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Jul

2023

12 Best Small Cities to Live in the USA

By Marcy Lovitch | Budgeting & Goals, relay | Comments Off

More Americans are choosing to leave the hubbub of big cities in order to move to smaller towns, according to multiple studies. Reasons include a desire for a less stressful environment, more affordable housing and lower cost of living, and a shorter commute.

Thousands of smaller U.S. cities offer all of the above and more. But which one to choose? Below you’ll find 12 prime candidates, drawn from public data and our own personal favorites.

Table of Contents

What Is Considered a Small City
Why People Choose to Live in a Small City
Pros and Cons of Living in a Small City vs a Big City
Tips for Living in a Small City
Best Small Cities to Live in the USA
The Takeaway

Key Points

• The best small cities to live in the USA offer a high quality of life, affordability, and job opportunities.

• Cities like Boise, Idaho; Durham, North Carolina; and Provo, Utah rank highly for their livability.

• Factors such as cost of living, safety, education, and access to amenities contribute to the rankings.

• These cities often have a strong sense of community and offer a balance between urban conveniences and natural beauty.

• When considering a small city to live in, it’s important to research and visit to determine if it aligns with your lifestyle and preferences.

What Is Considered a Small City?

According to the U.S. Census Bureau, “urban” areas have at least 5,000 people. A midsize city has a population of 100,000 to 250,000, and a large city counts more than 250,000 inhabitants.

Our list includes small cities with a population of 5,000 to 100,000 residents.

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Why People Choose to Live in a Small City

People find life in a small city appealing for a variety of reasons. If you’re coming from a bigger city, a less populated one often means reduced traffic, noise, crowds, and pollution. You may see lower housing costs, or find you get more space and amenities for your buck. The overall cost of living also tends to be more affordable, given lower prices for groceries, gas, utilities, and dining out. Lower sales and property taxes can also be a factor.

Smaller cities can be much easier to navigate. For families, the public school system may rank higher and be less competitive (no more stressing out trying to get your kid into pre-K). Smaller populations may also result in tight communities, where residents feel safe and welcome.

Living in a smaller city can be more manageable for older adults especially, providing a peaceful and reassuring place to retire. Some retirees for whom taxes are a prime concern gravitate to small towns in states with lower taxes on retirement savings.

Recommended: Price-to-Rent Ratio in 52 Cities

Pros and Cons of Living in a Small City vs a Big City

If you’re not sure whether a small city is better for you, here are some pros and cons of each. Note that some factors — such as large populations of young singles or a slower pace — may be pros or cons, depending on your demographic.

Pros of a Small City	Cons of a Small City
Lower cost of living	Fewer employment opportunities
Slower pace	Limited entertainment and culture
Less crowded	Too sparsely populated
More indoor and outdoor space	Less access to medical care and major airports
Reduced crime	Less diversity
Larger populations of families and retirees	More college students, recent grads, and young singles
Quieter and cleaner, with less pollution	Little to no public transportation

Traditionally, many people migrate to big cities to establish themselves professionally, since small cities tend to provide fewer employment opportunities. That may be changing due to the rise of remote work.

Pros of a Big City	Cons of a Big City
Personal autos may be optional	Public transportation can be unreliable or unpleasant
Access to arts, culture, entertainment, and sporting events	Higher local taxes and cost of living
Larger job market	More competitive employment standards
More diverse population	Potentially overcrowded
More social opportunities for singles, younger people, and couples without children	Higher crime rate
Access to medical care and major airports	Streets can be dirty, with greater noise and pollution

5 Tips for Living in a Small City

Whether you’re moving from a rural area, the suburbs, or a large U.S. city, a small city can take some getting used to. Here are five suggestions on how to find your way as the new kid in town:

• Get to know the locals. They know the best places to go, from basic services to restaurants and cultural venues. Plus, they can tell you how to get there, including shortcuts, streets to stroll, and areas to avoid. And of course, meeting people helps you feel a part of the community.

• Allow time for adjustment. A small city may not have all the amenities you had in your previous hometown. But given time, you’ll find that for every perk you give up, you’ll discover at least one new advantage.

• Seek out like-minded people. Even in cities where the bulk of the populace doesn’t share your political or social perspectives, you can still find people who do. It might just take a little effort. Volunteering, taking a class, or hanging out in a particular neighborhood can foster new friendships.

• Rejigger your budget. If you’re paying less than you used to for housing and essentials, don’t fritter away that extra cash. Download a good spending app and channel that disposable income toward emergency savings, retirement, or other financial goals.

• Seek out hidden treasures. Smaller cities tend to have more mom-and-pops and independent businesses, which can be a nice change from national chains. And small cities are often rich in green spaces, hiking and biking trails, and local festivals. Make time to wander and discover all that your new home has to offer.

12 Best Small Cities to Live in the USA

To compile our list, we reviewed numerous roundups of the best small cities to live in the U.S., along with government statistics and personal anecdotes. Read on for our recommendations.

1. Tupelo, Mississippi

• Population: 37,748

• Median household income: $58,887

• Median home value: $158,800

• Median monthly rent: $825

• Mean travel time to work: 19 minutes

• Cost of living: 19% lower than the national average

• Crime statistics: 1 in 649 chance of being a victim of a violent crime, 1 in 96 chance of being a victim of a property crime

Located in the northeastern part of Mississippi, 90 miles from Memphis, Tupelo offers big-city perks in a small town setting. This racially diverse area is often cited as one of the best places for young professionals, families, and retirees to live. That’s due in part to a highly rated public school system, lower crime rate, low cost of living, and pleasant year-round weather.

Each year, Tupelo attracts thousands of visitors to its museums and festivals, including the Gumtree Museum of Art and the Elvis Presley Birthplace & Museum. Tupelo celebrates its native son with an annual Elvis festival in June, and there’s a Chili fest in October.

Tupelo offers a varied culinary scene (lots of authentic BBQ and southern comfort food), plus a vibrant downtown that’s been designated a “Great American Main Street” by MainStreet.org.

2. Greenville, South Carolina

• Population: 72,310

• Median household income: $60,388

• Median home value: $349,300

• Median monthly rent: $1,078

• Mean travel time to work: 20 minutes

• Cost of living: 5.4% lower than the national average

• Crime rate: 1 in 141 chance of becoming a victim of a violent crime, 1 in 27 chance of becoming a victim of a property crime

If you’re looking for a picturesque setting worthy of a postcard, Greenville may be the place for you. Situated in the northwest part of the state about halfway between Charlotte, North Carolina, and Atlanta, Greenville is a stone’s throw from the Blue Ridge Mountains, lakes, rivers, and more than 50 waterfalls.

