Sep
21
2022

15 Low-Cost Side Hustles

By | Budgeting & Goals, Financial Independence, money | Comments Off on 15 Low-Cost Side Hustles

Having a 9-to-5 gig is a great way to make your core income, but what if you want to earn more? Perhaps you need additional spending money to pay down your debt, build up your savings, or just keep up with your monthly bills.

If that describes your situation, a side hustle could be a great way to supplement your earnings. You’d hardly be alone if you’re looking for another way to bring in cash. In a recent survey by Insuranks, 44% of 1,000 respondents said they were trying side jobs to bring in more money.

One hurdle when trying to make ends meet: Some side hustles require a large investment, whether you need to purchase equipment, get some form of education or certification, or market yourself to a niche group of clients.

On the flip side, there are quite a few side hustles that could have lower barriers to entry. Read on to learn about these, including those that build on your particular strengths as well as those that require no special skills. You could soon be on your way to bringing in some extra income.

Is It Possible to Start a Side Hustle With Little Money?

You may worry about start-up costs for launching a side hustle: Will you need to buy expensive software, or head back to school for a certain degree? Not necessarily.

It is possible to start a low-cost side business. Whether it’s delivering groceries, narrating audiobooks, or becoming a virtual assistant, many people are able to find a side hustle with a low startup cost to supplement their income.

Plus, if their side hustles qualify them as 1099 contractors, they can use those startup costs (and any recurring costs) as a tax deduction on their income.

Also remember that one of the benefits of a side hustle can be introducing you to what might grow as a steady ongoing source of money. Or it could introduce you to a new path for a full-time career that you love.

💡 Quick Tip: Tired of paying pointless bank fees? When you open a bank account online you often avoid excess charges.

15 Inexpensive Side Hustle Ideas

So what are some low-cost side hustles that are easy to start? Here are 15 side gigs to consider without needing a large startup fund:

1. Selling an Online Course

Especially in the post-pandemic landscape, many people are turning to the internet for learning opportunities. If you know more than the average person about a specific topic that you’re passionate about — be it makeup application, flipping houses, or writing code — you can make educational content with only your smartphone and some screen-recording software. It’s a great example of a side hustle with low startup costs.

You don’t even have to worry about designing a website to host the courses you create. Websites like Skillshare and Udemy may host your content (but will take a chunk of your sales). They already have built-in audiences browsing for courses. That can mean little or no marketing is necessary on your part.

Recommended: 11 Benefits of Having a Side Hustle

2. Narrating Audiobooks

Websites like Fiverr and ACX.com have made it easy for aspiring voice-over artists (or just people looking to pick up some extra cash) to narrate audiobooks. To be successful, it’s a good idea to have a background in acting, an ability to use different voices and accents, and good enunciation.

As with many side gigs, you might have to start by taking unpaid work to establish a portfolio. Volunteering to read for the blind can be a great way to get your foot in the door, and it doesn’t hurt to have your own website promoting your skills; just make sure there are demos on the site.

Startup costs may include a high-quality microphone (with a pop filter to block out unwanted “mouth noises”), noise-canceling headphones, and the proper software (Audacity, which is free, and GarageBand are good options).
Since you’re just starting, it may be wise to look for high-quality, low-cost choices that keep costs under $100.

Recommended: Tips for Financially Surviving a Layoff

3. Tutoring

If you have a degree in a specific subject, such as math or science, and experience in and/or a talent for explaining concepts to others, you may be able to find work online or in person as a tutor. You can try posting on social media and running local ads, or you might find work on tutoring platforms like Wyzant or Varsity Tutors.

If you are interested in tutoring for standardized test prep, it can be a good idea to seek certification. Though not required, it can make it easier to land clients. Search online for options; SAT tutors can earn $100 or more an hour, depending on experience and location.

Recommended: How to Help Your Child with SAT Practice

4. Selling Handmade Items on Etsy

If you enjoy making crafts and artwork, you might find a market on Etsy or other online marketplaces. Custom signs, homemade soaps and candles, knitted scarves and blankets, and handmade jewelry are just a few examples of what artists currently sell. This can be a good opportunity to turn a hobby you love into an income stream.

Your costs will include the price of materials and shipping, but you can set your own prices for your items to offset those. To get started, check the online platform’s selling guide for beginners.

5. Building Websites with WordPress

Though the number of active websites is always changing, there are nearly two billion right now. And someone had to make each one, which highlights more inexpensive side hustles you could pursue.

Platforms like WordPress, Squarespace, and Wix make it easier for non-coders to build semi-customized websites, but there’s still a learning curve. If you’re a fast learner or have some experience in website building, this could be an easy way for you to make some quick cash — by building websites for those who don’t want to learn how or do it themselves.

You can start by making your own website to advertise your offerings. It might be a good idea to connect with friends, family, classmates, colleagues, and even local nonprofits to offer your services for free so that you can build a portfolio. Once you have enough experience under your belt and examples to showcase, finding clients for actual paid work is the next step.

Ready to expand your skill-set and play a bigger role in building sites? Several educational websites offer web development courses with (some) free content, including W3Schools and The Odin Project. Worth noting: Coding bootcamps can be expensive, but they can be helpful for some.

6. Renting Your Clothes Out to Others

While renting out your home on Airbnb or your car on Turo might be a lucrative option, not everyone has a house or a car to rent out. But you can start smaller — quite literally with the clothes on your back.

If you have a sense of style that’s always garnering compliments or have invested in luxury label items over the years, you might find that others are willing to pay to borrow your clothes. Sites like StyleLend and Rent My Wardrobe offer platforms for listing your clothes and earning some cash. Since you already own the clothes and accessories, this could be a low-cost side business.

For example, StyleLend lets you keep 80% of your profits and even has a helpful resource about which labels are most likely to bring you revenue and how to list them. How much you make will depend on how much clothing you have to rent, how prestigious its label is, and how in demand the styles are.

7. Flipping Furniture

Flipping furniture can be as easy as watching neighborhood groups on social media to see people listing furniture for free or a very low price. If a piece seems to have any value, you can claim it and then list it for sale on Craigslist, Facebook Marketplace, or Nextdoor.

You can also shop for cheap used furniture at garage sales, thrift stores, and estate sales.

To make a little more per piece, it’s a good idea to slap on a fresh coat of paint and maybe install new hardware. This can be a fun, creative way to bring in money.

