Jul
18
2025

Will Millennials and Gen Z Ever Be Able to Retire?

By | invest, Investing, Money & Life, Preparing for Retirement | Comments Off on Will Millennials and Gen Z Ever Be Able to Retire?

Millennials and Gen Z have faced some financial hurdles as they’ve entered adulthood, but many are saving for retirement nonetheless — and recognize the importance of doing so. In addition, time is on the side of these younger adults, when it comes to reaching their retirement goals.

That said, retirement planning for these younger adults has been hampered by significant challenges, including employment shifts relating to the pandemic, historically high student debt, the rise of the gig economy, concerns about Social Security, and the prospect of living longer lives. Fortunately, there are a number of strategies Gen Z and Millennials can employ now to make the most of the years ahead, so they can retire with peace of mind.

Key Points

  • Taken together, Millennials and Gen Z represent nearly 150 million individuals, ranging in age from about 13 to 44.
  • The Millennial and Gen Z generations face specific challenges in order to save for retirement.
  • These younger adults came of age at a time of rising college costs and student debt, as well as changes to full-time employment.
  • Economically speaking, Millennials and Gen Z have also faced higher interest rates and historically high inflation.
  • Despite these hurdles, Gen Z and Millennials’ retirement forecast is not all bad news, as many already participate in retirement plans — and time is on their side.

Who Are Millennials and Gen Z?

Millennials, also known as Gen Y, are the largest generation since the Baby Boomers, and number about 80 million. This cohort was born between 1981 and 1996, and are now between the ages of 29 and 44.

Gen Z refers to those born from about 1997 to 2012; they are roughly between ages 13 and 28. While Gen Z is smaller — about 71 million — they are the first generation to be raised as digital and social media natives. As such they’ve exerted a notable influence on businesses and brands worldwide.

What Might Retirement Look Like for Younger Adults?

When it comes to saving for retirement at different ages, Millennials and Gen Z have faced various financial challenges as they’ve started college and entered their prime working years. Many came of age during a period of escalating student loan debt, greater job uncertainty, concerns about Social Security’s solvency, and more.

When it comes to Millennials and retirement in particular, this group has seen a steeper cost of living since 2020[1], which has prevented many from taking steps toward marriage and home ownership.

Nonetheless, a 2024 study by the Transamerica Center for Retirement studies has found that 71% of Gen Z and 84% of Millennials are saving for retirement in a company-sponsored plan or an outside account[2] such as a traditional IRA.

But over half of respondents in each group also admitted they don’t have enough income to save for a secure retirement, and the amount of debt they carry is interfering with their ability to save.

Luckily, most members of the Millennial and Gen Z generations have years to adopt new habits and strategies in order to secure the future.

5 Retirement Challenges Millennials and Gen Z Face

In order to take the reins of their retirement, younger adults would do well to understand how various economic and world events have impacted their financial lives thus far.

1. Student Loan Debt

Student debt continues to be a burden for many. Thanks to higher interest rates and the rising cost of higher education, tens of millions of Millennials and Gen Z have accrued steep student loan debts.

When looking at student loan debt by generation, Millennials represent nearly 40% of all student loan borrowers, and some 18.5 million have outstanding balances. The average amount they owed as of 2024 was $40,438.[3]

Gen Z represents the second-largest group of borrowers, at 28.2%. Of these, 13.1 million have outstanding debt. Members of Gen Z have the lowest balance on average: about $23,000 as of 2024. But with millions of this cohort still in college, their loan balances are growing faster than any other group: 6.72% compounded annually.[3]

For many younger adults, planning for a secure future will require a debt-management strategy as well.

2. The Gig Economy

In addition to contending with student loan payments, Millennials and Gen Z have been impacted by a shift from traditional employment models to a more flexible, less structured gig economy. The growth of digital platforms in the last 15 years has accelerated this change, allowing companies to hire freelance workers for shorter-term services in companies like Uber, Fiverr, Postmates, TaskRabbit, Airbnb and many others.

The expansion of the gig economy, however, has made it harder for some younger adults to earn and save in retirement plans such as an employer-sponsored 401(k). More than 54% of Millennials have less than $10,000 saved for retirement, according to a 2023 survey by GoBankingRates.[4]

That said, there are many retirement plan options for the self-employed, and gig workers can save as much or more in a SEP-IRA, for example, as in a 401(k).

3. Decline of Pensions and Rise of 401(k) Plans

The lack of retirement savings may be exacerbated by a broader trend in retirement planning in the last 25 years: the disappearance of pensions and the rise of worker-funded plans such as 401(k) and 403(b) plans.

In 2000, about 50% of private-sector workers had access to a pension plan[5], a benefit that provides retirement income for life, and sometimes health benefits as well. In 2024, however, only 19% of private-sector employees had a pension. (Government workers generally still get a pension.)

Defined-contribution plans, like 401(k) plans, have largely replaced pensions for most workers today. While these employer-sponsored plans are typically tax deferred, and offer a potential tax break when you contribute to them, they don’t offer the security of lifetime pension income.

Again, this reality will impact Gen Z and Millennials’ retirement, and it adds to the necessity of planning ahead for a steady income.

4. Social Security Funding

In addition to the above, Millennials and Gen Z have been facing growing concerns about the viability of the Social Security system, and questions about whether future retirees will get their full benefits.

The Social Security system is funded by employer and employee contributions, which are withheld from workers’ paychecks. However, there are demographic changes that are partly impacting the solvency of Social Security. People are living longer, and these additional outflows have been putting a strain on the Social Security Trust Funds (the main pool of assets).[6]

In addition, the government itself has borrowed from the Trust Funds by issuing debt securities to itself, which act as intergovernmental IOUs, in effect.

While many policymakers believe that Congress will support the changes necessary to fix the system (e.g., increasing payroll taxes or repaying the borrowed funds), these issues have yet to be resolved. And the message from the Social Security Administration to current workers is not fully reassuring: Benefits will exist, but as of 2035 they might be only 78% of what a worker would have gotten before.

Therefore, Millennials and Gen Z may be in the position of having to cover more of their retirement income with savings.

5. Longevity

The other big factor that will impact Gen Z and Millennials’ retirement is longevity. Thanks to advances in health care and technology, millions of people are already living longer, healthier lives.

In 2022, the number of Americans ages 65 and older was 58 million. By 2025, the number of people 65 and up is projected to reach 82 million by 2050, according to the Population Reference Bureau.

While no one can predict one’s actual lifespan, Millennials and Gen Z will have to factor in the need to save more, to cover potentially much longer lives. This is especially important for women, who live about five years longer than men on average. The average lifespan at birth is 74.8 years for men, 80.2 years for women, according to the Centers for Disease Control.

Another factor that Millennials and Gen Z may face in the coming years is the cost of caregiving for older loved ones. Some 37% of workers today are caring for, or have cared for a relative or friend (separate from parenting roles), according to the Transamerica study.

Taken as a whole, longevity factors are likely to have a bigger impact on these younger adults than on previous generations.

Tips to Help Build a Secure Retirement

Fortunately, Millennials and Gen Z represent the youngest adults — with many years ahead to work, save, and strategize about their retirement years. These tips will help.

Investing Strategies

When it comes to retirement planning, having a solid investment strategy can help by adding potential increases to one’s savings.

Obviously there are countless types of investments to consider. For those who are interested in active investing, learning about stock market basics is key.

Next, it’s important to think about how your asset allocation can change by age. The younger you are, the more time you have to take on risk — and potential growth — while still having enough runway to recover in the event of a downturn.

That said, DIY investing is not for everyone, and in that case younger investors have other options that are less hands-on.

  • Target-date funds. These funds are so-called because they’re designed to help investors reach their target retirement date by using a combination of professional managers and sophisticated algorithms to guide each fund’s investing strategy.

Most target funds, sometimes called lifecycle funds, have names that include a date: e.g. ABC Retirement Fund 2045.

The fund’s portfolio starts out with a more aggressive asset allocation, or mix of assets, and adjusts over the years to become more conservative. By starting out with a more aggressive, equity-based allocation and gradually becoming focused on less risky investments over time, the fund’s portfolio may be able to deliver returns while minimizing risk.

  • Robo advisors. A robo advisor doesn’t mean turning over your assets to a robot, nor is it a human advisor. Rather these accounts offer investors pre-set portfolio options, similar to target-date funds.

