Short-Term vs Long-Term Investments
Unsure of the difference between long-term and short-term investments? We examine the characteristics of each and when to use them.
Read moreUnsure of the difference between long-term and short-term investments? We examine the characteristics of each and when to use them.
Read moreThe median annual salary for a paralegal is $59,200, according to the latest figures from the Bureau of Labor Statistics. But depending on where you live, your area of expertise, and your level of experience, you could make upwards of $121,110 or more a year.
A career as a paralegal can be a fulfilling choice for those interested in the law. While the job can be demanding and the hours sometimes long, it can also provide professional satisfaction and a chance to help others in your community.
A paralegal works under the supervision of a lawyer and performs supportive legal tasks. Administrative duties require a knowledge of the law, but you don’t have to have a law degree or a law license.
Paralegals are often responsible for the following tasks:
• Draft motions and pleadings for an attorney and file it with the court.
• Research cases. Paralegals research current and old legal cases to help discover relative precedents and understand past rulings.
• Interview clients and witnesses involved in a case.
• Communicate with clients throughout the phases of the legal process.
• Collect documents, client testimonials, and expert witnesses on behalf of the attorney.
• Draft reports and legal documents for cases.
• Factcheck legal filings and documents for accuracy.
• Gather supporting documents that a lawyer may use or file with the court.
• Coordinate cases, including their schedules and deadlines.
• Assist and support lawyers during trials.
Being a paralegal is not a job for antisocial people, as it typically involves being a liaison between clients, attorneys, investigators, witnesses, and court officials.
💡 Quick Tip: We love a good spreadsheet, but not everyone feels the same. An online budget planner can give you the same insight into your budgeting and spending at a glance, without the extra effort.
Whether they’re fresh out of school or have been working for several years, paralegals can be paid hourly or earn a yearly salary. A typical rate for a brand-new paralegal is $19.20 an hour or $55,332 a year.
An entry-level salary or hourly rate for a paralegal varies by work environment. Smaller firms and nonprofits tend to pay less, while bigger corporate law firms may offer more competitive pay.
Paralegals can specialize in certain areas, including litigation, real estate, divorce, intellectual property, immigration, and bankruptcy. Honing your skills in a particular area of the law could help position you for higher-paying opportunities.
No matter the size of your salary, it helps to keep a close eye on your finances and the progress you’re making toward your financial goals. Online tools like a money tracker app can help you create a budget, monitor your credit score, and more.
Recommended: Is a $100,000 Salary Good?
Like most jobs, the amount of money you can earn as a paralegal is impacted by geography. As the chart below shows, salaries in this field can fluctuate from state to state.
State | Median Salary |
---|---|
Alabama | $48,620 |
Alaska | $61,490 |
Arizona | $59,050 |
Arkansas | n/a |
California | $69,790 |
Colorado | $65,010 |
Connecticut | $63,490 |
Delaware | $59,660 |
District of Columbia | $87,610 |
Florida | $52,190 |
Georgia | $51,420 |
Hawaii | $58,630 |
Idaho | $48,500 |
Illinois | $60,370 |
Indiana | $47,710 |
Iowa | $52,660 |
Kansas | $48,490 |
Kentucky | $48,810 |
Louisiana | $50,310 |
Maine | $54,710 |
Maryland | $58,760 |
Massachusetts | $63,360 |
Michigan | $58,780 |
Minnesota | $60,380 |
Mississippi | $43,590 |
Missouri | $55,410 |
Montana | $55,270 |
Nebraska | $50,610 |
Nevada | $61,180 |
New Hampshire | $50,960 |
New Jersey | $61,040 |
New Mexico | $48,320 |
New York | $62,730 |
North Carolina | $51,340 |
North Dakota | $48,740 |
Ohio | $50,580 |
Oklahoma | $48,490 |
Oregon | $63,980 |
Pennsylvania | $62,080 |
Rhode Island | n/a |
South Carolina | $48,190 |
South Dakota | $54,100 |
Tennessee | $48,420 |
Texas | $56,310 |
Utah | $52,820 |
Vermont | $60,560 |
Virginia | $59,500 |
Washington | $69,260 |
West Virginia | $47,990 |
Wisconsin | $49,970 |
Wyoming | $52,000 |
Source: Bureau of Labor Statistics
Thinking about becoming a paralegal? Consider the following:
• Areas of interest. Paralegals can work in any number of specialties: corporate law, patent law, health care, and more. Thinking about which field best suits your interest can help guide your training and job search.