Greenville’s population is diverse, and the city is well-suited to families, retirees, and singles. Parents will find it appealing because of a highly rated public school system and myriad family friendly activities including Falls Park on the Reedy River, Greenville Zoo, and the Children’s Museum of the Upstate.

For older adults, Greenville is often recommended as an ideal place to settle. The pace of living is slower, the weather is mild, and South Carolina is one of the best states to retire in when it comes to taxes.

Like many smaller towns and cities, Greenville has a dedicated Main Street and lively downtown area catering to pedestrians, with wide sidewalks, outdoor plazas, and al fresco dining. “Mice on Main” is a series of nine life-size bronze sculptures scattered up and down the main drag, providing a fun scavenger hunt for all ages.

Foodies can enjoy an array of international and regional specialties, including a bustling weekend farmer’s market and several food trucks. More than 20 local breweries also serve as music venues and community centers.

The city has a rich African-American heritage, with 13 cultural sites across the greater Greenville area. Residents and tourists can catch the city’s minor league baseball team, the Greenville Drive, the Swamp Rabbits hockey team, plus professional men’s and women’s soccer teams.

Expect mild, comfortable temperatures during the fall, winter, and spring months in Greenville, but the summers can be hot and muggy.

3. Ames, Iowa

• Population: 66,950

• Median household income: $54,339

• Median home value: $222,900

• Median monthly rent: $972

• Mean travel time to work: 17 minutes

• Cost of living: 5% lower than the national average

• Crime rate: 1 in 488 chance of becoming a victim of a violent crime, 1 in 65 chance of becoming a victim of a property crime

Home to Iowa University, Ames is a bustling college town in the center state, north of Des Moines. This energetic city is frequently listed as one of the best places to live in the country and one of the best college towns in the U.S.

Schools here win national recognition, and the cost of living is reasonable. If you’re looking for racial and ethnic diversity, Ames comes up short, with 80% of the population white. The city also skews young, with many college kids. While the city might not suit all retirees, families will find many parks, with opportunities for biking, golf, and an indoor ice arena.

Ames has an old town historic district and a downtown full of shopping, dining, art galleries, and live music. The Iowa summers can be warm, humid, and often rainy, while the winter brings cold temperatures and often snow. But if you enjoy the heartland, Ames is a charming place to consider.

4. Fredericksburg, Texas

• Population: 11,257

• Median household income: $54,771

• Median home value: $317,600

• Median monthly rent: $1,064

• Mean travel time to work: 17 minutes

• Cost of living: close to the national average

• Crime rate: 1 in 738 chance of being a victim of a violent crime; 1 in 92 chance of being a victim of a property crime

Fredericksburg is located in the middle of the state, in Texas Hill Country. It’s often voted one of the best places to retire, with retirees making up about 31% of the population. Older adults are drawn to the warm weather, low property taxes, and affordable housing, and low crime.

Fredericksburg was founded by German immigrants back in 1846, and the city retains a strong German connection. About 21% of the population is Hispanic or Latino, 6% Native American, and 5.4% encompassing Black, Asian, and mixed race.

Tourism makes up a good part of the local economy, along with the medical and agricultural industries. A staggering 400 festivals take place each a year, including a three-day Oktoberfest. Visitors will find a raucous live music scene, numerous breweries and distilleries, and more than 50 wineries. In fact, Fredericksburg is the most popular wine-tasting destination in the state of Texas.

The Fredericksburg public school system is highly rated, and the many kid-friendly activities make it a great place to raise a family. Things to do include hiking trails and parks, and a Main Street featuring art galleries, restaurants, ice cream parlors, and toy stores. Younger adults and couples can take advantage of the many dance venues and bars.

5. Bloomington, Indiana

• Population: 79,107

• Median household income: $41,995

• Median Home value: $231,500

• Median monthly rent: $988

• Mean travel time to work: 17 minutes

• Cost of living: close to the national average

• Crime rate: 1 in 167 chance of becoming a victim of a violent crime, 1 in 43 chance of becoming a victim of a property crime

Bloomington is the home of Indiana University and their legendary Hoosiers basketball and football teams. Often called B-Town, Bloomington (pop. 80,000) is frequently cited as one of the best places to live in Indiana and in the U.S for its lively, bohemian vibe.

B-Town offers a walkable downtown area where you’ll find restaurants, bars, shops, museums, art galleries, and venues for live music and comedy. Bloomington also features many parks, forests, lakes, and other spots to commune with nature.

Much of life in Bloomington revolves around the university and its large student body, so retirees may not find it ideal. The city is often voted a great place to raise a family and gets high marks for its public schools. The cost of living is low, and the city is considered relatively safe.

Indiana winters can be very cold and snowy, and summers are warm, wet, and humid. It’s cloudy a good part of the year too. Bloomington is flush with youthful energy and rife with perks, making it a great Midwestern city to hang your hat.

6. Cedar City, Utah

• Population: 38,692

• Median household income: $55,022

• Median Home value: $245,700

• Median monthly rent: $861

• Mean travel time to work: 14 minutes

• Cost of living: 1.5% higher than the national average

• Crime rate: 1 in 716 chance of becoming a victim of a violent crime, 1 in 86 chance of becoming a victim of a property crime

Cedar City is located in the southwestern part of Utah, situated 5,800 feet above sea level. To the east you’ll find 10,000 foot mountains, and to the west, a large desert. If you’re an outdoors enthusiast, look no further than Cedar City for fishing, rock climbing, skiing, kayaking, and star gazing. Often called the gateway to Utah’s parks, Cedar City offers easy access to the spectacular Zion and Bryce Canyon National Parks.

Besides the amazing natural landscapes of red hills and alpine mountains, Cedar City plays host to a number of arts festivals, earning it the nickname of Festival City USA. Some of these events include the popular annual Utah Shakespeare Festival, the Neil Simon Festival, the Groovefest American Music Festival, and the International Red Rock Film Festival.

Cedar City provides a dense suburban atmosphere that primarily attracts young professionals and families, due to its lower cost of living and above average public schools. The city is home to the small Southern Utah University, and the city’s economy benefits from the school, along with tourism, agriculture, some mining, and industrial complexes.

7. Ithaca, New York

• Population: 32,870

• Median household income: $40,973

• Median Home value: $282,000

• Median monthly rent: $1,248

• Mean travel time to work: 18 minutes

• Cost of living: 2.7 % higher than national average

• Crime rate: Chances of becoming a victim of a violent crime is 1 in 327; 1 in 25 of being the victim of a property crime

Ithaca is often identified with its two colleges, Ithaca College and Cornell University. The busy college city is situated on Cayuga Lake, the second largest of the Finger Lakes. The region is also known for its gorges and numerous picturesque waterfalls.

