InvestSLR Archives

Dec

2025

A woman holding her credit card in one hand and her cell phone in the other as she makes a purchase with her phone.

Can You Consolidate Student Loans and Credit Card Debt Together?

By Susan Guillory | Credit, Family Finances, Student Loans, student_loan | Comments Off

Table of Contents

What Is Debt Consolidation?
Consolidating Student Loans
Consolidating Credit Cards
How to Consolidate Student Loans and Credit Card Debts
Balance Transfer
Alternatives to Consolidation
The Avalanche Method
Student Loan Refinance Tips from SoFi
FAQ

After attending college, you might have a hefty student loan you need to pay off, and you might also have some credit card debt you’re ready to eliminate.

Having two (or more) separate payments each month can get messy, and could negatively impact your credit if you don’t make all the minimum payments required. You may be wondering if it’s possible to consolidate student loans and credit card debt together to make things easier.

In this guide, we’ll look at the differences between debt consolidation and student loan consolidation, plus explore the options to lower your interest rates and possibly get one single payment for all your student loan and credit card debts.

Key Points

• Debt consolidation and refinancing serve different purposes in managing multiple debts like student loans and credit cards.

• Direct Consolidation Loans are available only for federal student loans.

• Personal loans can consolidate various debts, but borrowers with federal student loans will forfeit federal benefits.

• Balance transfer credit cards offer a 0% interest rate for a limited time, but may be difficult to pay off in the short time frame if you have a large amount of debt.

• The Avalanche and Snowball methods provide alternative debt repayment strategies.

What Is Debt Consolidation?

There are two different ways you can change what your debt looks like: debt consolidation and debt refinancing.

It’s important to understand that when it comes to student loans, consolidating is different from refinancing. Refinancing refers to changing the financial terms of a debt. Maybe when you took out your student loan, for example, interest rates were higher than they are now. You might be able to refinance your loan with lower rates or you could refinance to extend the loan term.

Debt consolidation, on the other hand, refers to combining more than one debt into a new loan with a single payment. Say you have three different credit card balances and you take out a new loan to pay them off. Now, those three credit cards have a zero balance and you’re left with a single monthly payment and a new interest rate and terms with the new loan.

Consolidating Student Loans

The U.S. Education Department offers what’s called a Direct Consolidation Loan, which consolidates all your federal education loans that qualify into one new loan with a single interest rate, typically the weighted average of the loans you’re consolidating. When you consolidate federal student loans, you keep federal benefits, such as income-driven repayment plans and student loan forgiveness.

Student loan consolidation may be useful if you have federal loans from different lenders and are making more than one payment per month. However, your interest rate won’t necessarily be lowered, nor will you be allowed to also consolidate private student loans or credit card debt.

Consolidating Credit Cards

Just like with student loans, you may have multiple credit cards each with their own balance, interest rate, and minimum payment due each month. This can make paying off all the debt next to impossible — and make you feel like you’re treading water as you pay the minimum amount due on each card.

With credit card consolidation, you take out a new personal loan and pay off all outstanding credit card debt. You then have one payment and one interest rate (which may often be significantly lower than some very high rates for credit cards). You’re now making one monthly payment for all your credit card debt.

How to Consolidate Student Loans and Credit Card Debts

As discussed, with a Direct Consolidation Loan, you can’t add credit card debt to the loan. Direct Consolidation Loans are reserved for federal student loans only.

However, if you’re wanting to consolidate both student loans and credit card debts, there are options you can consider.

Personal Loan

One way to pay off different types of debt is with a personal loan. However, be aware that personal loans typically have higher interest rates than student loans. The rates for personal loans may be lower than credit card interest rates if your credit is good.

By taking out a personal loan, you may be able to pay off all of your student loans and credit card debt. Your debt is then rolled up into one monthly payment with one interest rate.

The higher your credit score, the lower the interest rate you may qualify for with a personal loan. If you don’t get a good rate, you could extend the loan term to make your payments more manageable. But that will result in paying more in interest over the life of the loan. You can usually pay off a personal loan early without penalty, which can cut down on what you’d otherwise pay in interest.

Finally, it’s important to note that if you use a personal loan to pay off your federal student loans, you’ll lose federal benefits such as student loan forgiveness and deferment.

Balance Transfer

If a personal loan isn’t for you, you could check to see if you have a credit card with a balance transfer offer. Often, credit cards will offer a promotion of 0% on any balances from other credit cards or loans transferred. Take note though: Often these promotions end after a year, and then you’re stuck with the interest payment on the remaining balance.

A balance transfer may make sense if you know you can pay off your debts within a year. If you have a large amount of credit card debt or a high student loan amount, this may not be the best solution if you can’t pay it off quickly. Instead, you might consider transferring only the amount of your debts that you know you can pay off within the timeframe, or consider an alternative method.

Alternatives to Consolidation

If you’re hoping to consolidate student loans and credit card debt together, taking out a personal loan or using a balance transfer are two options to explore.

You might also look at a debt reduction strategy, such as the Avalanche Method or the Snowball Method.

The Avalanche Method

The Avalanche Method focuses on paying off your debts with the highest interest rates first. Once those are paid off, you put your money toward the debts with the next highest interest rates, and so on and so forth, until they are all paid off.

The Snowball Method

With the Snowball Method, you focus on the debt with the largest balance first. Put extra money toward paying that off, then when it’s paid off, you move to the debt with the next largest balance.

Continue Payments

Whatever strategy you choose, the key is to keep making payments on your other debts too. And if possible, pay more than the minimum amount due. Even paying an additional $25 a month on a debt will help you pay it off faster and reduce the total amount of interest you pay overall.

Student Loan Refinance Tips from SoFi

Because student loans are often the largest debts people carry, you may want to have a separate strategy for paying off student loans.