While robo accounts are also designed to be hands-off, the mix of assets (a.k.a. the asset allocation) doesn’t adjust over time as it does with a target-date fund. That said, robo advisors can be cheaper because these portfolios are constructed with low-cost exchange-traded funds (ETFs).

Reducing Debt

The true challenge facing many younger adults today is that so many have the need to balance debt repayment with saving. While there are no easy answers when juggling competing financial priorities, the reality is that having a clear-cut debt repayment plan can only help support retirement savings.

Fortunately, there are a number of smart get-out-debt strategies to consider.

  • Use automation. One powerful anti-debt tactic is to use automatic payments to keep your repayment plan on track (and minimize late fees).
  • Lower your rate. It helps to get your interest rate as low as possible, either by negotiating or by doing a balance transfer — or trying debt consolidation. This strategy can lower your monthly payments, may lower the amount you’ll owe ultimately, and could simplify the repayment process as well.
  • One debt at a time. There are two options here. With both, you pay off one debt while you make minimum payments on other debts. Once the first debt is gone, apply that payment to the next one, and so on.
    • The first strategy is the snowball method. You pay off smaller debts first, and work your way up to bigger balances.
    • The second is the avalanche method. This approach focuses on paying down higher-interest debt first.
  • Getting a grip on debt can build confidence and momentum, and eventually free up cash for additional savings.

Maximizing Savings

Perhaps the most important step younger adults can take toward a secure retirement is saving money in an actual retirement plan. While it’s true that putting money in a savings account may seem simpler, these offer very little growth and no tax advantages.

By contrast, saving and investing with a traditional or Roth IRA account, or a workplace account like a 401(k) plan, can help your savings increase over time. And depending on the type of account you choose, you can reap tax benefits.

  • A traditional IRA is tax deferred, meaning the money you contribute (deposit) each year can be deducted from your taxable income, potentially lowering your tax bill. You pay taxes when you withdraw the money in retirement, though.
  • A Roth IRA is an after-tax account. This means the money you contribute each year is not tax deductible. But eligible withdrawals are tax free.

The rules governing IRAs are quite specific, so be sure to learn the terms. For example, the total you can contribute (deposit) in an IRA is $7,000 for tax year 2025, or $8,000 if you’re 50 and older.

  • There are many different types of workplace accounts, including a 403(b) plan or 457(b), which are similar to 401(k)s, a SEP or SIMPLE IRA, and others. These accounts typically come in two flavors: tax deferred and after tax, like a Roth.

Unlike IRA accounts, however, the annual limits for employer accounts are much higher. With a 401(k), you can save up to $23,500 per year for tax year 2025. People 50 and older can contribute an additional $7,500 in 2025. An additional “super catch-up” limit of $11,250 applies to individuals ages 60 to 63.

If your job offers a retirement account, this is often the best way to maximize your savings.

Again, all retirement accounts are subject to government and tax regulations, so it’s important to understand the terms when choosing a retirement account.

Alternative Retirement Options

When thinking about retirement, Millennials and Gen Z also have alternatives beyond simply retiring. Thanks to advances in medicine and technology, it may be possible to work longer (and save more).

Retirement itself could be reinvented, as people develop ways to be productive and enjoy life in the decades after traditional 21st-century “retirement age.”

In addition, there is a trend toward communal or shared living, with mixed ages, that could offer alternatives to long-term care and nursing home facilities.

One thing is certain, as Millennials and Gen Z think about their retirement, they will likely bring their own innovations, as generations have in the past.

The Takeaway

While Millennials and Gen Z have faced certain challenges when it comes to building up their retirement savings, they have some advantages as well. The majority of these younger adults are already saving in retirement accounts. And while some are concerned about how much they can save — time is on their side.

Invest in what matters most to you with SoFi Active Invest. In a self-directed account provided by SoFi Securities, you can trade stocks, exchange-traded funds (ETFs), mutual funds, alternative funds, options, and more — all while paying $0 commission on every trade. Other fees may apply. Whether you want to trade after-hours or manage your portfolio using real-time stock insights and analyst ratings, you can invest your way in SoFi's easy-to-use mobile app.


Invest with as little as $5 with a SoFi Active Investing account.

FAQ

What age should Millennials and Gen Z start saving for retirement?

Anyone with earned income can start saving for retirement at any age using an IRA account. Otherwise, the general rule of thumb is: the sooner you start saving the better, because time tends to help money to increase.

How much will Millennials need to retire?

There are various formulas for deciding how much you need to retire. One target is to aim for 10 times your income by age 67, which is the current age when you can get your full benefits from Social Security.

Will Social Security be gone for Millennials?

That’s highly unlikely. Social Security has been in place for 90 years, and it will continue to exist for future generations. That said, the formulas used to calculate benefit amounts may change, and it’s possible that people will get a lower benefit amount, given current trends.

Article Sources
  1. Federal Reserve Bank of St. Louis. Consumer Price Index for All Urban Consumers: All Items in U.S. City Average.
  2. Transamerica Institute. The Multigenerational Workforce: Life, Work, & Retirement.
  3. Education Data Initiative. Student Loan Debt by Generation.
  4. Nasdaq. Most Millennials Have Less Than $100K in Retirement Savings: Should You Be Concerned?.
  5. Economic Policy Institute. Retirement made riskier.
  6. Social Security Administration. What young workers should know about Social Security and saving.

Photo Credit: iStock/MDV Edwards

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

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

Third Party Trademarks: Certified Financial Planner Board of Standards Center for Financial Planning, Inc. owns and licenses the certification marks CFP®, CERTIFIED FINANCIAL PLANNER®

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SoFi Invest may waive all, or part of any of these fees, permanently or for a period of time, at its sole discretion for any reason. Fees are subject to change at any time. The current fee schedule will always be available in your Account Documents section of SoFi Invest.

Mutual Funds (MFs): Investors should carefully consider the information contained in the prospectus, which contains the Fund’s investment objectives, risks, charges, expenses, and other relevant information. You may obtain a prospectus from the Fund company’s website or clicking the prospectus link on the fund's respective page at sofi.com. You may also contact customer service at: 1.855.456.7634. Please read the prospectus carefully prior to investing.Mutual Funds must be bought and sold at NAV (Net Asset Value); unless otherwise noted in the prospectus, trades are only done once per day after the markets close. Investment returns are subject to risk, include the risk of loss. Shares may be worth more or less their original value when redeemed. The diversification of a mutual fund will not protect against loss. A mutual fund may not achieve its stated investment objective. Rebalancing and other activities within the fund may be subject to tax consequences.

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

Disclaimer: The projections or other information regarding the likelihood of various investment outcomes are hypothetical in nature, do not reflect actual investment results, and are not guarantees of future results.

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

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

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Jul
16
2025
IRA Withdrawal Rules: All You Need to Know

Traditional and Roth IRA Withdrawal Rules & Penalties

By | invest, Investing, Preparing for Retirement | Comments Off on Traditional and Roth IRA Withdrawal Rules & Penalties

The purpose of an Individual Retirement Account (IRA) is to save for retirement. Ideally, you sock away money consistently in an IRA and your investment grows over time.

However, IRAs have strict withdrawal rules both before and after retirement. It’s very important to understand the IRA rules for withdrawals to avoid incurring penalties.

Here’s what you need to know about IRA withdrawal rules.

Key Points

  • Traditional and Roth IRAs have specific withdrawal rules and penalties.
  • Roth IRA withdrawal rules include the five-year rule for penalty-free withdrawals of earnings, and required minimum distributions (RMDs) for inherited IRAs. You can always withdraw your Roth IRA contributions tax-free and penalty-free.
  • Traditional IRA withdrawals before age 59 ½ incur regular income taxes and a 10% penalty on the taxable portion.
  • There are exceptions to the penalty, such as using funds for unreimbursed medical expenses (exceeding 7.5% of AGI), health insurance premiums during unemployment, total and permanent disability, qualified higher education expenses, and first-time home purchases (up to $10,000 lifetime limit).
  • Generally speaking, early IRA withdrawals might be thought of as a last resort due to the potential impact on retirement savings and tax implications, including lost opportunity for growth.

Roth IRA Withdrawal Rules

So when can you withdraw from a Roth IRA? The IRA withdrawal rules are different for Roth IRAs vs traditional IRAs. For instance, qualified withdrawals from a Roth IRA are tax-free, since you make contributions to the account with after-tax funds.

