.

The Backdoor Roth Option

Converting a 401(k) can also be a way for high earners to take advantage of a Roth. Traditional Roth accounts have an income cap. To contribute the maximum to a Roth IRA in 2024, your modified adjusted gross income (MAGI) must be less than $146,000 if you’re single, less than $230,000 if you’re married filing jointly, with phaseouts if your income is higher. To contribute the maximum to a Roth IRA in 2025, your modified adjusted gross income (MAGI) must be less than $150,000 if you’re single, less than $236,000 if you’re married filing jointly, with phaseouts if your income is higher. But those income rules don’t apply to Roth conversions (thus they’re sometimes called the “backdoor Roth” option).

Once the conversion occurs and a Roth IRA account is opened, an investor needs to follow Roth rules: In general, withdrawals can be taken after an account owner has had the account for five years and the owner is older than 59 ½, barring outside circumstances such as death, disability, or first home purchase.

What Should an Investor Do With Their RMDs?

How you use your RMD funds depends on your financial goals. Fortunately, there are no requirements around how you spend or invest these funds (with the possible exception that you cannot take an RMD and redeposit it in the same account).

• Some people may use their RMDs for living expenses in their retirement years. If you plan to use your RMD for income, it’s also smart to consider the tax consequences of that choice in light of other income sources like Social Security.

• Other people may use their 401(k) RMDs to fund a brokerage account and continue investing. While you can’t take an RMD and redeposit it, it’s possible to directly transfer your RMD into a taxable account. You will still owe taxes on the RMD, but you could stay invested in the securities in the previous portfolio.

Reinvesting RMDs might provide a growth vehicle for retirement income. For example, some investors may look to securities that provide a dividend, so they can create cash flow as well as maintain investments.

• Investors also may use part of their RMD to donate to charity. If the funds are directly transferred from the IRA to the charity (instead of writing out a check yourself), the donation will be excluded from taxable income.

While there is no right way to manage RMDs, coming up with a plan can help insure that your money continues to work for you, long after it’s out of your original 401(k) account.

The Takeaway

Investors facing required minimum distributions from their 401(k) accounts may want to fully understand what the law requires, figure out a game plan, and act accordingly. While there are a lot of things to consider and rules to reference, ignoring 401(k) RMDs can result in sizable penalties.

Even if you’re not quite at the age to take RMDs, you may want to think ahead so that you have a plan for withdrawing your assets that makes sense for you and your loved ones. It can help to walk through the many different requirements and options you have as an account holder, or if you think you might inherit a 401(k).

As always, coming up with a financial plan depends on knowing one’s options and exploring next steps to find the best fit for your money. If you’re opening a retirement account such as an IRA or Roth IRA, you can do so at a brokerage, bank, mutual fund house, or other financial services company, like SoFi Invest®.

Help grow your nest egg with a SoFi IRA.

FAQ

Is my 401(k) subject to RMDs?

Yes, with very few exceptions, 401(k)s are subject to RMDs after its owner reaches age 73, as of 2023. What those RMDs are, exactly, varies depending on several factors.

How to calculate your RMD for your 401(k)?

It’s not an easy calculation, but RMDs are basically calculated by dividing the owner’s account balance by their life expectancy factor, which is determined by the IRS. That will give you the amount you must withdraw each year, or face a penalty.

Can you avoid an RMD on your 401(k)?

You can, if you’re willing to convert your traditional 401(k) account to a Roth IRA. Roth IRAs do not require RMDs, but you will owe taxes on the funds you convert.

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Dec

2024

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401(k) Taxes: Rules on Withdrawals and Contributions

By Melanie Mannarino | Growing Wealth, invest, Investing, Preparing for Retirement | Comments Off

Employer-sponsored retirement plans like a 401(k) are a common way for workers to save for retirement. According to the Bureau of Labor Statistics, a little more than half of private industry employees participate in a retirement plan at work. So participants need to understand how 401(k) taxes work to take advantage of this popular retirement savings tool.

With a traditional 401(k) plan, employees can contribute a portion of their salary to an account with various investment options, including stocks, bonds, mutual funds, exchange-traded funds (ETFs), and cash.

There are two main types of workplace 401(k) plans: a traditional 401(k) plan and a Roth 401(k). The 401(k) tax rules depend on which plan an employee participates in.

Traditional 401(k) Tax Rules

When it comes to this employer-sponsored retirement savings plan, here are key things to know about 401(k) taxes and 401(k) withdrawal tax.

401(k) Contributions Are Made With Pre-tax Income

One of the biggest advantages of a 401(k) is its tax break on contributions. When you contribute to a 401(k), the money is deducted from your paycheck before taxes are taken out, which reduces your taxable income for the year. This means that you’ll pay less in income tax, which can save you a significant amount of money over time.

