How to Pay for Grad School

Students who graduate with a master’s degree carry an average debt of $69,140, according to the Education Data Initiative. There are numerous ways to finance your advanced degree (even without taking out loans), and investing in graduate education is frequently worth it, as the right degree has the potential for a massive return on investment.

If you’re considering going to grad school, we’ve laid out some key financing options. Read on to learn how to formulate a plan to pay for your graduate education.

Key Points

•   When it comes to financing grad school, filling out the Free Application for Federal Student Aid (FAFSA) is essential to determine eligibility for federal financial assistance, including grants and loans.

•   Investigate grants, scholarships, and fellowships offered by your chosen university’s financial aid office, as these can significantly reduce tuition costs.

•   Some employers provide tuition reimbursement programs to support employees pursuing further education. Review your company’s policies to see if this benefit is available.

•   Seek out scholarships and grants from private organizations, nonprofits, and government agencies, which can provide additional funding without the need for repayment.

•   After exhausting grants and scholarships, explore federal student loans, which often have favorable terms. If additional funding is needed, private student loans are also an option, though they may come with higher interest rates.

Ways to Pay for Grad School Without Taking on Debt

You can pay for grad school without taking on debt by filling out the FAFSA, applying for scholarships and grants, or working for an employer who offers tuition reimbursement. Continue reading for even more strategies to pay for grad school without taking on debt.

Fill Out The FAFSA

The first step to seeing if you qualify for financial aid is to fill out the Free Application for Federal Student Aid, or FAFSA®.

Your FAFSA will determine your eligibility for federal student loans, federal work-study, and federal grants. In addition, your college may use your FAFSA to determine your eligibility for aid from the school itself. Here’s a closer look at federal grants and federal work-study programs.

Federal Grants

Unlike student loans, federal grants do not need to be repaid. It may be possible to receive some grant funding to help you with financing grad school. Federal grant programs for grad students include TEACH Grants and Fulbright Grants.

The TEACH Grant, or Teacher Education Assistance for College and Higher Education Grant, has relatively stringent requirements and is available for students pursuing a teaching career who are willing to fulfill a service obligation after graduating.

The Fulbright Grant offers funding for international educational exchanges. Sponsored by the U.S. government, it supports students, scholars, teachers, and professionals to study, research, or teach abroad.

Federal Work-Study Program

Federal work-study for grad students provides part-time jobs to help cover educational expenses. These positions are often related to a student’s field of study or serve the community. Eligibility is based on financial need, and earnings are exempt from being counted as income on the FAFSA, maximizing financial aid opportunities.

Figure out What Your University Can Offer You

After narrowing down your federal options, make sure to consider what university-specific funding might be available. Many schools offer their own grants, scholarships, and fellowships. Your school’s financial aid office likely has a specific program or contact person for graduate students who are applying for institutional assistance.

Many schools will use the FAFSA to determine what, if anything, the school can offer you, but some schools use their own applications.

Although another deadline is the last thing you need, seeking out and applying for school-specific aid can be one of the most successful ways to pay for grad school. Awards can range from a small grant to full tuition remission.

Employer Tuition Reimbursement

It might sound too good to be true, but some employers are happy to reimburse employees for a portion of their grad school costs. Employers that have tuition reimbursement plans set their own requirements and application processes.

Make sure to consider any constraints your employer puts on their tuition reimbursement program, including things like staying at the company for a certain number of years after graduation or only funding certain types of degree programs.

Become an In-State Resident

If you’re applying for graduate school after taking a few years off to work, you might be surprised to find how costs have changed since your undergraduate days. Graduate students interested in a public university can save tens of thousands of dollars by considering a university in the state they already live in.

Each state has different requirements for determining residency. If you are planning on relocating to attend grad school, be sure to look into the requirements for the state of the school you are planning to attend.

Certain states require only one year of full-time residency before you can qualify for in-state tuition, while others require three years. During that time, you could work as much as possible to save money for graduate school. More savings could mean fewer loans.

Become a Resident Advisor (RA)

You probably remember your undergrad Resident Advisor (RA). They were the ones who helped you get settled into your dorm room, showed you how to get to the nearest dining hall, and yelled at you for breaking quiet hours.

RAs may be underappreciated, but they’re often compensated handsomely for their duties. Students are typically compensated for a portion or all of their room and board, and some schools may even include a meal plan, reduced tuition, or a stipend. The compensation you receive will depend on the school you are attending, so check with your residential life office to see what the current RA salary is at your school.

Serious savings. Save thousands of dollars
thanks to flexible terms and low fixed or variable rates.


Find a Teaching Assistant Position

If you’re a graduate student, you can often find a position as a Teaching Assistant (TA) or Research Assistant (RA) for a professor. The position will be related to your undergrad or graduate studies and often requires grading papers, conducting research, organizing labs, or prepping for class.

TAs can be paid with a stipend or through reduced tuition, depending on which school you attend. Not only can the job help you to potentially avoid student loans, but it also gives you networking experience with people in your field.

The professor you work with can recommend you for a job, bring you to conferences, and serve as a reference. Being a TA may help boost your resume, especially if you apply for a Ph.D. program or want to be a professor someday. According to Salary.com, the average TA earns $6 to $13 an hour, as of December 2024.

Apply for Grants and Scholarships

Applying for grants and scholarships is a smart way to fund graduate school without accumulating debt. Start by researching opportunities specific to your field, school, or demographics. Many scholarships focus on academic achievements, leadership, or community involvement, while grants often emphasize financial need.

An easy way to search for scholarships is through one of the many websites that gather and tag scholarships by criteria. Keeping all your grad school and FAFSA materials handy means that you’ll have easy access to the information you’ll need for scholarship applications.