There are some other Roth IRA withdrawal rules to keep in mind as well.[1]

The Five-year Rule

The date you open a Roth IRA and how long the account has been open is a factor in taking your withdrawals.

According to the five-year rule, you can generally withdraw your earnings tax- and penalty-free if you’re at least 59 ½ years old and it’s been at least five years since you opened the Roth IRA. You can withdraw contributions to a Roth IRA anytime without taxes or penalties. (The annual IRA contribution limits for 2024 and 2025 are $7,000, or $8,000 for those age 50 and up.)

Even if you’re 59 ½ or older, you may face a Roth IRA early withdrawal penalty if the retirement account has been open for less than five years when you withdraw earnings from it.

These Roth IRA withdrawal rules also apply to the earnings in a Roth that was a rollover IRA. If you roll over money from a traditional IRA to a Roth and you then make a withdrawal of earnings from the Roth IRA before you’ve owned it for at least five years, you’ll owe a 10% penalty on the earnings.

For inherited Roth IRAs, the five-year rule applies to the age of the account. If your benefactor opened the account more than five years ago, you can withdraw earnings penalty-free. If you tap into the money before that, though, you’ll owe taxes on the earnings.

Required Minimum Distributions (RMDs) on Inherited Roth IRAs

In most cases, you do not have to pay required minimum distributions (RMDs) on money in a Roth IRA account.

However, according to the SECURE Act, if your loved one passed away in 2020 or later, you don’t have to take RMDs, but you do need to withdraw the entire amount in the Roth IRA within 10 years.[2]

There are two ways to do that without penalty:

  • Withdraw funds by December 31 of the fifth year after the original holder died. You can do this in either partial distributions or a lump sum. If the account is not emptied by that date, you could owe a 50% penalty on whatever is left.
  • Take withdrawals each year, based on your life expectancy.

Tax Implications of Roth IRA Withdrawals

Contributions to a Roth IRA can be withdrawn any time without taxes or penalties. However, let’s say an individual did active investing through their account, which generated earnings. Any earnings withdrawn from a Roth before age 59 ½ are subject to a 10% penalty and income taxes.

Recommended: Retirement Planning Guide

Traditional IRA Withdrawal Rules

If you take funds out of a traditional IRA before you turn 59 ½, you’ll owe regular income taxes on the contributions and the earnings, per IRA tax deduction rules, plus a 10% penalty. Brian Walsh, CFP® at SoFi specifies, “When you make contributions to a traditional retirement account, that money is going to grow without paying any taxes. But when you take that money out — say 30 or 40 years from now — you’re going to pay taxes on all of the money you take out.”

RMDs on a Traditional IRA

The rules for withdrawing from an IRA mean that required minimum distributions kick in the year you turn 73 (as long as you turned 72 after December 31, 2022). After that, you have to take distributions each year, based on your life expectancy. If you don’t take the RMD, you’ll owe a 25% penalty on the amount that you did not withdraw. The penalty may be lowered to 10% if you correct the mistake and take the RMD within two years.[3]

Early Withdrawal Penalties for Traditional IRAs

In general, an early withdrawal from a traditional IRA before the account holder is at least age 59 ½ is subject to a 10% penalty and ordinary income taxes.[4] However, there are some exceptions to this rule.

Recommended: What Is a SEP IRA?

When Can You Withdraw from an IRA Without Penalties?

As noted, you can make withdrawals from an IRA once you reach age 59 ½ without penalties.

In addition, there are other situations in which you may be able to make withdrawals without having to pay a penalty. These include having medical expenses that aren’t covered by health insurance (as long as you meet certain qualifications), having a permanent disability that means you can no longer work, and paying for qualified education expenses for a child, spouse, or yourself.

Read more about these and other penalty-free exceptions below.

9 Exceptions to the 10% Early-Withdrawal Penalty on IRAs

Whether you’re withdrawing from a Roth within the first five years or you want to take money out of an IRA before you turn 59 ½, there are some exceptions to the 10% penalty on IRA withdrawals.

1. Medical Expenses

You can avoid the early withdrawal penalty if you use the funds to pay for unreimbursed medical expenses that total more than 7.5% of your adjusted gross income (AGI).

2. Health Insurance

If you’re unemployed for at least 12 weeks, IRA withdrawal rules allow you to use funds from an IRA penalty-free to pay health insurance premiums for yourself, your spouse, or your dependents.

3. Disability

If you’re totally and permanently disabled, you can withdraw IRA funds without penalty. In this case, your plan administrator may require you to provide proof of the disability before signing off on a penalty-free withdrawal.

4. Higher Education

IRA withdrawal rules allow you to use IRA funds to pay for qualified education expenses, such as tuition and books for yourself, your spouse, or your child without penalty.

5. Inherited IRAs

IRA withdrawal rules for inherited IRAs state that you don’t have to pay the 10% penalty on withdrawals from an IRA, unless you’re the sole beneficiary of a spouse’s account and roll it into your own, non-inherited IRA. In that case, the IRS treats the IRA as if it were yours from the start, meaning that early withdrawal penalties apply.

6. IRS Levy

If you owe taxes to the IRS, and the IRS levies your account for the money, you will typically not be assessed the 10% penalty.

7. Active Duty

If you’re a qualified reservist, you can take distributions without owing the 10% penalty. This goes for a military reservist or National Guard member called to active duty for at least 180 days.[5]

8. Buying a House

While you can’t take out IRA loans, you can use up to $10,000 from your traditional IRA toward the purchase of your first home — and if you’re purchasing with a spouse, that’s up to $10,000 for each of you. The IRS defines first-time homebuyers as someone who hasn’t owned a principal residence in the last two years. You can also withdraw money to help with a first home purchase for a child or your spouse’s child, grandchild, or parent.

In order to qualify for the penalty-free withdrawals, you’ll need to use the money within 120 days of the distribution.

9. Substantially Equal Periodic Payments

Another way to avoid penalties under IRA withdrawal rules is by starting a series of distributions from your IRA spread equally over your life expectancy. To make this work, you must take at least one distribution each year and you can’t alter the distribution schedule until five years have passed or you’ve reached age 59 ½, whichever is later.

The amount of the distributions must use an IRS-approved calculation that involves your life expectancy, your account balance, and interest rates.

Understanding How Exceptions Are Applied

If you believe that any of the exceptions to early IRA withdrawal penalties apply to your situation, you may need to file IRS form 5329 to claim them.[6] However, it’s wise to consult a tax professional about your specific circumstances.


💡 Quick Tip: For investors who want a diversified portfolio without having to manage it themselves, automated investing could be a solution (although robo advisors typically have more limited options and higher costs). The algorithmic design helps minimize human errors, to keep your investments allocated correctly.

Is Early IRA Withdrawal Worth It?

While there may be cases where it makes sense to take an early withdrawal, many financial professionals agree that it should be a last resort. These are disadvantages and advantages to consider.

Pros of IRA Early Withdrawal

  • If you have a major expense and there are no other options, taking an early withdrawal from an IRA could help you cover the cost.
  • An early withdrawal may help you avoid taking out a loan you would then have to repay with interest.

Cons of IRA Early Withdrawal

  • By taking money out of an IRA account early, you’re robbing your own nest egg not only of the current value of the money but also the chance for future years of compound growth.
  • Money taken out of a retirement account now can have a big impact on your financial security in the future when you retire.
  • You may owe taxes and penalties, depending on the specific situation.

Alternatives to Early IRA Withdrawal

Rather than taking an early IRA withdrawal and incurring taxes and possible penalties, as well as impacting your long-term financial goals, you may want to explore other options first, such as:

  • Using emergency savings: Building an emergency fund that you can draw from is one way to cover unplanned expenses, whether it’s car repairs or a medical bill, or to tide you over if you lose your job. Financial professionals often recommend having at least three to six months’ worth of expenses in your emergency fund.

    To create your fund, start contributing to it weekly or bi-weekly, or set up automatic transfers for a certain amount to go from your checking account into the fund every time your paycheck is direct-deposited.

  • Taking out a loan: You could consider asking a family member or friend for a loan, or even taking out a personal loan, if you can get a good interest rate and/or favorable loan terms. While you’ll need to repay a loan, you won’t be taking funds from your retirement savings. Instead, they can remain in your IRA where they can potentially continue to earn compound returns.