When you refinance student loans, you exchange your old loans for a new private loan, ideally one with a lower interest rate, which could lower your payments. Or you could opt for a loan that offers a longer time period if you want a smaller monthly payment. However, keep in mind that with a longer loan term, you’re likely to pay more in interest over the life of the loan.

Using a student loan refinancing calculator could help you see what you might save by refinancing.

Also, if you plan on using federal benefits like forgiveness or income-driven repayment plans, it’s not recommended to refinance federal student loans with a private lender. Instead, look into a Direct Consolidation Loan or refinance your student loans once you’re no longer using federal benefits.

The Takeaway

While it can be challenging to consolidate student loans and credit card debt together, it may be possible to do so with a personal loan or a credit card balance transfer. Using one of these methods allows you to transfer these debts into a single loan with a single payment and interest rate. However, there are drawbacks to consider, including losing federal protections on federal student loans.

If a personal loan or balance transfer credit card isn’t an option, you could consider refinancing your student loans to possibly lower your interest rate and save money each month. The money you save could then be put toward paying off your credit card debt.

Looking to lower your monthly student loan payment? Refinancing may be one way to do it — by extending your loan term, getting a lower interest rate than what you currently have, or both. (Please note that refinancing federal loans makes them ineligible for federal forgiveness and protections. Also, lengthening your loan term may mean paying more in interest over the life of the loan.) SoFi student loan refinancing offers flexible terms that fit your budget.

With SoFi, refinancing is fast, easy, and all online. We offer competitive fixed and variable rates.

FAQ

Do I lose my credit cards if I consolidate?

Consolidating credit card debt does not cause you to lose your credit cards. It merely wipes out the debt on each card you include in the consolidation (though you will have a new loan to pay off for all the debt on the consolidated credit cards).

Will consolidating my student loans lower my credit score?

If you use the Direct Consolidation Loan, this will not impact your credit score. However, if you consolidate your student loans with a personal loan or through student loan refinancing, it may impact your credit.

Can my student loans be forgiven if I consolidate?

If you consolidate your loans with a Direct Consolidation Loan, you’re still eligible for student loan forgiveness. However, if you refinance your student loans with a private lender, you are no longer eligible for federal benefits, including loan forgiveness.

Photo credit: iStock/PeopleImages

SoFi Student Loan Refinance
Terms and conditions apply. SoFi Refinance Student Loans are private loans. When you refinance federal loans with a SoFi loan, YOU FORFEIT YOUR ELIGIBILITY FOR ALL FEDERAL LOAN BENEFITS, including all flexible federal repayment and forgiveness options that are or may become available to federal student loan borrowers including, but not limited to: Public Service Loan Forgiveness (PSLF), Income-Based Repayment, Income-Contingent Repayment, extended repayment plans, PAYE or SAVE. Lowest rates reserved for the most creditworthy borrowers. Learn more at SoFi.com/eligibility. SoFi Refinance Student Loans are originated by SoFi Bank, N.A. Member FDIC. NMLS #696891 (www.nmlsconsumeraccess.org).

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

Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article.

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.

Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .

SoFi Credit Cards are issued by SoFi Bank, N.A. pursuant to license by Mastercard® International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.

SOSLR-Q425-025

Dec

2025

Three people walking in a building at their college internship

What Is the Value of a College Internship?

By Janet Siroto | Building Your Career, Life & Career, student_loan | No Comments

Table of Contents

What Is an Internship?
Paid Versus Unpaid Internships
Value of Internships: Improved Employment Opportunities
Value of Internships: Personal Development
How to Find Internships
Student Loan Refinancing
FAQ

There can be a good amount of competition for some college internships, and for good reason. They may provide invaluable work experience, exposure to an industry that’s of interest, and networking opportunities. But note the use of the word “may.” In some cases, an internship might not be as beneficial as others.

Here, you’ll learn more about the value of internships, both paid and unpaid, as well their advantages and disadvantages. Once you have that basic knowledge, you’ll be able to make the best decision for your needs. If you do think a college internship is a good move, then try the tips for finding one, also included below.

Key Points

• College internships can provide valuable work experience and networking opportunities, and enhance employment prospects.

• Unpaid internships may lack practical experience and financial support, but might allow a student to earn college credit or provide a small stipend for expenses.

• Internships aid in developing industry-specific skills and building a professional network, crucial for career readiness.

• Hands-on experience and networking during internships can lead to job offers, signaling career commitment.

• Paid internships may help a borrower manage student loan debt by providing income and better job opportunities post-graduation.

What Is an Internship?

An internship is a professional work experience for a student. It can immerse the student in a given career, show them some of the responsibilities typically related to a job in the industry, and give them hands-on time to do some relevant work.

Internships may be paid or unpaid; some are completed to earn school credit. For some students, an internship can forge career connections and even lead to a job offer.

Paid Versus Unpaid Internships

An Internship’s value in terms of future career hunting and job search can be considerable. But what about actually collecting a paycheck?

• Some internships are paid (typically, a low wage, such as minimum wage) and others are unpaid, meaning there’s no financial remuneration.

• However, some unpaid internships may allow the student to earn school credit, and some may offer a stipend to cover, say, transportation and food costs related to the job.

There are many summer internships, but an internship may also take place during a school break. Sometimes, a student may take on an internship during the school year, whether part-time or full-time, perhaps as part of the institution’s curriculum.

For example, Northeastern University in Boston is well-known for its co-op program which alternates periods of study with full-time work as a way of helping students prepare for their future careers.

According to a 2024 survey by the National Association of Colleges and Employers (NACE), more than 66% of graduating seniors participated in an internship during college.

Are Unpaid Internships Legal?

Unpaid internships are a hotly debated subject. They are legal if executed properly. However, it can be important that unpaid internships do not have students engaging in the same work as employees but for free. In this scenario, an intern may do work adjacent to that of paid staffers, but they may not be able to actually get the hands-on experience they were hoping for.