Recommended: Scholarship Search Tool

How to Pay for Grad School With Student Loans

Grad students may rely on a combination of financing to pay for their education. Student loans are often a part of this plan. Like undergraduate loans, graduate students have both federal and private student loan options available to them.

Federal Loans for Graduate School

Depending on the loan type, payments on these student loans can be deferred until after graduation and sometimes qualify you for certain tax deductions (like taking a tax deduction for interest paid on your student loans).

There are different types of federal student loans, and each type has varying eligibility requirements and maximum borrowing amounts. Graduate students may be eligible for the following types of federal student loans:

•   Direct Unsubsidized Loans. Eligibility for this loan type is not based on financial need.

•   Direct PLUS Loans. Eligibility for this loan type is not based on financial need; however, a credit check is required to qualify for this type of loan.

•   Direct Consolidation Loans. This is a type of loan that allows you to combine your existing federal loans into a single federal loan.

Federal Student Loan Forgiveness Programs

Federal student loan forgiveness programs either assist with monthly loan payments or can discharge a remaining federal student loan balance after a certain number of qualifying payments.

One such program is the Public Service Loan Forgiveness (or PSLF) program. The PSLF program allows qualifying federal student loan borrowers who work in certain public interest fields to discharge their loans after 120 monthly, on-time, qualifying payments.

Additionally, some employers offer loan repayment assistance to help with high monthly payments. While loan forgiveness programs don’t help you with the upfront cost of paying for grad school, they may offer a meaningful solution for federal student loan repayment. (Unfortunately, private student loans don’t qualify for these federal programs.)

Private Loans for Graduate School

If you’re not eligible for scholarships or grants, or you’ve maxed out how much you can borrow using federal student loans, you can apply for a private graduate student loan to help cover the cost of grad school.

Private loan interest rates and terms will vary by lender, and some private loans have variable interest rates, which means they can fluctuate over time. Doing your research with any private lender you’re considering is worth it to ensure you know exactly what a loan with them would look like.

Also, keep in mind that private student loans do not offer the same benefits and protections as federal student loans. It’s best to use all federal funding first before relying on private funding.

Recommended: Private Student Loans vs Federal Student Loans

Steps to Take Before Applying to Graduate School

Before applying to graduate school, it’s important to consider the earning potential offered by the degree in comparison to the cost. At the end of the day, only you can decide if pursuing a specific graduate degree is worth it. Here are a few steps to take before applying to grad school.

1. Research Potential Earnings by Degree

Perhaps you are already committed to one degree path, like getting your JD to become a lawyer. In that case, you should have a good idea of what the earning potential could be post-graduation.

If you’re considering a few different graduate degrees, weigh the cost of the degree in contrast to the earning potential for that career path. This could help you weigh which program offers the best return.

2. Complete the FAFSA

Regardless of the educational path you choose, filling out the FAFSA is a smart move. It’s completely free to fill out and you may qualify for aid including grants, work-study, or federal student loans. Federal loans have benefits and protections not offered to private loans, so they are generally prioritized first.

3. Explore Financing Options

As mentioned, you may need to rely on a combination of financing options to pay for grad school. When scholarships, grants, and federal student loans aren’t enough — private loans can help you fill in the gaps.

When comparing private lenders, be sure to review the loan terms closely — including factors like the interest rate, whether the loan is fixed or variable, and any other fees. Review a lender’s customer service reputation and any other benefits they may offer, too.

The Takeaway

Grad school is a big investment in your education, but the good news is there are grants and scholarships that you won’t have to pay back. Some employers may also offer tuition reimbursement benefits, or you could find work as a Resident Advisor to supplement your tuition costs. If you need more funding to finance grad school, there are federal and private student loans.

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

Does FAFSA give money for grad school?

Yes, FAFSA provides access to federal financial aid for graduate school, including Direct Unsubsidized Loans and Grad PLUS Loans. Graduate students may not qualify for federal grants but can explore assistantships, scholarships, and work-study opportunities through FAFSA to help cover their educational expenses.

Does Pell Grant cover a master’s degree?

No, the Pell Grant does not cover master’s degree programs. It is a federal grant specifically designed for undergraduate students with financial need. Graduate students must explore other funding options like scholarships, assistantships, and federal loans, such as Direct Unsubsidized Loans or Grad PLUS Loans, to finance their education.

Is it worth paying for grad school?

Paying for grad school can be worth it if the degree significantly boosts your career prospects, earning potential, or personal goals. Consider the return on investment, including salary increases and opportunities. Research funding options and weigh potential debt against long-term benefits to determine if grad school aligns with your financial future.


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., 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 04/24/2024 and is subject to change. SoFi Private Student loans are originated by SoFi Bank, N.A. Member FDIC. NMLS #696891. (www.nmlsconsumeraccess.org).

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.


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.

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Community College vs College: Pros and Cons

Community College vs College: Pros and Cons

Community colleges offer a more affordable path to a Bachelor’s degree for students who are interested in transferring to a four-year institution. Students at community college can fulfill general education requirements on a flexible schedule while earning their associates degree. However, community colleges don’t offer a Bachelor’s degree option and can lack student life and extracurricular opportunities.

Community colleges can be a great fit for some students, while others may prefer to start out at a four-year college or university. Keep reading to learn more on the similarities and differences between community colleges and four-year universities.

Key Points

•   Community colleges typically offer lower tuition fees compared to universities, making them a more affordable option for many students.

•   Community colleges generally provide two-year associate degrees and certificates, while universities offer four-year bachelor’s degrees and advanced graduate programs.

•   Community colleges often have smaller class sizes, allowing for more personalized attention from instructors, whereas universities may have larger lecture halls with less individualized interaction.

•   Universities typically offer a more vibrant campus life with a wide range of extracurricular activities, clubs, and organizations, which may be limited or absent at community colleges.

•   Community colleges often provide flexible scheduling options, including night and weekend classes, catering to nontraditional students or those balancing work and education.