Recommended: 37 Places to Sell Your Stuff

8. Get Paid for Your Social Media Posts

Not everyone can be a famous influencer, but if social media and video content are your forte, you might consider building on your social media presence, from Snapchat to a YouTube channel. Even what are known as micro-influencers, with 10,000 to 100,000 followers on Instagram, can earn between $250 and $500 per post.

While it takes time, dedication, and some luck to have that many followers, it can be a path to making some cash from content you probably enjoy creating. Everything from DIY renovation to makeup tutorials to movie reviews could be fair game as your subject matter.

9. Being a Transcriptionist

Wondering, “How can I make money from home?” If you’re a fast typer, you might find side-hustle success as a transcriptionist. Companies like Rev and GoTranscript may be seeking your skills.

This is a job you can do from home (in sweat pants, no less) for as many or as few hours as you would like. Rev says its transcriptionists’ average monthly payout is $245, but one transcriptionist has taken home nearly $1,500 in a single month.

Your startup costs might only include a pair of noise-canceling headphones and audio player software.

10. Social Media Management

If you live and breathe social media, you might be able to turn it into a lucrative side gig. Consumers increasingly want their favorite brands and businesses to be on social media, but smaller, local companies might not know the first thing about creating Instagram Reels or going live.

You might start by updating your LinkedIn to show that you are looking for clients in the social media space. A website highlighting your own personal stats might be a good idea, too. To kick off your side hustle, you might consider building your portfolio by offering free services to a nonprofit or local business with a very limited (or non-existent) budget.

Keep in mind: Running your own personal Instagram will be very different from running social for businesses.
Taking a few online courses on Udemy or another platform to learn best practices for social media management could be extremely valuable.

11. Driving With Rideshare Services

Startup costs for Uber and Lyft are arguably high; you need a car after all. But if you already own a vehicle that meets a rideshare program’s criteria (and you’re already paying for the car insurance requirements), you could start offering rides with nothing more than the cost of a tank of gas. Plus, this is a side hustle that can really fit your schedule; you could do it on weekends or whenever you have a day off.

12. Delivering Food and Groceries

If driving with people in your backseat doesn’t sound like your idea of a good time, consider freelance food delivery instead. Today, your options are plenty, including DoorDash, Grubhub, and Uber Eats.

Now is a great time to get in on the food delivery game; food delivery app usage skyrocketed 30% in 2020 and continued to grow (another 10%) in 2021.

Fast food delivery isn’t your only option. You can also deliver groceries with apps like Instacart, as well at many grocery chains. Again, this is a great side hustle for those who like to set their own hours to earn a bit more money. While pay will vary, you might make $15 to $20 per hour, plus tips.

13. Proofreading and Writing

Who said an English degree couldn’t get you a job? If you are an avid reader and wordsmith, you might be able to find several freelance side gigs as a proofreader or even a writer. Some might be one-off projects, like proofreading someone’s novel; others could be recurring, like working as a contributing writer to a travel website.

Like with most side hustles of this nature, having an online portfolio is a good idea. That means you might take some low-paying (or free) gigs at first until you’ve proven to potential clients that you’re worth your rate. Clients often post job listings on sites like Indeed, Upwork, FlexJobs, and Fiverr.

Having a love of books might not be enough, however; you may need to spend some money on training courses and specific style guides, like AP and Chicago. But those are likely modest expenses. Proofreaders working part-time typically pull in between $12 and $30 per hour. Writers currently average about $32 an hour for freelance work.

Recommended: High-Paying Jobs That Don’t Require a Degree

14. Being a Virtual Assistant

At large companies, the executives typically have their own assistants. But leaders at small businesses often wear many hats, from scheduling to accounting to sales. These leaders often need help but can’t afford more full-time help.

That’s where virtual assistants come in. These contracted administrative assistants might handle a wide range of tasks — often those that business decision-makers don’t want to do or don’t have time for. This could include data entry, scheduling, bookkeeping, travel arrangement, email management, or even social media posting.

If you’re organized and have done this kind of work before, it can be a good side hustle with no special equipment or training needed. The median hourly rate is typically $16 but could be closer to $30, depending on the exact role.

Recommended: Examples of Passive Income

15. Giving Music Lessons

If you play an instrument and can read music, you might be able to teach music lessons on the side. Having a degree in music theory may be helpful in winning over potential clients.

You can set your own rates, but finding initial students may require lower prices or even free lessons for family and friends, just to build out a network of students who will offer referrals and testimonials on your website.

Banking With SoFi

Need a safe place to store your side gig income? SoFi bank accounts are a a great option. You’ll earn a competitive APY when you open a checking and savings account with direct deposit, plus you’ll spend and save in one convenient place.

Better banking is here with SoFi, NerdWallet’s 2024 winner for Best Checking Account Overall.* Enjoy up to 4.50% APY on SoFi Checking and Savings.

FAQ

What side hustles pay the most?

Many side hustles allow you to set your own rates and hours, so any gig can be as lucrative as you make it, depending on the hours invested. That said, you might find that side hustles that lean on a higher level of education or experience — like teaching or marketing — pay more than those that anyone could do without a degree.

What are the costs of starting a side hustle?

Most side hustles come with their own set of startup costs. Common investments include the equipment you need to get started and the cost of building a website to advertise your services. It is possible to start a side hustle with minimal (or even no) startup costs.

Can you start a side hustle with $0?

Some side hustles may have no startup costs at all. Delivering food or being a grocery shopper, for instance, come with absolutely no expenses. Even gigs like driving a rideshare are virtually free if you’re already paying for a car and insurance.

Photo credit: iStock/Yana Iskayeva

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

SoFi® Checking and Savings is offered through SoFi Bank, N.A. ©2023 SoFi Bank, N.A. All rights reserved. Member FDIC. Equal Housing Lender.
The SoFi Bank Debit Mastercard® is 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.

SoFi members with direct deposit activity can earn 4.50% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Direct Deposit means a recurring deposit of regular income to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government benefit payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below). Deposits that are not from an employer or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate. SoFi members with direct deposit are eligible for other SoFi Plus benefits.

As an alternative to direct deposit, SoFi members with Qualifying Deposits can earn 4.50% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant. SoFi members with Qualifying Deposits are not eligible for other SoFi Plus benefits.

SoFi Bank shall, in its sole discretion, assess each account holder’s Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving a Direct Deposit or $5,000 in Qualifying Deposits to your account, you will begin earning 4.50% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.

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

Members without either Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, will earn 1.20% APY on savings balances (including Vaults) and 0.50% APY on checking balances.

Interest rates are variable and subject to change at any time. These rates are current as of 8/27/2024. There is no minimum balance requirement. Additional information can be found at http://www.sofi.com/legal/banking-rate-sheet.

