Feb
25
2025

Guide to Maxing Out Your 401(k)

By | Budgeting & Goals, Growing Wealth, invest, Investing | No Comments

Maxing out your 401(k) involves contributing the maximum allowable to your workplace retirement account to increase the benefit of compounding and appreciating assets over time.

All retirement plans come with contribution caps, and when you hit that limit it means you’ve maxed out that particular account.

There are a lot of things to consider when figuring out how to max out your 401(k) account. And if you’re a step ahead, you may also wonder what to do after you max out your 401(k).

Key Points

•   Maxing out your 401(k) contributions can help you save more for retirement and take advantage of tax benefits.

•   If you want to max out your 401(k), strategies include contributing enough to get the full employer match, increasing contributions over time, utilizing catch-up contributions if eligible, automating contributions, and adjusting your budget to help free up funds for additional 401(k) contributions.

•   Diversifying your investments within your 401(k) and regularly reviewing and rebalancing your portfolio can optimize your returns.

•   Seeking professional advice and staying informed about changes in contribution limits and regulations can help you make the most of your 401(k).

What Exactly Does It Mean to ‘Max Out Your 401(k)?’

Maxing out your 401(k) means that you contribute the maximum amount allowed by law in a given year, as specified by the established 401(k) contribution limits. But it can also mean that you’re maxing out your contributions up to an employer’s percentage match, too.

If you want to max out your 401(k) in 2024, you’ll need to contribute $23,000. If you’re 50 or older, you can contribute an additional $7,500, for an annual total of $30,500. If you want to max out your 401(k) in 2025, you’ll need to contribute $23,500. If you’re 50 or older, you can contribute an additional $7,500, for an annual total of $31,000. In addition, in 2025, those aged 60 to 63 may contribute an additional $11,250 instead of $7,500, thanks to SECURE 2.0, for an annual total of $34,750.

Should You Max Out Your 401(k)?

4 Goals to Meet Before Maxing Out Your 401(k)

Generally speaking, yes, it’s a good thing to max out your 401(k) so long as you’re not sacrificing your overall financial stability to do it. Saving for retirement is important, which is why many financial experts would likely suggest maxing out any employer match contributions first.

But while you may want to take full advantage of any tax and employer benefits that come with your 401(k), you also want to consider any other financial goals and obligations you have before maxing out your 401(k).

That doesn’t mean you should put other goals first, and not contribute to your retirement plan at all. That’s not wise. Maintaining a baseline contribution rate for your future is crucial, even as you continue to save for shorter-term aims or put money toward debt repayment.

Other goals could include:

•   Is all high-interest debt paid off? High-interest debt like credit card debt should be paid off first, so it doesn’t accrue additional interest and fees.

•   Do you have an emergency fund? Life can throw curveballs—it’s smart to be prepared for job loss or other emergency expenses.

•   Is there enough money in your budget for other expenses? You should have plenty of funds to ensure you can pay for additional bills, like student loans, health insurance, and rent.

•   Are there other big-ticket expenses to save for? If you’re saving for a large purchase, such as a home or going back to school, you may want to put extra money toward this saving goal rather than completely maxing out your 401(k), at least for the time being.

Once you can comfortably say that you’re meeting your spending and savings goals, it might be time to explore maxing out your 401(k). There are many reasons to do so — it’s a way to take advantage of tax-deferred savings, employer matching (often referred to as “free money”), and it’s a relatively easy and automatic way to invest and save, since the money gets deducted from your paycheck once you’ve set up your contribution amount.

How to Max Out Your 401(k)

Only a relatively small percentage of people actually do max out their 401(k)s, however. Here are some strategies for how to max out your 401(k).

1. Max Out 401(k) Employer Contributions

Your employer may offer matching contributions, and if so, there are typically rules you will need to follow to take advantage of their match.

An employer may require a minimum contribution from you before they’ll match it, or they might match only up to a certain amount. They might even stipulate a combination of those two requirements. Each company will have its own rules for matching contributions, so review your company’s policy for specifics.

For example, suppose your employer will match your contribution up to 3%. So, if you contribute 3% to your 401(k), your employer will contribute 3% as well. Therefore, instead of only saving 3% of your salary, you’re now saving 6%. With the employer match, your contribution just doubled. Note that employer contributions can range from nothing at all to upwards of 15%. It depends.

Since saving for retirement is one of the best investments you can make, it’s wise to take advantage of your employer’s match. Every penny helps when saving for retirement, and you don’t want to miss out on this “free money” from your employer.

If you’re not already maxing out the matching contribution and wish to, you can speak with your employer (or HR department, or plan administrator) to increase your contribution amount, you may be able to do it yourself online.

2. Max Out Salary-Deferred Contributions

While it’s smart to make sure you’re not leaving free money on the table, maxing out your employer match on a 401(k) is only part of the equation.

In order to make sure you’re setting aside an adequate amount for retirement, consider contributing as much as your budget will allow. Again, individuals younger than age 50 can contribute up to $23,000 in salary deferrals in 2024 and up to $23,500 in 2025, while those 50 and over can contribute more in catch-up contributions.

It’s called a “salary deferral” because you aren’t losing any of the money you earn; you’re putting it in the 401(k) account and deferring it until later in life.

Those contributions aren’t just an investment in your future lifestyle in retirement. Because they are made with pre-tax dollars, they lower your taxable income for the year in which you contribute. For some, the immediate tax benefit is as appealing as the future savings benefit.

3. Take Advantage of Catch-Up Contributions

As mentioned, 401(k) catch-up contributions allow investors aged 50 and over to increase their retirement savings — which is especially helpful if they’re behind in reaching their retirement goals.

Individuals 50 and over can contribute an additional $7,500 for a total of $30,500 in 2024, and can contribute an additional $7,500 for a total of $31,000 in 2025. And again, in 2025, those aged 60 to 63 can contribute an additional $11,250, instead of $7,500, for a total of $34,750. Putting all of that money toward retirement savings can help you truly max out your 401(k).

As you draw closer to retirement, catch-up contributions can make a difference, especially as you start to calculate when you can retire. Whether you have been saving your entire career or just started, this benefit is available to everyone who qualifies.

And of course, this extra contribution will lower taxable income even more than regular contributions. Although using catch-up contributions may not push everyone to a lower tax bracket, it will certainly minimize the tax burden during the next filing season.

4. Reset Your Automatic 401(k) Contributions

When was the last time you reviewed your 401(k)? It may be time to check in and make sure your retirement savings goals are still on track. Is the amount you originally set to contribute each paycheck still the correct amount to help you reach those goals?

With the increase in contribution limits most years, it may be worth reviewing your budget to see if you can up your contribution amount to max out your 401(k). If you don’t have automatic payroll contributions set up, you could set them up.

It’s generally easier to save money when it’s automatically deducted; a person is less likely to spend the cash (or miss it) when it never hits their checking account in the first place.

If you’re able to max out the full 401(k) limit, but fear the sting of a large decrease in take-home pay, consider a gradual, annual increase such as 1% — how often you increase it will depend on your plan rules as well as your budget.

5. Put Bonus Money Toward Retirement

Unless your employer allows you to make a change, your 401(k) contribution will likely be deducted from any bonus you might receive at work. Many employers allow you to determine a certain percentage of your bonus check to contribute to your 401(k).

Consider possibly redirecting a large portion of a bonus to 401k contributions, or into another retirement account, like an individual retirement account (IRA). Because this money might not have been expected, you won’t miss it if you contribute most of it toward your retirement.

You could also do the same thing with a raise. If your employer gives you a raise, consider putting it directly toward your 401(k). Putting this money directly toward your retirement can help you inch closer to maxing out your 401(k) contributions.

6. Maximize Your 401(k) Returns and Fees

Many people may not know what they’re paying in investment fees or management fees for their 401(k) plans. By some estimates, the average fees for 401(k) plans are between 1% and 2%, but some plans can have up to 3.5%.

Fees add up — even if your employer is paying the fees now, you’ll have to pay them if you leave the job and keep the 401(k).

Essentially, if an investor has $100,000 in a 401(k) and pays $1,000 or 1% (or more) in fees per year, the fees could add up to thousands of dollars over time. Any fees you have to pay can chip away at your retirement savings and reduce your returns.

It’s important to ensure you’re getting the most for your money in order to maximize your retirement savings. If you are currently working for the company, you could discuss high fees with your HR team. One of the easiest ways to lower your costs is to find more affordable investment options. Typically, the biggest bargains can be index funds, which often charge lower fees than other investments.