What Is a Community College?

Community colleges are one type of postsecondary institution. Sometimes called junior colleges, these are educational institutions that offer two-year degrees and a path to transferring to a four-year college or university.

Community College vs University: How They Compare

Community colleges, as mentioned, generally offer two-year associates degrees. In comparison, colleges and universities often offer four-year degrees, such as a Bachelor of Arts or Sciences.

Similarities

Both types of colleges have some similarities, including the types of aid that you may receive to attend.

Financial Aid

It’s possible to get student loans for community colleges. Students at both community colleges and four-year universities may qualify for the same types of federal financial aid. These options may include scholarships, grants, and federal student loans.

Prerequisite Courses

Community colleges will offer some of the same prerequisite courses as universities. Classes like General Chemistry 101 or Microbiology 101 are similar at community colleges, and students may be able to transfer these prerequisite courses toward a four-year degree if they choose to transfer.

Academic Challenge

It’s easy to think of community college classes as a breeze to complete — but, in many cases, community colleges offer academically rigorous classes that cover material comparable to those offered at four-year institutions. Additionally, community college professors do not conduct research, so there may be more of a focus on in-classroom instruction at community colleges than at four-year colleges or universities.

Differences

There are also plenty of differences between attending a community college vs. university. In addition to the estimated time to earn a degree and the type of degree available, these include things like the cost of attendance, class size, and the application process.

Cost

Attending a community college can be significantly cheaper than going to a four-year university. For example, at schools that are part of the California Community College system, the cost of classes is $46 per credit unit. According to the Education Data Initiative, the average cost per credit at a four-year university with in-state tuition is $447.

Recommended: How to Pay for College

Class Size

The average class size can vary dramatically depending on the school you attend. Community colleges typically have class sizes that hover around 25 to 30 students, depending on the course and school. Some four-year universities can have class sizes into the hundreds, especially for intro-level courses.

Application Process

The application process at a university vs. community college can be much more competitive. At many four-year colleges, the application process consists of requirements like a college essay, recommendation letters, and high school transcripts. Additionally, schools may have strict deadlines for admissions each year.

Community colleges often offer more flexibility in the application process. Many community colleges are open access, meaning almost anyone can enroll in classes. There may be restrictions for certain programs or classes, though, such as classes required for nursing programs.

Campus Life

While some community colleges may offer on-campus housing for students, a large number of them will continue to live at-home or off-campus. This can make on-campus life feel very different than at a four-year college where most students live on-campus.

Similarities and Differences Between Community College vs. University

Topic

Community College

Colleges and Universities

Financial Aid Both types of schools may be eligible for federal student aid. Both types of schools may be eligible for federal student aid.
Prerequisite Courses Both types of schools offer general education or prerequisite courses like General Chemistry 101 or American History 101. Both types of schools offer general education or prerequisite courses like General Chemistry 101 or American History 101.
Cost Community colleges are significantly cheaper than four-year institutions. Colleges and universities are generally more expensive than community colleges.
Class Size Class sizes at community colleges are generally smaller than at four-year institutions. Class sizes may be larger at some colleges or universities. At some schools, intro level courses can have hundreds of students in a single class.
Application Process The application process for community college is usually more lenient than at four-year institutions. Colleges and universities often have strict requirements that may include a college essay, letters of recommendation, and standardized testing.
Campus Life Because many students live off-campus, campus life may be less robust than at four-year institutions. Many colleges and universities are known for having a rich on-campus life available for students and offer a variety of extracurricular activities.

Pros and Cons of Attending a Community College

There are both downsides and benefits of community college. Community colleges can offer an affordable path to get a four-year degree, but transferring and a lack of on-campus community can detract from the community college experience. Below are the pros and cons of attending a community college.

Pros of Community College

Cost

One of the top pros in the community college column is the price tag. As previously outlined, courses at community college can be significantly less costly than at a four-year institution. For students who are paying for college without parents’ help, starting at a community college can help them significantly lower the cost of their overall degree.

Additionally, students may be able to continue living at home with their family, which can cut costs even further since they won’t be paying for room and board.

Flexibility

Community colleges have flexible scheduling options that can make working while you are in school easier.

Students may also be able to take a variety of classes if they are not sure what field or major they’d like to pursue at a four-year college.

Qualified Professors and Small Class Sizes

As already mentioned, community colleges may offer smaller classes. These small class sizes can lead to more hands-on professors and lecturers — who may be just as qualified as those at larger universities.

Cons of Community College

Limited Curriculum and Degree Programs

Community colleges can be a good place to explore interests and fulfill general requirements for a four-year degree, but they may be limited in the types of courses available.

Need to Transfer for Bachelor’s Degree

To pursue a bachelor’s degree, community college students will need to transfer to a four-year institution.

Lack of On-Campus Life

Because many students live off-campus, on-campus activity and extracurriculars may be limited.

Pros and Cons of Attending a Community College

Pros of Attending a Community College

Cons of Attending a Community College

Cost. Community colleges are generally more affordable than other educational institutions. Limited Curriculum and Degree Programs. Students may be limited in the types of programs and degree options available.
Flexibility. Students can choose from a variety of class times that may make it easier to work while studying and can allow them to explore a variety of academic interests. Need to Transfer for a Bachelor’s Degree. Community colleges typically offer up to an associate degree.
Qualified Professors and Small Class Sizes. Class sizes at community colleges hover around 25 to 30 students. Lack of On-Campus Life. Campus life and extracurriculars may be more robust at a four-year institution.

Pros and Cons of Attending a University

Attending a four-year college or university can have pros and cons — just like its community college counterpart. Some benefits of universities include improved long-term earning potential and the opportunity to build a network. The major downside can be the steep cost.