• Career goals. Is career advancement and an annual pay raise important to you? Is having a flexible schedule a priority? Discuss your options with a hiring manager before accepting a position.
• Benefits. Many full-time and part-time paralegals are eligible for benefits, including, health, vision, and dental insurance, a 401(k), tuition assistance, and paid time off.
• Time and energy commitment. Some areas of law, like litigation, are more stressful than others and may require longer working hours.
Recommended: How to Create a Budget in 5 Steps
Ultimately, deciding if becoming a paralegal is a good fit depends on your interests, skills, and goals. Like any profession, working as a paralegal has its positives and negatives:
Pros:
• Salary. Paralegals stand to earn excellent pay, especially if they train for specific roles. A courtroom presentation specialist, for instance, may earn between $67,500 and $125,000 a year.
• Job outlook. Paralegals are in high demand. According to the Bureau of Labor Statistics, jobs in the field are projected to grow 4% from 2022 to 2032.
• Variety of work. On any given day, a paralegal may juggle a number of cases and assorted tasks — from paperwork to writing motions to speaking with witnesses.
• Stimulating work. Creative problem-solving skills and analytical reasoning are put to use every day as a paralegal. The job also requires staying up-to-date on new and changing laws.
• No law school. Becoming a paralegal requires much less education than is demanded of lawyers. A bachelor’s degree in any field and completing an accredited paralegal program are often all that’s needed.
Cons:
• Long hours. Paralegals often work more than the traditional 40-hour week. As deadlines and court dates approach, you may find yourself working late nights and weekends.
• High stress. In addition to assisting lawyers with complex legal issues, paralegals may work closely with demanding clients.
• Lack of autonomy. When you’re a paralegal, you work directly under and are supervised by a licensed attorney. And since you are not certificated to practice law, you cannot advise your clients on legal matters or represent them in court.
💡 Quick Tip: Income, expenses, and life circumstances can change. Consider reviewing your budget a few times a year and making any adjustments if needed.
While the hours can be long and the environment sometimes stressful, being a paralegal can provide you with an opportunity to help others, stay intellectually stimulated, and earn a good salary. While the average paralegal salary is around $59,200 a year, you may be able to earn more depending on your experience, specialty, and location.
One of the highest-paying paralegal jobs is a courtroom presentation specialist, which typically pays between $67,500 and $125,000 a year.
Depending on how much experience you have, your area of expertise, and your employer, you could make $100,000 or more a year as a paralegal.
When they’re just starting out, a paralegal earns an average of $19.20 an hour or $55,332 a year.
Photo credit: iStock/sturti
SoFi Relay offers users the ability to connect both SoFi accounts and external accounts using Plaid, Inc.’s service. When you use the service to connect an account, you authorize SoFi to obtain account information from any external accounts as set forth in SoFi’s Terms of Use. Based on your consent SoFi will also automatically provide some financial data received from the credit bureau for your visibility, without the need of you connecting additional accounts. SoFi assumes no responsibility for the timeliness, accuracy, deletion, non-delivery or failure to store any user data, loss of user data, communications, or personalization settings. You shall confirm the accuracy of Plaid data through sources independent of SoFi. The credit score is a VantageScore® based on TransUnion® (the “Processing Agent”) data.
*Terms and conditions apply. This offer is only available to new SoFi users without existing SoFi accounts. It is non-transferable. One offer per person. To receive the rewards points offer, you must successfully complete setting up Credit Score Monitoring. Rewards points may only be redeemed towards active SoFi accounts, such as your SoFi Checking or Savings account, subject to program terms that may be found here: SoFi Member Rewards Terms and Conditions. SoFi reserves the right to modify or discontinue this offer at any time without notice.
Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article.
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.
SORL1023014
Read moreA personal trainer earns an average of $67,012 a year, according to the latest data from Salary.com. However, salaries typically fall somewhere between $48,347 and $82,320.
How much you can make as a personal trainer depends on several factors, including where you live, who you work for, your training experience, and your areas of expertise. Let’s unpack this.
A personal trainer develops customized exercise programs for clients based on individual skill levels, health goals, physical limitations, and other considerations. These professionals work with clients of all ages and skill levels to improve strength, flexibility, and endurance; complete workouts safely and without injury; support them on their weight loss journey; and more.
Trainers are often paid hourly, but they may earn a yearly salary if they work for a gym or high-end client. How much money a personal trainer makes depends on the range of services and level of attention they provide — in general, the more, the better.