Opening an IRA With SoFi

IRAs are tax-advantaged accounts you can use to save for retirement. However, it is possible to take money out of an IRA if you need it before retirement age. Just remember, even if you’re able to do so without paying a penalty, the withdrawals could leave you with less money for retirement later.

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

Help build your nest egg with a SoFi IRA.

FAQ

Can you withdraw money from a Roth IRA without penalty?

You can withdraw your contributions to a Roth IRA without penalty no matter what your age. However, you generally cannot withdraw the earnings on your contributions before age 59 ½, or before the account has been open for at least five years, without incurring a penalty.

What are the rules for withdrawing from a Roth IRA?

You can withdraw your own contributions to a Roth IRA at any time penalty-free. But to avoid taxes and penalties on your earnings, withdrawals from a Roth IRA must be taken after age 59 ½ and once the account has been open for at least five years.

However, there are a number of exceptions in which you typically don’t have to pay a penalty for an early withdrawal, including some medical expenses that aren’t covered by health insurance, being permanently disabled and unable to work, or if you’re on qualified active military duty.

What are the 5 year rules for Roth IRA withdrawal?

Under the 5-year rule, if you make a withdrawal from a Roth IRA that’s been open for less than five years, you’ll owe a 10% penalty on the account’s earnings. If your Roth IRA was inherited, the 5-year rule applies to the age of the account. So if you inherited the Roth IRA from a parent, for instance, and they opened the account more than five years ago, you can withdraw the funds penalty-free. If the account has been opened for less than five years, however, you’ll owe taxes on the gains.

How do inherited IRA withdrawal rules differ?

According to inherited IRA withdrawal rules, you don’t have to pay the 10% penalty on withdrawals from an IRA unless you’re the sole beneficiary of a spouse’s account and roll it into your own, non-inherited IRA. In that case, the IRS treats the IRA as if it were yours from the start, meaning that early withdrawal penalties apply.

In addition, for inherited IRAs, the five-year rule applies to the age of the account. If the person you inherited the IRA from opened the account more than five years ago, you can withdraw earnings penalty-free.

Are there penalties for missing RMDs?

Yes, there are penalties for missing RMDs. You are required to start taking RMDs when you turn 73, and then each year after that. If you miss or don’t take RMDs, you’ll typically owe a 25% penalty on the amount that you failed to withdraw. The penalty could be lowered to 10% if you correct the mistake and take the RMD within two years.

Article Sources
  1. IRS. IRA FAQs – Distributions (withdrawals).
  2. IRS. Retirement topics – Beneficiary.
  3. IRS. Retirement plan and IRA required minimum distributions FAQs.
  4. IRS. What if I withdraw money from my IRA?.
  5. U.S. Army. The HEART Act.
  6. H&R Block. When Should You Use Form 5329?.

Photo credit: iStock/Fly View Productions

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

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

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

Brokerage and Active investing products offered through SoFi Securities LLC, member FINRA(www.finra.org)/SIPC(www.sipc.org). For all full listing of the fees associated with Sofi Invest, please view our fee schedule.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

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

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

SOIN-Q125-060

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Jul
16
2025
couple holding keys

Should You Use Your 401(k) as a First-Time Home Buyer?

By | Growing Wealth, Investing, Preparing for Retirement | Comments Off on Should You Use Your 401(k) as a First-Time Home Buyer?

There are two options if you want to use your 401(k) to buy a house and not incur a penalty: a 401(k) loan or a hardship withdrawal. These options come with many rules and restrictions — and given the potential risk to your retirement savings, it’s wise to consider some alternatives.

Among the requirements: If you borrow money from your 401(k) to buy a primary residence, you’d have to pay back that loan with interest. If you take what’s known as a hardship withdrawal for a down payment on your principal residence, you have to meet the strict IRS criteria for “immediate and heavy financial need” for doing so.

You won’t owe tax on a 401(k) loan, but it generally must be repaid within five years. A hardship withdrawal (if you qualify) still requires that you pay income tax on the withdrawal. In addition, every workplace plan is different and may have different rules.

Before you consider using your 401k to buy a home, which could permanently reduce your retirement savings, explore alternatives like withdrawing funds from a traditional or Roth IRA, seeking help from a Down Payment Assistance Program (DAP), or seeing if you qualify for other types of home loans.

Key Points

•   Many 401(k) plans allow employees to withdraw funds, but an early withdrawal, i.e., before age 59 ½ , comes with a 10% penalty (on top of income tax).

•   If your plan allows it, you may avoid the 10% penalty by taking a 401(k) loan or a hardship withdrawal (assuming you meet strict IRS requirements).

•   You don’t have to repay a hardship withdrawal, but you will owe income tax on the amount you withdraw.

•   Taking out a 401(k) loan may be easier than borrowing from a bank, but the loan typically must be repaid within five years, or you could owe tax and a penalty.

•   Before using your 401(k) to help buy a house, consider the serious impact it might have on your retirement savings.

Can You Use a 401(k) to Buy a House?

A 401(k) is generally a type of employer-sponsored retirement plan, which you may be able to manage through the plan sponsor’s website (similar to investing online).

If your employer plan allows it, you can use your 401(k) to help buy a house, and it won’t be seen as an early 401(k) withdrawal with a 10% penalty. Here’s what you need to know.

2 Ways to Use Your 401(k) to Buy a House

There are only two ways you can use a 401(k) to buy a house, penalty free. Note that the following rules generally apply to other employer-sponsored plans as well, like a 403(b) or 457(b). But all retirement plans have different rules, so be sure to check the terms.

•   401(k) loan. If your plan allows you to borrow from your 401(k) to buy a house, you’ll avoid the 10% early withdrawal penalty, and you won’t owe tax on the loan. But you must repay the loan to yourself, plus interest.

•   Hardship withdrawal. If you’re under 59 ½, you may be able to take out a hardship withdrawal without incurring a 10% penalty, but only if you meet specific IRS requirements for “an immediate and heavy financial need.”

There are several conditions that qualify as a hardship, one of them is for the purchase of a primary residence, but not a second home.

You’ll owe income tax on a hardship withdrawal, regardless of the circumstances.

How Much of Your 401(k) Can Be Used for a Home Purchase?

The amount you can take out of a 401(k) depends on the method you use.

•   401(k) loan. You can generally borrow up to 50% of your vested balance, up to $50,000, whichever amount is less. If 50% of your vested balance is less than $10,000, you may be able to borrow up to $10,000.

Note that after you open an IRA, the rules for taking a withdrawal from these individual retirement accounts are different. You cannot take a loan from an IRA, for example. But you may be able to take an early withdrawal for a first-time home purchase, which is discussed below.

•   Hardship withdrawal. The limits on hardship withdrawals can be determined by your specific plan, but these withdrawals are generally limited to the amount needed to cover the financial hardship in question, plus the necessary taxes.

Depending on plan rules, a hardship withdrawal may include your elective contributions (savings) as well as earnings on those deposits. But in some cases you’re not allowed to withdraw earnings.

First-time homebuyers can
prequalify for a SoFi mortgage loan,
with as little as 3% down.

How a 401(k) Loan Works

It’s possible to take a loan from an existing 401(k), and in some ways this option may seem easier. Chiefly, borrowing from a 401(k) doesn’t come with the same level of credit scrutiny as taking out a conventional bank loan, and interest rates can be favorable as well.

Your employer generally sets the rules for 401(k) loans, but you typically must pay back the loan, with interest, within five years. If a person leaves their job before the loan is repaid, the balance owed could be deducted from the remainder of their 401(k) funds.

You don’t owe any income tax on a 401(k) loan. But you pay yourself interest to help offset the loss of investment growth, since the funds are no longer invested in the market. (Although having a 401(k) is different than a self-directed brokerage account, because it’s typically tax deferred, you do invest your savings in different investment options.)

You can take out a 401(k) loan for a few different reasons (e.g., qualified educational expenses, medical expenses), depending on your plan’s policies. Those using a loan to purchase a residence may have more than five years to pay back the loan.

How a 401(k) Hardship Withdrawal Works

While it’s possible to withdraw funds from your 401(k) and most other employer-sponsored plans at any time, if you do so before age 59 ½ it’s considered an early withdrawal. And though you’d owe income tax on any 401(k) withdrawal, in the case of an early withdrawal, you’d also face a 10% penalty.