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Sep
19
2022
5 Ways to Get Affordable Life Insurance for Families

5 Ways to Get Affordable Life Insurance for Families

By | Family Finances, Insurance | Comments Off on 5 Ways to Get Affordable Life Insurance for Families

Life insurance can provide families peace of mind and financial support in the event that the policy holder dies. If you’re the primary breadwinner for your household, then a life insurance policy can help pay funeral expenses, survivors’ day-to-day living costs, and children’s college costs.

Finding affordable life insurance starts with understanding your needs and budget. There are plenty of options you can choose from when shopping for coverage.

Why Should Families Have Life Insurance?

Life insurance is designed to pay out a death benefit to beneficiaries after the insured person dies. Life insurance can provide reassurance that should something happen to you, your dependents will be taken care of.

A life insurance policy can be a key part of personal insurance planning, which also encompasses homeowners or renters, auto, health, and disability insurance. If you have a family, life insurance can help your loved ones meet the following needs:

•   Replace lost income. If the sole or main income-earner dies, life insurance can help to replace their lost income and cover day-to-day expenses.

•   Pay final expenses. Funeral and burial costs can be expensive, and cremation is not necessarily any cheaper. Proceeds from life insurance can pay all of the associated costs, relieving financial stress during an already trying time.

•   Clear outstanding debts. If you leave behind a mortgage, student loans, credit cards, or other debts, a life insurance policy can be used to pay them off so your loved ones aren’t stuck with overwhelming debt.

•   Pay college expenses. If you have children, your life insurance policy can help pay for their higher education costs or secondary education expenses if they attend private school.

•   Cover basic living expenses. Even if you leave no major debts behind, your loved ones may need money to pay for utilities, groceries, and other everyday bills.

•   Fund retirement for a surviving spouse. Life insurance can help to fill a retirement planning gap for couples when a surviving spouse is not left with a nest egg.

In short, life insurance can help with a variety of expenses. Having a death benefit can help your loved ones avoid having to tap into other financial resources, or it can create a cushion if they lack other resources.

Recommended: How to Buy Life Insurance

How Much Life Insurance Do Families Need?

How much life insurance you need usually depends on your income. A general rule of thumb is to purchase a policy that’s equivalent to seven to 10 times your annual income. So if you make $100,000 a year, you’d need a policy with a death benefit of $700,000 to $1 million.

Even if one person brings in most of the income, both partners can benefit from having life insurance, especially if you have kids. If one person is the primary caregiver and they pass away, that can create new costs for the one who’s left behind.

For example, if you worked while your partner stayed home, you might need to spend money on daycare or in-home care, cleaning services, lawn care services, and other expenses to cover household tasks that they might have handled so that you can continue to work. Or if you choose to take an extended bereavement leave to care for your children, then life insurance can ensure that you’re able to meet your expenses during that time.

Recommended: How Much is Life Insurance

Types of Life Insurance for Families

There are two main types of life insurance: Term life and permanent coverage. Term life insurance is designed to cover you for a set term. For example, you might purchase a 20-year term policy. If you pass away within that term, the policy can pay out a death benefit to your family. Otherwise, the policy expires at the end of the term.

Permanent life insurance covers you for life, as long as the premiums are paid. One of the most common options for permanent life insurance is whole life. With whole life insurance, part of each premium payment is deposited into a cash value account. The account earns interest, and you can withdraw the cash you accumulate or borrow against it. When you die, the policy pays a death benefit to your loved ones, less any amounts you’ve withdrawn or borrowed against.

So which is better for families, term life vs. whole life insurance? The answer depends on your needs and budget. If you’re looking specifically for affordable life insurance for families, then term life is likely the better option. You don’t get lifetime protection or cash value accumulation, but generally, premiums for term life coverage tend to be lower than whole life.

By the way, you can typically convert term insurance to permanent insurance (such as whole life) at a higher premium if you want to keep your insurance longer than the term.

Making whole life insurance affordable is more challenging, as lifetime coverage means that your insurers are virtually guaranteed to have to pay out a claim. As such, they can charge higher premiums for the same death benefit. Age and health can also play a part in determining term life or whole insurance costs. Coverage is usually cheaper when you’re younger and healthier, so waiting to buy insurance could prove more expensive.

Recommended: What is Life Insurance

How to Get Affordable Life Insurance for Families

If you’re on the hunt for an affordable life insurance policy, it’s important to do your research to know what options are available. You may have access to life insurance already without realizing it. It’s also good to consider exactly what you need a life insurance policy to do for you and whether it makes sense to purchase coverage for children or grandparents as well.

1. Review Your Workplace Insurance Benefits

It’s possible that you may already have some life insurance in place to protect your family if your employer offers group coverage as an employee benefit. That type of life insurance covers a group of employees up to a certain benefit amount. For example, you might have $50,000 in group life insurance that your employer pays for. You may have the option to purchase additional coverage and increase the death benefit, with premiums deducted from your paychecks.

Group life insurance may not provide the full amount of coverage you need. But it can be a good starting point for getting an affordable life insurance policy if your employer is picking up the tab for the premiums. Check with your HR department or benefits coordinator to see if group life is offered at your job and how to enroll in coverage.

2. Opt for Term Life, If Possible

As mentioned, term life insurance can be a cheaper option than whole life insurance. If you’re not interested in building cash value and you don’t necessarily need lifetime coverage, term life may be preferable to whole life.

When purchasing term life insurance, think carefully about how long you’d like to keep the coverage in place. If you’re 30 years old and have two kids, for example, you might want a 20-year term policy, which could help pay for their college costs if something were to happen to you before they reach adulthood.

On the other hand, if you’re in your 40s and don’t think you’ll need coverage that long, you might choose a 10-year term policy instead. The longer the term and the larger the death benefit, the more life insurance will cost you in premiums.

Recommended: Why Life Insurance is Important

3. Weigh the Benefits of Life Insurance for Children or Grandparents

Life insurance policies for children are typically permanent life policies. You pay in premiums and part of that money builds cash value. When your child reaches adulthood, they can take over the policy or withdraw the cash value and use the money to pay for college, buy a car, or fund other financial goals. (If their health has changed this could also be the only insurance they are able to get.)

Should you buy life insurance for children? It’s an important question to ask if you’re looking for life insurance for the entire family. You can purchase life insurance for kids at fairly low premiums, and your child can decide later if they’d like to keep the policy or cash it in. Another alternative: You might be able to grow that money by investing the premiums you would have paid to life insurance into a 529 college savings account or investment account for your kids instead.