It also helps if you have good people skills, as you’ll be working closely with clients. (Not much of a people person? You may want to look into jobs for introverts instead.)
💡 Quick Tip: When you have questions about what you can and can’t afford, a spending tracker app can show you the answer. With no guilt trip or hourly fee.
The average entry-level wage for a personal trainer in the United States is $29 per hour, or $61,104 a year, according to ZipRecruiter. But depending on a host of factors, personal trainers can earn anywhere from $11.06 to $51.92 an hour.
So is it possible to make $100,000 a year or more as a personal trainer? Short answer: yes. A six-figure income may be attainable once you gain enough experience and establish a steady client base. But keep in mind that those things often take time to develop.
Recommended: What Is Competitive Pay?
Location can play a major factor in a personal trainer’s income. A professional who’s established in their career may earn an average of $67,012, but as the chart below shows, take-home pay can vary significantly from state to state.
State | Median Salary for a Personal Trainer |
---|---|
Alabama | $53,023 |
Alaska | $59,756 |
Arizona | $54,514 |
Arkansas | $45,525 |
California | $61,037 |
Colorado | $57,837 |
Connecticut | $53,361 |
Delaware | $66,789 |
Florida | $43,714 |
Georgia | $49,394 |
Hawaii | $57,813 |
Idaho | $58,505 |
Illinois | $53,350 |
Indiana | $55,666 |
Iowa | $53,072 |
Kansas | $49,804 |
Kentucky | $47,885 |
Louisiana | $48,567 |
Maine | $59,455 |
Maryland | $64,637 |
Massachusetts | $60,291 |
Michigan | $47,929 |
Minnesota | $55,627 |
Mississippi | $52,898 |
Missouri | $51,521 |
Montana | $53,693 |
Nebraska | $63,126 |
Nevada | $56,502 |
New Hampshire | $57,587 |
New Jersey | $58,470 |
New Mexico | $55,489 |
New York | $64,556 |
North Carolina | $49,937 |
North Dakota | $58,914 |
Ohio | $54,118 |
Oklahoma | $61,134 |
Oregon | $58,939 |
Pennsylvania | $59,132 |
Rhode Island | $54,591 |
South Carolina | $50,988 |
South Dakota | $55,680 |
Tennessee | $51,669 |
Texas | $58,217 |
Utah | $51,630 |
Vermont | $63,225 |
Virginia | $65,639 |
Washington | $71,304 |
West Virginia | $45,668 |
Wisconsin | $57,762 |
Wyoming | $56,523 |
Source: ZipRecruiter
Recommended: The Highest-Paying Jobs in Every State
When you’re just starting out as a personal trainer, there are many factors that may influence the direction of your career. For instance, working at an established commercial gym can offer an opportunity to gain experience, build up a client network, and receive job benefits.
If you’re more of a self-starter and prefer a degree of independence, working as a self-employed personal trainer might be the better fit. You’ll have the ability to set your own hours and hourly rate; however, you’ll also have to pay for health benefits and set money aside for retirement.
Here are some questions to ask yourself when starting a career as a personal trainer:
• How many hours are you willing to work?
• Would you rather work for someone else or be your own boss?
• Do you need health insurance benefits?
• Where do you see yourself in five to 10 years?
• What type of clients do you want (ex. senior citizens, athletes)?
• Are you willing to commute or relocate?
• What additional certifications might you need?
• What are your financial goals?
Establish what you need to earn as a personal trainer in order to cover your expenses and maintain the lifestyle you want. It can help to sit down and create a budget.
As your personal trainer career gets going, you can lean on financial tools like a money tracker app to help you monitor your spending and saving.
Clients can come and go for a number of reasons, but there are some things you can do as a personal trainer to keep the ones you have and attract new ones. Here are some strategies to consider:
• Listen to your clients, and be willing to adapt to their needs.
• Sharpen your motivational skills. Pay attention to other successful trainers and how they inspire their clients.
• Be empathetic. Many clients may struggle during their workouts, both physically and psychologically. Empathy can go a long way in maintaining healthy client relations.
• Go where you’re needed. Investigate niches where your expertise can be of use, be it an elderly care center, health center, or a new neighborhood gym.
• Network and market yourself. Chat up members at your gym and discuss their fitness goals. You can also promote your own fitness journey and methods on social media.
• Earn new certifications. Get certified in CPR, yoga, Pilates, and nutrition. The more you know, the more in-demand you may be.