If you’re contributing to your company’s 401(k), each time you receive a paycheck, a self-determined portion of it is deposited into your 401(k) account before taxes are taken out, and the rest is taxed and paid to you.

For 2025, participants can contribute up to $23,500 each year to a 401(k) plan, plus $7,500 in catch-up contributions if they’re 50 or older. The contribution limits are up from 2024, when the limit was $23,000. The annual catch-up amount is unchanged at $7,500.

But now there is an extra catch-up provision: For 2025, those ages 60 to 63 may contribute an additional $11,250 per year instead of $7,500, thanks to SECURE 2.0 — for a total of $34,750.

401(k) Contributions Lower Your Taxable Income

The more you contribute to your 401(k) account, the lower your taxable income is in that year. If you contribute 15% of your income to your 401(k), for instance, you’ll only owe taxes on 85% of your income.

Withdrawals From a 401(k) Account Are Taxable

When you take withdrawals from your 401(k) account in retirement, you’ll be taxed on your contributions and any earnings accrued over time.

The withdrawals count as taxable income, so during the years you withdraw funds from your 401(k) account, you will owe taxes in your retirement income tax bracket.

Early 401(k) Withdrawals Come With Taxes and Penalties

If you withdraw money from your 401(k) before age 59 ½, you’ll owe both income taxes and a 10% tax penalty on the distribution.

Although individual retirement accounts (IRAs) allow penalty-free early withdrawals for qualified first-time homebuyers and qualified higher education expenses, that is not true for 401(k) plans.

That said, if an employee leaves a company during or after the year they turn 55, they can start taking distributions from their 401(k) account without paying taxes or early withdrawal penalties.

Can you take out a loan or hardship withdrawal from your plan assets? Many plans do allow that up to a certain amount, but withdrawing money from a retirement account means you lose out on the compound growth from funds withdrawn. You will also have to pay interest (yes, to yourself) on the loan.

Roth 401(k) Tax Rules

Here are some tax rules for the Roth 401(k).

Your Roth 401(k) Contributions Are Made With After-Tax Income

When it comes to taxes, a Roth 401(k) works the opposite way of a traditional 401(k). Your contributions are post-tax, meaning you pay taxes on the money in the year you contribute.

If you have a Roth 401(k) and your company offers a 401(k) match, that matching contribution will go into a pre-tax account, which would be a traditional 401(k) account. So you would essentially have a Roth 401(k) made up of your own contributions and a traditional 401(k) of your employer’s contributions.

Recommended: How an Employer 401(k) Match Works

Roth 401(k) Contributions Do Not Lower Your Taxable Income

When you have Roth 401(k) contributions automatically deducted from your paycheck, your full paycheck amount will be taxed, and then money will be transferred to your Roth 401(k).

For instance, if you’re making $50,000 and contributing 10% to a Roth 401(k), $5,000 will be deposited into your Roth 401(k) annually, but you’ll still be taxed on the full $50,000.

Roth 401(k) Withdrawals Are Tax-Free

When you take money from your Roth 401(k) in retirement, the distributions are tax-free, including your contributions and any earnings that have accrued (as long as you’ve had the account for at least five years).

No matter what your tax bracket is in retirement, qualified withdrawals from your Roth 401(k) are not counted as taxable income.

It can also be helpful to know that, like a Roth IRA, a Roth 401(k) no longer requires participants to start taking required minimum distributions at age 73.

There Are Limits on Roth 401(k) Withdrawals

In order for a withdrawal from a Roth 401(k) to count as a qualified distribution — meaning, it won’t be taxed — an employee must be age 59 ½ or older and have held the account for at least five years.

If you make a withdrawal before this point — even if you’re age 61 but have only held the account since age 58 — the withdrawal would be considered an early, or unqualified, withdrawal. If this happens, you would owe taxes on any earnings you withdraw and could pay a 10% penalty.

Early withdrawals are prorated according to the ratio of contributions to earnings in the account. For instance, if your Roth 401(k) had $100,000 in it, made up of $70,000 in contributions and $30,000 in earnings, your early withdrawals would be made up of 70% contributions and 30% earnings. Hence, you would owe taxes and potentially penalties on 30% of your early withdrawal.

If the plan allows it, you can take a loan from your Roth 401(k), just like a traditional 401(k), and the same rules and limits apply to how much you can borrow. Any Roth 401(k) loan amount will be combined with outstanding loans from that plan or any other plan your employer maintains to determine your loan limits.

You Can Roll Roth 401(k) Money Into a Roth IRA

Money in a Roth 401(k) account can be rolled into a Roth IRA. Like an employer-sponsored Roth 401(k), a Roth IRA is funded with after-tax dollars.