There are some exceptions to the 10% penalty, one of which is for a hardship withdrawal.

In the case of an “immediate and heavy financial need,” the IRS may permit a 401(k) hardship withdrawal under specific circumstances — including for the purchase of a primary residence. Hardship withdrawals do not cover mortgage payments, but using a 401(k) for a down payment may be allowed.

Generally, the allowable amount of the hardship withdrawal is determined by the circumstances, plus applicable taxes.

The IRS has strict rules about qualifying for a hardship withdrawal. If you don’t meet them, the funds you withdraw will be subject to income tax and a 10% early withdrawal penalty. And unlike a 401(k) loan, you can’t repay the amount you withdraw, so you permanently lose that chunk of your nest egg.

Pros and Cons of Using a 401(k) to Buy a House

Here are the pros and cons of using a hardship withdrawal or a 401(k) loan, at a glance:

Pros of Using a Hardship Withdrawal
Cons of Using a Hardship Withdrawal
If you qualify, a hardship withdrawal can provide quick access to funds for a home purchase in an emergency, without a penalty. A hardship withdrawal cannot be repaid, so the money you withdraw permanently depletes your nest egg.
A hardship withdrawal isn’t a loan, so it doesn’t have to be repaid. You owe ordinary income tax on the amount of the withdrawal.
If you don’t qualify for a hardship withdrawal, and you’re under 59 ½, it’s considered an early withdrawal and would be subject to income tax and a 10% penalty.
Pros of Using a 401(k) Loan
Cons of Using a 401(k) Loan
When using a 401(k) loan, individuals repay themselves, so they don’t owe interest to a bank or other institution. Because the loan lowers your account balance, your nest egg sees less growth.
You don’t pay a penalty or tax on a 401(k) loan, as long as you repay the loan as required. You must repay the loan with interest, typically within five years, or you’ll owe tax and penalties.
You don’t have to meet any credit requirements, and interest rates on 401(k) loans may be lower than for conventional loans. If a person leaves their job before the loan is repaid, the balance owed could be deducted from the remainder of their 401(k) funds. For those under 59 ½, the amount of the offset would also be considered a distribution and the borrower would likely owe taxes and a 10% penalty.
If you miss payments or default on a 401(k) loan, it will not impact your credit score. In some cases, your plan may not permit you to continue contributing to your 401(k) during the time that you’re repaying the loan — which can dramatically impact your retirement savings over time.

What Are the Rules & Penalties for Using 401(k) Funds to Buy a House?

Here’s a side-by-side look at some key differences between taking out a 401(k) loan versus taking a hardship withdrawal from a 401(k). Bear in mind that all employer-sponsored plans have their own rules, so be sure to understand the terms.

401(k) loans
401(k) withdrawals

•   May or may not be allowed by the 401(k) plan.

•   Relatively easy to obtain, no credit score required, versus conventional loans.

•   Qualified loans are penalty free and tax free, unless the borrower defaults or leaves their job before repaying the loan.

•   You must repay the loan with interest within a specified period. The interest is also considered tax deferred until you retire.

•   If the borrower doesn’t repay the loan on time, the loan is treated as a regular distribution (a.k.a. withdrawal), and subject to taxes and an early withdrawal penalty of 10%.

•   The maximum loan amount is 50% of the vested account balance, or $50,000, whichever is less. (If the vested account balance is less than $10,000, the maximum loan amount is $10,000.)

•   May or may not be allowed by the 401(k) plan.

•   Funds are relatively easy to access, assuming you meet the IRS standards for a hardship withdrawal.

•   If you meet IRS criteria, you may avoid the 10% penalty normally incurred by an early withdrawal.

•   You will owe income tax on the amount of the withdrawal.

•   Withdrawals cannot be repaid, so your account is permanently depleted.

•   With a hardship withdrawal, you can withdraw only enough to cover the immediate expense (e.g., a down payment, not mortgage payments), plus taxes to cover the withdrawal.

What Are the Alternatives to Using a 401(k) to Buy a House?

For some homebuyers, there may be other, more attractive options for securing a down payment instead of taking money out of a 401(k) to buy a house, depending on their situation. Here are a few of the alternatives.

Withdrawing Money From a Traditional or Roth IRA

Using a traditional or a Roth IRA to help buy a first home can be an alternative to borrowing from a 401(k) that might be beneficial for some home buyers, because you may be able to avoid the 10% penalty.

If you’re at least 59 ½, you can take a withdrawal from a traditional or Roth IRA without incurring a penalty. You will owe tax on money from a traditional IRA account, but not from a Roth IRA, as long as you’ve had the account for five years.

If you’re under 59 ½, you could face a 10% early withdrawal penalty. One exception is that a first-time home buyer can borrow up to $10,000 from an IRA without incurring a penalty. But the tax treatment differs according to the type of IRA.

•   Traditional IRA. A withdrawal for a first-time home purchase may be penalty free, but you will owe tax on the amount you withdraw.

•   Roth IRA. Contributions (i.e., deposits) can be withdrawn at any time, tax free. But earnings on contributions can only be withdrawn without a penalty starting at age 59 ½ or older, as long as you’ve held the Roth account for at least five years (a.k.a. the Roth five-year rule).

After the account has been open for five years, Roth IRA account holders who are buying their first home are allowed to withdraw up to $10,000 with no taxes or penalties. The $10,000 is a lifetime limit for a first-time home purchase, for both a traditional and a Roth IRA.

IRA funds can be used to help with the purchase of a first home not only for the account holders themselves, but for their children, parents, or grandchildren.

One important requirement to note is that time is of the essence when using an IRA to purchase a first home: The funds have to be used within 120 days of the withdrawal.

Low- and No-Down-Payment Home Loans

There are certain low- and no-down-payment home loans that homebuyers may qualify for that they can use instead of using a 401(k) for a first time home purchase. This could allow them to secure the down payment for a first home without tapping into their retirement savings.

•   FHA loans are insured by the Federal Housing Administration and allow home buyers to borrow with few requirements. Home buyers with a credit score lower than 580 qualify for a government loan with 10% down, and those with credit scores higher than 580 can get a loan with as little as 3.5% down.

•   Conventional 97 loans are Fannie Mae-backed mortgages that allow a loan-to-value ratio of up to 97% of the cost of the loan. In other words, the home buyer could purchase a house for $400,000 and borrow up to $388,000, leaving only a down payment requirement of 3%, or $12,000, to purchase the house.

•   VA loans are available for U.S. veterans, active duty members, and surviving spouses, and they require no down payment or monthly mortgage insurance payment. They’re provided by private lenders and banks and guaranteed by the United States Department of Veterans Affairs.

•   USDA loans are a type of home buyer assistance program offered by the U.S. Department of Agriculture to buy or possibly build a home in designated rural areas with an up-front guarantee fee and annual fee. Borrowers who qualify for USDA loans require no down payment and receive a fixed interest rate for the lifetime of the loan. Eligibility requirements are based on income, and vary by region.

Other Types of Down Payment Assistance

For home buyers who are ineligible for no-down payment loans, there are a few more alternatives instead of using 401(k) funds:

•   Down Payment Assistance (DAP) programs offer eligible borrowers financial assistance in paying the required down payment and closing costs associated with purchasing a home. They come in the form of grants and second mortgages, are available nationwide, can be interest-free, and sometimes have lower rates than the initial mortgage loan.

•   Certain mortgage lenders provide financial assistance by offering credits to cover all or some of the closing costs and down payment.

•   Gifted money from friends or family members can be used to cover a down payment or closing costs on certain home loans. As the recipient of the gift, you won’t owe taxes on the gift; the giver may have to pay a gift tax if the amount exceeds $19,000 for 2025.

Using Gift Funds for a Down Payment

By and large there are no restrictions on using gift funds — money given to you as a gift, not a loan — for a down payment on a home. The use of gift funds as part of a home buyer’s down payment has become more common, in fact. Nearly 40% of borrowers included some gift money as part of their downpayment, according to a 2023 survey by Zillow.

Gifts are allowed when applying for a conventional mortgage, as well as for Fannie Mae and FHA loans. In some cases, you may be required to provide a gift letter that documents that the money is a gift and not a loan. Again, the recipient generally doesn’t owe federal tax on a monetary gift, but the giver may owe a gift tax, depending on the amount.