If your employer’s plan offers an assortment of low-cost index funds or institutional funds, you can invest in these funds to build a diversified portfolio.

If you have a 401(k) account from a previous employer, you might consider moving your old 401(k) into a lower-fee plan. It’s also worth examining what kind of funds you’re invested in and if it’s meeting your financial goals and risk tolerance.

What Happens If You Contribute Too Much to Your 401(k)?

After you’ve maxed out your 401(k) for the year — meaning you’ve hit the contribution limit corresponding to your age range — then you’ll need to stop making contributions or risk paying additional taxes on your overcontributions.

In the event that you do make an overcontribution, you’ll need to take some additional steps such as letting your plan manager or administrator know, and perhaps withdrawing the excess amount. If you leave the excess in the account, it’ll be taxed twice — once when it was contributed initially, and again when you take it out.

What to Do After Maxing Out a 401(k)?

If you max out your 401(k) this year, pat yourself on the back. Maxing out your 401(k) is a financial accomplishment. But now you might be wondering, what’s next? Here are some additional retirement savings options to consider if you have already maxed out your 401(k).

Open an IRA

An individual retirement account (IRA) can be a good complement to your employer’s retirement plans. With a traditional IRA, you can contribute pre-tax dollars up to the annual limit, which is $7,000 in 2024 and in 2025. If you’re 50 or older, you can contribute an extra $1,000, for an annual total of $8,000 in 2024 and 2025.

You may also choose to consider a Roth IRA. As with a traditional IRA, the annual contribution limit for a Roth IRA in 2024 and 2025 is $7,000, and $8,000 for those 50 or older. Roth IRA accounts have income limits, but if you’re eligible, you can contribute with after-tax dollars, which means you won’t have to pay taxes on earnings withdrawals in retirement as you do with traditional IRAs.

You can open an IRA at a brokerage, mutual fund company, or other financial institution. If you ever leave your job, you can typically roll your employer’s 401(k) into your IRA without facing tax consequences as long as both accounts are similarly taxed, such as rolling funds from a traditional 401(k) to a traditional IRA, and funds are transferred directly from one plan to the other. Doing a rollover may allow you to invest in a broader range of investments with lower fees.

Boost an Emergency Fund

Experts often advise establishing an emergency fund with at least six months of living expenses before contributing to a retirement savings plan. Perhaps you’ve already done that — but haven’t updated that account in a while. As your living expenses increase, it’s a good idea to make sure your emergency fund grows, too. This will cover you financially in case of life’s little curveballs: new brake pads, a new roof, or unforeseen medical expenses.

The money in an emergency fund should be accessible at a moment’s notice, which means it needs to comprise liquid assets such as cash. You’ll also want to make sure the account is FDIC insured, so that your money is protected if something happens to the bank or financial institution.

Save for Health Care Costs

Contributing to a health savings account (HSA) can reduce out-of-pocket costs for expected and unexpected health care expenses, though you can only open and contribute to an HSA if you are enrolled in a high-deductible health plan (HDHP).

For tax year 2024, those eligible can contribute up to $4,150 pre-tax dollars for an individual plan or up to $8,300 for a family plan. For tax year 2025, those eligible can contribute up to $4,300 pre-tax dollars for an individual plan or up to $8,550 for a family plan. For 2024 and 2025, those 55 or older can make an additional catch-up contribution of $1,000 per year.

The money in this account can be used for qualified out-of-pocket medical expenses such as copays for doctor visits and prescriptions. Another option is to leave the money in the account and let it grow for retirement. Once you reach age 65, you can take out money from your HSA without a penalty for any purpose. However, to be exempt from taxes, the money must be used for a qualified medical expense. Any other reasons for withdrawing the funds will be subject to regular income taxes.

Increase College Savings

If you’re feeling good about maxing out your 401(k), consider increasing contributions to your child’s 529 college savings plan (a tax-advantaged account meant specifically for education costs, sponsored by states and educational institutions).

College costs continue to creep up every year. Helping your children pay for college helps minimize the burden of college expenses, so they hopefully don’t have to take on many student loans.

Open a Brokerage Account

After you max out your 401(k), you may also consider opening a brokerage account. Brokerage firms offer various types of investment account brokerage accounts, each with different services and fees. A full-service brokerage firm may provide different financial services, which include allowing you to trade securities.

Many brokerage firms require you to have a certain amount of cash to open their accounts and have enough funds to account for trading fees and commissions. While there are no limits on how much you can contribute to the account, earned dividends are taxable in the year they are received. Therefore, if you earn a profit or sell an asset, you must pay a capital gains tax. On the other hand, if you sell a stock at a loss, that becomes a capital loss. This means that the transaction may yield a tax break by lowering your taxable income.

Pros and Cons of Maxing Out Your 401(k)

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Pros:

•   Increased Savings and Growth: Your retirement savings account will be bigger, which can lead to more growth over time.

•   Simplified Saving and Investing: Can also make your saving and investing relatively easy, as long as you’re taking a no-lift approach to setting your money aside thanks to automatic contributions.

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Cons:

•   Affordability: Maxing out a 401(k) may not be financially feasible for everyone. May be challenging due to existing debt or other savings goals.

•   Opportunity Costs: Money invested in retirement plans could be used for other purposes. During strong stock market years, non-retirement investments may offer more immediate access to funds.

Test your understanding of what you just read.

The Takeaway

Maxing out your 401(k) involves matching your employer’s maximum contribution match, and also, contributing as much as legally allowed to your retirement plan in a given year. If you have the flexibility in your budget to do so, maxing out a 401(k) can be an effective way to build retirement savings.

And once you max out your 401(k)? There are other smart ways to direct your money. You can open an IRA, contribute more to an HSA, or to a child’s 529 plan. If you’re looking to roll over an old 401(k) into an IRA, or open a new one, SoFi Invest® can help. SoFi doesn’t charge commissions (the full fee schedule is here), and you can access a complimentary 30-min session with a SoFi Financial Planner.

Opening and funding an Active Invest account gives you the opportunity to get up to $1,000 in the stock of your choice.

FAQ

What happens if I max out my 401(k) every year?

Assuming you don’t overcontribute, you may see your retirement savings increase if you max out your 401(k) every year, and hopefully, be able to reach your retirement and savings goals sooner.

Will You Have Enough to Retire After Maxing Out 401(k)?

There are many factors that need to be considered, however, start by getting a sense of how much you’ll need to retire by using a retirement expense calculator. Then you can decide whether maxing out your 401(k) for many years will be enough to get you there, even assuming an average stock market return and compounding built in.

First and foremost, you’ll need to consider your lifestyle and where you plan on living after retirement. If you want to spend a lot in your later years, you’ll need more money. As such, a 401(k) may not be enough to get you through retirement all on its own, and you may need additional savings and investments to make sure you’ll have enough.

About the author

Ashley Kilroy

Ashley Kilroy

Ashley Kilroy is a seasoned personal finance writer with 15 years of experience simplifying complex concepts for individuals seeking financial security. Her expertise has shined through in well-known publications like Rolling Stone, Forbes, SmartAsset, and Money Talks News. Read full bio.


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Feb
25
2025
401a vs 401k: What's the Difference?

401(a) vs 401(k) Compared

By | Budgeting & Goals, Growing Wealth, invest, Preparing for Retirement, Terminology | No Comments

A 401(k) plan and a 401(a) plan may sound confusingly similar, but there are some differences between the two retirement accounts.

The biggest differences between 401(k) vs 401(a) plans are in the types of companies that offer them and their contribution requirements. While most private sector companies are eligible to offer 401(k) plans, only certain government and public organizations can offer their employees a 401(a) plan. Employers must contribute to 401(a) plans and can make it mandatory for employees to contribute a pre-set amount as well. By contrast, employers do not have to contribute to 401(k) plans and employees are free to choose whether they want to contribute.

Key Points

•   A 401(a) plan is an employer-sponsored retirement account typically available to government workers and employees at educational institutions and nonprofits. Employer contributions are mandatory, while employee contributions may be voluntary.

•   A 401(k) plan is offered by for-profit employers as part of the employee’s compensation package. Employers are permitted but not required to contribute to a 401(k) plan.

•   For 2024, the annual contribution limit for employer and employee combined is $69,000, $70,000 in 2025, with an additional $7,500 catchup contribution allowed for employees 50 or older. And in 2025, those aged 60 to 63 may contribute an additional $11,250 instead of $7,500, thanks to SECURE 2.0.