Purchasing a burial insurance policy for your aging parents can make sense if you don’t want to be facing a large bill from the funeral home while you’re grieving. Burial coverage is generally the most affordable life insurance for seniors, since it has a low death benefit. You may be able to get coverage for as little as $50 a month.

4. Choose Guaranteed Renewal

If you’re purchasing term life and you think there’s a chance that you might need coverage for longer than the initial term, consider getting a policy with guaranteed automatic renewal. Having that benefit built in means that you can renew your policy once the initial term expires, without being subjected to an increase in premiums due to age or health. Just be aware that your new premiums will likely be much, much higher.

5. Be Selective About Riders

Life insurance riders can enhance your coverage. While some may be included at no charge, others can increase your premiums by a few dollars each. Some of the most commonly added riders include:

•   Accelerated death benefit

•   Accidental death

•   Guaranteed insurability

•   Waiver of premium

•   Child rider

•   Critical illness coverage

•   Disability coverage

Any of these riders can make your policy more comprehensive. But if affordable life insurance is the goal, then it’s important to consider whether they’re worth the added cost. Accelerated death benefit riders, for instance, pay out benefits while you’re still living to help with end of life care. That could be worth paying for if you’re concerned about developing a terminal illness. However, you won’t use that benefit if you die in an accident or from old age.

Recommended: How Long Do You Have to Have Life Insurance Before You Die

Tips for Saving Money on Life Insurance

Finding affordable life insurance can be a challenge, but it helps to have a strategy. Do your homework so you’re not buying more coverage than you need or choosing the wrong kind of policy. Here are a few more tips for saving money on life insurance as a family:

•   Consider an online insurance company, which may charge lower premiums than a traditional insurer.

•   Buy sooner rather than later to get the best rates available for your age and health.

•   Ask your insurance company about any discounts you may qualify for.

•   Get multiple life insurance quotes to compare rates across companies.

•   Take care of yourself as much as possible, since staying healthy can influence your insurance rates.

With most life insurance policies, you may be asked to complete a medical exam. This exam is used to determine your health status and how much you’ll pay for premiums. You can, however, opt for a no exam policy if you’d like to get covered online without having to see a doctor.

The Takeaway

Finding affordable life insurance may seem a little overwhelming, but it doesn’t have to be. Start by reviewing your workplace benefits for group coverage that might be subsidized by your employer. Then, given a choice between term life and whole life insurance, term life is the more affordable option. Also, the sooner you purchase a policy the better, since premiums are tied to your age and health. Last, shop around for the best deal, and ask if you qualify for discounts.

You can start your search for life insurance online with SoFi. We’ve partnered with Ladder to make it easy to find affordable life insurance plans with coverage ranging from $100,000 to $8 million. You can get a quote and apply online in minutes.

Get a free life insurance quote with SoFi.

Photo credit: iStock/gradyreese

Coverage and pricing is subject to eligibility and underwriting criteria.
Ladder Insurance Services, LLC (CA license # OK22568; AR license # 3000140372) distributes term life insurance products issued by multiple insurers- for further details see ladderlife.com. All insurance products are governed by the terms set forth in the applicable insurance policy. Each insurer has financial responsibility for its own products.
Ladder, SoFi and SoFi Agency are separate, independent entities and are not responsible for the financial condition, business, or legal obligations of the other, Social Finance, LLC (SoFi) and Social Finance Life Insurance Agency, LLC (SoFi Agency) do not issue, underwrite insurance or pay claims under Ladder Life™ policies. SoFi is compensated by Ladder for each issued term life policy.
SoFi Agency and its affiliates do not guarantee the services of any insurance company.
All services from Ladder Insurance Services, LLC are their own. Once you reach Ladder, SoFi is not involved and has no control over the products or services involved. The Ladder service is limited to documents and does not provide legal advice. Individual circumstances are unique and using documents provided is not a substitute for obtaining legal 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.

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Sep
15
2022
Active vs Passive Income: What's the Difference?

Active Income vs Passive Income

By | Growing Wealth, Life & Career, money | Comments Off on Active Income vs Passive Income

Income is money earned, plain and simple, right? While that statement is true, it doesn’t tell the full story. If you look a little more closely, you’ll learn that there are two kinds of income. Active income is money you make by actively participating in work, whether you are salaried or hourly, employed or own your own business, earn commissions or tips, and so on.

Passive income, on the other hand, is typically money that you earn without active participation. Examples might be money generated by a rental property you own or a YouTube account you started but haven’t updated.

It’s important to know the difference between the two for multiple reasons, including the fact that the IRS treats active and passive income differently. Both are taxable, but in distinct ways, so it’s important to correctly classify each.

To understand active income vs. passive income, read on. You’ll learn:

•   What is active income?

•   What is passive income?

•   Examples of passive vs. active income.

•   Why it’s important to know the difference between active and passive income.

What Is Active Income?

Active income requires you to take action to make money. Working a 9-to-5 job, earning tips as a cosmetologist, and driving for a rideshare app are examples of this principle in action. All require active participation to earn money and are thus considered active income.

Most people (i.e., those who don’t inherit money or come into a large sum of money without effort) will need to earn active income to pay bills and build their savings. Active income is often dependable in quantity and schedule (e.g., a regular paycheck for a salaried position).

With enough active income, you may be able to invest in something that generates passive income down the road (you’ll learn more about that kind of money in a moment).

Recommended: What Is Residual Income?

Examples of Active Income

Earning active income is something that so many of us do — from doctors to mail carriers, from plumbers to programmers. Even people who own their own business, work side gigs, or rely mostly on tips earn active income.

Here are the main sources of active income:

•   Salaries

•   Hourly wages

•   Income from invoices as an independent contractor

•   Sales commissions

•   Tips

•   Bonuses

💡 Quick Tip: Help your money earn more money! Opening a bank account online often gets you higher-than-average rates.

What Is Passive Income?

Passive income can be more difficult to define because the IRS has a long list of qualifiers that can be a bit challenging for the average person to understand. At a high level, the IRS guidelines for passive activities are as follows identifies two kinds of passive activities:

•   Trade or business activities in which you don’t materially participate during the year

•   Rental activities, even if you do materially participate in them, unless you’re a real estate professional.

The key phrase to consider in the IRS’s definition of passive income is “materially participate.” The IRS has a list of seven tests (“material participation tests”) to apply to your income to determine if you actively participated in generating it.

These tests measure things like hours of activity (500+ hours in a year automatically makes it active income) and level of involvement.