Cornell is Ithaca’s largest employer, attracting educators and students from all over. While diverse, more than half the population is in the 18-24 age group. Retirees may prefer the summer months in Ithaca, when the universities are on break and the weather is mild. Winters in Ithaca can be extremely cold and snowy.

There’s no shortage of things to do in Ithaca for children, teens, and adults. Kid-friendly attractions include many area state parks, the “Sciencenter,” Ithaca Children’s Garden, and the Museum of the Earth. Everyone can enjoy strolling on Ithaca Commons, a pedestrian walkway offering a vast array of restaurants, shops, and events. Autumn brings the Downtown Ithaca Apple Harvest Festival, followed by the Downtown Ithaca Chili Cook-Off in winter.

Downtown Ithaca offers an immersive street-art experience, with murals, sculptures, and a distinctly hippie vibe similar to Woodstock. Entertainment covers the gamut, with theater, film, and music. The State Theatre of Ithaca is a 1,600 seat venue featuring year-round concerts, comedy shows, readings, dance performances, and more.

Ithaca is considered safe, offering a lower cost of living, highly rated public schools, an inclusive sensibility, and lots of outdoor recreational options against beautiful scenery.

8. Bozeman, Montana

• Population: 56,123

• Median household income: $67,354

• Median home value: $466,400

• Median monthly rent: $1,229

• Mean travel time to work: 15 minutes

• Cost of living: 2% higher than the national average

• Crime rate: 1 in 303 chance of becoming a victim of a violent crime; 1 in 76 chance of becoming a victim of a property crime

Surrounded by the Rocky Mountains, the southwestern Montana city of Bozeman has become an increasingly desirable place to live. In fact, The Wall Street Journal dubbed Bozeman as “Boz Angeles” and reports real estate is booming with out-of-town professionals flocking to the city. Montana State University and Gallatin College are both located here.

One big draw for families is Bozeman’s excellent education system, especially when it comes to pre-K choices, which have grown significantly over the last decade. Kid-friendly activities include the Museum of the Rockies, the JumpTime trampoline park, and Gallatin Regional Park, or “Dinosaur Park,”where kids can swim, climb boulders and sled in the winter.

Bozeman is an outdoor lover’s paradise. You can enjoy skiing, fly fishing, rafting, biking, hiking, and indulging in Bozeman’s natural, rejuvenating, hot springs. You can make a day trip to Yellowstone National Park, 80 miles south of Bozeman.

Like many other small cities, Bozeman has a downtown and a Main Street, where you’ll find casual and fine dining spots, art galleries, and retail shops. Bozeman offers a range of arts and entertainment, such as a multiplex movie theater, the Montana Ballet Company, Bozeman Symphony, and the Ellen Theater, a performing arts venue.

The cost of living in Bozeman is a bit higher than the national average, especially housing. Summers are warm and the winters cold, with substantial snowfall, which may not make it ideal for retirees. Bozeman also doesn’t offer much in the way of racial and ethnic diversity, with whites making up 91% of the population.

Overall, for people looking for a safe family-friendly city with lots of vitality and a beautiful natural setting, Bozeman delivers.

9. Santa Fe, NM

• Population: 89,008

• Median household income: $33,297

• Median home value: $312,300

• Median monthly rent: $1,199

• Mean travel time to work: 20 minutes

• Cost of living: 3.6% higher than national average

• Crime rate: 1 in 286 chance of being a victim of a violent crime, 1 in 29 chance of being a victim of property crime

The capital city of New Mexico, Santa Fe is a popular place to visit, attracting about 2 million tourists a year. It’s also frequently touted as one of the best cities to live, especially for those approaching retirement. In fact, 24% of the city’s population is 65 and older.

Sante Fe promotes a laid-back lifestyle. Because of its slower pace, the city skews suburban and doesn’t feature a lot of nightlife. It does provide a diverse, culturally rich scene with a strong artistic and intellectual community. Visitors include authors, scholars, and global thought leaders giving lectures on a variety of topics. Entertainment offerings include productions by the Santa Fe Opera, Sante Fe Symphony, the local Santa Fe Playhouse theater company, and live music at multiple venues.

People looking to move to Sante Fe to bring up children can count on an above average public school system. Some people find Santa Fe a relatively expensive place to live, especially when it comes to housing. But the city has a relatively low crime rate and dry climate. Summers are warm to hot, with temps typically staying under 90 degrees, while winters are cold and snowy.

One thing to keep in mind, Santa Fe sits at 7,000 feet above sea level, so it can take a couple of days to adjust. For a small city, Sante Fe is rich with culture, history, the arts, and great Southwestern cuisine. If you crave peace and quiet set against mountain scenery, Sante Fe might be the perfect place for you.

10. Bellingham, Washington

• Population: 93,896

• Median household income: $59,163

• Median home value: $440,300

• Median monthly rent: $1,222

• Mean travel time to work: 18 minutes

• Cost of living: 11% higher than national average

• Crime: 1 in 234 chance of being a victim of a violent crime; 1 in 19 chance of being a victim of a property crime

Looking for a home in the Pacific Northwest that’s not Seattle or Portland? Consider Bellingham. This coastal city in northwestern Washington serves up an expansive view of the Puget Sound. The area is known for its clean air, eco-friendly attitudes, and chill ambiance. Bellingham is positioned halfway between Vancouver, Canada, and Seattle, with easy access to the San Juan Islands and the Mount Baker and North Cascade mountain ranges.

Outdoor enthusiasts enjoy hiking, biking trails, fishing, boating, kayaking, and whale watching. Numerous beaches offer visitors a variety of landscapes, from hidden white sands to rocky shorelines and wetlands.

Families with children can rest assured the Bellingham public school system is highly rated. There are lots of kid-centric things to do, including Boulevard Park, where kids can frolic in a pirate-themed playground, and the Family Interactive Gallery at the Whatcom Museum.

Bellingham’s active Downtown area offers shopping, dining, art, and entertainment. You’ll find public art exhibitions, a classic bowling alley, theaters, performing arts venues, museums, and the Pickford Film Center, where you can catch independent and classic movies.

Bellingham has a strong and growing retiree population, along with college students from Western Washington University, and many young professionals. At nearly 82% white, Bellingham isn’t particularly diverse.