Paid internships, obviously, offer the benefit of income and may allow students more hands-on experiences with work situations and tasks.

Both may allow participants to network and make valuable connections that could help them when they enter the job market. And both types of internships can be added to a student’s resume, helping them when they look for work.

Value of Internships: Improved Employment Opportunities

There are a number of potential benefits of college internships. These are some ways they may provide value when it comes to employment.

• Many organizations offer internships, at least in part, to identify quality candidates for entry-level professional positions. The internship period, for those companies, allows them to vet interns to see whom they are impressed with. This can lead to a more permanent commitment, aka a job offer.

And the value of college internships could go beyond potentially getting a job where you interned.

• If you apply elsewhere, other companies may very well look to see whether or not you’ve completed an internship. If you have, this could indicate the level of seriousness you have about pursuing your chosen career.

• In fact, an internship could add to the value of a college degree as it shows that you already have a bit of experience applying your skills and education in the workplace.

• It also shows that another organization was willing to have you work for them, another plus.

Applying for and nabbing a college internship is important in one other way:

• It gives you experience hunting for a job, creating a resume, and, most likely, interviewing for a position. These are valuable real-world skills to hone.

Recommended: What Is an Apprenticeship?

Value of Internships: Personal Development

When you intern at a company, you’re not just gaining experience. Mull over these perks:

• Being in a workplace and seeing what it’s like, day in and day out for a period of time, can also help you decide what you really want.

Although, say, a summer internship may not provide enough time to definitively decide if a certain path is right for you, it might contribute to your feeling of, “Yes, this is for me!” or, of course, the opposite. At a minimum, you’re more industry-savvy than you were before, which might help guide your direction.

• Your internship could also help you develop a professional network — a group of people who might assist you as you forge your own unique career path. They could invite you to industry events, and your contacts could also share job opportunities with you. They might even be able to provide references. Who knows? You might even emerge from the experience with a career mentor.

Just remember that, as you build your professional network, it’s important to nourish those relationships, keep in touch, and reciprocate support however you can.

• Internships might help you build confidence in your knowledge, skills, and abilities. You may feel more at ease in a workplace and job-hunting situations.

How to Find Internships

If you appreciate the value of internships and you’re ready to hunt for a college internship, you may want to try these tactics:

• You could start by talking to your school counselors, who often have invaluable resources to share. Your college may have a career services or internships program or office to tap as well.

• Look online. For example, LinkedIn and Indeed can be great places to look. And, if you’re interested in specific companies, you could check their websites for opportunities. You might luck out with an internship that could lead to a rewarding job.

• You could also talk to chambers of commerce, consult with professional associations connected to your career, ask for recommendations in the industry-focused clubs you belong to at college, and otherwise network and ask for advice. Career fairs might yield some leads, too.

• Check in with your school’s alumni office. There may also be grads from your school who might be willing to make recommendations or even work for companies that are hiring interns.

Some of the more coveted opportunities tend to fill up early, so you might want to start your search as early as you can. Your college’s career center might be able to guide you with timelines. You could focus on something that dovetails with your college major, but don’t worry about being too specific. Gaining a broad knowledge of your areas of interest could help you choose the right career.

Student Loan Refinancing

Internships could be invaluable for college students when it comes time to hunt for a job, and if you have student loan debt, getting a job earlier means you might have opportunities to pay down your student loan debt faster. That, in turn, could potentially help you save on the amount of interest you’ll pay back overall.

Another strategy you could consider is student loan refinancing to combine all of your student loans into one new private loan. Ideally, you might get a lower interest rate through refinancing.

To find out how much money you could save by refinancing, you might use an online student loan refinancing calculator. An important note: If you refinance federal loans with a private lender, you will lose access to federal benefits and protections, such as student loan forbearance and forgiveness.

The Takeaway

A college internship can provide value through skill development, establishing a network of professional contacts, and potentially leading to a full-time work opportunity after graduation. While internships can be paid or unpaid, paid internships offer some income, and may also give an intern more hands-on work in their field.

Earning power is important, of course, when it comes to repaying student loans. There are a number of strategies graduates can use to help pay down their loan debt; they may also want to consider such options as student loan refinancing if it could help them save money or make their payments more manageable.

With SoFi, refinancing is fast, easy, and all online. We offer competitive fixed and variable rates.

FAQ

Do I really need an internship in college?

While you don’t necessarily need a college internship (unless your program requires it), an internship can help students develop skills in their field, build a network of important professional connections, and possibly even lead to a job after graduation.

Is an unpaid internship worth it?

It depends upon the specific internship, but unpaid internships may be valuable. They can help students forge important connections in their field and gain exposure to the kind of work they hope to do some day. Plus the experience can be added to a student’s resume. Some unpaid internships allow students to earn credits; others may pay a small stipend to help cover expenses like commuting.

How can I find a good college internship?

To find a good college internship, reach out to your school’s career services office about opportunities, search online at LinkedIn and Indeed as well as the websites of specific companies you are interested in, and check with the school’s alumni office to see if they can put you in touch with graduates who work in your field. Also, put the word out to professional organizations you are affiliated with and any industry-focused clubs you are a member of at school.

Photo credit: iStock/Pekic

SOSLR-Q425-020

Dec

2025

What Is an IRA?

By Pam O’Brien | Growing Wealth, invest, Investing, Terminology | No Comments

Table of Contents

What Is an IRA?
What Are the Different Types of IRA Accounts?
How to Open an IRA
Benefits of Opening an IRA
Which Type of IRA Works for You?
How Much Should You Contribute to an IRA?
How Can You Use IRA Funds?
FAQ

What Is an IRA?