•   Employee contributions to 401(a) or 401(k) plans in 2024 are $23,000 per year. For those 50 and older it’s $30,500 with the catch-up contribution of $7,500. The limits for 2025 are $23,500 per year, and $31,000 for those 50-plus.

•   You can borrow from either a 401(a) or a 401(k) plan with restrictions. Withdrawals before age 59 1⁄2 may incur penalties. Employees can begin to withdraw money without penalty when they turn 59 1⁄2.

What Is a 401(a) Plan?

A 401(a) plan is an employer-sponsored type of retirement account that typically covers government workers and employees from specific education institutions and nonprofits. It is different from an IRA in that the employer sponsors the plan, determines the investment options that the employees can choose from, and sets the vesting schedule (the amount of time an employee will have had to have worked with the organization before all employer contributions become fully theirs, even if they leave the company).

With IRAs, the individual investor decides how much to contribute and if/when they want to make withdrawals from the account. With a 401(a) plan, employer contributions are mandatory; employee contributions are not. All contributions made to the plan accrue on a tax-deferred basis.

Recommended: IRAs vs 401(k) plans

However, withdrawing from either type of plan may incur penalties for withdrawing money before age 59 ½.

What Is a 401(k) Plan?

A 401(k) plan is a benefit offered by for-profit employers as part of the employee’s compensation package. The employer establishes the plan, along with the investment options the employee can choose from and the vesting schedule. As with 401(a) plans, funds contributed are tax-deferred and help employees save for retirement.

Some employers choose to offer a match program in which the company matches employee contributions up to a specific limit.

401(k) plans are also accessible to entrepreneurs and self-employed business owners.

Who Contributes to Each Plan?

Under a 401(a) plan, employer contributions are mandatory, though the employer can decide whether they’ll contribute a percentage of the employees’ income or a specific dollar amount. Employers can establish multiple 401(a) accounts for their employees with different eligibility requirements, vesting schedules, and contribution amounts.

Employee participation is voluntary, with contributions capped at 25% of their pre-tax income.

Under a 401(k) plan, employees can voluntarily choose to contribute a percentage of their pre-tax salary. Employees are not required to participate in a 401(k) plan.

Employers are permitted but not required to contribute to a 401(k) plan, and many will match up to a certain amount — say, 3% — of employees’s salaries.

401(a) vs 401(k) Contribution Limits

For 2024, the total annual 401(a) contribution limit — from both employer and employee — is $69,000; for 2025 it’s $70,00. However, employees with 401(a) plans can also contribute to a 403(b) plan and a 457 plan simultaneously (more on those plans in the 401(a) vs Other Retirement Plan Options section).

Employee contributions to 401(k) plans have a $23,000 limit in 2024 and a $23,500 limit in 2025. Employees who are 50 or older may contribute up to an additional $7,500 for a total of $30,500 in 2024 and a total of $31,000 in 2025.

An employee with a 401(k) plan may also fund a Roth or traditional IRA. However, restrictions apply.

401(a) vs 401(k) Investment Options

401(a) vs 401(k) plans often offer various investment options, which may include more conservative investments such as stable value funds to more aggressive investments such as stock funds. Some 401(a) plans may allow employees to simplify diversified portfolios or seek investment advice through the plan’s advisor.

Most 401(k) plans also offer various investment choices ranging from low-risk investments like annuities and municipal bonds to equity funds that invest in stocks and reap higher returns.


💡 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.

401(a) vs 401(k) Tax Rules

The tax rules in a 401(a) plan may be one difference between a 401(k) and 401(a).

With a 401(a), employees make pre-tax or after-tax contributions, depending on how their employer decides to structure the plan. Pre-tax means contributions are not taxed at the time of investment, but later upon withdrawal. After-tax means contributions are taxed before being deposited into the account

A 401(k), on the other hand, is a tax-deferred retirement plan, meaning all contributions are pre-tax. The wages employees choose to contribute to their plan are untaxed upon initial investment. Income taxes only kick in when the employee decides to withdraw funds from their account.

Can You Borrow from Each Plan?

You can borrow from either a 401(a) or a 401(k) plan if you have an immediate financial need, but there are some restrictions and it is possible to incur early withdrawal penalties.

An employer can limit the amount borrowed from a 401(a) plan — and may choose not to allow employees to borrow funds. If the employer does allow loans, the maximum amount an employee can borrow is the lesser of:

•   $10,000 or half of the vested account balance, whichever is greater OR

•   $50,000

Because the employee is borrowing money from their account, when the employee pays back the loan’s interest, they are paying it to themselves. However, the IRS requires employees to pay back the entire loan within five years . If they don’t pay the loan back, the IRS will consider the loan balance to be a withdrawal and will require taxation on the remaining loan amount as well as a 10% penalty if the employee is under age 59 ½.

Borrowing from a 401(k) plan is similar. Employees are limited to borrowing $50,000 or half of the vested balance — whichever is less. One big difference between borrowing from a 401(a) vs. a 401(k) plan is employees lose out on a tax break if they borrow from their 401(k) because they are repaying it with after-tax dollars. Because the money is taxed again when withdrawn during retirement, an investor is essentially being taxed twice on that money.

Can You Borrow Money from a 401(a) or 401(k) to Buy a Home?

You may be able to use the funds from a 401(a) or 401(k) account to purchase a home. Remember, with 401(a) plans, the employer ultimately decides if loans are permitted from the 401(k).

If you borrow money from your 401(a) or 401(k) to fund the purchase of a home, you have at least five years to repay what you’ve taken out.

The maximum amount you’re allowed to borrow follows the rules stated above:

•   $50,000 OR

•   The greater between $10,000 or half of what’s vested in your account,

Whichever is less.

When Can You Withdraw From Your Retirement Plan?

Employees can begin to withdraw money from their 401(a) plan without penalty when they turn 59 ½. If they make any withdrawals before 59 ½, they will need to pay a 10% early withdrawal penalty. Once they reach 73, they’re required to make withdrawals if they haven’t already started to. [link to article about RMDs]

With a 401(k) plan, if an employee retires at age 55, they can start withdrawing money without penalty. However, to take advantage of this early-access provision, they need to have kept the money in the 401(k) plan and not have rolled it into a Roth IRA.

Employees also need to have ended their employment no earlier than the year in which they turn 55.

Otherwise, the restrictions are the same as with a 401(a) plan, and they can begin to withdraw money penalty-free once they turn 59 ½.

401(a) vs 401(k) Rollover Rules

Generally, 401(a) and 401(k) accounts have similar rollover rules. When an employee chooses to leave their job, they have the option to roll over funds. The employee can choose to roll the account into another retirement plan or take a lump-sum distribution. Generally, if the employee decides to roll over their plan to another plan, they have to do so within 60 days of moving the funds.

The rules for a 401(a) rollover dictate that funds can be transferred to another qualified plan like a 401(k) or an individual retirement account (IRA). The rules for 401(k)s are the same.

If the employee decides to take a lump-sum distribution from the account, they will have to pay income taxes on the full amount. If they are under 59 ½, they will also have to pay the 10% penalty.

Recommended: How To Roll Over a 401(k)

What Happens to Your 401(a) or 401(k) If You Quit Your Job?

If you quit your job, you can leave the money in your former employer’s plan, roll it into the plan of your new employer, transfer it to a Rollover IRA, or cash it out. If you are under age 59 ½ and cash out the plan, you will likely need to pay taxes and a 10% penalty.

However, if you quit your job before you are fully invested in the plan, you will not get your employer’s contributions. You will only get what you contributed to the plan.

What Is a 401(a) Profit Sharing Plan?

A 401(a) profit sharing plan is a tax-advantaged account used to save for retirement. Employees and employers contribute to the account based on a set formula determined by the employer. Unlike 401(a) plans, the employer’s contributions are discretionary, and they may not contribute to the plan every year.

All contributions from employees are fully vested. The ownership of the employer contributions may vary depending on the vesting schedule they create.

Like 401(a) plans, 401(a) profit sharing plans allow employees to select their investments and roll over the account to a new plan if the employee leaves the company. If an employee wants to take a distribution before reaching age 59 ½, they are subject to income taxation and a 10% penalty.

Summarizing the Differences Between 401(k) and 401(a) Plans

The main differences between a 401(k) and 401(a) are:

•   401(a) plans are typically offered by the government and nonprofit organizations, while 401(k) plans are offered by private employers.