The area enjoys comfortable summers with temperatures rarely exceeding 82 degrees. However, winters bring overcast skies, cold, and rain. It’s a relatively safe city though it can be more expensive than others of its size. But if you want a small, seaside city with plenty of amenities, Bellingham lives up to its hype.

11. Portland, Maine

• Population: 68,424

• Median household income: $66,109

• Median Home value: $341,700

• Median monthly rent: $1,278

• Mean travel time to work: 20 minutes

• Cost of living: 19.8% higher than the national average

• Crime: 1 in 449 chance of becoming a victim of a violent crime; 1 in 57 chance of becoming a victim of a property crime

It’s understandable why Portland is frequently recommended as one of the best small cities in the U.S. Located on the Casco Bay shoreline, this small New England city is known for its connection to the sea, with its many lighthouses, rocky beaches, and sublime seafood.

People of all ages enjoy visiting and living in Maine’s largest city. Portland is home to the University of Southern Maine, and many former students make the city their home. Portland is considered one of the healthiest places for older adults, due to access to the outdoors and many recreational activities. Portland’s public school system is highly rated. The area is also more racially diverse than many other small cities, and crime is low.

There’s an abundance of room to stretch out in Portland, with more than 7,000 acres of public parks and open space. Fishing, sailing, and kayaking are popular ways to enjoy the area’s natural resources.

The quaint historic district of Old Port and the downtown area offer shopping, art galleries, restaurants, entertainment, and excellent people-watching. You can find plenty of cultural sites downtown too, including theater, movies, and live music. Many Portland locales cater to children, such as the beachfront amusement park Palace Playland and the Children’s Museum and Theater of Maine.

You’ll enjoy comfortable summers in Portland, but expect very cold, windy, and snowy winters. Portland can be the ideal spot if you love the Northeast, spending time outdoors, and living in a coastal town.

12. Burlington, Vermont

• Population: 44,595

• Median household income: $59,331

• Median Home value: $338,100

• Median monthly rent: $1,381

• Mean travel time to work: 19 minutes

• Cost of living: 28% higher than the national average

• Crime: 1 in 291 chance of becoming a victim of a violent crime, 1 in 27 chance of becoming a victim of a property crime,

Burlington is known for its warm and welcoming inhabitants, growing racial diversity (one in four people moving here is a person of color), and excellence in public school education. It’s also home to two institutes of higher education, the University of Vermont and Champlain College.

Ski resorts are a major draw, especially Stowe Mountain Resort and Cochran’s Ski Area. Burlington gets six feet of snow each year, making it a true winter wonderland. The summers are warm, and the change of seasons is visually dramatic.

Burlington has a flourishing arts and culture scene, with the city playing host to the annual Vermont International Film Festival, theatrical and musical productions at the Flynn Theater, and comedy shows at the Vermont Comedy Club.

Kids here are encouraged to stay active, with many opportunities for biking, hiking, sailing, and winter sports. Younger kids flock to Vermont Teddy Bear Factory, where they can shop for a handcrafted lovee.

The cost of living in Burlington can be challenging, and affordable housing hard to come by. But Vermont is one of the safest states to live in the U.S., making it a good option for well-off retirees who aren’t afraid of the snow.

The Takeaway

With thousands of small cities in the USA to choose from, naming even the top 100 would be quite a challenge. Our list of the 12 best small cities in the U.S. is based on safety, quality of education, arts and culture offerings, overall cost of living, and climate, among other factors. Whether you’re looking for a great place to raise kids or retire, we hope that one of our suggested small cities will pique your interest.

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FAQ

What is the best small city to live in the United States?

No two small cities are alike, and the best small city for you depends on what you’re looking for. Generally, you want to find a safe, affordable city offering a vibrant cultural scene and opportunities for indoor and outdoor activities. We like Tupelo, MS; Cedar City, UT; and Greenville, SC, among others. But the best small city boils down to personal choice.

Where are some of the best small towns to live in?

Some of the best small towns — with populations under 5,000 — include Sedona, AZ; Carmel-by-the-Sea, CA; Mystic, CT; Gatlinburg, TN; and Telluride, CO.

What is the friendliest little town?

According to TravelAwait’s 2023 survey, Concordia, Kansas, is the friendliest small town in the U.S.

Photo credit: iStock/kate_sept2004

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Jul

2023

How to Open a Brokerage Account

By Austin Kilham | Growing Wealth, invest, Investing | Comments Off

When you open a brokerage account with a brokerage firm, you transfer money into the account that you can use to start investing. While some brokerage accounts may set an account minimum, there is typically no limit to how much you can deposit or when you can withdraw your money.

With a brokerage account, investors can invest in a variety of securities, including stocks, bonds, ETFs, and more. There are many brokerages, but the steps to open a brokerage account are similar among most of them.

How Do I Open a Brokerage Account?

There are a few simple steps to opening a brokerage account. We’ll dive deep into each one below.

1. Choose a brokerage provider.

2. Sign up for an account.

3. Transfer money.

4. Start trading.

Step 1: Choose a Brokerage Provider

There are several types of brokerage accounts, and the type you choose will depend on what you’re trying to accomplish.

• Full-service brokerage firms not only allow clients to trade securities, they may also offer financial consulting and other services—though the price may be steep, compared to the other options here.

• Discount brokerage firms typically charge lower fees than full-service, but as a result clients don’t have access to additional financial consulting or planning services.

• Online brokerage firms are typically online-only, allowing clients to sign up, transfer money, and make trades through their website. These firms typically offer the lowest fees.

The accounts above are known as cash accounts: You must buy securities with funds you put in your account ahead of time. You may also encounter other more complicated types of brokerage accounts known as margin accounts, which allow you to borrow money from your brokerage to make investments, using your case account as collateral. These accounts tend to be for sophisticated investors willing to shoulder the risk that investments bought with borrowed funds will lose value.

Before working with an individual investment advisor or a firm and opening a cash or margin account, it can be a good idea to run a check on their background. The Financial Industry Regulatory Authority (FINRA) offers online broker checks where you can enter a broker’s name, or the name of a firm, to learn whether a broker is registered to sell securities, offer investment advice, or both. And you can learn about a broker’s employment history, regulatory actions, and whether there are past or current arbitrations and complaints.

Step 2: Sign Up for a Brokerage Account

Most brokers of all kinds allow you to open and access your brokerage account online. When you open the account, you will likely be asked to provide your Social Security number or taxpayer identification number, your address, date of birth, driver’s license or passport information, employment status, annual income and net worth. You may also be asked about your investment goals and risk tolerance.