Pros of a University

Long-Term Earning Potential

Bachelor’s degrees can lead to a significant boost in earning potential. According to the National Center for Education Statistics, individuals with bachelor’s degrees can earn up to 35% more than those with an associate’s degree.

Plus, a bachelor’s degree is sometimes a prerequisite for careers in some fields, like human resources, marketing, or computer science and software engineering.

On-Campus Life and Extracurriculars

Many colleges have a rich on-campus life with an active student body and a variety of extracurriculars. Depending on your interests and the school you attend, you could participate in the school’s television and radio station, join an intramural sports team, and more.

Build a Network

Many colleges have a strong and extensive alumni network that students can tap into post-graduation while they look for a job. While you are attending school, you’ll also build soft skills like time management, organization, and interpersonal communication that can be invaluable in the professional world.

Cons of a University

Cost

One of the biggest downsides to college is the cost. According to the College Board, the average cost of tuition and fees at private four-year institutions was $43,350 during the 2024-2025 school year. Add in costs for room and board and other living expenses, and it can be easy to see why some students may be dissuaded from pursuing a four-year degree.

Recommended: What Is the Average Cost of College Tuition?

Social Distractions

With all of the hustle and bustle at a college, it can be challenging to balance work, well-being, and fun. With parties, extracurriculars, sports, and more, it can be easy for students to get distracted from their studies.

Can You Combine Community College and University?

Yes, it’s very possible to attend a two-year community college and then transfer to a four-year college to complete your bachelor’s degree. Many community colleges have articulation agreements in place with local state schools that can make it easier to transfer credits.

Check in with your academic advisor as you complete community college classes to be sure they will transfer to the college of your choice.

Recommended: Should You Choose a College Based on Price?

Figuring Out What’s Right for You

As you’re crafting your own pros and cons list, here are some questions to ask yourself before making your decision.

•   Do I want to live at home or on campus? If you’re hoping to be close to family or need to stay in town for a job, finding a community college campus nearby could be the right call.

•   Do I want to join clubs and organizations? While community colleges offer some activities, universities typically provide more for students to partake in.

•   Do I have enough money to go to a big school? Whether a major state school or a private college or university, student loan debt could follow you for a long time after you graduate.

•   Where is my support system? Not having friends and loved ones around may make school more difficult for some. If your support system is vital to you, and you can’t find a big school near your close family, opting for a community college might be better.

•   Is this the best option for my major? Determining what you want to pursue as a major is a big deal. If you aren’t certain about what you want to do, you might not want to move far away quite yet. Or alternately, maybe getting some distance from your close friends and family will help you find your direction.

The Takeaway

Community colleges can offer a more affordable path to a four-year degree. Universities can offer a rich on-campus experience and a strong long-term earning potential. Depending on your personal situation, either or both could be a good fit.

Once you decide where you want to go, you’ll need to figure out how to pay for college. Typically, students rely on a few different funding sources to fund their education, including scholarships, grants, work-study, and student loans.

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

Is community college easier academically than university?

Community colleges often have qualified professors and courses that are comparable to those offered at a four-year institution. The course selection and degree programs available at a community college, though, may be more limited than at a university.

Is getting a degree from a community college worth it?

Getting a degree from a community college can be worth it. In addition to securing an associate’s degree, you may be able to transfer to a four-year institution to continue your education to get a Bachelor’s degree. Doing this can be less expensive than pursuing a Bachelor’s degree exclusively at a four-year institution.

Is going to community college a good way to cut down on the cost of a 4 year college degree?

The cost of classes at a community college is typically significantly cheaper than the cost at a four-year institution. Starting out at a community college and transferring to complete your degree can significantly cut the cost of tuition. Plus, community college students may have the option to live at home which can reduce room and board expenses.


Photo credit: iStock/simonkr

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., 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 04/24/2024 and is subject to change. SoFi Private Student loans are originated by SoFi Bank, N.A. Member FDIC. NMLS #696891. (www.nmlsconsumeraccess.org).

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.


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.

SOISL-Q424-058

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How to Manage Your 401(k): Tips for All Investors

A 401(k) plan is an employer-sponsored retirement plan that you fund with pre-tax dollars deducted from your paycheck.

Understanding the nuances of a 401(k) plan may help individuals maximize their savings.

While financial and retirement situations differ, there are some 401(k) tips that could be helpful to many using this popular investment plan. Consider these eight strategies to help you save for retirement.

1. Take Advantage of Your Employer Match

2. Consider Your Circumstances Before Contributing the Match

3. Understand Your 401(k) Investment Options

4. Stay the Course

5. Change Your Investments Over Time

6. Find—and Keep—Your Balance

7. Diversify

8. Beware Early Withdrawals

8 Tips for Managing Your 401(k)

1. Take Advantage of Your Employer Match

Understanding an employer match is important to making the most of your 401(k).

Also called a company match, an employer match is an employee benefit that allows an employer to contribute a certain amount to an employee’s 401(k). Depending on the plan, the amount of the match might be a percentage of the employee’s contribution up to a specific dollar amount, or a set dollar amount.

Some employers may require that employees make a certain minimum contribution to be eligible for matching funds. For example, an employer might match 3% when you contribute 6%. Your employer may do something different, so be sure to check with your HR or benefits representative.

Even if you don’t contribute the maximum allowable amount to your 401(k), you still may want to take advantage of the match. In other words, in the example above, if the maximum contribution limit for your 401(k) is 10% and you aren’t contributing that much, it might make sense to at least contribute 6% to get the employer match of 3%.

An employer match is sometimes referred to as “free money,” as in, “don’t leave this free money on the table.” An employer match is money that is part of your compensation and benefits package. Claiming it could be your first step in wealth building.

💡 Quick Tip: Investment fees are assessed in different ways, including trading costs, account management fees, and possibly broker commissions. When you set up an investment account, be sure to get the exact breakdown of your “all-in costs” so you know what you’re paying.