•   Employees don’t have to participate in a 401(K), but they often must participate in a 401(a).

•   An employer decides how much employees contribute to a 401(a), while 401(k) participants can contribute what they like.

•   With a 401(a), employees make pre-tax or after-tax contributions, depending on how their employer decides to structure the plan. With a 401(k), all contributions are pre-tax.

Summarizing the Similarities Between 401(a) vs 401(k) Plans

A 401(k) vs. a 401(a) has similarities as well. These include:

•   Both types of plans are employer-sponsored retirement accounts.

•   Employees can borrow money from each plan, though certain restrictions apply.

•   There may be a 10% penalty for withdrawing funds before age 59 ½ for both plans.

401(a) vs Other Retirement Plan Options

401(a) vs 403(b)

A 403b is a tax-advantaged retirement plan offered by specific schools and nonprofits. Like 401(a) and 401(k) plans, employees can contribute with pre-tax dollars. Employers can choose to match contributions up to a certain amount. Unlike the 401(a) plan, employers don’t have mandatory contributions.

For 2024, the employee contributions limit is $23,000. For 2025, the employee contributions limit is $23,500. If the plan allows, employees who are 50 or older may contribute a catch-up amount of $7,500. And in 2025, those aged 60 to 63 may contribute an additional $11,250 instead of $7,500, thanks to SECURE 2.0.

Generally, 403b plans are either invested in annuities through an insurance company, a custodian account invested in mutual funds, or a retirement income account for church employees.

Additionally, 403b plans allow for rollovers and distributions without a 10% penalty after age 59 ½. Like similar plans, employees may have to pay a 10% penalty if they take a distribution before reaching age 59 ½ unless the distribution meets other qualifying criteria.

401(a) vs 457

457 plans are retirement plans offered by certain employers such as public education institutions, colleges, universities, and some nonprofit organizations. 457 plans share similar features with 401(a) plans, including pre-tax contributions, tax-deferred investment growth, and a choice of investments that employees can select.

Employees can also roll over funds to a new plan or take a lump-sum distribution if they leave their job. However, unlike a 401(a) or 401(k) plan, the withdrawal is not subject to a 10% IRS penalty.

Another option offered through 457 plans is for employees to contribute to their account on either a pre-tax or post-tax basis.

401(a) vs Pension

A 401(a) is a defined contribution plan, where a pension is a defined benefit plan. With a pension, employees receive the benefit of a fixed monthly income in retirement; their employer pays them a fixed amount each month for the rest of their life. The monthly payment can be based on factors like salary and years of employment.

With a 401(a), employees have access to what they and their employer contributed to their 401(a) account. In contrast to a pension plan, retirees aren’t guaranteed a fixed amount and their contributions may not last through the end of their life.

Pros and Cons of 401(k) vs 401(a) Plans

Both 401(k) and 401(a) plans have pros and cons.

Pros of a 401(k):

•   Employers may match a portion of the employee’s contributions.

•   The plan is fairly easy to set up.

•   Employees generally have a wide range of investment options.

Pros of a 401(a):

•   Lower fees

•   Contributions are tax-deferred.

•   Both the employer and employee make monthly contributions.

Cons of a 401(k):

•   Fees may be high.

•   Need to wait until fully vested to keep employer matching contributions.

•   Penalty for withdrawing funds early.

Cons of a 401(a):

•   Investment choices may be limited.

•   Participation may be mandatory.

•   Penalty for withdrawing funds early.

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

Other Retirement Account Options

Roth IRAs

Roth IRAs are funded with after-tax contributions, which means they aren’t tax deductible. However, the withdrawals you take in retirement are tax-free.

You can withdraw the amount you contributed to an IRA at any time, without penalty.

The Roth IRA annual contribution limit for 2024 and 2025 is $7,000 ($8,000 if you’re 50 or older).

Traditional IRAs

A traditional IRA is similar to a 401(k): both plans offer tax-deferred contributions that may lower your taxable income. However, in retirement, you will owe taxes on the money you withdraw from both accounts.

Unlike a 401(k), a traditional IRA is not an employer-sponsored plan. Anyone can set up an IRA to save money for retirement. And if you have a 401 k), you can also have a traditional IRA.

The traditional IRA contribution limit for 2024 and 2025 is $7,000 ($8,000 if you’re 50 or older).

HSAs

An HSA, or Health Savings Account, allows you to cover healthcare costs using pre-tax dollars. But you can also use an HSA as a retirement account. At age 65, you can withdraw the money in your HSA and use it for any purpose. However, you will pay taxes on anything you withdraw that’s not used for medical expenses.

In 2024, you can contribute up to $4,150 in an HSA as an individual, or $8,300 for a family. In 2025, you can contribute up to $4,300 as an individual, or $8,550 for a family.

Test your understanding of what you just read.

Investing In Your Retirement

The largest difference between 401(a) and 401(k) plans is the type of employers offering the plans. Whereas 401(a) plans typically cover government workers and employees from specific education institutions and nonprofits, 401(k) plans are offered by for-profit organizations. Thus, a typical employee won’t get to choose which plan to invest in — the decision will be made based on what organization they work for.

Both 401(a) plans and 401(k) plans do have restrictions that might bother some investors. For example, an employee will be at the mercy of their employer’s choice when it comes to investing options.

Ready to invest for your retirement? It’s easy to get started when you open a traditional or Roth IRA with SoFi. SoFi doesn’t charge commissions, but other fees apply (full fee disclosure here).

Easily manage your retirement savings with a SoFi IRA.

FAQ

Is a 401(a) better than a 401(k)?

It’s not necessarily a matter of which plan is “better.” 401(k) plans are offered by private employers, while the government and nonprofits offer 401(a) plans. Both plans allow you to save for retirement in a tax-deferred way.

How are 401(a)s different from 401(k)s?

There are some differences between 401(k) and 401(a) plans. For instance, 401(a) plans are typically offered by the government and nonprofit organizations, while 401(k) plans are offered by private employers. In addition, employees don’t have to participate in a 401(k), but they often must participate in a 401(a). An employer decides how much employees contribute to a 401(a), while 401(k) participants can contribute what they like. And finally, those who have a 401(k) may have more investment options than those who have a 401(a).

Can you roll a 401(a) into a 401(k)?

Yes, you can roll a 401(a) into a 401(k) if you leave your job and then get a new job with a private company that offers a 401(k). You can also roll over a 401(a) into a traditional IRA.

Photo credit: iStock/solidcolours


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


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

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

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Feb
25
2025
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15 Creative Ways to Save Money

By | Budgeting & Goals, Financial Independence, money | No Comments

You may not think of saving money as being a creative pursuit, but with a little effort, you can find fresh (and even fun) ways to help you stash away some cash. This can make the process more engaging and motivating.

Whether your goal is to save for the down payment on a house, build up your kid’s college fund, or simply take a great vacation next year, these clever ways to save money can help you get there — without feeling bored or deprived. Get set to save more.

Key Points

•   Set clear, specific savings goals to stay motivated and focused.

•   Automate savings by setting up monthly transfers and using round-up apps.

•   Reduce expenses by negotiating bills and switching to a bank that charges low or no fees.

•   Make savings fun with challenges, milestones, and a savings buddy.

•   Increase income through side gigs, freelancing, and selling unused items.

15 Creative Ideas to Save Money

You’re probably familiar with some of the usual strategies for saving money, such as comparison shopping and clipping coupons. If you’re ready to mix things up and try some less common tactics, consider the following 15 quirky but effective ideas.

1. Identify Your Saving Goals

Not sure how to make saving money fun or prioritize it? You could start by identifying your goals, a target savings amount, and a timeline for achieving them. For example, if you’re saving up to purchase a car in one year, determine how much you’ll need, then divide that amount by 12 to come up with a monthly savings goal. You might even open up a separate savings account earmarked for a new car. Seeing your “car” account grow over time can motivate you to keep going, even throw in some extra cash whenever you can.

2. Find a Saving Buddy

With the right company, even the most mundane tasks can be enjoyable. You might talk about your savings goals with your friends and family members to potentially identify a saving buddy with similar objectives.

An ideal saving buddy will be supportive of your financial goals, offer good advice, and have a positive money mindset.

Checking in with your buddy regularly could help keep you both stay on track and you can celebrate each other’s accomplishments. This person might also be able to talk you down if you’re on the verge of making a big impulse buy. If you’re stressed about how to make saving money fun, you could brainstorm creative tactics with your saving buddy and implement them together.