For the most part, they should not charge you a fee for opening an account. While some may require account minimums, others allow you to open an account with no minimum deposit.

There is no limit on the number of brokerage accounts you can open, and you may be able to hold multiple accounts with multiple brokerage firms.

Step 3: Transfer Money

You will need to fund your new brokerage account before you can purchase any types of securities. You can deposit money in a brokerage account like you would in a traditional bank account.

Step 4: Start Trading

Many brokerage firms will offer a way for you to earn interest on uninvested funds so that your money continues to work for you even when not invested in the market.

💡 Quick Tip: Look for an online brokerage with low trading commissions as well as no account minimum. Higher fees can cut into investment returns over time.

How Do Brokerage Accounts Work?

The brokerage firm with which you hold your account maintains the account and acts as the custodian for the assets you hold. In other words, the custodian provides a space for investors to use their account in the way that it was intended.

However, you own the investments in the account and can buy and sell them as you wish. The brokerage firm acts as a middleman between you and the markets, matching you with buyers and sellers, and executing trades based on your instructions.

For example, if you place an order with your brokerage to buy a certain number of shares of stock, the brokerage will match you with a seller looking to sell those shares and make the trade for you.

What’s the Difference Between Brokerage Accounts and Retirement Accounts?

Brokerage accounts are also known as taxable accounts, because profits on sales of securities inside the account are potentially subject to capital gains taxes. Generally speaking, these accounts offer no tax advantages for investors.

Retirement accounts, on the other hand, offer a number of tax advantages that may make them preferable to taxable accounts if you’re planning to save for retirement. Retirement accounts place limits on how much money you can contribute and when you can withdraw funds.

If retirement planning is your main concern, you may consider saving as much as you can in both a 401(k) if your employer offers one, and a traditional or Roth IRA. If you have funds left over, you may choose to invest those in your taxable brokerage account.

💡 Quick Tip: How much does it cost to set up an IRA? Often there are no fees to open an IRA, but you typically pay investment costs for the securities in your portfolio.

Is My Money Safe in a Brokerage Account?

The money and securities held in a brokerage account are insured by the Securities Investor Protection Corporation (SIPC) . The SIPC protects against the loss of cash and securities held at failing brokerage firms. If your brokerage firm goes bankrupt, the SIPC covers $500,000 worth of losses, including $250,000 in cash losses.

The SIPC only provides protection for the custody function of a brokerage firm. In other words, they work to restore the cash and securities that were in a customer’s account when the brokerage started its liquidation proceedings. The organization does not protect against declines in value of the securities you hold, nor does it protect against receiving and acting upon bad investment advice.

It is important that any investor realizes and accepts that investment comes with a certain amount of risk. While security prices may gain in value, it is also possible that you could lose some or all of your investment.

The Takeaway

Opening a brokerage account is a simple process that allows you to invest in securities. Effectively, you’re depositing money at a brokerage, which will allow you to buy investments such as stocks, bonds, or ETFs. There are numerous brokerages out there, and different types of brokerage accounts.

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).

For a limited time, opening and funding an Active Invest account gives you the opportunity to get up to $1,000 in the stock of your choice.

SoFi Invest®

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

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For a full listing of the fees associated with Sofi Invest please view our fee schedule.

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

Claw Promotion: Customer must fund their Active Invest account with at least $50 within 30 days of opening the account. Probability of customer receiving $1,000 is 0.028%. See full terms and conditions.

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Jul

2023

Helping Your Child with Homesickness in College

By Kayla McCormack | Life & Career, Student Loans, student_loan | No Comments

In the spring of 2022, nearly 18 million students attended American colleges and universities.

As exciting as this phase of life can be, experiencing some level of homesickness during the home-to-college transition is common. As a parent, you may feel a sense of responsibility when it comes to helping your now-adult child get over their homesickness. And there could be a reason for concern, since studies have shown that emotional or mental distress in college students can impact academic performance.

Fortunately, there are a number of ways parents can help their child adjust to being away from home (perhaps for the first time) and get the most out of their college experience. Read on to learn some simple ways you can help your child feel less homesick at college.

Recommended: College Planning Guide for Parents

Strategies to Help Your Child Cope with Homesickness

Watching your child experience homesickness from afar can be challenging. It may be tempting to rush to the rescue, but it is also important that your child find their footing on campus. These tips and ideas may be helpful as you support your child as they navigate homesickness and life on-campus.

Acknowledging the Situation

It can be comforting to know that you’re not the only one struggling with a given situation. So as a parent, it might be helpful to share with your child how common homesickness is among first-year students. Providing comfort and reassurance that they are not alone and that in time, their feelings of homesickness will pass, can go a long way.

Keeping In Touch

As you and your child adjust to your new dynamic, you may need to find new ways to keep in touch. Keep in mind that while your child is adjusting to on-campus life, you don’t want to be overbearing. Try setting up a weekly video chat or sending over fun updates from home in a text message. Remember to give your child the space they need to find their footing at school.

Sending a Care Package

When packing for college, adding a few items that bring the comfort of home could be helpful if your child starts feeling tinges of homesickness. Things like a favorite book, a blanket, or stuffed animal could be just the thing when homesickness creeps in.

Sending over a care package with some of their favorite cookies, candies, or snacks and a photo of a fun memory can provide a touch of home too.

Encouraging Your Child to Get Help if They Need It

If your homesick college student seems like they may benefit from professional help, you might encourage them to visit their campus counseling center. Many colleges also offer mental health services and counseling on campus, often at little to no cost.

If there are fees involved, they may be covered (at least partially) by health insurance. If your child is no longer on a family medical plan, it’s likely you’ve enrolled them in a college health insurance plan, which is often rolled into costs of tuition, room, and board.

💡 Quick Tip: You can fund your education with a low-rate, no-fee private student loan that covers all school-certified costs.

Helping Your Child Find a New Familiar

It’s probably not the best idea for parents to visit their child every weekend — though it may be hard to control yourself if your child’s university is easily accessible. As lovely as it is that you’re a familiar face, it might be more helpful for your child to find a new familiar.

Instead, you might encourage your child to find ways to make their not-yet-so-familiar home feel more known. If your college student loves coffee, they might want to find a local shop they can visit frequently — turning it into their own personal hang-out spot.

If they’re into museums, discovering the best ones nearby could help them feel more grounded in their new environment.

Getting Involved on Campus

When someone is feeling down, it can be tempting to stay indoors and wallow in those feelings. Getting involved on campus can help students build community and connect with their peers. Colleges have lots of clubs and extracurriculars that can help students find like-minded individuals.