You only have to satisfy one of the seven tests for your income to be considered active — which has tax implications. That’s why it’s wise to work with an accountant to properly define your income.

Examples of Passive Income

Because the IRS has strict rules regarding the classification of passive income, things get complicated. An activity could be classified as active for one person but passive for another. It comes down to how you participate.

With that caveat in mind, there are some top ways to make passive income:

•   Renting a space: Whether you are renting out an entire property, renting a room in your home, or even renting a garage or parking spot, the income can be classified as passive.

•   Affiliate marketing and ads: If you have a high-traffic website that does not require regular content creation to drive traffic, you can earn passive income through affiliate marketing (adding specific links to products or services) and through display ads.

•   Licensing intellectual property: If you’ve written a book, designed an online course, taken high-quality photos, or even engineered an app, you might be able to earn royalties whenever someone purchases your creation.

•   Cash back from a credit or debit card: If you are using a cash back credit card for everyday purchases, that “free money” can serve as passive income. But remember, with cash back, you’ve got to spend money to make money. Nice to know: The IRS views cash back on rewards cards as a coupon or rebate, which means you don’t need to worry about tax implications.

💡 For additional ideas, check out our Passive Income Ideas for 2023 Guide.

Some personal finance blogs might tell you that interest, dividends, and earnings from investments are passive income. After all, you just put your money in an account, and the money (usually) grows on its own; you don’t have to expend any effort. However, the IRS classifies this as “portfolio income,” and it has its own separate tax implications.

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Active vs Passive Income: What’s the Difference?

So what is the difference between passive and active income? Generally speaking, you have to actively and continually work to keep active income flowing into your bank account. Passive income often requires labor and financial investment upfront, but once everything is in place, passive income should flow to you without the need for much, if any, effort.

A strong example of active vs. passive income is flipping a house vs. renting out a house. Consider the difference:

•   If you regularly buy houses, renovate, and sell at a profit, you are making active income. If you stop buying and selling houses, the income stops.

•   If you buy a property and rent it out to tenants, you have a passive income stream flowing in each month — with occasional expenses like property taxes and maintenance.

Broadly speaking, passive income might refer to interest and dividends, royalties, money made from digital content creation, rental properties, and more. But as far as the IRS is concerned, passive income has a much narrower definition. It’s a good idea to work with a certified accountant to understand how your income should be classified and taxed.

Next, take a closer look at the differences between the two types of income.

Potential Yearly Income Made

Active income is generally more dependable, especially if it’s from a salaried or hourly job with a set number of weekly hours. Thus, it’s easier to predict your yearly income.

Certain types of passive income, like rental income, might be more predictable than others, but you still might encounter unexpected expenses like maintenance and repairs or sudden vacancies. Other types of passive income, like money from display ads or affiliate marketing, depend on the number of people who visit your website and actively click links.

How These Are Taxed

Taxes on active income are generally straightforward. If you’ve paid taxes before on hourly or salaried wages, you’ve already paid taxes on active income. It’s a good idea to brush up on federal tax brackets before tax season.

Taxes on passive income are more complicated and can vary by situation. Income from real estate you lease out, for example, has its own rental property IRS regulations . If you earn passive income, working with a certified account can be a smart move to ensure you get your taxes right each April.

How These Incomes Affect Lifestyle

Active income requires that you regularly work to generate money. For the average American, that looks like a 40-hour work week, though some people may work part-time while others may typically put in more time on average.

Because passive income requires minimal (or no) participation, you might be able to lead a more flexible life. This assumes you have enough passive income flowing in each month to pay your bills and maintain a monthly budget. If that’s the case, you might be able to travel more freely, focus on volunteer work, or spend time doing your favorite hobbies. Or passive income might supplement your full-time active work, allowing you to save more for retirement or meet other financial goals.

The Takeaway

Most Americans who work earn active income; that is, making money requires their active participation on an ongoing basis. Passive income, on the other hand, requires little to no involvement, meaning you might make money without lifting a finger, though often an initial investment of time and cash is required. The IRS has important qualifications for active, passive, and portfolio income (from investments); understanding the differences and how they are taxed is important when you file.

Looking to grow your active or passive income? Open a SoFi bank account with direct deposit to take advantage of a competitive APY on every cent you put in the account. Our Checkings and Savings account also lets you conveniently spend and save in one place, and it has automatic savings features and no monthly fees. Plus, eligible accounts can access their paycheck up to two days early.

Better banking is here with SoFi, NerdWallet’s 2024 winner for Best Checking Account Overall.* Enjoy up to 4.50% APY on SoFi Checking and Savings.

FAQ

What are the pros and cons of active and passive income?

A major benefit of active income is that it is usually dependable; however, you have to regularly and consistently work to earn that money. A benefit of passive income is that, after potentially investing time and money upfront, it requires little to no ongoing work. The cash may simply come your way. Worth noting: The tax implications of passive income can be complex and require professional guidance.

Do all people need to have passive income?

You do not need passive income to pay your bills; for many people, active income from their job will suffice. If you would like to infuse more flexibility into your life and earn additional income, it could be a smart move to generate passive income streams.

Can you live solely off of passive income?

It is possible to live solely off of passive income if you establish enough steady passive income streams to cover your expenses. Many passive income streams require work upfront and/or an initial investment, but once they’re going, they might be easy to maintain.

Is active income better than passive income?

Both active and passive income have pros and cons. Active income requires ongoing work but can mean a steady paycheck. Passive income may need an initial investment of time and money but can then keep cash flowing your way. Generally speaking, any type of income is good because it enables you to pay your bills, pay down debt, build your savings, and even invest.

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As an alternative to direct deposit, SoFi members with Qualifying Deposits can earn 4.50% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant. SoFi members with Qualifying Deposits are not eligible for other SoFi Plus benefits.

SoFi Bank shall, in its sole discretion, assess each account holder’s Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving a Direct Deposit or $5,000 in Qualifying Deposits to your account, you will begin earning 4.50% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.

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

Members without either Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, will earn 1.20% APY on savings balances (including Vaults) and 0.50% APY on checking balances.

Interest rates are variable and subject to change at any time. These rates are current as of 8/27/2024. There is no minimum balance requirement. Additional information can be found at http://www.sofi.com/legal/banking-rate-sheet.

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.

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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01
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How to Roll Over Your 401(k)

By | Budgeting & Goals, Building Your Career, Growing Wealth, invest, Investing, Life & Career | No Comments

It’s pretty easy to rollover your old 401(k) retirement savings to an IRA, a new 401(k), or another option — yet millions of workers either forget to rollover their hard-won retirement savings, or they lose track of the accounts.