How Using a 401(k) for a Home Purchase Affects Retirement Savings

Using your 401(k) money for anything but retirement has a very real down side, which is that it reduces the amount of money in your retirement account, even if that’s temporary, as it is with a 401(k) loan. As a result, you also lose out on any potential growth from your retirement investments.

With a 401(k) loan, you repay the amount of the loan with interest (and if you don’t you’ll owe taxes and penalties). Even so, you’ve depleted your account for a period of time, and, depending on the rules of your particular plan, you could be prohibited from making any contributions while you repay the loan.

The impact of a hardship withdrawal can be even more severe, because you’re not allowed to repay the amount you withdrew. So you lose a chunk of your savings, and you forgo the growth on that amount as well. In addition, some employer-sponsored plans may prohibit you from making contributions after taking a hardship withdrawal.

Impact on Long-Term Investment Growth

In other words, while there’s no 10% tax penalty for taking out a 401(k) loan or a hardship withdrawal, you do face a potential missed opportunity in that the amount you take out of the account is no longer invested in the market.

Thus, you lose out on any potential long-term investment growth — which can significantly cut into your potential retirement savings, when you think of the money you’re not earning, perhaps for many years.

The Takeaway

Generally speaking, a 401(k) can be used to buy a principal residence, either by taking out a 401(k) loan and repaying it with interest, or by making a 401(k) withdrawal (which is subject to income tax and a 10% withdrawal fee for people under age 59 ½).

If you meet the IRS criteria for a hardship withdrawal, though, you may avoid the 10% penalty, if your plan allows this option.

However, using a 401(k) for a home purchase is usually not advisable. Both qualified loans and hardship withdrawals have some potential drawbacks, including owing taxes and a penalty in some cases, and the potential to lose out on market growth on your savings. Fortunately, there are less risky options, as noted above. Making these choices depends on your financial situation and your goals, as well as your stomach for risk — especially where your future security is concerned.

Invest in what matters most to you with SoFi Active Invest. In a self-directed account provided by SoFi Securities, you can trade stocks, exchange-traded funds (ETFs), mutual funds, alternative funds, options, and more — all while paying $0 commission on every trade. Other fees may apply. Whether you want to trade after-hours or manage your portfolio using real-time stock insights and analyst ratings, you can invest your way in SoFi's easy-to-use mobile app.

Invest with as little as $5 with a SoFi Active Investing account.

FAQ

What are the downsides of using a 401(k) to buy a house?

The main drawback of using funds from your 401(k), or any retirement account, is the potential loss of savings and investment earnings on that savings, which could substantially reduce your retirement nest egg.

When can you withdraw from a 401(k) without penalty?

If your plan permits a 401(k) loan, or if you qualify for a hardship withdrawal from your 401(k), you won’t be on the hook for a 10% penalty. But you would have to repay the loan with interest, and you would owe tax on the money taken for a hardship withdrawal.

Can you withdraw money from a 401(k) for a second house?

While it’s technically possible to withdraw money from a 401(k) for a second home, you would owe taxes and a 10% penalty on the amount you withdrew, so it’s not advisable.

How much can you take out of an individual IRA to buy a home?

You can withdraw up to $10,000 from an IRA for the purchase of a first home, but you would owe tax on that money (although you might avoid a 10% penalty).

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

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

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

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

Third Party Trademarks: Certified Financial Planner Board of Standards Center for Financial Planning, Inc. owns and licenses the certification marks CFP®, CERTIFIED FINANCIAL PLANNER®

Disclaimer: The projections or other information regarding the likelihood of various investment outcomes are hypothetical in nature, do not reflect actual investment results, and are not guarantees of future results.

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.

SOIN-Q225-095

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Jul
15
2025

19 Top Side Hustles to Fund Your Early Retirement

By | Budgeting & Goals, invest, Life & Career, Preparing for Retirement | Comments Off on 19 Top Side Hustles to Fund Your Early Retirement

If you’ve always dreamed about quitting the rat race and retiring early, you may want to take on a side hustle to help bring in extra money. While a side hustle is usually a part-time job, some side hustles have the potential to turn into a career or business that can provide a significant source of income.

Read on to learn more about early retirement side hustles, including some easy side hustle ideas that could help you secure your financial future.

Key Points

  • To retire early, taking on a side hustle can provide extra income to boost long-term financial security and retirement savings.
  • Leveraging existing skills and passions to find a side hustle enhances chances of success and enjoyment.
  • Many side hustles offer flexibility, require no special equipment, and are easy to start. Examples include online tutoring and pet sitting.
  • For individuals with design and web-based skills, graphic design and web development for small businesses may be lucrative side hustles.
  • Virtual assistant roles are one of the more recent side hustle opportunities. Virtual assistants support business owners by performing tasks such as customer service, and are in high demand.

Why Are Side Hustles Your Secret Weapon for Early Retirement?

The average retirement age in the U.S. is currently 62, according to a 2024 study from MassMutual.[1] If you are hoping to retire early — in your 50s, say — a side hustle can serve as a tool to help generate extra income.

An early retirement side hustle, which is sometimes referred to as an early retirement job, doesn’t have to involve a lot of time and effort. Even a small side hustle that you do on weekends can give you some extra money you can use to build your retirement accounts. A profitable side hustle may even give you enough funds to set up an additional retirement account — for instance, you could open an IRA — which can add even more money to your retirement savings overall.

The F.I.R.E Movement

The concept of early retirement is so appealing that it has launched movements. For example, the F.I.R.E. movement has attracted a community of people who are looking to retire early. F.I.R.E. stands for “Financial Independence, Retire Early,” and many of its followers hope to retire in their 40s or even their 30s.

The basic idea of the movement is to save a significant amount of your income as a young adult so that you can become financially independent and achieve retirement early. To reach this goal, proponents of F.I.R.E. put 50% to 75% of their income into retirement savings. That can be challenging because after that money is directed to their retirement accounts and their bills are paid, there typically isn’t much left over for fun stuff, like going out to dinner or to the movies.

Individuals planning for early retirement, like those in the F.I.R.E. movement, may find a side hustle especially appealing. It could help them generate extra income for their retirement savings accounts.

19 Easy Side Hustles to Fund Early Retirement

Whether you’re a follower of F.I.R.E. or not, and no matter what your preferred age for early retirement, having a successful side hustle can help you get there faster. Here are some easy jobs for early retirement to consider.

1. Freelance Writing

One of the benefits of having a side hustle is the flexibility to be able to work on your own schedule. If you have a knack for writing, becoming a freelance writer might be a good side hustle for you. With most freelance writing gigs, you can work whenever you like as long as assignments are done by a certain date.

Look for brands or clients who specialize in industries or fields where you already have skills or experience. For instance, if you love to knit, check out opportunities to contribute articles to knitting websites or blogs. Be sure to have examples of your work to share with potential employers so they can see what you are capable of.

2. Online Tutoring

If you’re in college and already thinking about early retirement, good for you! It’s never too soon to start planning and saving for the future. You can even find a side hustle that plays to your current strength — teaching others what you’ve learned in school.

One of the best side hustles for college students is online tutoring. You could tutor other college students or even high school or middle school students. Tutoring can typically be done on evenings or weekends, so you can fit it around your classes.

3. Graphic Design

If you have graphic design skills, another potential side hustle is doing graphic design work for small businesses and individuals. Think about specific services you might be able to offer, such as marketing layout, logo creation, and adding design elements to blogs, videos, or online articles.

Create a portfolio of your design work or set up a website to showcase your work. Then, look for freelance side hustle opportunities on platforms like Upwork or Fiverr.

4. Web Development

In this digital age, web development is another side hustle that can be done remotely, from wherever you are. Many small businesses and individuals need simple websites created and/or maintained for them, and many people don’t know how to do it themselves.

If you work in web development and have the skills and knowledge to create online platforms, you could be just what these clients are looking for. You can show them samples of your work, such as other websites you’ve designed.

5. Virtual Assistant Services

Becoming a Virtual Assistant (VA) is a newer side hustle that has recently increased in popularity. In fact the demand for virtual assistants increased by 35% in 2024, according to market research.[2]

A VA can help a small business by performing tasks like data entry, scheduling, bookkeeping, and customer support so that business owners can focus on their core business. According to one estimate, entrepreneurs gain up to 15 hours a week by using a virtual assistant to perform such tasks.