It’s important to note, however, that there’s also a five-year rule for Roth IRAs: Earnings cannot be withdrawn tax- and penalty-free from a Roth IRA until five years after the account’s first contribution. If you roll a Roth 401(k) into a new Roth IRA, the five-year clock starts over at that time.

Do You Have to Pay Taxes on a 401(k) Rollover?

If you do a direct rollover of your 401(k) into an IRA or another eligible retirement account, you generally won’t have to pay taxes on the rollover. However, if you receive the funds from your 401(k) and then roll them over yourself within 60 days, you may have to pay taxes on the amount rolled over, as the IRS will treat it as a distribution from the 401(k).

Recommended: How to Roll Over Your 401(k)

Do You Have to Pay 401(k) Taxes after 59 ½?

If you have a traditional 401(k), you will generally have to pay taxes on withdrawals after age 59 ½. This is because the money you contributed to the 401(k) was not taxed when you earned it, so it’s considered income when you withdraw it in retirement.

However, if you have a Roth 401(k), you can withdraw your contributions and earnings tax-free in retirement as long as you meet certain requirements, such as being at least 59 ½ and having had the account for at least five years.

Do You Pay 401(k) Taxes on Employer Contributions?

The taxation of employer contributions to a 401(k) depends on whether the account is a traditional or Roth 401(k).

In the case of traditional 401(k) contributions, the employer contributions are not included in your taxable income for the year they are made, but you will pay taxes on them when you withdraw the funds from the 401(k) in retirement.

In the case of Roth contributions, the employer contributions are not included in a post-tax Roth 401(k) but rather in a pre-tax traditional 401(k) account. So, you do not pay taxes on the employer contributions in a Roth 401(k), but you do pay taxes on withdrawals.

How Can I Avoid 401(k) Taxes on My Withdrawal?

The only way to avoid taxes on 401(k) withdrawals is to take advantage of a Roth 401(k), as noted above. With a Roth 401(k), your contributions are made post-tax, but withdrawals are tax-free if you meet certain criteria to avoid the penalties mentioned above.

However, even if you have to pay taxes on your 401(k) withdrawals, you can take the following steps to minimize your taxes.

Consider Your Tax Bracket

Contributing to a traditional 401(k) is essentially a bet that you’ll be in a lower tax bracket in retirement — you’re choosing to forgo taxes now and pay taxes later.

Contributing to a Roth 401(k) takes the opposite approach: Pay taxes now, so you don’t have to pay taxes later. The best approach for you will depend on your income, your tax situation, and your future tax treatment expectations.

Strategize Your Account Mix

Having savings in different accounts — both pre-tax and post-tax — may offer more flexibility in retirement.

For instance, if you need to make a large purchase, such as a vacation home or a car, it may be helpful to be able to pull the income from a source that doesn’t trigger a taxable event. This might mean a retirement strategy that includes a traditional 401(k), a Roth IRA, and a taxable brokerage account.

Decide Where To Live

Eight U.S. states don’t charge individual income tax at all: Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, and Wyoming. And New Hampshire only taxes interest and dividend income.

This can affect your tax planning if you live in a tax-free state now or intend to live in a tax-free state in retirement.

The Takeaway

Saving for retirement is one of the best ways to prepare for a secure future. And understanding the tax rules for 401(k) withdrawals and contributions is essential for effective retirement planning. By educating yourself on the rules and regulations surrounding 401(k) taxes, you can optimize your retirement savings and minimize your tax burden.

Another strategy to help stay on top of your retirement savings is to roll over a previous 401(k) to a rollover IRA. Then you can manage your money in one place.

SoFi makes the rollover process seamless. The process is automated so there’s no need to watch the mail for your 401(k) check — and there are no rollover fees or taxes.

Easily manage your retirement savings with a SoFi IRA.

FAQ

Do you get taxed on your 401(k)?

You either pay taxes on your 401(k) contributions — in the case of a Roth 401(k) — or on your traditional 401(k) withdrawals in retirement.

When can you withdraw from 401(k) tax free?

You can withdraw from a Roth 401(k) tax-free if you have had the account for at least five years and are over age 59 ½. With a traditional 401(k), withdrawals are generally subject to income tax.

How can I avoid paying taxes on my 401(k)?

You never truly avoid paying taxes on a 401(k), as you either have to pay taxes on contributions or withdrawals, depending on the type of 401(k) account. By contributing to a Roth 401(k) instead of a traditional 401(k), you can withdraw your contributions and earnings tax-free in retirement.