An individual retirement account, or IRA, is a retirement savings account that has certain tax advantages. Brian Walsh is a CFP® at SoFi — he says “The tax advantage part is important because it allows your money to grow a little bit more efficiently, especially over a long period of time.” An IRA allows individuals to save for retirement over the long-term.

There are different types of IRAs, but two of the most common are traditional and Roth IRAs. Both types generally let you contribute the same amount annually (more on that below). One key difference is the way the two accounts are taxed: With traditional IRAs, you deduct your contributions upfront and pay taxes on distributions when you retire. With Roth IRAs, contributions are not tax deductible, but you can withdraw money tax-free in retirement.

For those planning for their future, IRAs are worth learning more about—and potentially investing in. Read on to learn more about the different types of IRAs, which one might be right for you, and how to open an individual retirement account.

Key Points

• An IRA is a retirement savings account that offers tax advantages and allows individuals to save for retirement over the long-term.

• There are different types of IRAs, including traditional and Roth IRAs, each with its own tax treatment and contribution limits.

• Traditional IRAs allow for pre-tax contributions and tax-deferred growth, while Roth IRAs involve after-tax contributions and tax-free withdrawals in retirement.

• Other types of IRAs include SEP IRAs for small business owners and self-employed individuals, and SIMPLE IRAs for employees and employers of small businesses.

• Opening an IRA provides individuals with the opportunity to save for retirement, supplement existing retirement plans, and potentially benefit from tax advantages.

What Are the Different Types of IRA Accounts?

There are several types of IRAs, including traditional and Roth IRAs. Since it is possible to have multiple IRAs, an individual who works for themselves or owns a small business might also establish a SEP IRA (Simplified Employee Pension) or SIMPLE IRA (Savings Incentive Match Plan for Employees). Just be aware that you cannot exceed the total contribution limits across all the IRAs you hold.

Here is an overview of some different types of IRAs:

Traditional IRA

A traditional IRA is a retirement account that allows individuals to make pre-tax contributions. Money inside a traditional IRA grows tax-deferred, and it’s subject to income tax when it’s withdrawn.

Contributions to a traditional IRA are typically tax-deductible because they can lower an individual’s taxable income in the year they contribute.

Traditional IRAs have contribution limits. In 2025, individuals can contribute up to $7,000 per year, with an additional catch-up contribution of $1,000 for those aged 50 and up. In 2026, individuals can contribute up to $7,500, with an additional catch-up of $1,100.

When individuals reach age 73 (for those who turn 72 after December 31, 2022), they must start taking required minimum distributions (RMDs) from a traditional IRA. RMDs are generally calculated by taking the IRA account balance and dividing it by a life expectancy factor determined by the IRS.

Saving for retirement with an IRA means that an individual is, essentially, saving money until they reach at least age 59 ½. Withdrawals from a traditional IRA taken before that time are typically subject to income tax and a 10% early withdrawal penalty. There are some exemptions to this rule, however — such as using a set amount of IRA funds to buy a first house or pay a medical insurance premium after an individual loses their job.

Calculate your IRA contributions.

Discover how much you can put into an IRA in 2024 using SoFi’s IRA contribution calculator.

Roth IRA

Unlike a traditional IRA, contributions to a Roth IRA are made with after-tax dollars, and contributions are not tax-deductible. The money can grow tax-free in the Roth IRA account. Withdrawals made after age 59 ½ are tax-free, as long as the account has been open for at least five years.

Roth IRAs are subject to the same contribution limits as traditional IRAs — up to $7,000 in 2025, and $7,500 in 2026, with an additional catch-up contribution for those aged 50 and older. However, the amount an individual can contribute may be limited based on their tax filing status and income levels.

For 2025, married couples filing jointly can contribute only a partial amount to a Roth if their modified adjusted gross income (MAGI) is $236,000 or more. If their MAGI $246,000 or more, they cannot contribute to a Roth at all. For single filers, those whose MAGI is $150,000 or more can make a reduced contribution to a Roth, and those whose MAGI is $165,000 or more cannot contribute.

For 2026, married couples filing jointly can contribute only a partial amount to a Roth IRA if their MAGI is $242,000 or more. If their MAGI is $252,000 or more, they can’t contribute at all. Single filers with a MAGI of $153,000 or more can contribute a reduced amount to a Roth, and they cannot contribute to a Roth at all if their MAGI is $168,000 or more.

Individuals with Roth IRAs are not required to take RMDs. Additionally, Roth withdrawal rules are a bit more flexible than those for a traditional IRA. Individuals can withdraw contributions to their Roth IRAs at any time without having to pay income tax or a penalty fee. However, they may be subject to taxes and a 10% penalty on earnings they withdraw before age 59 ½.

SEP IRA

A simplified employee pension (SEP IRA) provides small business owners and self-employed people with a way to contribute to their employees’ or their own retirement plans. Contribution limits are significantly larger than those for traditional and Roth IRAs.

Only an employer (or self-employed person) can contribute to a SEP IRA. In 2025, employers can contribute up to 25% of their employees’ compensations or $70,000 a year, whichever is less. The amount of employee compensation that can be used to calculate the 25% is limited to $350,000.

In 2026, employers can contribute up to 25% of their employees’ compensation or $72,000, whichever is less. The maximum amount of employee compensation used to calculate the 25% is $360,000.

If an individual is the owner of the business and contributes a certain percentage of their compensation to their own SEP IRA —for example, 15%— the amount they contribute to their employees’ plans must be the same proportion of the employees’ salary (in other words, also 15% or whatever percentage they contributed).

When it comes to RMDs and early withdrawal penalties, SEP IRAs follow the same rules as traditional IRAs. However, in certain situations, the early withdrawal penalty may be waived.

SIMPLE IRA

A Savings Incentive Match Plan for employees, or SIMPLE IRA, is a traditional IRA that both employees and employers can contribute to. These plans are, typically, available to any small business with 100 employees or fewer.