3. Seek Out Free Activities

Saving money does not have to be synonymous with missing out. There are likely a number of free activities offered in your area. Perhaps your local park offers free theater performances or concerts in the summer, or your area bookstore hosts interesting literary panels and author discussions with no attendance fee. This can be a great alternative to pricey movie or concert tickets.

Also think about the resources provided by your local library, such as book clubs, language exchange programs, craft nights, and movie screenings. You might also find a way to save money on streaming services: Many libraries offer services like Hoopla or Kanopy at no cost to card holders.

4. Get Creative and DIY

Another clever way to save money is to think about what you could create rather than buy new. For example, you may be able to make your own household cleaning products with items you already own (like vinegar and baking soda) or whip up a facial mask using fresh ingredients like avocado, tea, honey, and oatmeal. Out of wrapping paper? You don’t necessarily need to run to the store. Consider using old newspapers, maps, magazines, brown paper bags, or scraps of fabric. It’s free – and kinder to the earth.

5. Gamify Savings

To break up the monotony of saving, consider incorporating games and challenges into your overall savings plan. For example, you might try a “no-spend week,” where you refrain from spending money on anything other than necessities for seven days. If you succeed at that, you might want to ramp up to a 30-day no-spend challenge.

If a full no-spend challenge feels like too much, you could simply challenge yourself to not spend in a certain category for one month, like clothing, shoes, or take-out. You might choose something else the next month to keep the savings going.

6. Swap Goods and Trade Skills

Getting serious about money management doesn’t mean you need to give up on “luxuries” like exercise classes or new clothes. Rather than pay cash, you might explore trading skills or goods for pricey things or experiences on your wish list. For example, you could see if your favorite yoga studio offers a work-trade program where you can do administrative duties in exchange for classes. Or if your wardrobe needs a refresh, consider setting up a clothing swap with friends to score finds — and have fun — at no cost.

You might also consider an informal exchange with skilled friends. For example, if you’ve been eyeing an original painting from your artist pal but don’t have the funds to pay her, you could offer your website design services (or some other helpful skills) for the painting.

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*Earn up to 4.00% Annual Percentage Yield (APY) on SoFi Savings with a 0.20% APY Boost (added to the 3.80% APY as of 7/10/25) for up to 6 months. Open a new SoFi Checking & Savings account and enroll in SoFi Plus by 8/12/25. Rates variable, subject to change. Terms apply here. SoFi Bank, N.A. Member FDIC.

7. Increase Income

Sometimes, cutting down on expenses might not be the most effective way to reach a savings goal. It might be easier, in some cases, to look for ways to make more money rather than reduce costs.

If a salary raise isn’t in the offing, you might consider your particular skills and/or hobbies to see if there is a way to translate one of them into an income stream. For example, if you love to knit, you might start an online store for your yarn creations. Or if you’re a wordsmith, you could potentially offer your writing or editing services in a freelance capacity. A successful low-cost side hustle could help bring additional money into your bank account and even add more fun and enjoyment in your life.

8. Switch Your Bank

If your financial institution seems to be charging you endless fees and offers little interest on your savings account, consider switching banks.

You might shop around and see what online banks and local credit unions are offering. Online-only institutions don’t have brick-and-mortar locations to fund and can pass those savings along to customers in the form of lower or no fees and higher interest rates. Credit unions, on the other hand, are run as financial co-ops, meaning each member has a stake in business. As nonprofits, they are designed to serve their members, typically paying higher interest rates on deposits and charging lower fees.

9. Split Your Direct Deposit into Checking and Savings

If you have regular paychecks, one of the easiest ways to start saving more is to have some of each paycheck go directly into a savings account, where you’ll be less tempted to spend it. Many employers will allow you to do a split direct deposit, where some of your pay goes into your checking account and some goes into your savings account. Evening saving off 5% or 10% of your paycheck each pay period can add up to a serious sum over time. If you choose a high yield account, you can help your savings grow faster.

If you don’t have the option to split up your paycheck or would prefer not to, another way to automate savings is to set up a recurring monthly transfer from checking to savings for the same day each month, perhaps the day after you get paid. You won’t have to remember to make the transfer or give saving a second thought.

10. Change Your Due Dates for Bills

If you frequently overdraft your checking account or have to pull money from savings to cover bills, consider this unique way to save money: Changing some of your billing due dates.

Moving due dates for large payments — like credit card bills or student loans — away from the due date for your rent or mortgage, could help you avoid getting hit with overdraft or non-sufficient fund (NSF) fees. It can also keep you from transferring money from savings to checking to cover a temporary shortfall, and then never transferring it back.

11. Save Every $5 Bill

This is a classic adult remix of the piggy bank you had as a kid. Only this time, instead of squirreling away pocket change, you take every $5 you get and put it in an envelope tucked into the back of a drawer.

Once you get into the habit of identifying $5’s as “no spend” bills, you’ll find it can really be a creative way to save money. You likely won’t miss the money (it’s just $5) but at the end of the year, it could easily add up to enough cash to help with holiday shopping, a loan payment, or even a nice charity donation, without having to touch your savings in the bank.

Recommended: 39 Passive Income Ideas to Build Wealth

12. Take Advantage of Cash Back Credit Cards

Need another clever way to save money? Look for a credit card that offers a good rewards program like SoFi Plus. Depending on the card, you may be able to redeem cash back rewards as statement credits, checks, or direct deposits. Just keep in mind that a cash back credit card isn’t a good saving solution if you tend to carry a balance — the money you’ll pay in interest is likely to be significantly higher than your rewards rate.

13. Round Up Your Purchases Automatically

There are plenty of apps available that will round up your purchase to the nearest dollar and then save the change for you. Your bank may offer this kind of savings tool, which can be an easy way to save money automatically.

The amount these apps save for you is small, so you aren’t likely to notice 25 or 80 cents here and there when the round-up transfers, but it can potentially add up to hundreds saved per year.

14. Consolidate Credit Card Debt with a Personal Loan

If credit card debt is preventing you from saving as much as you would like, you might use a personal loan as a creative way to save some extra money every month.

If you can qualify for a personal loan with a significantly lower interest rate than you’re paying on your credit card balances, you could use it to pay off your credit cards. While you’ll still be paying off the personal loan, you could save on interest. You might also be able to pay off your debt faster. Once your loan is paid off, you can redirect those monthly payments to your savings account.

15. Take Advantage of an Employer’s 401(k) Match

If your employer offers a match on your 401(k) savings, it’s wise to take full advantage — this is essentially free money. For example, if your employer matches 50% of employee contributions up to 5% of your salary, consider putting at least 5% of your paycheck into your retirement account each month. Otherwise you’ll be leaving money on the table.

Creative Savings Challenges to Try

Saving money can feel like a chore, but making it a fun challenge can turn it into an exciting goal. Here are some ways to keep things interesting.

•   52-Week Savings Challenge: This challenge encourages you to save a small, increasing amount each week. Start with $1 in the first week, $2 in the second, and so on until you reach $52 in the final week. By the end of the year, you’ll have saved $1,378.

•   Receipt Challenge: Love to shop sales or use coupons? Collect your receipts that show your purchase savings in a drawer. Once a month, add up your savings, then transfer that amount into your savings account.

•   100 Envelope Challenge: Label 100 envelopes with numbers from 1 to 100. Each day (or week), pick an envelope randomly and place the corresponding amount inside. If you complete all envelopes, you’ll save $5,050!

•   Vacation Savings Challenge: A year before you want to go away, set a savings goal that will cover all of your vacation costs (including airfare, lodging, and spending money). Divide that total by 12, and transfer that amount into a savings account each month.

How To Stay Motivated to Save Money

Staying motivated to save money requires setting clear goals and making saving a rewarding habit. A good place to start is by defining a specific reason for saving, whether it’s for an emergency fund, a vacation, or a major purchase. Next, break your savings into small, manageable milestones to make it feel achievable.

Tracking your progress with a savings app or chart, and sprinkling in fun challenges (like a $5 or no-spend challenge), can also help you stay motivated. In addition, you might reward yourself for reaching savings milestones with a low-cost treat, like going out for ice cream or a fancy coffee.

Why Is Making Saving Money Fun Important?

Trying tactics like the ones above can help make saving money feel less like deprivation and more like fun. That’s important for a couple of reasons. Shaking up your savings routine can make socking away cash seem fresh and more engaging, meaning you are more likely to get the job done. Basically, it can rev up your motivation to save money.