According to a 2021 study by Capitalize, some 24 million 401(k) accounts seem to be forgotten or “lost”, with an average balance of about $55,000 in these dormant accounts.

Given that a 401(k) rollover just takes a couple of hours and, these days, minimal paperwork, it makes sense to know the basics so you can rescue your 401(k), roll it over to a new account, and add to your future financial security.

How Does Rolling Over Your 401(k) Work?

Many people wonder how to rollover a 401(k) when they leave their jobs. First, you need to know the difference between a transfer and a rollover.

A transfer is when you move funds between two identical types of retirement accounts. For example, if a person moves money from an old 401(k) to a new 401(k), a traditional IRA to another traditional IRA, or from an old Roth IRA to a new Roth IRA — that’s a transfer. It’s the most direct way to move funds from one tax-advantaged account to another.

A rollover is when you move money between two different types of retirement accounts. For example: You might rollover a 401(k) to an IRA.

💡 Recommended: What Is an IRA and How Does It Work?

Bear in mind, rollover accounts can be different, but must have the same tax treatment. You can’t rollover a tax-deferred traditional 401(k) to a Roth IRA without doing some kind of Roth conversion.

Steps to Roll Over Your 401(k)

Here are the basic steps, with more detail to follow:

1.    Decide whether you want to roll it over to an IRA (a common option); transfer the funds to another employer’s 401(k); or set up an account like a self-directed IRA.

2.    Set up the rollover account. Remember that rollovers have to be apples to apples in terms of tax treatment: a tax-deferred 401(k) to a traditional IRA; a Roth 401(k) to a Roth IRA.

3.    Contact your former employer or 401(k) plan sponsor to initiate the rollover. (Depending on which rollover option you choose, the process or paperwork may be slightly different.)

4.    Generally, the funds are sent to you in a check although they can be wired to a rollover IRA at a new institution, for example. Either way, you have 60 days to deposit the funds in another tax-deferred account, or you will owe taxes on the money and possibly a penalty.

Benefits of Rolling Over Your 401(k)

Once you understand how to roll over a 401(k), it’s easy to understand what the advantages are. First and foremost, by doing a rollover, you ensure that you are in charge of your retirement funds (which is important, after years of investing in your 401(k)).

Other pros include:

•   Your investment account costs will likely be lower once you do a rollover, because leaving your savings in your old 401(k) when you’re no longer an employee means you may pay higher account management fees. Fees matter, and can substantially reduce your savings over time.

•   You may have more investment choices. Typically, when you do a rollover from a 401(k) to an IRA at a new institution, your investment options increase which might improve portfolio returns and could further reduce fees.

•   If you don’t want a self-directed portfolio, where you choose the investments in your rollover, you may be able to choose a robo-advisor or automated portfolio so there’s less for you to manage.

•   If you have more than one 401(k) from various jobs, you can consolidate them as part of the rollover process.

Disadvantages of Rolling Over a 401(k)

Since you want to avoid retirement mistakes, it’s also important to consider some of the reasons why a rollover may not be the best idea.

•   First, if you have a lot of appreciated company stock, you may be able to pay a lower tax rate on the gains if you transfer the stock to a brokerage account.

•   While a rollover account at a different institution may provide more investment options, if you keep your 401(k) where it is, you may be able to buy investments at the cheaper institutional rate.

•   If you do a rollover, you may lose some of the federal legal protections that come with 401(k) plans. For example, the money in your 401(k) is typically protected from creditors or collections, whereas the money in an IRA is shielded by state laws, which can vary.

•   In some cases, your employer may allow you to withdraw funds from your 401(k) without paying the usual 10% penalty, if you are 55 or older when you leave your job.

Pros and Cons of Doing a 401(k) Rollover

Pros

 Cons
Potentially lower investment fees, which can impact savings over time. If you have company stock in your 401(k), it might save on taxes if you transfer the stock to a brokerage rather than doing a rollover.
More investment choices; more control over your portfolio. Investment options may cost less in a 401(k) vs. an IRA.
The option to switch to a robo advisor if you prefer an automated approach. Keeping your 401(k) may offer legal protection from creditors or collections.
Ability to consolidate accounts. Keeping your money in your 401(k) could give you penalty-free access before age 59 ½ vs. an IRA.

When Is a Good Time to Roll Over a 401(k)?

Once you know how to roll over a 401(k), and you’ve decided that’s your next step, doing it as soon as you leave your job is likely the best time. But you can generally do a rollover any time. It’s your money. If you decide to do the rollover five years after leaving your job, that’s a better time than never.

That said, if you have a low balance in your 401(k) account — for example, less than $5,000 — your employer might require you to do a rollover. And if you have a balance lower than $1,000, your employer may have the right to cash it out. Be sure to check the exact terms with your employer.

In most instances, you have 60 days from the date you receive an IRA or 401(k) distribution to then roll it over into a new qualified plan. If you wait longer than 60 days to deposit the money, it will trigger tax consequences, and possibly a penalty. One rollover per year is allowed under the rules.

5 Things You Can Do With Your Old 401(k)

If you’re still asking yourself, But how do I rollover my 401(k)?, here are five possible choices that might make sense when deciding how to handle your old account.

Option 1: Leave Your 401(k) Where It Is

Is it ever a good idea to let sleeping 401(k)s lie? Sometimes, yes.

For instance, maybe your old job was with a super-hip, savvy startup that chose a stellar plan with multiple investment options and low administration fees that stayed in place even after you left your job. This is rare! But the point is: If you’re happy with your portfolio mix and you have a substantial amount of cash stashed in there already, it might behoove you to leave your 401(k) where it is.

Other than that, you probably want to make sure you’re in charge of your money — not your former employer.

Also, besides any additional fees you might end up paying, racking up multiple 401(k)s as you change jobs could lead to a more complicated withdrawal schedule at retirement.

Option 2: Roll Over Your 401(k) Into an IRA

If your new job doesn’t offer a 401(k) or other company-sponsored account like a 403(b), don’t worry: You still have options that’ll keep you from bearing a heavy tax burden. Namely, you can roll your 401(k) into an IRA, or Individual Retirement Account.

The entire procedure essentially boils down to three steps:

1.    Open a new IRA that will accept rollover funds.

2.    Contact the company that currently holds your 401(k) funds and fill out their transfer forms using the account information of your newly opened IRA. You should receive essential information about your benefits when you leave your current position. If you’ve lost track of that information, you can contact the plan sponsor or the company HR department.