SoFi Invest®

INVESTMENTS ARE NOT FDIC INSURED • ARE NOT BANK GUARANTEED • MAY LOSE VALUE

SoFi Invest encompasses two distinct companies, with various products and services offered to investors as described below: Individual customer accounts may be subject to the terms applicable to one or more of these platforms.
1) Automated Investing and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser (“SoFi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC.
2) Active Investing and brokerage services are provided by SoFi Securities LLC, Member FINRA (www.finra.org)/SIPC(www.sipc.org). Clearing and custody of all securities are provided by APEX Clearing Corporation.
For additional disclosures related to the SoFi Invest platforms described above please visit SoFi.com/legal.
Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform.
For a full listing of the fees associated with Sofi Invest please view our fee schedule.

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.

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.

Update: The deadline for making IRA contributions for tax year 2020 has been extended to May 17, 2021.
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Dec

2024

401(k) Blackout Periods: All You Need to Know

By Laurel Tincher | Growing Wealth, invest, Investing, Terminology | Comments Off

A 401(k) blackout period is a hiatus during which plan participants may not make certain changes to their 401(k) accounts. Employers who offer 401(k) plans typically impose blackouts when they need to update or alter aspects of their plans. A blackout period may last anywhere from a few days to several weeks.

A blackout period doesn’t mean that the account is frozen. Employees in a payroll deduction plan can often continue making scheduled contributions to their 401(k) accounts during a blackout period, and assets held in 401(k) accounts remain invested in the market.

What Is a 401(k) Blackout Period?

As noted above, a 401(k) blackout period is a temporary suspension of employees’ ability to access their 401(k) accounts for actions such as withdrawals or portfolio adjustments. Companies use blackout periods to update or change their 401(k) retirement savings plans. Unfortunately, these blackout periods may sometimes be inconvenient for employees.

When Is a 401(k) Blackout Period Necessary?

There are several situations that might call for an employer to implement a 401(k) blackout period. Some common reasons include:

• Changes to the plan. Employers may need to implement a blackout period to allow for changes to their 401(k) plans, such as adding or eliminating investment alternatives or modifying the terms of the plan.

• New management. If an employer’s 401(k) plan is managed by a third party, the employer might decide to change sponsors or financial managers. A blackout period would give the employer time to transfer the assets and records.

• Mergers and acquisitions. Acquisition of a new firm or a merger with another company could require a blackout period while the two companies integrate their 401(k) plans.

• Issues with compliance. If an employer finds that the terms of their 401(k) plan violate federal laws, they may need to impose a blackout period while they conduct audits and bring the plan into compliance.

How Long Can a 401(k) Blackout Period Last?

A 401(k) blackout period can last for a few days or for a few weeks, but the typical duration is 10 days. The length often depends on the reason for the blackout and how much time it will take to implement the scheduled fixes. There is no legal maximum blackout period for 401(k) plans.

Will I Be Given a 401(k) Blackout Notice?

Employers are required to notify employees in advance of a blackout period. For blackout periods expected to last more than three days, employers must give at least 30 days’ (and not more than 60 days’) notice, according to the federal Employee Benefits Security Administration (EBSA). If the period’s beginning or ending date changes, employers are expected to provide an updated blackout notice as soon as reasonably possible.

Employers must provide this notice in writing, either by mail or email. The notice should include the reason for the blackout.

What Should I Do Before the Blackout Starts?

If a 401(k) blackout period is approaching, there are some steps you can take to prepare. Here are a few things to consider doing before the blackout starts:

• Review the account. Once you get your blackout notice, take some time to review your 401(k) plan, including your current contributions, investment options, and overall balance. This overview can help you zero in on anything that may need correction before the blackout begins.

• Make any appropriate changes. If you need to fine-tune how you’re investing in your 401(k), such as by adjusting contribution amounts or reallocating investments, try to do so before the blackout period. This will help ensure that your changes take effect as soon as possible.

• Communicate with your employer. For questions about the blackout period or requests for additional information, your employer is likely to be the best resource. They should be able to provide more details and address account-related concerns.

Starting Out With a New 401(k)

People starting a new job that offers a 401(k) plan have some decisions to make. Plan details to consider before committing to a new 401(k) account may include:

• Contribution limits. The Internal Revenue Service (IRS) sets limits on annual 401(k) contributions. Contribution limits for a 401(k) are $23,000 in 2024 and $23,500 in 2025 for those under age 50. Those aged 50 and over can make an additional catch-up contribution of $7,500, per year, to a 401(k) in 2024 and 2025. And in 2025, those aged 60 to 63 may contribute an additional $11,250 instead of $7,500, thanks to SECURE 2.0. If you want to max out your 401(k), knowing these limits can help you schedule your contributions appropriately.

• Investment options. Most 401(k) plans offer a range of investment vehicles, including mutual funds, exchange-traded funds (ETFs), and individual stocks. As you’re preparing for retirement, researching various asset types will help you see which ones align with your investment goals and risk tolerance.