Employers are required to contribute to the plan each year by making a 3% matching contribution, or a 2% nonelective contribution, which must be made even if the employee doesn’t contribute anything to the account. This 2% contribution is calculated on no more than $350,000 of an employee’s compensation in 2025, and $360,000 in 2026.

Employees can contribute up to $16,500 to their SIMPLE IRA in 2025, and they can also make catch-up contributions of $3,500 at age 50 or older, if their plan allows it. In 2026, they can contribute up to $17,000, plus catch-up contributions of $4,000 if they are 50 and up. Individuals ages 60 to 63 can contribute a higher catch-up of $5,250 in 2025 and 2026, thanks to SECURE 2.0.

SIMPLE plans have RMDs, and early withdrawals are subject to income tax and a 10% penalty. The early withdrawal penalty increases to 25% for withdrawals made during the first two years of participation in a plan. (There are, however, certain exemptions recognized by the IRS.)

This article is part of SoFi’s Retirement Planning Guide, our coverage of all the steps you need to create a successful retirement plan.

How to Open an IRA

Benefits of Opening an IRA

The main advantage of opening an IRA is that you are saving money for your future. Investing in retirement is an important financial move at any age. Beyond that, here are some other benefits of opening an IRA:

• Anyone who earns income can open an IRA. It’s a good option if you don’t have access to an employee-sponsored plan, such as a 401(k) or a 403(b).

• An IRA can supplement an employee plan. You could open an IRA to supplement your retirement plan at work, especially if you’ve already contributed the annual maximum.

• An IRA might be a good rollover vehicle. If you’re leaving your job, you could roll over funds from a 401(k) or 403(b) into an IRA. That may give you access to more investment options—not to mention consolidating your accounts in one place.

• A SEP IRA might be helpful if you’re self-employed. A SEP IRA may allow you to contribute more each year than you could to a Roth or Traditional IRA, depending on how much you earn.

Which Type of IRA Works for You?

There are many different types of IRAs and deciding which one is better for your particular financial situation will depend on your individual circumstances and future plans. Here are some questions to ask yourself when deciding between different types of IRAs:

• Thinking ahead, what do you expect your tax income bracket to look like at retirement? If you think you’ll be in a lower bracket when you retire, it might make more sense to invest in a traditional IRA, since you’ll pay more in taxes today than you would when you withdraw the money later.

• Will you likely be in a higher tax bracket at retirement? That can easily happen as your career and income grow and if you experience lifestyle inflation. In that case, a Roth IRA might give you the opportunity to save on taxes in the long run.

• Do you prefer not to take RMDs starting at age 73? If so, a Roth IRA might be a better option for you.

• Is your income high enough to prevent you from contributing the full amount (or at all) to a Roth IRA? In that case, you may want to consider a traditional IRA.

How Much Should You Contribute to an IRA?

If you can afford it, you could contribute up to the maximum limit to your IRA every year (including catch-up contributions if you qualify). Otherwise, it generally makes sense to contribute as much as you can, on a regular basis, so that it becomes a habit.

Until you’re on track for retirement, many financial professionals recommend prioritizing IRA contributions over other big expenses, like saving for a down payment on a first or second home, or for your kids’ college education.

Any money you put into an IRA has the opportunity to grow over time. Of course, everyone’s circumstances are different, so for specifics unique to your situation, it might help to talk to a financial advisor and/or a tax advisor.

How Can You Use IRA Funds?

Early withdrawals of your IRA funds, prior to the age of 59 ½, can trigger a 10% penalty tax. However, there are exceptions that may allow an individual to use their IRA funds before hitting the age of eligibility and without facing the 10% penalty, according to IRS rules. Just keep in mind that early withdrawals are generally considered a last resort after all other options have been exhausted since you don’t want to dip into your retirement funds unless absolutely necessary.

IRA withdrawal exceptions include:

• Permanent disability

• Higher education expenses

• Certain out-of-pocket medical expenses totaling more than 10% of adjusted gross income

• Qualified first-time homebuyers up to $10,000

• Health insurance premiums while unemployed

• IRS levy of the plan

• Qualified military reservist called to active duty

• Death of the IRA’s owner

The Takeaway

IRAs offer individuals an opportunity to save money for retirement in a tax-advantaged plan. There are several different IRAs to choose from to help you find an account that suits your needs and goals.

There are multiple options for opening an IRA, including online brokers and robo-advisors. With an online broker, you choose the investment assets for your IRA. A robo-advisor is an automated investment platform that picks investments for you based on your financial goals, risk tolerance, and investing time frame. Whichever option you choose, you decide on a financial institution, pick the type of IRA you want, and set up your account.

Prepare for your retirement with an individual retirement account (IRA). It’s easy to get started when you open a traditional or Roth IRA with SoFi. Whether you prefer a hands-on self-directed IRA through SoFi Securities or an automated robo IRA with SoFi Wealth, you can build a portfolio to help support your long-term goals while gaining access to tax-advantaged savings strategies.

Easily manage your retirement savings with a SoFi IRA.

FAQ

How is an IRA different from a 401(k)?

While IRAs and 401(k)s are both tax-advantaged ways to save money for retirement, a 401(k) is an employer-sponsored plan that is offered through the workplace, and an IRA is an account you can open on your own.

What’s the difference between a Roth IRA and a Traditional IRA?

The biggest difference between a traditional IRA vs. Roth IRA is how and when your money is taxed. With a traditional IRA, you get a tax deduction when you make contributions. Your contributions are made with pre-tax dollars, and when you withdraw money in retirement, the funds are taxed.

With a Roth IRA, you make contributions with after-tax dollars. You don’t get a tax deduction upfront when you contribute, but your money grows tax-free. When you withdraw the money in retirement, you won’t pay taxes on the withdrawals.