2. Consider Your Circumstances Before Contributing the Max

Contributing the maximum amount allowed to a 401(k) may make sense for some individuals, particularly if contributing the max isn’t a financial stretch for them. But if you’re struggling to reach that maximum contribution number, or if you have other pressing financial obligations, it may not be the best use of your money.

The maximum amount you can contribute to a 401(k), if you’re under age 50, is $23,000 in 2024 and $23,500 in 2025. If you’re 50 and over, you can make an additional $7,500 in catch-up contributions 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. (These limits don’t include matching funds from your employer.)

If you are living paycheck to paycheck, or you don’t have an emergency savings fund for unexpected expenses, you may want to prioritize those financial situations first. Also, if you have a lot of high-interest debt like credit card debt, it may be in your best interest to pay that debt down before contributing the full amount to your 401(k).

In addition, you may want to think about whether you’re going to need any of the money you might contribute to your 401(k) prior to retirement. Withdrawing money early from a 401(k) can result in a hefty penalty.

There are some exceptions, depending on what you’ll use the withdrawn funds for. For example, qualified first-time home buyers may be exempt from the early distribution penalty. But for the most part, if you know you need to save for some big pre-retirement expenses, it may be better to do so in a non-qualified account.

You might also want to consider whether it makes sense to contribute to another type of retirement account as well, rather than putting all of your eggs in your 401(k) basket. While a 401(k) can offer benefits in terms of tax deferral and a matching contribution from your employer, individuals who are eligible to contribute to a Roth IRA, may want to think about splitting contributions between the two accounts.

While 401(k) contributions are made with pre-tax dollars and you pay taxes on the withdrawals you make in retirement, Roth IRA contributions are made with after-tax dollars and typically withdrawn tax-free in retirement.

If you’re concerned about being in a higher tax bracket at retirement than you are now, a Roth IRA can make sense as a complement to your 401(k). A caveat is that these accounts are only available to people below a certain income level.

3. Understand Your 401(k) Investment Options

Once you start contributing to a 401(k); the second step is directing that money into particular investments. Typically, plan participants choose from a list of investment options, many of which may be mutual funds.

When picking funds, consider what they consist of. For example, a mutual fund that is invested in stocks means that you will be invested in the stock market.

With each option, think about this: Does the underlying investment make sense for your goals and risk tolerance?

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1Terms and conditions apply. Roll over a minimum of $20K to receive the 1% match offer. Matches on contributions are made up to the annual limits.

4. Stay the Course

At least part of your 401(k) money may be invested in the stock market through the funds or other investment options you choose.

If you’re not used to investing, it can be tempting to panic over small losses. Getting spooked by a dip in the market and pulling your money out is generally a poor strategy, because you are locking in what could possibly amount to be temporary losses. The thinking goes, if you wait long enough, the market might rebound. (Though, as always, past performance is no predictor of future success.)

It may help to know that stock market fluctuations are generally a normal part of the cycle. However, some investors may find it helpful to only check their 401(k) balance occasionally, rather than obsess over day-to-day fluctuations.

5. Change Your Investments Over Time

Lots of things change as we get older, and one important 401(k) tip is to change your investing along with it.

While everyone’s situation is different and economic conditions can be unique, one rule of thumb is that as you get closer to retirement, it makes sense to shift the composition of your investments away from higher risk but potentially higher growth assets like stocks, and towards lower risk, lower return assets like bonds.

There are types of funds and investments that manage this change over time, like target date funds. Some investors choose to make these changes themselves as part of a quarterly or annual rebalancing.

6. Find — And Keep — Your Balance

While you may want your 401(k) investments to change depending on what life stage you’re in, at any given time, you should also have a certain goal of how your investments should be allocated: for instance, a certain portion in bonds, stocks, international stocks, American stocks, large companies, small companies, and so on.

These targets and goals for allocation can change, however, even if your allocations and investment choices don’t change. That’s because certain investments may grow faster than others and thus, they end up taking up a bigger portion of your portfolio over time.

Rebalancing is a process where, every year or every few months, you buy and sell shares in the investments you have in order to keep your asset allocation where it was at the beginning of the year.

For example, if you have 80% of your assets in a diversified stock market fund and 20% of your assets in a diversified bond fund, over the course of a year, those allocations may end up at 83% and 17%.

To address that, you might either sell shares in the stock fund and buy shares in the bond fund in order to return to the original 80/20 mix, or adjust your allocations going forward to hit the target in the next year.

7. Diversify

By diversifying your investments, you put your money into a range of different asset classes rather than concentrating them in one area. The idea is that this may help to lower your risk (though there are still risks involved in investing).

There are several ways to diversify a 401(k), and one of the most important 401(k) investing tips is to recognize how diversification can work both between and within asset classes.

Diversification applies to your overall asset allocation as well as the assets you allocate into. While every situation is different, you may want to be exposed to both stocks and fixed-income assets, like bonds.

Within stocks, diversification can mean investing in U.S. stocks, international stocks, big companies, and small companies. It might make sense to choose diversified funds in all these categories that are diversified within themselves — thus offering exposure to the whole sector without being at the risk of any given company collapsing.

8. Beware Early Withdrawals

An important 401(k) tip is to remember that the 401(k) is designed for retirement, with funds withdrawn only after a certain age. The system works by letting you invest income that isn’t taxed until distribution. But if you withdraw from your 401(k) early, some of this advantage can disappear.

With a few exceptions, the IRS imposes a 10% penalty on withdrawals made before age 59 ½. That 10% penalty is on top of any regular income taxes a plan holder would pay on 401(k) withdrawals. While withdrawals are sometimes unavoidable, the steep cost of withdrawing funds early should be a strong reason not to, if possible.

If you would like to buy a house, for instance, there are other options to explore. First consider pulling money from any accounts that don’t have an early withdrawal penalty, such as a Roth IRA (contributions can typically be withdrawn penalty-free as long as they’ve met the 5-year rule).