3.    Once your money is transferred, you can reinvest the money as you see fit. Or you can hire an advisor to help you set up your new portfolio. It also may be possible to resume making deposits/contributions to your rollover IRA.

Option 3: Roll Over Your 401(k) to Your New Job

If your new job offers a 401(k) or similar plan, rolling your old 401(k) funds into your shiny, new 401(k) account may be both the simplest and best option — and the one least likely to lead to a tax headache.

That said, how you go about the rollover has a pretty major impact on how much effort and paperwork is involved, which is why it’s important to understand the difference between direct and indirect transfers.

How to Roll Over Your 401(k): Direct vs Indirect Transfers

Here are the two main options you’ll have if you’re moving your 401(k) funds from one company-sponsored retirement account to another.

A direct transfer, or direct rollover, is exactly what it sounds like: The money moves directly from your old account to the new one. In other words, you never have access to the money, which means you don’t have to worry about any tax withholdings or other liabilities.

Depending on your account custodian(s), this transfer may all be done digitally via ACH transfer, or you may receive a paper check made payable to the new account. Either way, this is considered the simplest option, and one that keeps your retirement fund intact and growing with the least possible interruption.

Another viable, but slightly more complex, option, is to do an indirect transfer or rollover, in which you cash out the account with the express intent of immediately reinvesting it into another retirement fund, whether that’s your new company’s 401(k) or an IRA (see above).

But here’s the tricky part: Since you’ll actually have the cash in hand, the government requires your account custodian to withhold a mandatory 20% tax. And although you’ll get that 20% back in the form of a tax exemption later, you do have to make up the 20% out of pocket and deposit the full amount into your new retirement account within 60 days.

For example, say you have $50,000 in your old 401(k). If you elected to do an indirect transfer, your custodian would cut you a check for only $40,000, thanks to the mandatory 20% tax withholding.

But in order to avoid fees and penalties, you’d still need to deposit the full $50,000 into your new retirement account, including $10,000 out of your own pocket. In addition, if you retain any funds from the rollover, they may be subject to an additional 10% penalty for early withdrawal.

Option 4: Cashing Out Your 401(k)

One recent review of 401(k) accounts found that 21% of Americans who left their jobs during the pandemic also cashed out their 401(k) accounts. Generally speaking, withdrawing these retirement funds is not a good idea, and here’s why.

Because a 401(k) is an investment account designed specifically for retirement, and comes with certain tax benefits — e.g. you don’t pay any tax on the money you contribute to your 401(k) — the account is also subject to strict rules regarding when you can actually access the money, and the tax you’d owe when you did.

Specifically, if you take out or borrow money from your 401(k) before age 59 ½, you’ll likely be subject to an additional 10% tax penalty on the full amount of your withdrawal — and that’s on top of the regular income taxes you’ll also be obligated to pay on the money.

Depending on your income tax bracket, that means an early withdrawal from your 401(k) could really cost you, not to mention possibly leaving you without a nest egg to help secure your future.

This is why most financial professionals generally recommend one of the next two options: rolling your account over into a new 401(k), or an IRA if your new job doesn’t offer a 401(k) plan.

Option 5: Rolling Your 401(k) Over to a Self-Directed IRA

A self-directed IRA, sometimes called a SDIRA, is an unusual type of retirement account — and it’s not widely available. That’s because these types of accounts aren’t just for traditional securities, but for alternative investments normally not permitted in traditional IRAs: i.e. real estate, collectibles (like art and jewelry), commodities, precious metals, and more.

These accounts are considered self-directed because, first, they are only available through certain financial firms that will custody SDIRA accounts, not manage them. Second, SDIRA custodians can’t give financial advice, so all the due diligence and asset management falls to the investor.

While you can consider doing a rollover to a SDIRA, be sure that setting up such an account makes sense for your current holdings, or whether a traditional IRA or Roth might do just as well.

The Takeaway

It’s not difficult to rollover your 401(k), and doing so can offer you a number of advantages. First of all, when you leave a job you may lose certain benefits and terms that applied to your 401(k) while you were an employee. Once you move on, you may pay more in account fees, and you will likely lose the ability to keep contributing to your account.

Rolling over your 401(k) — to a new employer’s plan, or to an IRA — gives you more control over your retirement funds, and could also give you more investment choices.

There are some instances where you may not want to do a rollover, for instance when you own a lot of your old company’s stock, so be sure to think through your options.

If you know that moving your 401(k) money over to an IRA is the right thing, SoFi makes it super easy. Once you open an investment account with SoFi Invest and set up a traditional or Roth IRA account, you can transfer the funds from your old 401(k) and either keep the same (or similar investments), or choose new ones.

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.

FAQ

How can you roll over a 401(k)?

It’s fairly easy to roll over a 401(k). First decide where you want to open your rollover account (usually an IRA), then contact your old plan’s administrator, or your former HR department. They typically issue a check that can be sent directly to you or to the rollover account at a new institution.

What options are available for rolling over a 401(k)?

There are several options for rolling over a 401(k), including transferring your savings to a traditional IRA, or to the 401(k) at your new job. You can also leave the account where it is, although this may incur additional fees. It’s generally not advisable to cash out a 401(k), as replacing that retirement money could be challenging.

Does SoFi allow you to roll over your 401(k)?

Yes, you can rollover funds from a 401(k) to a rollover IRA with SoFi.

To initiate the rollover, set up an account with SoFi Invest, and contact your 401(k) plan administrator or the HR department of your previous employer.

SoFi Invest®

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Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform.

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.

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22
2022
How to Get Paid While On FMLA Maternity Leave

How to Get Paid While on Maternity Leave

By | Family Finances, relay | Comments Off on How to Get Paid While on Maternity Leave

While some states have passed legislation ensuring paid family leave for employees at larger companies, many new parents have to make do with a combination of vacation time, sick days, and short-term disability.

Read on to find out what parents may be entitled to based on state regulations and company policy, and how you can maximize your benefits so you can get paid while on maternity leave.

Key Points

•   Some states have legislation ensuring paid family leave for employees at larger companies.

•   Paid maternity leave typically offers 60% to 80% of full-time pay.

•   Only 23% of civilian workers had access to paid family leave in 2021.

•   Federal workers receive 12 weeks of paid family leave.

•   The average company-provided paid maternity leave is 8 weeks.

What Is Paid Maternity Leave?

Paid maternity leave (or paternity leave) refers to the time off with pay that some companies grant employees welcoming a new baby or adopted child. Workers often receive only a percentage of their full-time pay, typically 60% to 80%, with limits based on the statewide average pay.