• Fees. Some 401(k) plans charge fees for services such as plan administration or investment management. Understanding how the plan’s fees may impact your overall returns is crucial.

• Employer match. Many employers offer a matching contribution to employee 401(k) accounts. This means that the employer will kick in an additional percentage to augment an employee’s contributions. An employer match is a way of boosting your retirement savings, which may lead to bigger investment gains over time.

The Takeaway

Employees with 401(k) retirement accounts occasionally experience blackout periods. People may not access or alter their accounts during these breaks, which occur when employers and 401(k) plan sponsors need time to update or retool their retirement benefit plan. Blackout periods typically last for a few days or weeks. By law, participants must be notified at least 30 days ahead of a scheduled blackout period. This enables them to make any desired investment changes beforehand.

One convenient way of investing for retirement is through SoFi individual retirement accounts. You can open an online IRA account from your phone and start saving right away. If you have questions, SoFi has a team of professional advisors available to help.

Help grow your nest egg with a SoFi IRA.

FAQ

What is a retirement-fund blackout period?

A 401(k) blackout period is a multi-day pause during which the employer or the plan administrator typically update or maintain the plan. During this time, employees can’t alter their 401(k) retirement accounts. Making withdrawals or changing asset allocations may be prohibited. Though a blackout period is temporary, it can last several weeks or more.

Can you contribute to your 401(k) during the blackout period?

This depends on the specific terms of the employer’s 401(k) plan and the blackout period. Some plans may allow employees to keep setting aside money in their 401(k) accounts during a blackout; others may not. Your employer or plan administrator will have information on your plan’s rules for contributions.

How do I get my 401(k) out of the blackout period?

In most cases, there is nothing you can do to avoid or shorten your 401(k) blackout period. A blackout period generally comes to an end once the employer or plan administrator has completed the necessary plan updates. If you have additional questions about the duration of the blackout period or how to access your account again, your employer should be able to answer them.

Photo credit: iStock/damircudic

SoFi Invest®

INVESTMENTS ARE NOT FDIC INSURED • ARE NOT BANK GUARANTEED • MAY LOSE VALUE

SoFi Invest encompasses two distinct companies, with various products and services offered to investors as described below: Individual customer accounts may be subject to the terms applicable to one or more of these platforms.
1) Automated Investing and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser (“SoFi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC.
2) Active Investing and brokerage services are provided by SoFi Securities LLC, Member FINRA (www.finra.org)/SIPC(www.sipc.org). Clearing and custody of all securities are provided by APEX Clearing Corporation.
For additional disclosures related to the SoFi Invest platforms described above please visit SoFi.com/legal.
Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform.
For a full listing of the fees associated with Sofi Invest please view our fee schedule.

Exchange Traded Funds (ETFs): Investors should carefully consider the information contained in the prospectus, which contains the Fund’s investment objectives, risks, charges, expenses, and other relevant information. You may obtain a prospectus from the Fund company’s website or by email customer service at https://sofi.app.link/investchat. Please read the prospectus carefully prior to investing.
Shares of ETFs must be bought and sold at market price, which can vary significantly from the Fund’s net asset value (NAV). Investment returns are subject to market volatility and shares may be worth more or less their original value when redeemed. The diversification of an ETF will not protect against loss. An ETF may not achieve its stated investment objective. Rebalancing and other activities within the fund may be subject to tax consequences.
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Dec

2024

What Is 401(k) Auto Escalation?

By Austin Kilham | Growing Wealth, invest, Investing, Preparing for Retirement | Comments Off

One way to ensure you’re steadily working toward your retirement goals is to automate as much of the process as possible. Some employers streamline the retirement savings process for their employees with automatic enrollment, signing you up for a retirement plan unless you choose to opt out.

There are many ways to automate a 401(k) experience at every step of the way. You can have contributions taken directly from your paycheck before they ever hit your bank account and invest them right away. With automatic deductions, you’re more likely to save for your future rather than spending on immediate needs.

In some cases, you may also be able to automatically increase the amount you save. Some employers also offer a 401(k) auto escalation option that could increase your retirement savings amount as you get older. Here’s a closer look at how 401(k) auto escalation works and how it may help you on your way to your retirement goals.

Key Points

• 401(k) auto escalation automatically increases contributions at regular intervals until a preset maximum is reached.

• The SECURE Act allows auto escalation up to 15% of an employee’s salary.

• Auto escalation helps employees save more for retirement without needing to adjust contributions manually.

• Employers benefit from auto escalation by attracting and retaining talent and possibly reducing payroll taxes.

• Employees should assess if auto escalation aligns with their financial capabilities and retirement goals.