When should I make IRA contributions?

One simple way to fund your IRA is to set up automatic contributions at regular intervals that puts money from your bank account directly into your IRA. You could contribute monthly or several times a year—the frequency is up to you. Some people contribute once annually, after they receive a year-end bonus, for example.

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

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

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

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

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

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

SOIN-Q424-091
CN-Q425-3236452-09

Dec

2025

How to Convert a Traditional 401(k) to a Roth IRA

By Pam O’Brien | Growing Wealth, invest, Investing | Comments Off

When moving on to a new job, it may be difficult to keep track of the 401(k) left behind at your last job.

What’s more, administrative fees on the account that may have been previously covered by your employer might now shift to you—making it more expensive to maintain the 401(k) account once you’ve left the company. This may leave you wondering, can you roll over a 401(k) to a Roth IRA?

You can! In fact, one of the rollover options for a 401(k) is to convert it to a Roth IRA. For some people, especially those at a certain salary level, this may be an attractive option.

Read on to learn more about rolling over a 401(k) to a Roth IRA, and explore the benefits, restrictions, and ways to execute a rollover, so that you can decide if that’s the right financial move for you.

Key Points

• Rolling over a 401(k) to a Roth IRA involves converting pre-tax retirement savings to an account funded with after-tax dollars.

• Taxes must be paid at the time of conversion based on current income rates.

• There are no limits on the amount that can be transferred, unlike annual contribution limits.

• The rollover can be direct, transferring funds between providers, or indirect, requiring a 60-day deposit window to avoid penalties.

• Converting to a Roth IRA can be advantageous for those expecting to be in a higher tax bracket during retirement.

What Happens When You Convert a 401(k) to a Roth IRA?

Converting, or rolling over, your 401(k) to a Roth IRA means taking your money out of one retirement fund and placing it into a new one.

When you convert your 401(k) to a Roth IRA this is known as a Roth IRA conversion. However, because of some important differences between a traditional 401(k) and a Roth IRA, you will owe taxes when you make this kind of rollover.

The reason: A traditional 401(k) is funded with pre-tax dollars. You don’t pay taxes on the money when you contribute it. Instead, you pay taxes on the funds when you withdraw them in retirement. A Roth IRA, on the other hand, is funded with after-tax dollars. You pay taxes on the contributions in the year you make them, and your withdrawals in retirement are generally tax free.

Because with a 401(k) you haven’t yet paid taxes on the money in your account, when you roll it over to a Roth IRA, you’ll owe taxes on the money at that time. The money will be taxed at your ordinary income rate, depending on what tax bracket you’re in. For the 2025 and 2026 tax years, the income tax brackets range from 10% to 37%.

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

Steps to Converting a 401(k) to a Roth IRA

These are the actions you’ll need to take to convert your 401(k) retirement plan to a Roth IRA.

1. Open a new Roth IRA account.

There are multiple ways to open an IRA, including through online banks and brokers. Choose the method you prefer.

2. Decide whether you want the rollover to be a direct transfer or indirect transfer.

With a direct transfer, you will fill out paperwork to transfer funds from your old 401(k) account into a Roth IRA. The money will get transferred from one account to another, with no further involvement from you.

With an indirect transfer, you cash out the 401(k) account with the intention of immediately reinvesting it yourself into another retirement fund. To make sure you actually do transfer the money into another retirement account, the government requires your account custodian to withhold a mandatory 20% tax — which you’ll get back in the form of a tax exemption when you file taxes.

The caveat: You will have to make up the 20% out of pocket and deposit the full amount into your new retirement account within 60 days. If you retain any funds from the rollover, they may be subject to an additional 10% penalty for early withdrawal.

3. Contact the company that currently holds your current 401(k) and request a transfer.

Tell them the type of transfer you want to make, direct or indirect. They will then send you the necessary forms to fill out.

4. Keep an eye out to make sure the transfer happens.

You’ll likely get an alert when the money is transferred, but check your new Roth IRA account to see that your funds land there safely. At that point, you can decide how you want to invest the money in your new IRA to start saving for retirement.

Considerations Before Rolling a 401(k) to a Roth IRA

There are a few rules to consider when rolling over 401(k) assets to a Roth IRA.

Roth IRA Contribution Limits

Contribution limits for Roth IRAs and traditional IRAs are much lower than they are for 401(k)s. For tax year 2025, individuals can contribute up to $7,000 in a Roth IRA, and those 50 and over can contribute up to $8,000, which includes $1,000 of catch-up contributions.

For tax year 2026, you can contribute up to $7,500 in a Roth. Those aged 50 and up can contribute up to $8,600, which includes $1,100 of catch-up contributions.

By comparison, 2025 contribution limits for a 401(k) are:

• $23,500 for those under age 50.

• $31,000 for those aged 50 and over, including an additional $7,500 in catch-up contributions

• $34,750 for those aged 60 to 63, including an additional $11,250 instead of $7,500, thanks to SECURE 2.0.

In 2026, 401(k) contribution limits are:

• $24,500 for those under age 50.

• $32,500 for those aged 50 and older, including an additional $8,000 in catch-up contributions

• $35,750 for those aged 60 to 63, including an additional $11,250 instead of $8,600.

Income Limits for Roth IRA Eligibility

Unlike traditional IRAs, which anyone can contribute to, Roth IRAs have an income cap on eligibility. These income limits are adjusted each year to account for inflation. However, when you are rolling a 401(k) to a Roth IRA, the income limits do not apply. So if you are a high earner, a conversion from a 401(k) to a Roth IRA could be a good option for you.

For tax year 2025, single filers with a MAGI:

• less than $150,000 can contribute the full amount

• $150,000 to $165,000 can make a partial contribution

• $168,000 or more can’t contribute.