Also, when you find a technique that is fun, such as a spending challenge, it can help encode the new savings behavior in your routine. If it’s enjoyable, you are more likely to keep up the good work.

How Can You Make the Most of the Money You Save?

When you save money, you likely want it to grow over time, not just sit there. One good way to do that is to stash your money in an interest-earning account. This can be especially effective if the financial institution charges low or no banking fees.

You might look for a high-interest or high-yield savings account. These can pay a significantly higher rate than standard savings accounts, and your money will be accessible and likely insured (up to certain limits) by the Federal Deposit Insurance Corporation (FDIC) or National Credit Union Administration (NCUA).

Optimizing Your Savings

Beyond the creative ways listed above, there are other important ways to optimize your savings.

•   Assess your cash flow. Coming up with a basic monthly budget can help you better understand your personal finances and get a grip on your earnings, spending, and savings. When you see where your money goes, you can tweak your spending to help funnel more towards savings.

•   Negotiate your bills. You may be able to reduce some of your recurring bills (such as cable, car insurance, and cell phone) by negotiating a lower rate or switching to another service provider. Even a small reduction in a monthly bill can save significant cash by the end of the year.

•   Lower your living costs. If you’re living well beyond your means, one dramatic shift that can help you save more is to move to an area that has a lower cost of living. Whether that means moving across town or across the country, it could make a major difference in your finances.

The Takeaway

Putting away money for your short- and long-term goals doesn’t have to be a boring task — there are countless fun ways to save money that can be customized to your specific financial needs and wants. From finding a savings buddy to gamifying the saving process, creative tactics can help enhance your motivation and your ability to put away cash.

Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even 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 3.80% APY on SoFi Checking and Savings.

FAQ

What is a clever way to save money?

There are several clever ways to save money. Automating savings so you don’t have to remember to transfer funds is one good tactic; so is giving yourself a “no-spend” challenge, finding free activities, and doing a skills swap (i.e., bartering your expertise/skills to receive a service or product in return for free).

How can you save $1000 in 30 days?

To save $1,000 in 30 days, you might try a “no spend” challenge. This involves putting a freeze on all non-essential spending for a full month. You might also try selling items you no longer want online, taking on a side gig or freelance project, cancelling unnecessary subscriptions (like streaming channels you rarely watch or a gym membership you don’t use), and meal-prepping to save money on food.

What is the 50-30-20 rule?

The 50-30-20 rule is a budgeting method that divides your income into three categories: 50% for needs (rent, utilities, groceries, minimum debt payments), 30% for wants (entertainment, dining out, hobbies), and 20% for savings and extra debt payments. This structure can provide a starting framework for money management, but you may need to adjust the formula based on your monthly living expenses and savings goals.

How can I use automated tools to help save money?

One of the easiest ways to automate saving is to set up a recurring monthly transfer from your checking account to your savings account on the day after you get paid. Or, if your employer offers split direct deposit, you could have most of your paycheck go into checking, and a small portion go directly into savings.

You might also try a “round-up” app: Each time you make a purchase, the app will automatically round it up to the nearest dollar and deposit the difference into savings.

What is the best method to start a savings habit?

One of the best ways to start a savings habit is by making it automatic. You can do this by setting up a recurring transfer from your checking to your savings account for a set amount on the same day each month, perhaps the day after you get paid. It’s fine to start small, even just $5 a week, and gradually increase the amount over time.

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SoFi members with Eligible Direct Deposit activity can earn 3.80% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Eligible 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 (“Eligible Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below).

Although we do our best to recognize all Eligible Direct Deposits, a small number of employers, payroll providers, benefits providers, or government agencies do not designate payments as direct deposit. To ensure you're earning 3.80% APY, we encourage you to check your APY Details page the day after your Eligible Direct Deposit arrives. If your APY is not showing as 3.80%, contact us at 855-456-7634 with the details of your Eligible Direct Deposit. As long as SoFi Bank can validate those details, you will start earning 3.80% APY from the date you contact SoFi for the rest of the current 30-day Evaluation Period. You will also be eligible for 3.80% APY on future Eligible Direct Deposits, as long as SoFi Bank can validate them.

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

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

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

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

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

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

Interest rates are variable and subject to change at any time. These rates are current as of 1/24/25. There is no minimum balance requirement. Additional information can be found at http://www.sofi.com/legal/banking-rate-sheet.
*Awards or rankings from NerdWallet are not indicative of future success or results. This award and its ratings are independently determined and awarded by their respective publications.

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.

We do not charge any account, service or maintenance fees for SoFi Checking and Savings. We do charge a transaction fee to process each outgoing wire transfer. SoFi does not charge a fee for incoming wire transfers, however the sending bank may charge a fee. Our fee policy is subject to change at any time. See the SoFi Checking & Savings Fee Sheet for details at sofi.com/legal/banking-fees/.

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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Feb
25
2025

Average Cost of a Dozen Eggs by State in 2025

By | Budgeting & Goals, relay | Comments Off on Average Cost of a Dozen Eggs by State in 2025

Concerned about the rising price of eggs? You’re not alone. Prices have soared around the country as a widespread avian flu outbreak affects the availability of eggs. As of January 2025, the average cost of a dozen eggs in the U.S. is $4.95, according to data from the U.S. Bureau of Labor Statistics (BLS). This is higher than in previous years, including the $4.82 consumers paid on average in January of 2023, when concerns about egg shortages sent the cost of eggs skyrocketing.

Why does knowing the cost of a dozen eggs today matter? If you’re trying to manage your household budget, then keeping food costs as low as possible might be a priority. Where you live can play a part in determining how much you’ll pay for a dozen eggs.

Key Points

•   Egg prices in the U.S. average $4.95 per dozen as of January 2025.

•   Avian flu, severe winter weather, and inflation are the main factors driving egg price increases.

•   Hawaii and California have some of the highest egg prices in the country.

•   The USDA predicts egg prices will decrease to $2.10 per dozen by the third quarter of 2025.

•   Shopping at farmer’s markets and buying in bulk can help consumers find cheaper eggs.

What Is the Average Cost of a Dozen Eggs Today?

On average, Americans are paying $4.95 for a dozen Grade A large eggs, based on the BLS data. That price reflects the most recent Consumer Price Index (CPI) data available as of January 2025. The CPI Consumer Price Index tracks prices for a basket of consumer goods and services over time.

In tracking egg price data, the CPI looks at average numbers by city, rather than state. Prices are based on the cost of a dozen eggs only and don’t take into account pricing for smaller or larger quantities of eggs sold, or pricing for different sizes of eggs. The CPI’s egg price data offers a snapshot of how egg prices have moved up or down over time. The average cost of a dozen eggs increased sharply in the beginning of 2023, declined for a while, and then began going back up in July 2024. Whether you live alone or are supporting a family, these types of fluctuations can impact your grocery budget.

If you’re trying to manage a higher-than-normal grocery bill, tracking your spending can help.

Where the Cost of Eggs Is Highest

As evidenced by the price data, some states are more expensive than others when it comes to what you’ll pay for a dozen eggs on average. In descending order, here are the 10 states that had the highest cost overall for a dozen eggs:

•   Hawaii

•   California

•   Florida

•   Alabama

•   Nevada

•   California

•   Arizona

•   Georgia

•   Wyoming

•   Maine

•   Colorado

Where the Cost of Eggs Is Lowest

Where is the average cost of a dozen eggs the cheapest? Shoppers paid the least for a dozen eggs in these states:

•   Missouri

•   Nebraska

•   Indiana

•   Ohio

•   Kansas

•   Iowa

•   Kentucky

•   Pennsylvania

•   Alaska

•   West Virginia

As you can see, most of these states are located in the central, southern, and eastern U.S., though Alaska is the outlier. Assuming food costs are lower overall in these states, the average grocery budget for a family of 5 is likely to be less compared to the states where eggs are more expensive.

Why Did the Cost of Eggs Increase

The current spike in egg prices is largely fueled by scarcity. An outbreak of avian flu sent egg production into decline as more than 20 million laying hens were lost to the disease or depopulation efforts just in the last quarter of 2024. With fewer eggs in supply but demand not easing, egg prices began to climb. Severe winter weather events across the country didn’t help matters.

But inflation can also be pointed to as a contributing factor to rising egg prices. In simple terms, inflation is a rise in prices for things consumers buy, like eggs and other household items. Knowing how to find the inflation rate and what’s considered to be a normal range matters for making the most of your money.