In the United States, businesses are not legally required to give employees paid maternity leave. According to the Bureau of Labor Statistics, only 23% of civilian workers had access to paid family leave in 2021. The U.S. is the only wealthy nation in the world that doesn’t mandate paid parental leave.

Fortunately, 11 states and the District of Columbia have passed legislation guaranteeing paid parental leave — though some laws don’t go into effect until 2023 or later. Federal workers nationwide are granted 12 weeks of paid family leave.

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How Long Is Maternity Leave?

Companies that voluntarily provide employees paid parental leave offer an average of 8 weeks. Because many parents find this inadequate — experts recommend 3 to 6 months — even employees with paid leave often extend their leave with vacation time and sick days.

Globally, the average paid maternity leave is 29 weeks.

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Benefits of Paid Family Leave

Research shows that paid family leave offers many benefits to parents and children. In one sense, the extra income helps families over the longer term, especially in lower-income households.

In another way, the time families spend together boosts the health of parents and children. Mothers are able to fully recover from childbirth, which can take six to eight weeks. And a child’s health is strengthened by the extra bonding time, regular breastfeeding, and reduced exposure to infectious disease.

Paid family leave may also cover other health emergencies, including:

•   Adoption or foster child care

•   Care of a spouse, child, or parent with a serious health condition

•   A personal serious health condition

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What Is the Family and Medical Leave Act (FMLA)?

The Family Medical Leave Act (FMLA) is a federal law passed in 1993 that grants unpaid but job-protected family leave for eligible employees of larger companies. Individuals can also take time off to care for any family member with a serious health condition.

The law is designed to help families cope with emergencies that may occur without having to worry about losing their job. It also ensures that leave is available on a gender-neutral basis and supports equal employment opportunity for women and men.

FMLA Maternity Leave Eligibility Requirements

For an employee to qualify for FMLA benefits, both the employer and employee must meet certain requirements.

Employer Requirements

FMLA applies only to employers with 50 or more employees within 75 miles.

Worker Requirements

An employee must have worked for their company for at least 12 months and worked 1,250 hours within the past 12 months. Some part-time workers may not qualify.

State Laws for Maternity Leave

As noted above, 11 states and the District of Columbia have passed paid parental leave legislation, including California, Colorado, Connecticut, Delaware, Maryland, Massachusetts, New Jersey, New York, Oregon, Rhode Island, and Washington, plus the District of Columbia. Benefits and eligibility vary from state to state.

Ways to Extend Maternity Leave

Traditionally, women without adequate maternity benefits have made do by cobbling together vacation and sick days, short-term disability, and unpaid leave. More recently, working from home — sometimes on a reduced schedule — has allowed parents to extend their time at home with pay.

You may want to search for a parental leave consultant in your state, such as MilkYourBenefits.com in California. For a fee, these advisors can provide up-to-date information on family leave law and the benefits you may qualify for.

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How to Prepare for Maternity Leave

It’s a good idea to prepare financially for maternity leave well in advance. Put away money and save for your baby. Here’s a rough timeline to help you plan for the big event.

1. Research State Laws and Company Policies

Before you announce that you are pregnant, find out what your company and state rules are for maternity leave. You can also look into how your medical insurance will work while you are out and how to add your baby to your plan. Check whether your premiums will go up.

You don’t have to inform your employer at this early stage. Your company should have an employee handbook that outlines family leave benefits, or it might be written into your contract.

If you experience pre- or post-natal health problems (such as high blood pressure, gestational diabetes, preterm labor, or C-section), you might qualify for short-term disability. However, know that disability benefits for pregnancy-related reasons are available only in some states. c

2. Develop a Maternity Leave Plan

Notify your employer of your pregnancy as you begin to show. Prepare for negotiating your leave by creating a plan for coverage while you are gone. For example, suggest a colleague you can train before you take leave. Explain how you plan to keep in touch with work while you are out.

Company maternity leave policy is not set in stone. You can negotiate with your employer to extend your paid time off, or perhaps propose a work-from-home or part-time arrangement.

Your boss may not agree with your plan, so consider it a jumping off point. One tactic is to present to your employer two or three options that you can live with. Your supervisor may well pick one of them. Finally, put it in writing and have it signed so that your employer cannot renege.

3. Start Planning Your Budget

Once you have a general idea of your income during maternity leave, prepare a new budget that includes all of your anticipated expenses. Check out tips on how to budget on a fluctuating income.

A budget planner app like SoFi can make the budgeting easier because it tracks your expenses for you and gives a breakdown of your spending by category.

4. Write a Plan for Your Replacement

Before you write out instructions for those who will cover for you while you are gone, have a discussion with your teammates to make sure they are on board. Include in your instructions the dates that you will be gone, who will be responsible for what, and how you will communicate with your team (whether you will take part in meetings remotely, etc.).

Recommended: Can You Get a Home Loan While on Maternity Leave?

The Takeaway

FMLA requires employers with 50 or more employees to offer up to 12 weeks of unpaid maternity leave. Research the benefits that you’re entitled to based on state regulations and company policy. Your maternity leave may end up being cobbled together from a combination of vacation time, sick days, short-term disability, work-from-home, and unpaid leave.

SoFi has an app that helps you plan for life-changing events like starting a family. From your smartphone, you can track your expenses, explore the debt payoff planner, monitor your credit score, and talk to a financial planner for no cost.

SoFi makes it easy to know where you stand.

FAQ

What questions should I ask HR before going on maternity leave?

You can ask HR what benefits you are entitled to and how your health insurance will change after the birth or adoption. It’s also important to ensure the required forms are completed and any negotiated agreements for maternity leave are laid out in writing and signed by your employer.

How should you prepare financially for maternity leave?

In an ideal world, you would start saving for the baby before you are pregnant. Once you have negotiated your maternity leave and have an idea of your income, create a new budget that includes baby expenses.

Also check whether you qualify for any tax credits such as the Child Tax Credit, the Child and Dependent Care Credit, or the Adoption Credit and Adoption Assistance Programs. Taking out a College 529 savings plan for your child will reduce your taxable income.

What is short-term disability insurance and how does it impact maternity leave?

Short-term disability is an insurance program offered by some employers. Policies vary, but you might be entitled to 50% of your income or more for up to six weeks after giving birth if you have a C-section or experience complications. Check with your staff handbook and your HR department to find out if you might be eligible for short-term disability.

Photo credit: iStock/Maria Korneeva

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