For individuals married filing jointly for tax year 2025, those with a MAGI:

• less than $236,000 can contribute the full amount

• $236,000 to $246,000 can contribute a partial amount

• $246,000 or more can’t contribute.

For tax year 2026, single filers with a MAGI:

• less than $153,000 can contribute the full amount

• $153,000 to $168,000 can make a partial contribution

• $168,000 or more can’t contribute.

For individuals married filing jointly for tax year 2026, those with a MAGI:

• less than $242,000 can contribute the full amount

• $242,000 to $252,000 can contribute a partial amount

• $252,000 or more can’t contribute.

Rollover Amount Will be Taxed

You will have to pay taxes on your IRA rollover. Since your 401(k) account was funded with pre-tax dollars and a Roth IRA is funded with post-tax dollars, you’ll need to pay income tax on the 401(k) amount being rolled over in the same tax year in which your rollover takes place.

A Roth IRA is Subject to the Five-Year Rule

Once you transfer money into your new Roth IRA, it pays to keep it there for a while. If you withdraw any earnings that have been in the account for less than five years, you will likely be required to pay income tax and an additional 10% penalty. This is known as the five-year rule. After five years, any earnings withdrawn through a non-qualified distribution is subject to income tax only, with no penalties.

Penalties for Early Withdrawals

In addition to the five-year rule, non-qualified distributions or withdrawals from a Roth IRA — meaning those made before you reach age 59 ½ — can result in penalties and taxes. While there are certain exceptions that may apply, including having a permanent disability or using the funds to buy or build a first home, it’s wise to think twice and research any potential consequences before withdrawing money early from a Roth IRA.

Should You Convert Your 401(k) to a Roth IRA ?

Converting a 401(k) to a Roth IRA may be beneficial if you anticipate being in a higher tax bracket when you retire since withdrawals from the account in retirement are tax-free. And if you are a high earner, a 401(k) rollover to a Roth IRA may give you the opportunity to participate in a Roth IRA that you otherwise wouldn’t have.

Another advantage of a Roth IRA is that you can withdraw the money you contributed (but not the earnings) at any time without paying taxes or penalties. And unlike 401(k)s, there are no required minimum distributions (RMDs) with a Roth IRA. Finally, IRAs generally offer more investment options than many 401(k) plans do.

Can You Reduce the Tax Impact?

There are some potential ways to reduce the tax impact of converting a 401(k) to a Roth IRA. For instance, rather than making one big conversion, you could consider making smaller conversion amounts each year, which may help reduce your tax bill.

Another way to possibly lower the tax impact is if you have post-tax money in your 401(k). This might be the case if you contributed more than the maximum deductible amount allowed to your 401(k), for instance. You may be able to avoid paying taxes currently by rolling over the after-tax funds in your 401(k) to a Roth IRA, and the rest of the pre-tax money in the 401(k) to a traditional IRA.

In general it’s wise to consult a tax professional to see what the best strategy is for you and your specific situation.

The Takeaway

One way to handle a 401(k) account from a previous employer is by rolling it over into a Roth IRA. For some individuals, it might be the only way to take advantage of a Roth IRA, which typically has an income limit. With a Roth IRA, account holders can contribute post-tax dollars now, and enjoy tax-free withdrawals in retirement.

Easily manage your retirement savings with a SoFi IRA.

FAQ

Can I roll over my 401(k) to an existing Roth IRA?

Yes, you can roll over a 401(k) to an existing Roth IRA — or to a new Roth IRA.

Can I roll my 401(k) into a Roth IRA without penalty?

You can roll over 401(k) to a Roth IRA without penalty as long as you follow the 60-day rule if you’re doing an indirect rollover. You must deposit the funds into a Roth IRA within 60 days to avoid a penalty.

How much does it cost to roll over 401k to Roth IRA?

Typically there is no charge to roll over a 401(k) to a Roth IRA, unless you are charged processing fees by the custodian of your old 401(k) plan or the new Roth IRA. However, you will owe taxes on the money you roll over from a 401(k) to a Roth IRA. The money will be taxed at your ordinary income tax rate.

Is there a time limit when rolling over a 401(k) to a Roth IRA?

If you do an indirect rollover, in which you cash out the money from your 401(k), you have 60 days to deposit the funds into a Roth IRA in order to avoid being charged a penalty.

Is there a limit on rollover amounts to a Roth IRA?

No, there is no limit to the amount you can roll over to a Roth IRA. The standard annual contribution limits to a Roth IRA do not apply to a rollover.

How do you report a 401(k) rollover to a Roth IRA?

You will need to report a 401(k) rollover on your taxes. Your 401(k) plan administrator will send you a form 1099-R with the distribution amount. You typically report the distribution amount on IRS form 1040 when filing your taxes. You can consult a tax professional with any questions you might have.

Can you roll over partial 401(k) funds to Roth IRA?

You can typically roll over partial 401(k) funds as long as your plan allows it. Check with your plan’s administrator.

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

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

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

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

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

Third-Party 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.

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

SOIN0124006
CN-Q425-3236452-03

Dec

2025

woman on phone and laptop in office mobile

What Is the Roth IRA 5-Year Rule? Are There Exceptions?

By Kelly Boyer Sagert | Growing Wealth, Investing, Preparing for Retirement | Comments Off

The Roth IRA 5-year rule is one of the rules that governs what an investor can and can’t do with funds in a Roth IRA. The Roth IRA 5-year rule comes into play when a person withdraws funds from the account; rolls a traditional IRA account into a Roth; or inherits a Roth IRA account.

Here’s what you need to know.

Key Points

• The Roth IRA 5-year rule requires accounts to be open for five years before earnings can be withdrawn tax-free after age 59 ½.

• Contributions to a Roth IRA can be withdrawn at any time without penalties.