You don’t need a money tracker to know that when inflation is higher, everything costs more and your money doesn’t go as far. A difference of a few cents in the price of a dozen eggs might not seem like much. But when everything else is going up in price too, and inflation doesn’t appear to be easing any time soon, it can take a serious toll on your wallet.

When Will the Cost of Eggs Go Down?

While it’s nearly impossible to know exactly when egg prices will decline, the USDA is predicting that it will happen by April 2025. Prices are projected to fall to $2.50 per dozen in the second quarter of the year and to $2.10 by the third quarter.

Monitoring prices for different goods and services can help you stay on top of your budget. Making and sticking to a spending and savings plan is one of the most basic steps for building wealth and increasing your net worth. Being able to measure your liquid net worth can give you an idea of how well you’re doing financially when it comes to accumulating assets and paying down debt.

Tips on How to Shop for Cheap Eggs

Shopping for eggs on the cheap can save you money and make it easier to live below your means. Living below your means benefits you in a few ways. For one thing, you may be less reliant on credit cards to cover expenses if you always have extra cash in your budget. And for another, it can make it easier to adapt to economic changes that can affect your budget and spending.

With that in mind, here are a few quick tips to help you pay less for eggs.

•   Shop the farmer’s market. Buying eggs locally from a farmer’s market vs. a supermarket could save you money if you’re able to find lower prices. You may even be able to work out a barter or trade with a local farmer or neighbor who has a backyard flock, which could allow you to get eggs for free.

•   Choose store brands. Store-brand products, including eggs, typically cost less than name-brand ones. If you’re not partial to any one egg brand, you may save a little money by choosing your local store’s brand.

•   Buy eggs in bulk. Buying in bulk could save you money if you’re paying a lower unit price per egg. But the catch is that you have to be sure you’re actually going to use them all; otherwise, you could be wasting money.

•   Use fewer eggs. A simple way to save money on eggs is to not consume as many. For instance, you might opt to get your daily protein from other sources or swap out your favorite baking recipes for ones that don’t incorporate eggs.

•   Shop with coupons and cash back apps. Couponing may seem tedious but supermarkets make it easier by allowing you to load digital coupons to your store loyalty card. You can pair coupons with a cash back app that pays you a percentage back when you shop at partner grocery stores, which can add to your savings.

The Takeaway

The average cost of a dozen eggs might not be something you think about on a day-to-day basis. But knowing how much you’ll pay for eggs matters when it’s time to go to the grocery store and do your weekly shopping. Keeping an eye on egg prices and implementing some different hacks for finding cheap eggs can help you keep your food budget in check.

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FAQ

How much did a dozen eggs cost in 2023?

As of July 2023, the average cost of a dozen eggs was $2.09, according to Consumer Price Index data. Overall, egg prices were on the decline by mid-2023 after peaking at $4.82 on average per dozen at the beginning of the year.

What state has the most expensive eggs?

Hawaii residents pay the most for a dozen eggs. On average, a dozen eggs there costs just under $10.

Do eggs last longer than sell by date?

Eggs can stay fresh past the sell by date, but there are limits on how long you’ll be able to use them. A simple way to tell if an egg is fresh is to place it in a glass or bowl of water. Eggs that float to the surface are no longer fresh, while ones that lie flat on their side are the freshest.

About the author

Rebecca Lake

Rebecca Lake

Rebecca Lake has been a finance writer for nearly a decade, specializing in personal finance, investing, and small business. She is a contributor at Forbes Advisor, SmartAsset, Investopedia, The Balance, MyBankTracker, MoneyRates and CreditCards.com. Read full bio.


Photo credit: iStock/nd3000

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


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2025

What is Lifestyle Creep and How Can I Avoid It?

By | Budgeting & Goals, Financial Independence, Life & Career, money, Terminology | Comments Off on What is Lifestyle Creep and How Can I Avoid It?

Lifestyle creep is defined as spending more as you earn more. Perhaps you’ve noticed that as your income rises, you may not grow your wealth, including your retirement account or that fund for the down payment on a house.

It may well be human nature that, when you get a salary hike, you decide to splash out on a fancier car lease, a bigger home, or a luxurious vacation. However, your spending may actually be outpacing your salary and even ringing up more credit card debt.

That’s lifestyle creep in action: Spending on “fun” non-essentials instead of putting that money to work for a more stable financial future. Learn more about it and how to rein it in while still enjoying the things money can buy.

Key Points

•   Lifestyle creep involves increasing non-essential spending as income grows, impacting financial goals.

•   Signals of lifestyle creep can include not saving more despite higher earnings, abandoning budgeting, and rising credit card debt.

•   Social and psychological pressures, like keeping up with peers, can cause lifestyle creep.

•   Managing lifestyle creep effectively involves creating a budget for savings, debt, and discretionary spending.

•   Automating bill payments and savings contributions can help curb unnecessary spending.

What Is Lifestyle Creep?

Lifestyle creep can be a common phenomenon experienced as one progresses through their career. The meaning of lifestyle creep, sometimes known as lifestyle inflation, is the process by which discretionary expenses increase as disposable income increases.

Disposable income is income that isn’t already budgeted for necessities like housing, transportation, and food.
It could include anything from concert tickets to morning lattes to a second home— basically anything that is likely to fall more into a “want” category rather than something strictly “needed.”

Lifestyle creep can put you squarely behind the 8-ball when it comes to getting out of debt, saving for retirement, or meeting other big financial goals. And it’s one reason people can’t escape the vortex of living paycheck-to-paycheck.

Signs of Lifestyle Creep

Here are some specific signals that you may be experiencing lifestyle creep:

•   Despite earning more, you are not saving more.

•   You have stopped following your budget because you assume you’re earning enough not to have to worry about spending.

•   You feel as if you can afford to buy whatever you want and no longer stick to previous limits (such as, say, not spending more than a certain amount on an item of clothing or a piece of furniture).

•   While your salary has increased, your credit card debt has risen vs. been paid down.

What Causes Lifestyle Creep?

Graduating from the penny-pinching college life to your first full-time job is only one instance that can trigger lifestyle creep. It also can happen with any type of bump in cash flow that’s not part of your monthly budget, such as a raise, bonus, tax refund, gift, or winning a scratch-off ticket.

There are also psychological factors at play here, including the sometimes compulsive urge to keep up with the Joneses.

And before you blow it off as just envy with a lack of willpower, consider this: One landmark examination of a lottery winner’s effect on the neighborhood found that the larger reward the lucky gambler collected, the more likely their neighbors were to incur more debt and even file for bankruptcy.

The social pressure to keep up with the consumption habits of family and friends, even when it’s conspicuous, can cause real and serious financial stress.

Social media can make matters even worse, with studies showing that post envy could be causing people to live beyond their means just so their feeds can reflect their acquaintances’.

But how do you resist the urge to upgrade your 2015-era sedan when your neighbor rolls up in a shiny new SUV? The answers might be simple on paper, but switching your mindset from “Should I spend this on a shopping spree or a vacation?” to “Should I put this money into savings or invest it?” can be easier said than done.

Discerning Needs Versus Wants

First, a quick refresher on needs vs. wants: A need is something vital to survival, while a want is something that’s nice to have but strictly speaking not critical.

It’s normal to want to celebrate a new raise, but to avoid lifestyle creep, it can be important to make sure not to celebrate with something that will increase costs to the point of making the raise irrelevant.

Examples of Needs vs Wants

Here are a couple of examples of how needs and wants can compare:

•   A need is clothing to wear to work, to keep you warm in cold weather, and to enable you to go about your daily life.

•   A want would be those two pairs of shoes you bought not because you needed them but because they were cute and on sale.

•   A need is groceries to feed your household.

•   A want would be buying a pricey salad for lunch every day vs. bringing food from home or going out for a deluxe sushi dinner every Friday night to celebrate the end of the work week.

•   A need is basic health care expenses and new running shoes when your old ones wear out.

•   A want would be getting massages and hiring a personal trainer.

As you see, lifestyle creep could entice you to spend significant amounts on the “wants” in life because they are fun and you feel you can afford them. But allowing those purchases to increase instead of putting money toward debt reduction and longer-term aspirations can be problematic. After all, part of financial wellness is prioritizing goals such as being able to contribute to your child’s education and having a healthy retirement savings account.

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Tips for Avoiding Lifestyle Creep

Giving every extra penny of a cash windfall to a credit-card company doesn’t sound like much fun. But just knowing that lifestyle creep exists, and recognizing it in your own life, can put you ahead of the game when it comes to making better decisions with your money.