As with any job, there are pluses and minuses to working as a personal trainer. Here are some of the benefits and challenges of the field:
Pros:
• Flexible hours. You can often schedule clients when you want to.
• Professional control. You’re able to build up your business through marketing and networking, adding clients as you raise your earning goals.
• Staying physically fit. You’ll have to practice what you preach. Staying in shape is a job requirement.
• Personal satisfaction, especially when you help a client meet their goals.
Cons:
• Fluctuating income/job security. There’s no way to predict how many clients you may have month-to-month or year-to-year.
• Lack of benefits. Many personal trainers work for themselves and have to pay for their own health and dental insurance, plus save for retirement.
• Nontraditional work hours. Although you have the ability to make your own schedule, most of your working clients will likely request early morning, evening, or weekend sessions.
• Shorter career lifespan. Even the most in-shape trainer ages, and there may come a day where you struggle to physically keep up with your clients.
💡 Quick Tip: Income, expenses, and life circumstances can change. Consider reviewing your budget a few times a year and making any adjustments if needed.
A personal trainer’s salary can rise and fall with the ebb and flow of clients, but there is also no limit to the amount of money you can make. Whether you are working with a few dedicated clients or creating your own global fitness brand, being a personal trainer can be a great way to earn a salary while keeping yourself and your finance goals in shape.
Personal trainers to wealthy clients and celebrities typically command lucrative salaries. The most popular fitness influencers on TikTok and Instagram, for example, can make over $1 million a year.
A well-established personal trainer can make $100,000 a year with experience, marketing savvy, good time management skills, and a loyal client base.
The average starting wage for a personal trainer in the United States is $29 per hour, or $61,104 a year.
Photo credit: iStock/Drazen Zigic
SoFi Relay offers users the ability to connect both SoFi accounts and external accounts using Plaid, Inc.’s service. When you use the service to connect an account, you authorize SoFi to obtain account information from any external accounts as set forth in SoFi’s Terms of Use. Based on your consent SoFi will also automatically provide some financial data received from the credit bureau for your visibility, without the need of you connecting additional accounts. SoFi assumes no responsibility for the timeliness, accuracy, deletion, non-delivery or failure to store any user data, loss of user data, communications, or personalization settings. You shall confirm the accuracy of Plaid data through sources independent of SoFi. The credit score is a VantageScore® based on TransUnion® (the “Processing Agent”) data.
*Terms and conditions apply. This offer is only available to new SoFi users without existing SoFi accounts. It is non-transferable. One offer per person. To receive the rewards points offer, you must successfully complete setting up Credit Score Monitoring. Rewards points may only be redeemed towards active SoFi accounts, such as your SoFi Checking or Savings account, subject to program terms that may be found here: SoFi Member Rewards Terms and Conditions. SoFi reserves the right to modify or discontinue this offer at any time without notice.
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.
SORL1023013
Read moreInvesting is a powerful tool that allows you to put your money to work to help you reach future financial goals. But if you’re new to investing, you may be asking yourself what investment strategies should you pursue?
Here’s a guide to help you get started.
Once you’ve opened an investment account and you begin to build your portfolio, asset allocation is an important strategy to consider to help you balance potential risk and rewards. A typical portfolio might divide its assets among three main asset classes: stocks, bonds, and cash. Each asset class has its own risk and return profile, behaving a little bit differently under different market circumstances.
For example, stocks tend to offer the highest gains, but they are also the most volatile, presenting the most potential for losses. Bonds are generally considered to be less risky than stocks, while cash is typically more stable.
The proportion of each asset class you hold will depend on your goals, time horizon, and risk tolerance. Your goal is how much you aim to save. Your time horizon is the length of time you have before reaching your goals. And your risk tolerance is how much risk you’re willing to take to achieve your goals.
Your asset allocation can shift over time. For example, someone in their 30s saving for retirement has a long time horizon and may have a higher risk tolerance. As a result their portfolio may contain mostly stocks. As that person grows older and nears retirement, their portfolio may shift to contain more bonds and cash, which are typically less risky and less likely to lose value in the short-term.
💡 Quick Tip: If you’re opening a brokerage account for the first time, consider starting with an amount of money you’re prepared to lose. Investing always includes the risk of loss, and until you’ve gained some experience, it’s probably wise to start small.
Another way to help manage risk in your portfolio is through diversification, building a portfolio with a mix of investments across assets to avoid putting all your eggs in one basket.
Here’s how it works: Imagine you had a portfolio consisting of stock from one company. If that stock does poorly your entire portfolio suffers.