The Takeaway

If you have a 401(k) through your employer, consider taking advantage of it. Not only might your employer offer a match, but automatic contributions taken directly from your paycheck and deposited into your 401(k) may keep you from forgetting to contribute.

Also be aware that a 401(k) is not the only option for saving and investing money for the long-term. One alternative option is to open an IRA account online. While there are income limitations to who can use a Roth IRA, these accounts also tend to have a bit more flexibility when withdrawing funds than 401(k) plans.

Another option is to open an investment account. These accounts don’t have the special tax treatment of retirement-specific accounts, but may still be viable ways to save money for individuals who have maxed out their 401(k) contributions or are looking for an alternative way to invest.

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.


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.


External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.


Investment Risk: Diversification can help reduce some investment risk. It cannot guarantee profit, or fully protect in a down market.

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.

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Investment Tax Rules Every Investor Should Know

Investment Tax Rules Every Investor Should Know

Investing can feel like a steep learning curve. In addition to having a clear grasp of types of investment vehicles available and the role investments play in overall financial strategy, it’s a good idea to understand how taxes may affect your investments. Knowing tax implications of various investment vehicles and investment decisions may help an investor tailor their strategy and end up with fewer headaches at tax time.

What Is Investment Income?

Tax requirements for investments can be complicated, and it may be helpful for investors to work with a professional to see how taxes might impact a return on their investment. Doing so might also help ensure that investors aren’t overlooking anything important when it comes to their investments and taxes.

That said, it’s beneficial to enter into any discussion with some solid background information on when and how investments are taxed. Typically, investments are taxed at one or more of these three times:

•   When you sell an asset for a profit. This profit is called capital gains—the difference between what you bought an investment for and what you sold it for. Capital gains taxes are typically only triggered when you sell an asset; otherwise, any gain is an “unrealized gain” and is not taxed.

•   When you receive money from your investments. This may be in the form of dividends or interest.

•   When you have investment income that includes such things as royalties, income from rental properties, certain annuities, or from an estate or trust. This may incur a tax called the Net Investment Income Tax (NIIT).

In the following sections, we delve deeper into each of these situations that can lead to taxes on investments.

💡 Quick Tip: Investment fees are assessed in different ways, including trading costs, account management fees, and possibly broker commissions. When you set up an investment account, be sure to get the exact breakdown of your “all-in costs” so you know what you’re paying.

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Tax Rules for Different Investment Income Types

Capital Gains Taxes on Assets Sold

Capital gains are the profits an investor makes from the purchase price to the sale price of an asset. Capital gains taxes are triggered when an asset is sold (or in the case of qualified dividends, which is explained further in the next section). Any growth or loss before a sale is called an unrealized gain or loss, and is not taxed.

The opposite of a capital gain is a capital loss. This occurs when an investor sells an asset at a lower price than purchased. Why would this happen? That depends on the investor. Sometimes, an investor needs to sell an asset at a suboptimal time because they need the cash, for instance.

At other times, an investor may sell “losing” assets at the same time they sell assets that have gained as a way to minimize their overall tax bill, by using a strategy called tax-loss harvesting. This strategy allows investors to “balance” any gains by selling profits at a loss, which, according to IRS rules, may be carried over through subsequent tax years.

There are two types of capital gains, depending on how long you have held an asset:

•  Short-term capital gains. This is a tax on assets held less than a year, taxed at the investor’s ordinary income tax rate.
•  Long-term capital gains. This is a tax on assets held longer than a year, taxed at the capital-gains tax rate. This rate is lower than ordinary income tax.

For the 2024 tax year, individuals may qualify for a 0% tax rate on long-term capital gains if their taxable income is $94,050 or less for those married and filing jointly, and no more than 15% if their taxable income is up to $583,750. Beyond that, the tax rate is 20%.

For the 2025 tax year, the long-term capital gains tax is $0 for individuals married and filing jointly with taxable income less than $96,700, and no more than 15% for those with taxable income up to $600,050. The long-term capital gains tax rate is 20% for those whose taxable income is more than that.

Dividend And Interest Taxes

Dividends are distributions that a corporation, S-corp, trust or other entity taxable as a corporation may pay to investors. Not all companies pay dividends, but those that do typically pay investors in cash, out of the corporation’s profits or earnings. In some cases, dividends are paid in stock or other assets.

Dividends that are part of tax-advantaged investment vehicles are not taxed. Generally, taxpayers will receive a form 1099-DIV from a corporation that paid dividends if they receive more than $10 in dividends over a tax year. All other dividends are either ordinary or qualified:

•  Ordinary dividends are taxed at the investor’s income tax rate.
•  Qualified dividends are taxed at the lower capital-gains rate.

In order for a dividend to be considered “qualified” and taxed at the capital gains rate, an investor must have held the stock for more than 60 days in the 121-day period that begins 60 days before the ex-dividend date. (Additionally, said dividends must be paid by a U.S. corporation or qualified foreign corporation, and must be an ordinary dividend, as opposed to capital gains distributions or dividends from tax-exempt organizations.)

Both ordinary dividends and interest income on investments are taxed at the investors regular income rate. Interest may come from brokerage accounts, or assets such as mutual funds and bonds. There are exceptions to interest taxes based on type of asset. For example, municipal bonds may be exempt from taxes on interest if they come from the state in which you reside.

Total Investment Income and Net Investment Income Tax (NIIT)

Net investment income tax (NIIT) is a flat 3.8% surtax levied on investment income for taxpayers above a certain income threshold. The NIIT is also called the “Medicare tax” and applies to all investment income including, but not limited to: interest, dividends, capital gains, rental and royalty income, non-qualified annuities, and income from businesses involved in trading of financial instruments or commodities.