401(k) Recap

A 401(k) is a defined contribution plan offered through your employer. It allows employees to contribute some of their wages directly from their paycheck. Contributions are made with pre-tax money, which may reduce taxable income in the year they are made, providing an immediate tax benefit.

In 2025, employees can contribute up to $23,500 a year to their 401(k), up from $23,000 in 2024. Those aged 50 and older can contribute an extra $7,500, bringing their potential contribution total to $31,000 in 2025 and $30,500 in 2024. For 2025, those aged 60 to 63 may contribute an additional $11,250 instead of $7,500, thanks to SECURE 2.0.

For many individuals, the goal is to eventually max out a 401(k) up to the contribution limit. Employers may offer matching funds to help encourage employees to save. Individuals should aim to contribute at least enough to meet their employer’s match, in order to get that “free money” from their employer to invest in their future.

💡 Quick Tip: Did you know that you must choose the investments in your IRA? Once you open an IRA account and start saving, you get to decide which mutual funds, ETFs, or other investments you want — it’s totally up to you.

How 401(k) Auto Escalation Works

An auto escalation is a 401(k) feature that automatically increases your contribution at regular intervals by a set amount until a preset maximum is achieved. The SECURE Act, signed into law in 2019, allows auto escalation programs to raise contributions up to 15%. Before then, the cap on default contributions was 10% for auto escalation programs.

For example, you may choose to set your auto escalation rate to raise your contributions by 1% each year. Once you hit that 15% ceiling, auto escalation will cease. However, you can still choose to increase the amount you are saving on your own beyond that point.

Advantages of 401(k) Auto Escalation

When it comes to auto escalation programs, there are important factors to consider — for employees as well as for employers who sponsor the 401(k) plan.

Advantages for Employees

• Auto escalation is one more way to automate savings for retirement, so that it is always prioritized.

• Auto escalation may increase the amount employees save for retirement more than they would on their own.

• Employees don’t have to remember to make or increase contributions themselves until they reach the auto escalation cap.

• Increasing tax-deferred contributions may help reduce an employee’s tax burden.

Advantages for Sponsors

Employers who offer auto escalation may find it helps with both employee quality and retention as well as with reducing taxes.

• Auto escalation provides a benefit that may help attract top talent.

• It helps put employees on track to automatically save, which may increase retention and contribute to their sense of financial well-being.

• It reduces employer payroll taxes, because escalated funds are contributed pre-tax by employees.

• It may generate tax credits or deductions for employers. For example, matching contributions may be tax deductible.

• As assets under management increase, 401(k) companies may offer lower administration fees or even the ability to offer additional services to participants.

Disadvantages of 401(k) Auto Escalation

While there are undoubtedly benefits to 401(k) auto escalation, there are also some potential downsides to consider.

Disadvantages for Employees

Even on autopilot, it can be important to review contributions so as to avoid these disadvantages.

• Auto escalation may lull employees into a false sense of security. Even if they’re increasing their savings each year, if their default rate was too low to begin with, they may not be saving enough to meet their retirement goals.

• If an employee experiences a pay freeze or hasn’t received a raise in a number of years, auto escalation will mean 401(k) contributions represent an increasingly larger proportion of take-home pay.

Disadvantages for Sponsors

Employers may want to consider these potential downsides before offering 401(k) auto escalation.

• Auto escalation requires proper administrative oversight to ensure that each employee’s escalation amounts are correct — and it may be time-consuming and costly to fix mistakes.

• This option may increase the need to communicate with 401(k) record keepers.

• Auto escalation may cause employer contribution amounts to rise.

💡 Quick Tip: Did you know that opening a brokerage account typically doesn’t come with any setup costs? Often, the only requirement to open a brokerage account — aside from providing personal details — is making an initial deposit.

Is 401(k) Auto Escalation Right for You?

If your employer offers auto escalation, first determine your goals for retirement. Consider whether or not your current savings rate will help you achieve those goals and whether escalation could increase the likelihood that you will.

Also decide whether you can afford to increase your contributions. Perhaps your default rate is already set high enough that you are maxing out your retirement savings budget. In this case, auto escalation might land you in a financial bind.

However, if you have room in your budget, or you expect your income to grow each year, auto escalation may help ensure that your retirement savings continue to grow as well.

If your employer does not offer auto escalation, or you choose to opt out, consider using pay raises as an opportunity to change your 401(k) contributions yourself.

The Takeaway

A 401(k) is one of many tools available to help you save for retirement — and auto escalation can help you increase your contributions regularly without any additional thought or effort on your part.

If you’ve maxed out your 401(k) or you’re looking for a retirement account with more flexible options, you might want to consider a traditional or Roth IRA. Both types of IRAs offer tax-advantaged retirement savings.

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).

Help grow your nest egg with a SoFi IRA.

FAQ

Is 401(k) auto enrollment legal?