Now imagine a portfolio consisting of many stocks, from companies of all sizes and sectors. Not only that, it also holds other investments, including bonds. If one stock suffers, it will have a much smaller effect on your overall portfolio, spreading out the risk of holding any one investment.
Your portfolio can change over time, shifting your assets allocation and diversification. For example, if there is a bull market and stocks outperform, you may discover that you now hold a greater portion of your portfolio in stocks than you had intended.
At this point, you may need to rebalance your portfolio to bring it back in line with your goals, time horizon, and risk tolerance. In the example above, you might decide to sell some stock or buy more bonds, for instance.
Market fluctuations are a natural part of the market cycle. However, investors may get nervous and be tempted to sell when prices drop. When they do, investors might lock in their losses and miss out on subsequent market rebounds.
Investors practicing buy-and-hold strategies tend to buy investments and hang on to them over the long term, regardless of short-term movements in the market. Doing so may help curb the tendency to panic sell, and it might also help minimize fees associated with trading.
Buy and hold might also affect an investor’s taxes. Holding a long-term investment vs. short-term one can make a big difference in terms of how much an individual pays in taxes.
If you profit from an investment after owning it for at least a year, it’s a long-term capital gain. Less than that is short-term. Capital gains tax rates can change, but generally, longer-term investments are taxed at a lower rate than short-term ones.
💡 Quick Tip: How to manage potential risk factors in a self-directed investment account? Doing your research and employing strategies like dollar-cost averaging and diversification may help mitigate financial risk when trading stocks.
Dollar-cost averaging is a strategy in which individuals invest on a regular basis by making fixed investments on a regular schedule regardless of price.
For example, say an investor wants to invest $1,000 every quarter in an exchange-traded fund (ETF) that tracks the S&P 500. Each quarter, the price of that fund will likely vary — sometimes it will be up, sometimes it will be down. The amount of money the individual invests remains the same, so they are buying fewer shares when prices are high, and more shares when prices are low.
This strategy can help individuals avoid emotional investing. It’s also straightforward and can help investors stick to a plan, rather than trying to time the market.
Investing is an ongoing process. Your life, goals, and financial needs will all change as your circumstances do. For example, may you get a raise at work, get married and have a child, or decide to retire early. Factors like these will change how much money you need to save and how you invest. Monitor your portfolio and make adjustments as needed.
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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INVESTMENTS ARE NOT FDIC INSURED • ARE NOT BANK GUARANTEED • MAY LOSE VALUE
If you’re like many people who are socking away money in a 401(k) retirement plan (good work!), you probably know that early withdrawal of funds can take a financial toll. There are penalties that can be assessed, decreasing what you actually receive of those funds you saved.
But sometimes, life happens. Even though a 401(k) account is designed for retirement saving, you may need extra cash ASAP before you turn age 59½. Because money in your 401(k) account is not subject to federal income taxes until distribution, your 401(k) can lead to taxes as well as an early withdrawal penalty in this situation. Therefore, it may be worth exploring other options.
To answer the question, “what is the penalty for withdrawing from a 401(k)?” read on. You’ll learn:
• How a 401(k) works
• What is the 401(k) early withdrawal penalty
• How you can access cash without using funds from your 401(k) account.
A 401(k) is an account designed to hold money and investments for retirement. Why does it have such a funky name? Well, it’s named after a line in the tax code that gives the 401(k) its special taxation guidelines. It can be a reminder that rules regarding 401(k) accounts are set by the IRS and generally have to do with taxation.
Essentially, the IRS allows investors to stash a certain amount of money away each year for retirement, without having to pay income taxes on those contributions.
Currently, that contribution maximum amount is $23,000 per year, with additional catch-up contributions of up to $7,500 allowed for those 50 and older. Additionally, the investments within the account are allowed to grow tax-free.
401(k) participants can’t avoid paying income taxes forever, though. When retirees go to pull out money in retirement, they must pay income taxes on the 401(k) amount withdrawn.
So, while you have to pay income taxes eventually, the idea is that maybe you’ll pay a lower effective tax rate as a retired person than as a working person. (Although, none of this is guaranteed because we can’t predict future tax rates.)
The IRS classifies 59½ as the age where a person can begin withdrawing from their 401(k). Before this age and without an exception, it is not possible to do a 401(k) withdrawal without penalty.
💡 Quick Tip: Some lenders can release funds as quickly as the same day your loan is approved. SoFi personal loans offer same-day funding for qualified borrowers.