If committing to a club feels like too much, your child might connect with peers in a more casual way, from making friends in class or meeting new people during a dorm hall function.

Developing Healthy Routines

Physical health and mental health go hand in hand, so if your homesick college student is making less-than-healthy choices during this tough transition period, you might encourage them to make some changes in their routine.

This might look like starting their day with a walk to the campus coffee shop or finding a weekly exercise class. Creating a schedule and finding new, healthy routines can give your student something to look forward to.

Developing a Plan to Pay for College

In addition to homesickness, paying for college can be an added layer of stress, for both parents and students. If your child is worried about money or constantly working at a job to help cover costs (rather than acclimating to college), you might want to look into additional sources of funding, such as scholarships and grants and/or student loans.

It’s important to fill out the Free Application for Federal Student Aid (FAFSA) every year, since this is required for a student or parent to qualify for any federal funds or loans.

For some students, federal student loans and other sources of aid may be enough to fund their college education. If it’s not, parents also have the option of taking out loans, such as the federal PLUS loan or a private student loan. You might also consider cosigning a private student loan for your child.

When comparing federal vs. private student loans, keep in mind that private student loans aren’t required to offer the same borrower protections, like deferment options or income-driven repayment plans, as federal student loans. For this reason, you generally want to look at private student loans only after you’ve exhausted federal loan and aid options.

💡 Quick Tip: Parents and sponsors with strong credit and income may find much lower rates on no-fee private parent student loans than federal parent PLUS loans. Federal PLUS loans also come with an origination fee.

The Takeaway

The transition to college life can be stressful for students, as well as their parents. Being in an unfamiliar environment, while trying to balance classes and making new friends can lead to feelings of apprehension, anxiety, and homesickness. As a parent, providing support from a distance can include things like sending a care package, checking in with a video call once a week, and encouraging your child to get involved in extracurricular activities.

Hopefully, in time, your child will settle into their life on campus — finding a new normal. If money worries are adding to your child’s (or your own) college stress, it can also be a good idea to explore funding options you or they might qualify for. Once the financial side of college is taken care of, your child will be free to focus solely on assimilating into campus life and fully embracing this exciting time in their life.

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.

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

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).

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

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Jul

2023

Mobile Home Financing Options: Personal Loans and More

By Janet Schaaf | Budgeting & Goals, Home Ownership, mortgage | Comments Off

If you’re looking for a cheaper alternative to a traditional house, you might consider buying a mobile home. The price of a mobile home (also known as a manufactured home) is typically much lower than a standard single-family home. Plus, these homes aren’t necessarily temporary. These days, factory-made homes can be just as permanent as houses that are built on-site. They can also be customized in many of the same ways as a traditional home.

While mobile homes don’t always qualify for a traditional mortgage, there are several types of financing that can help make buying a factory-built home more affordable. Read on for a closer look at the process of buying — and financing — a mobile, manufactured, or modular home.

What is the Average Cost of a Mobile Home?

According to the Census Bureau’s February 2022 Manufactured Housing Survey, the average price of a new manufactured home is $128,100.

More specifically, the average price for a single-wide mobile home is $89,200 and average for a double-wide mobile home is $160,400.

However, mobile home prices can vary significantly by region. The highest prices tend to be in the Northeast, where the average cost of a new mobile home is $107,000 for a single-wide and $167,800 for a double-wide.

The lowest prices are typically in the South, where the average price for a single-wide is $88,200 and average cost of a double-wide is $157,900.

In the West, a single-wide mobile home averages $92,800 and a double-wide averages $170,000, while in the Midwest, a single-wide mobile home averages $85,300 and a double-wide averages $158,800.

Recommended: How to Budget for Buying A House

Differences Between a Mobile Home, Modular Home, and Manufactured Home

The terms mobile home, manufactured home, and modular home are often used interchangeably. While all three refer to homes built in a factory rather than on-site, there are some differences between them. Below, we break it down.

Mobile Home

A mobile home is a prefabricated home built on a permanent trailer chassis that was constructed prior to June 15, 1976. That is when the U.S. The Department of Housing and Urban Development (HUD) enacted the National Manufactured Housing Construction and Safety Standards Act. After that date, new safety standards went into effect, which led to a new designation for these homes.

Manufactured Home

Like a mobile home, a manufactured home is built almost exclusively in a factory rather than on-site. However, these homes were built after June 15, 1976, when HUD put new safety standards into effect for mobile homes and changed the name of these structures from “mobile” homes to “manufactured” homes.

Another difference between mobile and manufactured homes is that manufactured homes typically are not moved after assembly. That said, it is possible to move a manufactured home if it has a pier and beam foundation. Manufactured homes need to not only meet HUD standards but also local building standards for the communities where they will be located.

Modular Homes

Like mobile and manufactured homes, modular homes are built in a factory and shipped to the land where they will be set up. However, modular homes are often delivered in two or more modules (hence the name) that are then put together on-site by a contractor.

Modular homes are not designed to be relocated and are placed on a permanent foundation. Once put together, these homes have a lot in common with on-site built homes. They may have a basement and/or crawlspace, come in a variety of layouts, and can be one or two stories.

Like manufactured homes, modular homes must adhere to local building codes.

💡 Quick Tip: Buying a home shouldn’t be aggravating. Online mortgage loan forms can make applying quick and simple.

Things To Consider When Buying a Mobile Home

To find the best mobile home for your needs, here are some things to keep in mind.

Location

As with any home purchase, location is key. You can install your mobile home on land you already own, or purchase land for your mobile home. In either case, you’ll want to make sure that local zoning regulations allow for the installation of mobile homes and that the local utilities are able to connect a mobile home.

Another location option is to rent a plot of land in a mobile home community. If you find a community you like, it’s a good idea to find out what their restrictions are for home size and features before you buy a mobile home.

Size

Mobile homes are usually classified by their width. A single-wide is slightly under 15 feet wide and around 70 feet long. A double-wide mobile home is usually the same length but double the width — around 30 feet wide.

Due to their long, narrow shape, single-wide homes have fewer floorplan options and can work best for individuals or couples. Double-wide homes offer more space, as well as design options, and can be ideal for larger families.

Keep in mind that larger homes will, of course, be more expensive and also require a larger lot.

New vs Used

These days, you find new manufactured homes with all kinds of bells and whistles, including vaulted ceilings, walk-in closets, and luxurious bathrooms. If you’re looking to save money, however, you might consider going with a used mobile home. Just keep in mind that a used home may show signs of wear and tear (depending on how well it was maintained) and that some mobile home sites don’t allow homes made before a certain date.