NIIT applies to individuals with a modified adjusted gross income (MAGI) over $200,000 for single filers and $250,000 for married couples filing jointly. For taxpayers over the threshold, NIIT is applied to the lesser of the amount the taxpayer’s MAGI exceeds the threshold or their total net investment income.

For example, consider a couple filing jointly who makes $200,000 in wages and has a NIIT of $60,000 across all investments in a single tax year. This brings their MAGI to $260,000—$10,000 over the AGI threshold. This would mean the taxpayer would owe tax on $10,000. To calculate the exact amount of tax, the couple would take 3.8% of $10,000, or $380.

Cases of Investment Tax Exemption

Certain types of investments may be exempt from tax implications if the money is used for certain purposes. These investment vehicles are called “tax-sheltered” vehicles and apply to certain types of investments that are earmarked for certain uses, such as retirement or education.

There are two types of tax-sheltered accounts:

•  Tax-deferred accounts. These are accounts in which money is contributed pre-tax and grows tax-free, but taxes are taken out when money is withdrawn. For example, a 401(k) retirement account grows tax-free until you withdraw money, at which point it is taxed.
•  Tax-exempt accounts. These are accounts—such as a Roth 401(k) or Roth IRA, or a 529 plan—in which money can be withdrawn tax-free if the funds are taken out according to qualifications. For example, money in a Roth account is not taxed upon withdrawal in retirement.

Beyond investing in tax-sheltered accounts, investors may also choose to research or speak with a professional about tax-efficient investing strategies. These are ways to calibrate a portfolio that might help minimize taxes, build wealth, and reach key portfolio goals—such as ample savings for retirement.

The Takeaway

Dividends, interest, and gains can add up, which is why it’s important for a taxpayer to be mindful of investment taxes not only at tax time, but throughout the year. Understanding the implications of sales and keeping capital gains taxes in mind when planning sales can help investors make tax-smart decisions.

Because there are so many different rules regarding taxes, some investors find it helpful to work with a tax professional. Tax law also varies by state, and a tax professional should be able to help an investor with those taxes as well.

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).

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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.

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

SoFi 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.


Investment Risk: Diversification can help reduce some investment risk. It cannot guarantee profit, or fully protect in a down market.

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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TFSA vs RRSP: What’s the Difference?

TFSA vs RRSP: What’s the Difference?

Both TFSAs and RRSPs are accounts that provide Canadian consumers with a chance to save while enjoying investment earnings and unique tax benefits. While a TFSA acts as a more general savings account, an RRSP is used for retirement savings.

Saving is never a bad idea, so here you can learn the difference between these accounts and how they can play a role in securing your financial future.

Keep reading for a more detailed breakdown of a TFSA vs. RRSP so you can make the right financial move for your needs.

🛈 Currently, SoFi does not provide RRSP and TFSA accounts.

What Is the TFSA?

A Tax-Free Savings Account (TFSA) is a type of registered tax-advantaged savings account to help Canadians earn money on their savings — tax-free. TFSA accounts were created in 2009 by the Canadian government to encourage eligible citizens to contribute to this type of savings account.

Essentially, a TFSA holds qualified investments that can generate capital gains, interest, and dividends, and they’re tax-free. These accounts can be used to build an emergency fund, to save for a down payment on a home, or even to finance a dream vacation.

A TFSA can contain the following types of investments:

•   Cash

•   Stocks

•   Bonds

•   Mutual funds

It’s possible to withdraw the contributions and earnings generated from dividends, interest, and capital gains without having to pay any taxes. Accountholders don’t even have to report withdrawals as income when it’s time to file taxes.

There is a limit to how much someone can contribute to a TFSA on an annual basis. This limit is referred to as a contribution limit, and every year the Canadian government determines what the contribution limit for that year is. If someone doesn’t meet the contribution limit one year, their remaining allowed contributions can be made up for in following years.

To contribute to a TFSA, an individual must be at least 18 years of age and be a Canadian resident with a valid Social Insurance Number (SIN).

What Is the RRSP?

A Registered Retirement Savings Plan (RRSP) is, as the name indicates, a type of savings plan specifically designed to help boost retirement savings. To obtain one, a Canadian citizen must register with the Canadian federal government for this financial product and can then start saving.

When someone contributes to an RRSP, their contributions are considered to be tax-advantaged. What this means: The funds they contribute to their RRSP are exempt from being taxed the year they make the contribution (which can reduce the total amount of taxes they need to pay for that year). On top of that, the investment income these contributions generate will grow tax-deferred. This means the account holder won’t pay any taxes on the earnings until they withdraw them.

Unlike a TFSA, there isn’t a minimum age requirement to open and contribute to an RRSP. That being said, certain financial institutions may require their customers to be the age of majority in order to contribute. It’s possible to contribute to an RRSP until the year the account holder turns 71 as long as they are a Canadian resident, earned an income, and filed a tax return.

Keep reading for a TFSA vs. RRSP comparison.

Similarities Between a TFSA and an RRSP

How does a TFSA vs. RRSP compare? There are a few similarities between TFSAs and RRSPs that are worth highlighting. Here are the main ways in which they are the same:

•   Only Canadians citizens can contribute

•   Contributions can help reach savings goals

•   Investments can be held in each account type

•   Both accounts offer tax advantages.

Differences Between a TFSA and RRSP

Next, let’s answer this question: What is the difference between an RRSP and a TFSA? Despite the fact that both an RRSP and a TFSA share similar goals (saving money and earning interest on it) and advantages (tax benefits), they have some key differences to be aware of.

•   Intended use. RRSPs are for retirement savings whereas TFSAs can be used to save for any purpose.

•   Age eligibility. To contribute to a TFSA one must be 18 years old, but there isn’t an age requirement to open an RRSP.