When a 401(k) account holder withdraws money from a 401(k) before age 59½, the IRS may charge a 10% penalty in addition to the ordinary income taxes assessed on the amount.
Unqualified withdrawals from a 401(k) are considered taxable income. Then, the 10% penalty is assessed on top of that. This could result in a hefty penalty.
There are some exceptions to the 401(k) early withdrawal penalty rule. For example, an exception may be made in such circumstances as:
• A participant has a qualifying event such as a disability or medical expenses and must use 401(k) assets to make payments under a qualified domestic relations order
• Has separated from service during or after the year they reached age 55
• A distribution is made to a beneficiary after the death of the account owner.
Additionally, it may be possible to avoid the 401(k) withdrawal penalty through a method known as the Substantially Equal Periodic Payment (SEPP) rule. These are also called 72(t) distributions.
• To do this, the account owner must agree to withdraw money according to a specific schedule as defined by the IRS.
• The participant must do this for at least five years or until they have reached age 59½.
• Under the 72(t) distribution, a participant will systematically withdraw the total balance of their 401(k). While this is technically an option in some instances, it does mean taking money away from retirement. Consider this while making your ultimate decision.
💡 Quick Tip: In a climate where interest rates are rising, you’re likely better off with a fixed interest rate than a variable rate, even though the variable rate is initially lower. On the flip side, if rates are falling, you may be better off with a variable interest rate.
Because of the steep penalty involved, you may feel inclined to shop around for some alternatives to early 401(k) withdrawal.
Participants can consider taking a loan from their active 401(k). The money is removed from the account and charged a rate of interest, which is ultimately paid back into the account. The interest rate is generally one or two points higher than the prime interest rate set by the IRS, but it can vary.
While this loan may come with a competitive interest rate that is repaid to the borrower themself and not a bank, there are some significant downsides.
• First, taking money from a 401(k) account removes that money from being invested in the market. A participant may miss out on the market’s upside and compound returns.
• Though a 401(k) loan might seem like an easy option now, it could put a person’s savings for retirement at risk. It is easy to imagine a scenario where the loan does not get repaid. If the loan is not repaid, the IRS could levy the 10% penalty on the distributed funds.
• Money that is repaid to a 401(k) is done with post-tax money. The money that is borrowed from the 401(k) would have been pre-tax money, so replacing it with money the borrower has already paid taxes on may make a 401(k) loan more expensive than it initially seems.
• If a person were to leave their company before the loan is repaid, the loan would need to be repaid by the time you file your taxes for that year or penalty and income tax could be due. Participants should proceed down this route with caution.
A second option is to consider withdrawing funds from Roth IRA assets. Under IRS rules, any money that is contributed to a Roth IRA can be removed without penalty or taxes after 5 years.
Unlike with a 401(k), income taxes are paid on money that the account holder contributes to the account. Therefore, these funds aren’t taxed when the money is removed. (This only applies to contributions, not investment profits.)
Now, the downside to consider:
• Again, common advice states that removing money from any retirement account should generally be considered a last-resort option. The average person is already behind in saving for retirement, so even Roth IRA funds should only be considered after all other options are exhausted.
Another option to consider could be a personal loan. An unsecured personal loan can generally be used for any personal reason.
By using a personal loan, the participant is able to avoid a 401(k) early withdrawal penalty and leave all of the money invested within the account to grow uninterrupted.
Some other aspects to consider:
• A personal loan also puts the borrower on an amortized payback schedule that has a defined end-date. Having a defined payback period may be beneficial during debt repayment — it provides a goal, and it is clear how progress is made throughout the life of the loan.
• Compare the set amortization of a personal loan to the revolving debt of a credit card, where it can be quite tempting to add to the balance, even as the person is attempting to pay it off in full.
When charges are added to a credit card, the end-date can be pushed out further, especially in the event that the borrower is only making minimum payments. This is not the case with a personal loan where a lump-sum loan amount is disbursed and paid back within a set timeframe. You may want to consider using a personal loan calculator to compare costs.
If you withdraw funds from your 401(k) retirement plan before age 59½, you will likely be subject to a 10% early withdrawal penalty as well as taxes. You may have other options available if you need funds, however, such as taking a loan against a 401(k), withdrawing from an IRA account, or securing a personal loan. With all of the above options, it is recommended to map out the cost of each and/or work with a tax advisor or financial advisor to help identify the best course.Ultimately, it will be up to you to research the best option given your needs.
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.
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