Yes, automatic enrollment allows employers to automatically deduct 401(k) contributions from an employee’s paycheck unless they have expressly communicated that they wish to opt out of the retirement plan.

What is automatic deferral increase?

Automatic deferral increase is essentially the same as auto escalation. It automatically increases the amount that you are saving by a set amount at regular intervals.

Can a company move your 401(k) without your permission?

Your 401(k) can be moved without your permission by a former employer if the 401(k) has a balance of $5,000 or less.

Photo credit: iStock/Halfpoint

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.

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.

SoFi Invest®

INVESTMENTS ARE NOT FDIC INSURED • ARE NOT BANK GUARANTEED • MAY LOSE VALUE

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Dec

2024

How to Get a $15,000 Personal Loan With Good or Bad Credit

By Caroline Banton | Credit, Family Finances, personal_loan | Comments Off

Personal loans used to be considered a last resort to resolve cash flow issues. Today, according to VantageScore, personal loans are the fastest-growing lending vehicle in the nation.

Personal loans are appealing partly because of their flexibility. They can be used for almost any purpose, whether to fix up a home or consolidate credit card debt. Borrowers can receive anywhere from $1,000 to $100,000, choose a fixed or variable interest rate, and even select the length of the loan.

Read on to find out more about how personal loans work, how to qualify, their advantages and disadvantages, and whether a $15,000 personal loan is right for you.

Key Points

• Obtain a $15,000 personal loan with a credit score of at least 660, though lower scores may qualify with higher interest rates.

• Personal loans offer fixed monthly payments, making budgeting easier, with repayment terms ranging from two to seven years.

• Be aware of potential fees like origination, late payment, and prepayment penalties; most loans are unsecured, requiring no collateral.

• Improve loan terms by boosting credit score through timely bill payments, reducing debt, and maintaining a good credit mix.

• Manage loan payments by creating a budget, reviewing loan terms, and using funds responsibly to avoid financial strain.

Understanding $15,000 Personal Loans

A $15,000 personal loan is a sizable amount that can serve many purposes. Common personal loan uses include making large purchases, covering living expenses for a defined period, consolidating debt, and paying off a credit card with a higher interest rate.

Here are some factors to consider before applying for a $15,000 loan:

• Interest rate. Interest rates can be fixed or variable. The interest rate that a lender charges will depend on your credit rating and the length of the loan, but rates are typically lower than for other forms of debt. Generally, the better your credit score, the lower your interest rates will be.

• Repayment term. This is how long you have to pay off a loan for $15,000. You may pay less in interest over the life of the loan if you choose a loan with a shorter repayment term.

• Monthly payments. Most personal loans have fixed monthly payments based on the amount borrowed, the interest rate, and the term. This makes budgeting easier because the borrower knows how much they must pay each month.

• Fees. Charges vary by lender but may include late penalties, an origination fee, returned check fee, and prepayment penalties if you pay off your loan early.

• Collateral. Personal loans are typically unsecured, which means no collateral is required. If you don’t qualify only for an unsecured loan, you may select a loan cosigner with a stronger credit rating to help you get approved.

Recommended: Guarantor vs Cosigner

Qualification Requirements for a $15,000 Personal Loan

You will likely need a credit score of at least 660 for a $15,000 personal loan. However, many lenders don’t state a minimum required credit score because they will vary the terms for each borrower depending on their credit history. As we mentioned, the higher your score, the more money you could qualify for and the better the interest rate.

But your credit score is only one factor that lenders consider. They may also want to see that you are employed and have sufficient income to repay the loan. You may be asked to show proof of income and employment, often with pay stubs, W2s and/or a signed letter from your employer. Self-employed? You could be required to share copies of your latest tax returns or bank deposit information.

Another important personal loan qualification is debt-to-income ratio (DTI), which compares your gross monthly income to the monthly payments you make on your debts. In general, the lower your DTI, the more desirable you are as a borrower for a lender. A good rule of thumb is to maintain a DTI ratio of 36% or less.

Exploring Lenders for $15,000 Personal Loans

Online lenders, traditional banks, and credit unions all provide $15,000 personal loans. Some online lenders prequalify borrowers so they can see the terms, and many will deposit funds into a bank account within one to two days.

Traditional banks and credit unions may offer better terms to their members because there is a pre-existing relationship. But they may also want to meet with a borrower in person to negotiate the loan.

Loan amounts can range from $1,000 up to $100,000. The average interest rate on a personal loan is currently 12.33%. But the rate you receive will depend in part on your credit score, loan amount, and length of the loan.

A personal loan calculator can help you determine borrowing costs. In the example below, notice how different loan terms and interest rates impact the total cost of a $15,000 loan.