•   Contribution limit. The limits are usually set annually and are different for TFSAs and RRSPs. The contribution limit for an RRSP is the lesser of either 18% of earned income reported on an individual’s tax return for the previous year or the contribution limit, which is $31,560 for 2024 and $32,490 for 2025. The limit for a TFSA is $7,000 for 2024 and 2025.

•   Taxation on withdrawals. While RRSP withdrawals are taxable (but subject to certain exceptions), TFSA withdrawals can be made at any time tax-free.

•   Taxation on contributions. Contributions made to a TFSA aren’t tax-deductible, but RRSP contributions are.

•   Plan maturity. An RRSP matures at the end of the calendar year that the account holder turns 71. TFSAs don’t have age limits for account maturity.

•   Spousal contributions. There is no form of spousal TFSA available, but someone can contribute to a spousal RRSP.

How Do I Choose Between a TFSA and RRSP?

Choosing between a TFSA and an RRSP depends on someone’s unique savings goals and tax preferences. That being said, if someone’s main goal is saving for retirement, they’ll likely find that an RRSP is the right fit for them. When someone contributes to an RRSP, they can defer paying taxes during their peak earning years. Once they retire and make withdrawals (which they will need to pay taxes on), they will ideally have a lower income (and be in a lower tax bracket) and smaller tax liabilities at that point in their life.

If someone wants to be able to use their savings for a variety of different purposes (perhaps including a medium-term goal like the amount needed for a down payment on a home), they may find that a TFSA offers them more flexibility.
That said, there’s no reason TFSA savings can’t be used for retirement later on. Contributing to a TFSA is a great option for someone who has already maxed out their RRSP contributions for the year, but who wants to continue saving and enjoying tax benefits.

Recommended: What Tax Bracket Do I Fall Under?

Can I Have Both a TFSA and RRSP?

It is indeed possible to have both an RRSP and TFSA and to contribute to them at the same time. Putting money into both of these financial vehicles can be a great way to save. There are no downsides associated with contributing to both an RRSP and TFSA at the same time if a person can afford to do so.

Can I Have Multiple RRSP and TFSA Accounts?

Yes, it’s possible to have more than one TFSA and RRSP open at the same time, but there’s no real benefit here. The same contribution limits apply.

That means that opening more than one version of the same account or plan only leads to having more accounts to manage and incurring more administration and management fees. Just as you don’t want to pay fees on your checking account and other bank accounts, you probably don’t want to burn through cash on fees here.

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Should I Prioritize One Over the Other?

Which type of account someone should prioritize depends on their savings goals. Their preferences regarding the unique tax advantages of each account may also come into play. That being said, if someone is focused on saving for retirement, they’ll likely want to make sure they max out their RRSP contributions first.

The Takeaway

Both RRSP and TFSA accounts are great ways for Canadian citizens to save for financial goals like retiring or financing a wedding. Each account has unique advantages and contribution limits. While an RRSP account is designed to help with stashing away cash for retirement, a TFSA account can be used to save for any type of financial need. Whether you choose one or both of these products, you’ll be on a path towards saving and helping to secure your financial future.

FAQ

Is it better to invest in TFSA or RRSP?

When it comes to TFSA vs. RRSP, there’s no right answer to whether investing in one is better than the other. Someone focused on saving for retirement may want to prioritize an RRSP, while someone who wants to save for other expenses (like a home or wedding) may find a TFSA more appealing.

Should I max out RRSP or TFSA first?

If someone is focused on saving for retirement, they may want to max out their RRSP first. That being said, this is a personal decision that depends on unique financial goals and tax preferences.

When should you contribute to RRSP vs TFSA?

Typically, the contribution deadline for RRSPs is around March 1st. A Canadian citizen can put funds in a TFSA at any point in a calendar year, and if they don’t max out their account, they will usually be able to contribute the remaining amount in the future.


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Deposits that are not from an employer, payroll, or benefits provider or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Eligible Direct Deposit activity. There is no minimum Eligible Direct Deposit amount required to qualify for the stated interest rate. SoFi members with Eligible Direct Deposit are eligible for other SoFi Plus benefits.

As an alternative to Direct Deposit, SoFi members with Qualifying Deposits can earn 3.80% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant. SoFi members with Qualifying Deposits are not eligible for other SoFi Plus benefits.

SoFi Bank shall, in its sole discretion, assess each account holder’s Eligible Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving an Eligible Direct Deposit or receipt of $5,000 in Qualifying Deposits to your account, you will begin earning 3.80% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Eligible Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.

SoFi Bank reserves the right to grant a grace period to account holders following a change in Eligible Direct Deposit activity or Qualifying Deposits activity before adjusting rates. If SoFi Bank grants you a grace period, the dates for such grace period will be reflected on the APY Details page of your account. If SoFi Bank determines that you did not have Eligible Direct Deposit activity or $5,000 in Qualifying Deposits during the current 30-day Evaluation Period and, if applicable, the grace period, then you will begin earning the rates earned by account holders without either Eligible Direct Deposit or Qualifying Deposits until SoFi Bank recognizes Eligible Direct Deposit activity or receives $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Eligible Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Eligible Direct Deposit.

Separately, SoFi members who enroll in SoFi Plus by paying the SoFi Plus Subscription Fee every 30 days can also earn 3.80% APY on savings balances (including Vaults) and 0.50% APY on checking balances. For additional details, see the SoFi Plus Terms and Conditions at https://www.sofi.com/terms-of-use/#plus.

Members without either Eligible Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, or who do not enroll in SoFi Plus by paying the SoFi Plus Subscription Fee every 30 days, will earn 1.00% APY on savings balances (including Vaults) and 0.50% APY on checking balances.

Interest rates are variable and subject to change at any time. These rates are current as of 1/24/25. There is no minimum balance requirement. Additional information can be found at http://www.sofi.com/legal/banking-rate-sheet.
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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Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.

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