Financing a Mobile Home

Once you’ve decided on the type and size of mobile home you want to buy, it’s time to figure out how you are going to pay for it. While it can be harder to find a loan for a mobile home than a traditional home, there are still a number of options. Here are some to consider.

Fannie Mae

While not all lenders finance manufactured homes, some may offer Fannie Mae’s MH Advantage program. These loans come with terms of 30 years, competitive rates, and down payments as low as 3%.

However, they also come with strict qualification criteria: The manufactured home must be at least 12 feet wide, have a minimum of 600 square feet, and can’t be on leased land. The home also needs to have a driveway and a sidewalk that connects the driveway, carport, or detached garage.

Freddie Mac

Another option for manufactured home financing is the Freddie Mac Home Possible mortgage program. This program offers 15-, 20- and 30-year fixed-rate loans, as well as adjustable-rate mortgages. Like Fannie Mae, these loans typically come with low rates and down payments as low as 3%. Freddie Mac loans also have strict criteria for qualification: The home must be considered real property, have at least 400 square feet of living space, and be built on a permanent chassis.

FHA

The Federal Housing Administration (FHA), which offers loans for traditional homes with flexible credit and down payment requirements, also offers manufactured home loans called Title I and Title II loans.

You can use a Title I loan to buy a manufactured home (but not the land it sits on), provided that the property is your primary residence, is connected to utilities, and meets FHA guidelines. These loans typically come with terms up to 20 years and relatively low loan amounts.

Title II loans, by contrast, can be used to purchase both a manufactured home and the land it sits on together. However, the home must count as real property and have been built after 1976.

US Department of Veterans Affairs (VA)

If you’re a member of the military community, you may be able to qualify for a loan insured by the Department of Veterans Affairs (VA) to purchase a mobile or manufactured home. To qualify for a VA loan for a manufactured home, your home must be on a permanent foundation, meet HUD guidelines, and must be purchased with the land underneath it. These loans often offer 100% financing with no money down; terms can range from 20 to 25 years.

💡 Quick Tip: You never know when you might need funds for an unexpected repair or other big bill. So apply for a HELOC (a home equity line of credit) brokered bySoFi today: You’ll help ensure the money will be there when you need it, and at lower interest rates than with most credit cards.

Chattel Loans

A chattel loan is a loan designed to purchase different types of expensive personal property, such as cars, boats, and mobile homes. You don’t have to own the land your home will sit on to get a chattel loan, so this can be a good option if you plan to rent a space in a mobile home community. Some lenders also offer chattel loans that are insured by the FHA, VA, and the Rural Housing Service (RHS) through the U.S. Department of Agriculture.

Chattel loans typically have higher rates and shorter terms than traditional mortgages. Like a traditional mortgage, however, these loans hold the property being financed as collateral for the loan. That means that if you run into trouble making payments, the lender can seize and re-sell the mobile home.

Personal Loans

Since mobile homes generally cost far less than traditional homes, you may be able to finance your purchase through a personal loan.

Personal loans are typically unsecured loans with a fixed interest rate that can be used for virtually any purpose (including the purchase of a mobile home). These loans don’t have restrictions on how your mobile home is built, so you can likely qualify even if it’s fully movable and not attached to a permanent foundation. Also, personal loans don’t put your home at risk, and the application process and time to funding tends to be shorter than other types of mobile home loans. However, interest rates may be higher.

While some lenders offer maximum personal loans of $40,000 to $50,000, others will let you borrow $100,000 or more. If you can find a larger personal loan, it may be enough to finance a mobile, manufactured, or modular home.

Recommended: How Much Is a Down Payment on a House?

Getting Approved for a Personal Loan

If you’re thinking about applying for a mobile home loan, here are some steps that can help streamline the process.

1. Check Your Credit Reports

Whenever you apply for any type of financing, a lender will likely look at your credit history to help them determine how much they will lend to you and at what rate (or if they will lend to you at all). It’s wise to look at your three credit reports, see where you stand, and make sure there aren’t any mistakes or inaccuracies that could negatively affect your credit. You can get free copies of your credit reports from the three consumer bureaus — Equifax®, Experian®, and TransUnion® — at AnnualCreditReport.com.

2. Determine Whether You’re Buying Land and a Mobile Home

This will determine how much money you need to borrow, as well as what your financing options are. Some lenders will only offer mobile home financing if the home will be permanently set up on land that you own.

3. Save For a Down Payment

While it’s not always required, you may also want to think about saving for a down payment on your manufactured or mobile home.

4. Find the Right Lender

Interest rates can vary from one lender to the next, so it can definitely pay to shop around and compare offerings from banks, credit unions, and online lenders. Some lenders will allow you to “prequalify” for a loan with a soft credit check (which doesn’t impact your credit score). This will allow you to get an idea of the loan amount and rate you may be able to qualify for before you officially apply.

The Takeaway

While mobile and manufactured homes are typically more affordable than a traditional home, you may still need financing to cover the cost of the purchase. You may be able to get a loan from the same sources as traditional mortgages (such as FHA and VA loans). Other options include specialized manufactured home loans through Fannie Mae and Freddie Mac, chattel loans, and personal loans.

Looking for an affordable option for a home mortgage loan? SoFi can help: We offer low down payments (as little as 3% - 5%*) with our competitive and flexible home mortgage loans. Plus, applying is extra convenient: It's online, with access to one-on-one help.

SoFi Mortgages: simple, smart, and so affordable.

FAQ

Can you get a personal loan for a mobile home?

Yes, a personal loan can be used to buy a mobile, manufactured, or modular home. Applicants will need to meet qualification requirements of the lender they’re working with.

What is the maximum personal loan amount for a mobile home?

The maximum loan amount is dependent on the lender. Many have maximum loan amounts of $40,000 and $50,000 but some will offer up to $100,000. The amount you can borrow will also depend on your income, credit score, and other factors.

Where can I get a personal loan to buy a mobile home?

Traditional banks, credit unions, and online lenders may offer personal loans to buy a mobile or manufactured home.

SoFi Mortgages
Terms, conditions, and state restrictions apply. Not all products are available in all states. See SoFi.com/eligibility-criteria for more information.

*SoFi requires Private Mortgage Insurance (PMI) for conforming home loans with a loan-to-value (LTV) ratio greater than 80%. As little as 3% down payments are for qualifying first-time homebuyers only. 5% minimum applies to other borrowers. Other loan types may require different fees or insurance (e.g., VA funding fee, FHA Mortgage Insurance Premiums, etc.). Loan requirements may vary depending on your down payment amount, and minimum down payment varies by loan type.