Here are a few possible ways you can avoid lifestyle creep while still enjoying the good things in life.

Celebrating Small

If you earn a raise, you should absolutely celebrate — especially if it’s higher than the average 3.7% forecast for 2025. But to outsmart lifestyle creep, you may want to take a deep breath and resist the urge to run to the store for that expensive thing you’ve had your eye on. Instead, consider a small way to congratulate yourself, like a dinner with friends.

Creating a Budget

One way to avoid lifestyle creep may be to give all income a job to do. That extra $200 a month shouldn’t just be chilling in a checking account with no purpose, like a freeloading cousin camping out on the couch.

Letting that extra money hang out in the checking account too long with nothing to do might lead to unplanned spending. If you see the money sitting idle, you might splurge on a weekend trip or that budget-busting espresso maker. Putting that money to work (earning interest in a high-yield savings account or paying down debt) could be a wise move. And if you have a solid budget in place, using money that way can be effortless.

Building a Budget to Control Lifestyle Inflation

With the advent of online banking, most people are likely equipped with everything needed to make a budget right on your phone or computer. Many financial institutions offer tools that can help with tracking of your money as it flows in and out of your accounts.

Don’t have a basic budget already? Getting a raise can be a great time to crunch the numbers and be financially stable and responsible with that money. There are many different budget techniques you can experiment with, such as the envelope system or the 50/30/20 budget rule. If there’s already a budget in place, a new raise is a great time to reconfigure the budget to make sure it still ticks all the financial boxes.

Avoiding Mindless Spending

Mindless or pointless spending might happen when there is unexpected extra cash sitting in the bank account. Much like the itch to spend that crisp, new $20 bill included in a childhood birthday card, there may be psychological and emotional temptation to spend money in the bank account without considering whether or not a new, say, brand gaming system is really needed.

Casually buying unnecessary items could indicate compulsive or impulsive spending. This in turn could mean missing an opportunity to put money to work for the future, sustainably upgrading a lifestyle by planning ahead for financial growth.

Tracking Your Spending

When it comes to managing money, losing track of expenses could not only lead to a blown budget, but also overdraft fees, returned checks, or other unnecessary fees that could put you even further behind.

Tools to Track Spending

If you really struggle with this one, there’s an app for that. As mentioned above, many financial institutions offer tools for budgeting and tracking exactly where your money is going. Start there, and see if what is available works well for you. If not, there are various third-party apps that you can explore.

Turn on the Auto-Pilot

One of the easiest ways to ensure that you’re only spending what’s in the budget is to automate as many payments and contributions as possible. After all, money you don’t have is a lot easier to not spend.

This strategy can start at work. If you get a raise, you might elect to increase your 401(k) contribution (or start one if you haven’t yet). And while it means that your take-home pay may not change, your money transferred into a retirement account can painlessly grow.

You also can automate online bill payments and savings and investment contributions, all with the intention of getting the money out of your tempted hands ASAP.

Outlining Clear Goals

What’s your endgame? Do you want to retire early with a million dollars or more in the bank? Is owning a home a part of your plan? One key to avoiding lifestyle creep is to set long-term financial goals and keep your eye on the prize.

Two financial goals that can be beneficial to almost everyone include growing a short-term emergency fund and longer-term savings plan. But from there, the sky’s the limit and your goals are entirely up to you.

You can use an online emergency fund calculator to simplify the math while accruing cash. Financial experts suggest having at least three to six months’ worth of living expenses in the account.

Avoiding New Debt

This might seem like a no-brainer, but you aren’t likely to get out of debt if you keep adding new debt to the pile. One key way to avoid debt is to use credit cards responsibly.

Minimizing your debt (and the important credit utilization ratio, which compares what you owe to your credit limit) can be a smart step when avoiding lifestyle creep.

Recommended: Money Management Guide

Getting Your Head in the Game

Lifestyle creep likely isn’t impossible to reverse, but one could argue that the further you’ve allowed yourself to fall into the luxury lifestyle, the harder it could be to pull yourself out.

One way to get your head in the game is to make lists, starting with your needs (electricity) vs. wants (electric car.) From there, you could prioritize your “wants” and start to cut from the bottom.

Are there things in your life that just exist because they can? Consider eliminating them completely or finding clever ways to save money, such as shopping consignment vs. retail or eating lunch out one day a week vs. all five.

Choosing Your Friends Wisely

Peer pressure is a powerful motivator, but the perceived wealth of your friends, neighbors, and acquaintances can be a far cry from the actual state of their finances.

If you seem to find yourself in situations where there’s pressure to overspend, including family Disney holidays with all the bells and whistles, nights out on the town, or an invite to a destination wedding, you may want to consider finding a circle of friends who share the same financial goals and lifestyle as you.

After all, it’s a lot easier to say “Let’s just cook at home to save money” to a friend who won’t pressure you to try the trendy new restaurant in town.

Spending a Raise

So what exactly should someone do with extra money after a raise? Paying more into a retirement account, paying off debts, or just putting some extra dollars towards a specific savings goal are some approaches to take. This can allow you to boost your financial wellness and meet your long-term goals vs. getting caught up in impulse buying.

Recommended: Mobile Banking Tools

The Takeaway

Lifestyle creep is defined as spending more as you progressively earn more. By spending, you miss out on the opportunity to pay down debt and save for future financial goals, such as buying a home or eliminating student loans. By being aware of lifestyle creep and minimizing it, you can stay on budget and manage your money better. Having the right banking partner can also help with that.

Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even 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 3.80% APY on SoFi Checking and Savings.

FAQ

How does lifestyle creep impact long-term financial goals?

Lifestyle creep can make it challenging to achieve long-term financial goals. For example, if you get a raise and spend it on fun purchases, you may struggle to accrue enough money to meet long-term goals, such as saving for retirement.

How can I spend mindfully while still enjoying life?

One way to spend mindfully while still enjoying life is to have a budget that includes a small fund for “fun” spending. If you know you have some cash allocated for enjoyable activities or purchases, you may not feel deprived. You might, say, choose not to spend your “fun money” one month and then have twice as much the next month to use.

How do I recover financially after falling victim to lifestyle creep?

A budget can help you stay on track vs. falling victim to lifestyle creep. By carefully tracking your spending, you can avoid overdoing it. Also, you might consider whether social media is triggering you to overspend, or if your current group of friends typically value spending over saving and you therefore follow suit. Minimizing those influences could have a positive effect on your finances.

Can lifestyle creep impact my retirement goals?

Lifestyle creep can impact your retirement goals. If you receive raises but spend the increase in your paycheck on dining out or vacations, you may then be unable to meet your retirement goals and other long-term financial aspirations.

Are there tools to help combat lifestyle creep?

One good tool to help combat lifestyle creep is to have a budget that you can stick with. It can be worthwhile to experiment with different methods to find one that suits you. Also, using tech tools, such as spending trackers, can help you avoid lifestyle creep. They can help you keep tabs on where your money goes. Also, some financial experts advise unsubscribing from marketing emails that advertise sales and can encourage unplanned spending. Similarly, disabling one-click shopping on social media could help combat lifestyle creep.


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Terms and conditions apply. SOFI RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE. To qualify, a borrower must be a U.S. citizen or other eligible status, be residing in the U.S., and meet SoFi's underwriting requirements. Not all borrowers receive the lowest rate. Lowest rates reserved for the most creditworthy borrowers. If approved, your actual rate will be within the range of rates at the time of application and will depend on a variety of factors, including term of loan, evaluation of your creditworthiness, income, and other factors. If SoFi is unable to offer you a loan but matches you for a loan with a participating bank, then your rate may be outside the range of rates listed above. Rates and Terms are subject to change at any time without notice. SoFi Personal Loans can be used for any lawful personal, family, or household purposes and may not be used for post-secondary education expenses. Minimum loan amount is $5,000. The average of SoFi Personal Loans funded in 2023 was around $33K. Information current as of 2/26/24. SoFi Personal Loans originated by SoFi Bank, N.A. Member FDIC. NMLS #696891 (www.nmlsconsumeraccess.org). See SoFi.com/legal for state-specific license details. See SoFi.com/eligibility for details and state restrictions.

✝ To check the rates and terms you may qualify for, SoFi conducts a soft credit pull that will not affect your credit score. However, if you choose a product and continue your application, we will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and may affect your credit.

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