Some of the industries using virtual assistants are health care, real estate, and e-commerce businesses. You could start your search for a VA side hustle by concentrating on these fields and/or looking for opportunities on Upwork and FlexJobs.

6. Creating and Selling Online Courses

Another side hustle option you might consider if you’re an expert on a particular subject is creating and selling online courses. For example, maybe you’re a talented amateur pastry chef, a photographer, or you’re skilled at DIY home improvement projects. You could create courses showing other people how to achieve some of the things you’ve mastered, whether it’s decorating a cake, taking wedding photos, or remodeling a bathroom.

In fact, you may be able to combine two side hustles in one. If you’re good with plants and flowers, for instance, you might get a side hustle planting gardens for people on weekends, and then create videos to share your tips and tricks with an online audience. That way you’ve got even more money to save for early retirement, perhaps in an investment account.

7. Starting a Blog

A blog can be a way to share your passion or knowledge on a certain subject with others. While many blogs are passion projects where it might be difficult to make a lot of money, it all depends on your subject, how diligent you are with your blog, and how you choose to monetize it.

For example, you could host display ads on your blog (you can talk directly to companies to see if they’d like to advertise with you or use an online advertising platform), write sponsored content, or include affiliate links to products you mention so that you can earn commission whenever a reader clicks on the link and buys the product.

8. Starting a Podcast

If you want to share your knowledge on a topic, and you love to talk and interact with other people, starting a podcast may be a fitting side hustle for you. Podcasts are hugely popular: In the U.S., approximately 158 million people listen to podcasts every month.[3]

Almost anyone can start a podcast. All you need to do is decide on a topic (pick a subject you love to talk about), identify what makes your podcast unique, and determine who your audience is. Next, figure out the format (interview, roundtable, or whatever), and then get ready to start recording. You may be able to produce the podcast using only your computer and some headphones. Finally, decide how you’ll distribute your podcast — via Spotify, YouTube, Apple Podcasts, and so on.

The amount you can earn by podcasting varies widely. In general, podcasters may earn $25 to $50 per 1,000 downloads.[4]

9. Offering Coaching Services

If you’re an expert in business or in a specific area like fitness or human resources, you may want to explore the idea of launching an online coaching service. You can take the skills you’ve learned and teach them to others during online coaching sessions. You’ll need to determine who your clients might be and develop a coaching program. Then, you can figure out how much to charge for your services.

For instance, if you’ve worked in HR, you might offer your services as a career coach helping people land new jobs or move up the ladder in their current job. Try to pick a topic that will engage an audience and offer them valuable content that they’re willing to pay for.

10. Offering Consulting Services

Like a coaching service, starting a side gig in consulting is a side hustle that can be a good fit for someone with expertise in a given field. For example, maybe you’ve worked as a project manager in construction. You could offer your consulting services to people who are renovating their home and looking for guidance and someone to oversee the job.

Or maybe you’ve worked in the admissions office at a college. You might be able to provide consulting services to people applying to school to earn their degree. Think about what your skills are and what valuable services you can offer to others.

11. Driving for Ride-Sharing or Food Delivery Services

Ride-sharing and food delivery services like Uber, Lyft, Grubhub and DoorDash have become ubiquitous, and these companies are always looking for new drivers. Essentially, all you need is an eligible car, a valid driver’s license, at least a year’s worth of driving experience, and auto insurance.

In 2025, the average hourly pay for a rideshare driver is slightly more than $21, according to ZipRecruiter. Exactly what you can earn depends on where you live and what you earn in tips.[5]

Just be sure to take into account the expenses involved, including gas, and wear and tear on your vehicle.

12. Affiliate or Influencer Marketing

Affiliate and influencer marketing is another popular side hustle today. The job involves promoting products or services on social media or a website and earning a commission or fee for driving sales or audience engagement.

If you have a large social media following or online audience, this may be an avenue to explore. Talk to brands you know and like and see if you might be able to work with them to help promote their products or offerings.

13. Pet Sitting or Dog Walking

Love pets? You could earn extra money by starting a side hustle as a pet sitter or dog walker. Basically, you need to be responsible and good with animals for a job like this. You’ll do such tasks as walk pets, clean up after them, feed them, give them medication if necessary, and possibly stay overnight with them if their owners are out of town.

To find clients, reach out to friends and neighbors who have pets, or join platforms like Wag or Rover to find freelance dog walking and pet sitting opportunities in your area.

14. Renting Out a Spare Room (e.g., Airbnb)

Whether you join Airbnb or rent out a spare room on your own, offering rental space to others can be a lucrative side hustle, especially when it comes to passive income ideas. This is a gig that allows you to earn money for early retirement without requiring a lot of work on your part.

Once you get set up and start renting out your space, your main responsibilities will be vetting prospective renters and maintaining the room or space.

15. Selling Crafts or Handmade Goods Online (e.g., Etsy)

Another platform that you can use to start a good side hustle is Etsy or another similar platform. You can sell almost anything on Etsy, from homemade crafts to jewelry to wedding invitations. The platform does charge fees including processing and transaction fees, but using it can be a good way to reach an audience interested in buying what you’re selling. Over 96 million people are active buyers on Etsy.[6]

16. Testing Websites and Apps

Websites and apps need people to test them to make sure they work properly and provide a good experience. For individuals looking to earn extra income for early retirement, this could be an interesting and flexible side hustle.

The job typically involves evaluating the functionality, usability, and design of digital products before they’re launched. Many companies pay users to perform specific tasks and provide feedback, and report bugs or user-experience issues. This side hustle often requires only basic tech skills.[7]

17. Participating in Online Surveys

There are a number of websites and platforms such as Swagbucks, Opinion Outpost, and MySurvey, that will pay you to fill out online surveys. The surveys can be on just about any topic, and they may be tailored to you based on your interest and demographics. While most surveys don’t pay very much — sometimes just a few dollars per survey and some surveys only offer points that you can eventually redeem for cash — they do offer flexibility since you can do them anytime.[8]

18. Offering Neighborhood Tours

A unique side hustle if you live in an area that tourists like to visit is to become a neighborhood tour guide. For example, if you live in a historic area, a place with a unique heritage, or a locale with interesting geographic landmarks, you may be able to offer your services by giving neighborhood tours to those who are interested.

Be sure to bring your expertise into the equation as well. If you are a foodie or an architecture enthusiast, you could share your passion with others by introducing them to remarkable spots in your area and giving them insider information about each one. Whatever your interest or specialty is, you’ll need to develop a tour itinerary and market it to potential customers.

19. Lawn Mowing or Landscaping Services

Mowing lawns and landscaping yards is one of the original side hustles — it’s one that many of us did as kids. And it can be a lucrative side hustle for adults to earn some easy extra money for early retirement. The average price of mowing a half-acre yard is $50 to $75.[9]

All you need to get started is a lawnmower, a trimmer, and a blower. You can find clients by talking to neighbors, reaching out to friends and family, and going door to door in different neighborhoods near you.

Factors to Consider When Choosing the Right Side Hustle or Career

While there are many potential side hustles to choose from, choosing the right one for you depends largely upon your skills and interests. While it may be possible to succeed in any particular side hustle with enough hard work and determination, picking a side hustle where you already have some experience may set you up for a higher likelihood of success. And the more you like the work you’re doing, the greater the chance you’ll stick with it.

In addition, weigh the potential money you could make with the side hustle against the effort and possible expenses required. If you’ll be putting in hours for a side hustle that doesn’t net you all that much, it probably isn’t worth it. And if you have to buy a lot of extra equipment upfront for a gig that may or may not be successful, you may want to think twice.

How to Integrate Side Hustles Into Your Early Retirement Plan

When you are working at achieving financial freedom, a side hustle can play an important role in helping you reach your goal. Having a job on the side can provide extra money so that you can put more dollars into your retirement accounts or open a new account so that you can reach your retirement goal faster, and potentially with more money.

Plus, if a side hustle becomes very successful, it may be able to help supplement or even replace your income if you quit your “real” job. It might even be something you want to keep doing after you’ve finished saving for retirement because you enjoy it so much.

The Takeaway

When you’re hoping to retire early, a side hustle can help you earn extra money to make that dream a reality. Having the income from a side hustle, along with your salary from your regular full-time job can help you amass more savings so you can retire at a younger age.