Repayment Term	APR	Monthly Payment	Interest Paid	Total Cost of Loan
3 years	12.75%	$504	$3,130	$18,130
5 years	12.75%	$339	$5,363	$20,363
5 years	15.25%	$522	$3,786	$18,786
5 years	15.25%	$359	$6,529	$21,529

Tips for a Successful $15,000 Personal Loan Application

The steps to getting approved for a personal loan are typically the same regardless of the lender. The first step, before you even apply, is to review your credit history. You can pull a report for free from each of the three major credit bureaus — Equifax, Experian, and TransUnion — from the website AnnualCreditReport.com. Then you can file a dispute online to have any inaccuracies removed. This can boost your credit rating and ensure you get the best terms from a lender.

Here are the basic application steps you’ll need to be prepared for:

1. Check Your Eligibility

Shop around for the best loan terms and find out if you qualify. Check both online lenders and traditional lenders, paying special attention to origination fees and prepayment penalties.

2. Get Prequalified

Getting prequalified will show you what terms the lender is offering based on your credit history. Fill out the online form, including how much you want to borrow and your desired payoff time frame.

Lenders will pull your credit report to prequalify you, which may ding your credit score. Focus on lenders who will perform a “soft inquiry” for prequalification, which will not affect your credit rating.

3. Check the Terms

Once you are prequalified, review the preapproval letter and check the loan amount. Check whether it is an unsecured or secured loan, the annual percentage rate (APR), and whether the interest rate is fixed or variable. Pay attention to the monthly payment and the payback term. Also look for fees, penalties, and other potential charges.

4. Apply for the Loan

Gather the documents that you will need to apply for the loan. Borrowers typically need to upload a pay stub, mortgage or rent agreement, debt documentation, proof of identity, and their social security number.

Managing and Repaying Your $15,000 Personal Loan

It’s understandable if your focus is mostly on how to get approved for a personal loan. But just as important is figuring out how you’ll pay it back.

A good starting point is to get yourself on a budget. Review your income and expenses over the past three to six months, and categorize where your money is going. That will help you spot areas where you can cut back, if needed. It’s also a smart idea to reread your loan terms and conditions so you can avoid unexpected costs and issues over the life of your loan.

If you want to pay down your loan faster, there are some strategies to explore. One is to make extra payments, which will reduce the total amount you owe. Note that some lenders charge an early repayment penalty that could outweigh the amount you’d save by paying off your loan early.

Another option is to refinance your loan. When you refinance, you replace your current loan with a new one that ideally has a lower interest rate. This could be a good strategy if your credit score has improved since you first took out the loan, and you can now qualify for a better rate.

Improving Credit Score for Future Loan Opportunities

One effective way to position yourself for better loan rates and terms is to work on boosting your credit score. As we mentioned, lenders usually prefer to see a credit score of at least 660 to qualify for a $15,000 personal loan, though credit requirements vary.

If your credit isn’t where you want it to be, there are several ways to build (or rebuild) it. Here are some steps you can take:

• Pay your bills on time, every time. Lenders like to see a history of on-time payments, plus it can boost your credit profile.

• Pay down debts. Besides showing lenders that you can manage your credit responsibly, paying off debts can lower your credit utilization ratio, which is 30% of your FICO® Score. Aim for a ratio of 30% or under.

• Don’t close older accounts. Doing so can bring down the length of your credit history, which makes up 15% of your credit score.

• Diversify your credit mix. Having a mix of credit products can positively impact your credit (credit mix accounts for 10% of your score). Examples run the gamut from credit cards to personal loans to student loan refinancing.

The Takeaway

Personal loan interest rates are determined by a borrower’s credit rating and financial history. The higher the credit rating, the lower the interest rate. For consumers with good credit, a $15,000 personal loan can be a more affordable form of debt than credit cards. For consumers with bad credit, the higher interest rate may make a $15,000 personal loan less attractive.

Think twice before turning to high-interest credit cards. Consider a SoFi personal loan instead. SoFi offers competitive fixed rates and same-day funding. See your rate in minutes.

SoFi’s Personal Loan was named NerdWallet’s 2024 winner for Best Personal Loan overall.

FAQ

What credit score is needed for a personal loan for $15,000?

A credit score of at least 660 is typically required for a $15,000 personal loan. Some lenders that cater to people with poor credit will charge higher interest rates and fees to cover their elevated risk.

How long can I get a $15,000 personal loan for?

Personal loans are typically for three, five, or seven years. The shorter the repayment period, the less interest you will pay over the life of the loan.

What would payments be on a $15,000 personal loan?

The monthly payments on a $15,000 loan depend on the interest rate and repayment terms. If you know how much you want to borrow, over what period, and at what interest rate, an online loan calculator can tell you what your payments will be.

Photo credit: iStock/fizkes

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