• Exceptions to the 5-year rule include reaching age 59 ½, disability, and using funds for a first home purchase.

• Each conversion from a traditional IRA to a Roth IRA starts a new 5-year period for tax purposes.

• Inherited Roth IRAs also adhere to the 5-year rule, affecting the taxation of earnings withdrawals.

What Is the Roth IRA 5-Year Rule?

The Roth IRA 5-year rule pertains to withdrawals of earnings from a Roth IRA. A quick reminder of how a Roth works: An individual can contribute funds to a Roth IRA, up to annual limits. For 2025, the maximum IRS contrbution limit for Roth IRAs is $7,000, while investors 50 and older can contribute an extra $1,000. For 2026, the maximum contribution limit is $7,500, and investors ages 50 and older can contribute an addiitional $1,100.

Roth IRA contributions can be withdrawn at any time without tax or penalty, for any reason at any age. However, investment earnings on those contributions can only typically be withdrawn tax- and penalty-free once the investor reaches the age of 59 ½ — and as long as the account has been open for at least a five-year period. The five-year period begins on January 1 of the year you made your first contribution to the Roth IRA. Even if you make your contribution at the very end of the year, you can still count that entire year as year one.

Example of the Roth IRA 5-Year Rule

To illustrate how the 5-year rule works, say an investor opened a Roth IRA in 2022 to save for retirement. The individual contributed $5,000 to a Roth IRA and earned $400 in interest and they now want to withdraw a portion of the money. Since this retirement account is less than five years old, only the $5,000 contribution could be withdrawn without tax or penalty. If part or all of the investment earnings is withdrawn sooner than five years after opening the account, this money may be subject to a 10% penalty.

In 2027, the investor can withdraw earnings tax-free from the Roth IRA because the five-year period will have passed.

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

Exceptions to the 5-Year Rule

There are some exceptions to the Roth IRA 5-year rule, however. According to the IRS, a Roth IRA account holder who takes a withdrawal before the account is five years old may not have to pay the 10% penalty in the following situations:

• They have reached age 59 ½.

• They are totally and permanently disabled.

• They are the beneficiary of a deceased IRA owner.

• They are using the distribution (up to $10,000) to buy, build, or rebuild a first home.

• The distributions are part of a series of substantially equal payments.

• They have unreimbursed medical expenses that are more than 7.5% of their adjusted gross income for the year.

• They are paying medical insurance premiums during a period of unemployment.

• They are using the distribution for qualified higher education expenses.

• The distribution is due to an IRS levy of the qualified plan.

• They are taking qualified reservist distributions.

5-Year Rule for Roth IRA Conversions

Some investors who have traditional IRAs may consider rolling them over into a Roth IRA. Typically, the money converted from the traditional IRA to a Roth is taxed as income, so it may make sense to talk to a financial or tax professional before making this move.

If this Roth IRA conversion is made, the 5-year rule still applies. The key date is the tax year in which the conversion happened. So, if an investor converted a traditional IRA to a Roth IRA on September 15, 2022, the five-year period would start on January 1, 2022. If the conversion took place on March 10, 2023, the five-year period would start on January 1, 2023. So, unless the conversion took place on January 1 of a certain year, typically, the 5-year rule doesn’t literally equate to five full calendar years.

If an investor makes multiple conversions from a traditional IRA to a Roth IRA, perhaps one in 2023 and one in 2024, then each conversion has its own unique five-year window for the rule.

5-Year Rule for Inherited Roth IRA

The 5-year rule also applies to inherited Roth IRAs. Here’s how it works.

When the owner of a Roth IRA dies, the balance of the account may be inherited by beneficiaries. These beneficiaries can withdraw money without penalty, whether the money they take is from the principal (contributions made by the original account holder) or from investment earnings, as long as the original account holder had the Roth IRA for at least five years. If the original account holder had the Roth IRA for fewer than five tax years, however, the earnings portion of the beneficiary withdrawals is subject to taxation until the five-year anniversary is reached.

People who inherit Roth IRAs, unlike the original account holders, must take required minimum distributions (RMDs). They can do so by withdrawing funds by December 31 of the 10th year after the original holder died if they died after 2019 (or the fifth year if the original account holder died before 2020), or have the withdrawals taken out based upon their own life expectancy.

💡 Quick Tip: All investments come with some degree of risk — and some are riskier than others. Before investing online, decide on your investment goals and how much risk you want to take.

How to Shorten the 5-Year Waiting Period

To shorten the five-year waiting period, an investor could open a Roth IRA online and make a contribution on the day before income taxes are due and have it applied to the previous year. For example, if one were to make the contribution in April 2023, that contribution could be considered as being made in the 2022 tax year. As long as this doesn’t cause problems with annual contribution caps, the five-year window would effectively expire in 2027 rather than 2028.

If the same investor opens a second Roth IRA — say in 2024 — the five-year window still expires (in this example) in 2027. The initial Roth IRA opened by an investor determines the beginning of the five-year waiting period for all subsequently opened Roth IRAs.

The Takeaway

For Roth IRA account holders, the 5-year rule is key. After the account has been opened for five years, an account holder who is 59 ½ or older can withdraw investment earnings without incurring taxes or penalties. While there are exceptions to this so-called 5-year rule, for anyone who has a Roth IRA account, this is important information to know about.

Easily manage your retirement savings with a SoFi IRA.

FAQ

Do I have to wait 5 years to withdraw from my Roth IRA?

Because of the Roth IRA 5-year rule, you generally have to wait at least five years before withdrawing earnings tax-free from your Roth IRA. You can, however, withdraw contributions you made to your Roth IRA at any time tax-free.

Does the 5-year rule apply to Roth contributions?

No, the Roth IRA rule does not apply to contributions made to your Roth IRA, only to earnings. You can withdraw contributions you made to your IRA tax-free at any time.

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

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

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

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