With the money you earn from a side hustle, you can contribute more to your retirement accounts or open a new account to help save. The more you can save and invest now, the better your chances of achieving financial security for retirement.

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

Easily manage your retirement savings with a SoFi IRA.

FAQ

Do I need to find a high-paying side hustle to quit my main career early?

Deciding when you can quit your main career depends on a number of different factors, including your age, your family situation, your financial obligations, and how much you have saved for retirement. If your personal and financial circumstances are right, a side hustle that pays well may help give you enough of a financial cushion to retire early.

How much extra money can a side hustle realistically contribute to my retirement savings?

The amount that a side hustle can contribute to your retirement savings can vary drastically, depending on what the side hustle is and how much time and effort you put into it. But consider this: Money that you earn from a side hustle now and put into a retirement savings account can potentially grow over time, thanks to the power of compounding returns. The sooner you start saving for retirement, the better.

What are some flexible jobs that I can continue even after I retire?

Flexible jobs you can start now and continue in retirement include pet sitting, freelance writing and graphic design, and online coaching and consulting. Each of these jobs offers flexible hours and convenience so that you can work when it suits you best.

What is the best side hustle?

What’s the best side hustle for you depends on your skills, interests, and life situation. The best side hustles are ones you enjoy and that make good use of the skills you have. The best side hustles also pay you enough to make them worth your while and offer flexibility so you can do them when you choose.

What is the easiest side hustle to get into?

Some side hustles are particularly easy to get into. Examples include pet sitting and dog walking, working as a virtual assistant, and renting out a room. With each of these side hustles, you can find money-making opportunities through online platforms so that you don’t have to go out and drum up business yourself. Plus they don’t require special equipment.

Article Sources
  1. MassMutual. 2024 MassMutual Retirement Happiness Study.
  2. There Is Talent. Virtual Assistant Statistics 2025: Insights and Trends.
  3. Podcast Statistics. Podcast Statistics 2025.
  4. Castmagic. How Much Money Can Podcasters Make? 20 Proven Methods to Make Money.
  5. ZipRecruiter. Rideshare Driver Salary.
  6. Business of Apps. Etsy Revenue and Usage Statistics (2025).
  7. Tester Work. Homepage.
  8. Indeed. 20 Companies That Will Pay You To Take Surveys Online.
  9. Jobber. How Much to Charge For Lawn Mowing: Pricing Charts and Formula.

Photo credit: iStock/mixetto

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

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

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

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

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

Third Party Trademarks: Certified Financial Planner Board of Standards Center for Financial Planning, Inc. owns and licenses the certification marks CFP®, CERTIFIED FINANCIAL PLANNER®

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15
2025

IRA Basis: Guide to Tracking It for Traditional and Roth IRAs

By | invest, Investing, Preparing for Retirement | Comments Off on IRA Basis: Guide to Tracking It for Traditional and Roth IRAs

Investing money in an individual retirement account (IRA) can be an important part of saving for retirement. Among the types of IRAs you might have are traditional IRAs and Roth IRAs. With a traditional IRA, you can often deduct your contributions in the year you make them and pay tax on your withdrawals. A Roth IRA works in the opposite way — contributions are generally not tax-deductible, and your earnings and withdrawals can be tax-free.

Because of the way taxes on withdrawals from IRAs work, it’s important to be aware of your IRA basis. When you withdraw money from a traditional or Roth IRA, you may only need to pay tax on withdrawals that exceed your basis.

Key Points

  • IRA basis represents the contributions to an IRA that were not tax-deductible in the year they were made.
  • Roth IRA basis includes all contributions made to the account because no Roth IRA contributions are tax-deductible.
  • Traditional IRA basis is the total of all contributions that were not tax-deductible in the year they were made. It does not include deductible contributions.
  • Accurately tracking IRA basis can prevent having to pay tax or a penalty on qualified withdrawals.
  • IRA basis is not generally tracked by the IRS. IRA account holders are responsible for accurately tracking the basis.
🛈 SoFi Invest members currently do not have access to a feature within the platform to view IRA basis.

What Is a Roth IRA Basis?

The total amount that you’ve contributed to your Roth IRA over the years is considered your Roth IRA basis. Because Roth IRA contributions are not deductible in the year that you make them, you can withdraw your contributions at any time without tax or penalty.

Is a Roth IRA Basis Different From a Traditional IRA Basis?

Calculating your traditional IRA basis is a bit different than calculating your Roth IRA basis. Understanding these differences in large part comes down to understanding what an IRA is and how various types of IRAs work.

When calculating your Roth IRA basis, you add up all of the contributions you make. This is because no Roth IRA contributions are tax-deductible.

With a traditional IRA, on the other hand, often some contributions are deductible in the year that you make them. So your traditional IRA basis only includes contributions that were not tax-deductible in the year that you made them.

Recommended: Everything You Need to Know About Taxes on Investment Income

What Are the Rules of a Roth IRA Basis?

Contributing to a Roth IRA can be a great way to invest and save for retirement, because your earnings and withdrawals are tax-free, as long as you make qualified distributions.

Your Roth IRA basis is easy to calculate, since it’s the net total of any contributions that you make, minus any distributions.

What Are the Rules of a Traditional IRA Basis?

If you open an IRA and opt for a traditional IRA instead of a Roth, it’s important to be familiar with the rules of a traditional IRA basis. Your basis in a traditional IRA is the total of all non-deductible contributions you made, as well as any non-taxable amounts included in rollovers, minus all of your non-taxable distributions.[1]

How Is IRA Basis Calculated?

When you start saving for retirement, you’ll want to make sure that you are accurately calculating your IRA basis. The exact formula for calculating your IRA basis varies slightly based on whether you have a traditional or Roth IRA.

Recommended: 4 Step Guide to Retirement Planning

Roth IRA Basis Formula

Contributions to a Roth IRA are never tax-deductible. That means that you will use the sum of all of your contributions to calculate your Roth IRA basis.

Traditional IRA Basis Formula

Calculating your Traditional IRA basis works in a slightly different fashion. Because many contributions to traditional IRAs are tax-deductible in the year you make them, you don’t include all of your contributions when calculating your basis. Instead, you will only use the contributions that are NOT tax-deductible when calculating your traditional IRA basis. If all of your traditional IRA contributions are tax-deductible, then your basis will be $0.

Why Is Knowing Your IRA Basis Important?

You want to know what your IRA basis is because it represents the amount of money that you can withdraw from your IRA without tax or penalty. Not knowing your IRA basis is a retirement mistake you can easily avoid.

Generally, any qualified IRA withdrawals up to your tax basis are tax- and penalty-free, while withdrawals above your tax basis may be subject to income tax and/or a 10% penalty if the funds are withdrawn early. While it is usually not a good idea to withdraw money from your retirement accounts until necessary, knowing your basis can help you make an informed decision.

The Takeaway

Understanding your IRA basis is an important part of investing and planning for your retirement. Your IRA basis is the amount that you can typically withdraw from your account without having to pay income tax and/or a penalty.

At its simplest, you can calculate your IRA basis by adding up all of your non-tax-deductible contributions and subtracting any previous distributions. For your Roth IRA basis, you can use all of your contributions, while for traditional IRAs you can only use the value of any contributions that you did not deduct from your taxes.

FAQ

Do I have an IRA basis?

Everyone with an IRA has an IRA basis, although it’s possible that your IRA basis may be $0 if all of your contributions to a traditional IRA were tax-deductible. Your IRA basis is the net total of your non-tax-deductible contributions minus any distributions. For a Roth IRA, you use the value of all your contributions (because none of your contributions are tax-deductible), while with a traditional IRA, it’s only the contributions that were not tax-deductible.

How do I find my IRA basis?

Your IRA basis is the sum of any non-tax-deductible contributions that you make to an IRA minus any distributions that you take from your account. Your IRA basis is not generally reported anywhere. So if you don’t know your basis, you will need to calculate it based on your historical contributions and distribution amounts.

Who keeps track of your IRA basis?

The IRS does not generally keep track of your IRA basis — you are responsible for making sure your IRA basis is accurately calculated. If you use an accountant, they may calculate and track your IRA basis. You’ll want to make sure that you are accurately tracking your basis so that you can correctly pay any taxes you owe on IRA distributions.

Article Sources
  1. IRS. 2024 Instructions for Form 8606.

Photo credit: iStock/Eva-Katalin

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

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

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

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.

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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