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

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.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

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Jul

2023

Borrowing From Your 401(k): Pros and Cons

By Julia Califano | Budgeting & Goals, Growing Wealth, invest | No Comments

A 401(k) loan allows you to borrow money from your retirement savings and pay it back to yourself over time, with interest. While this type of loan can provide quick access to cash at a relatively low cost, it comes with some downsides. Read on to learn how 401(k) loans work, when it may be appropriate to borrow from your 401(k), and when you might want to consider an alternative source of funding.

What Is a 401(k) Loan & How Does It Work?

A 401(k) loan is a provision that allows participants in a 401(k) plan to borrow money from their own retirement savings. Here are some key points to understand about 401(k) loans.

Limits on How Much You Can Borrow

The Internal Revenue Service (IRS) sets limits on the maximum amount that can be borrowed from a 401(k) plan. Typically, you can borrow up to 50% of your account balance or $50,000, whichever is less, within a 12-month period.

Spousal Permission

Some plans require borrowers to get the signed consent of their spouse before a 401(k) loan can be approved.

You Repay the Loan With Interest

Unlike a withdrawal, a 401(k) loan requires repayment. Typically, you repay the loan (plus interest) via regular payroll deductions, over a specified period, usually five years. These payments go into your own 401(k) account.

Should You Borrow from Your 401(k)?

It depends. In some cases, getting a 401(k) can make sense, while in others, it may not. Here’s a closer look.

When to Consider a 401(k) Loan

• In an emergency If you’re facing a genuine financial emergency, such as medical expenses or imminent foreclosure, a 401(k) loan may provide a timely solution. It can help you address immediate needs without relying on more expensive forms of borrowing.

• You have expensive debt If you have high-interest credit card debt, borrowing from your 401(k) at a lower interest rate can potentially save you money and help you pay off your debt more efficiently.

When to Avoid a 401(k) Loan

• You want to preserve your long-term financial health Depending on the plan, you may not be able to contribute to your 401(k) for the duration of your loan. This can take away from your future financial security (you may also miss out on employee matches). In addition, money removed from your 401(k) will not be able to grow and will not benefit from the effects of compound interest.

• You may change jobs in the next several years If you anticipate leaving your current employer in the near future, taking a 401(k) loan can have adverse consequences. Unpaid loan balances may become due upon separation, leading to potential tax implications and penalties.

How Is a 401(k) Loan Different From an Early Withdrawal?

When you withdraw money from your 401(k), these distributions typically count as taxable income. And, if you’re under the age of 59½, you typically also have to pay a 10% penalty on the amount withdrawn.

You may be able to avoid a withdrawal penalty, if you have a heavy and immediate financial need, such as:

• Medical care expenses for you, your spouse, or children

• Costs directly related to the purchase of your principal residence (excluding mortgage payments).

• College tuition and related educational fees for the next 12 months for you, your spouse, or children.

• Payments necessary to prevent eviction from your home or foreclosure

• Funeral expenses

• Certain expenses to repair damage to your principal residence

While the above scenarios can help you avoid a penalty, income taxes will still be due on the withdrawal. Also keep in mind that an early withdrawal involves permanently taking funds out of your retirement account, depleting your nest egg.

With a 401(k) loan, on the other hand, you borrow money from your retirement account and are obligated to repay it over a specified period. The loan, plus interest, is returned to your 401(k) account. During the term of the loan, however, the money you borrow won’t enjoy any growth.

Recommended: Can I Use My 401(k) to Buy a House?

Pros and Cons of Borrowing From Your 401(k)

Given the potential long-term cost of borrowing money from a bank — or taking out a high-interest payday loan or credit card advance — borrowing from your 401(k) can offer some real advantages. Just be sure to weigh the pros against the cons.

Pros

• Efficiency You can often obtain the funds you need more quickly when you borrow from your 401(k) versus other types of loans.

• No credit check There is no credit check or other underwriting process to qualify you as a borrower because you’re withdrawing your own money. Also, the loan is not listed on your credit report, so your credit won’t take a hit if you default.

• Low fees Typically, the cost to borrow money from your 401(k) is limited to a small loan origination fee. There are no early repayment penalties if you pay off the loan early.

• You pay interest to yourself With a 401(k) loan, you repay yourself, so interest is not lost to a lender.

Cons

• Borrowing limits Typically, you are only able to borrow up to 50% of your vested account balance or $50,000 — whichever is less.

• Loss of growth When you borrow from your 401(k), you specify the investment account(s) from which you want to borrow money, and those investments are liquidated for the duration of the loan. Therefore, you lose any positive earnings that would have been produced by those investments for the duration of the loan.

• Default penalties If you don’t or can’t repay the money you borrowed on time, the remaining balance would be treated as a 401(k) disbursement under IRS rules. This means you’ll owe taxes on the balance and, if you’re younger than 59 1 ⁄ 2, you will likely also have to pay a 10% penalty.

• Leaving your job If you leave your current job, you may have to repay your loan in full in a very short time frame. If you’re unable to do that, you will face the default penalties outlined above.

Alternatives to Borrowing From Your 401(k)

Because withdrawing or borrowing from your 401(k) comes with some drawbacks, here’s a look at some other ways to access cash for a large or emergency expense.

Emergency fund Establishing and maintaining an emergency fund (ideally, with at least three to six months’ worth of living expenses) can provide a financial safety net for unexpected expenses. Having a dedicated fund can reduce the need to tap into your retirement savings.

Home equity loans or lines of credit If you own a home, leveraging the equity through a home equity loan or line of credit can provide a cost-effective method of accessing extra cash. Just keep in mind that these loans are secured by your home — should you run into trouble repaying the loan, you could potentially lose your home.

Negotiating with creditors In cases of financial hardship, it can be worth reaching out to your creditors and explaining your situation. They might be willing to reduce your interest rates, offer a payment plan, or find another way to make your debt more manageable.

Personal Loans Personal loans are available from online lenders, local banks and credit unions and can be used for virtually any purpose. These loans are typically unsecured (meaning no collateral is required) and come with fixed interest rates and set terms. Depending on your lender, you may be able to get funding within a day or so.

The Takeaway

Borrowing from your 401(k) can provide short-term financial relief but there are some downsides to consider, such as borrowing limits, loss of growth, and penalties for defaulting. It’s a good idea to carefully weigh the pros and cons before you take out a 401(k) loan. You may also want to consider alternatives, such as using non-retirement savings, taking out a home equity loan or line of credit, or getting a personal loan.

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

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

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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