Feb
25
2025
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Guide to Share Lending

By | Growing Wealth, invest, Investing | Comments Off on Guide to Share Lending

Share lending is when investment firms loan shares to borrowers as a way to collect additional revenue on stocks they already hold. This produces another revenue stream on equities that would otherwise sit untraded in their portfolios.

The borrowers of the shares are often short sellers, who give collateral in the form of cash or other securities to the lenders.

Key Points

•   Share lending involves institutional investors temporarily transferring shares to borrowers for a fee, enhancing revenue.

•   Short selling, a key use of borrowed shares, is a high-risk strategy that allows investors to seek potentially high returns from price declines and increased market liquidity.

•   Benefits of share lending include additional income and turning inactive investments into potential profit generators.

•   Risks include counterparty default, loss of SIPC protection, negative tax implications, and loss of voting rights.

•   Concerns exist over the transfer of voting rights and lack of transparency in the securities lending market.

What Is Share Lending?

Share lending involves institutions lending out investors’ shares of stock to other investors in order to generate more revenue. The lenders are often pension funds, mutual funds, sovereign wealth funds, and exchange-traded fund (ETF) providers, since these types of firms tend to be long-term holders of equities.

Brokerages can also practice securities lending with shares in retail investors’ brokerage accounts, so long as investors agree to it. Share lending can help such firms keep management fees down for their clients.

Share lending is also known as securities lending, as the practice can extend beyond equities to bonds and commodities. Securities lending has become more popular in recent years as increased competition in the brokerage space drove down management fees to near-zero, and investment firms sought other sources of revenue. Worldwide revenue from securities lending totaled $9.64 billion during 2024.

Share lending is also useful to investors who are shorting stock, because those investors need to borrow shares in order to open their positions.

Critics argue that the practice comes at the expense of fund investors, since investment firms forgo their voting rights when they loan out shares. They might also try to own stocks that are easier to rent out.

Other concerns about share lending include a lack of transparency, and an increase in counterparty risk. That said, because short-sellers often use margin trading as a way to increase their potential returns, they’re likely used to assuming risk.

How Securities Lending Works

Here’s a deeper breakdown of how share lending works:

1.    Institutional investors use in-house or third-party agents to match their shares with borrowers. Such agents receive a cut of the fee generated by the loan. Sometimes, retail investors may loan or borrower shares through their broker as well.

2.    The fee is agreed upon in advance and typically tied to how much demand there is for the lent-out security on the market.

3.    The institutional investor or lender often reinvests the collateral in order to collect additional interest or income while their shares are out on loan.

4.    Borrowers tend to be other banks, hedge funds, or broker-dealers, and sometimes include other lending agents, retail investors, or short sellers. When the borrower is done using the shares, they return them back to the lender.

5.    If the collateral posted was in the form of cash, a percentage of the revenue earned from reinvesting is sometimes given back to the borrower.

Retail investors should learn whether their brokerage offers securities lending or share-lending programs. If you have a margin account at a brokerage or with a specific investing platform, there’s a good chance that you may be eligible or given access to a share-lending program. But you’ll need to ask your specific brokerage for details.

For some dividend stocks, investors could get some form of payment from the borrower, rather than the dividend itself. This payment may be taxed at a higher rate than a dividend payout.

Share Lending and Short Selling

In order to short a stock, investors usually first borrow shares. They then sell these shares to another investor or trader, with the hope that when or if the stock’s price falls, the short seller can buy them back and pocket the difference, before returning the loaned shares.

In share lending, a share can only be loaned out once — but when the borrower is a short seller, they can sell it, and the new buyer can lend it again. This is why the short stock float – the percentage of the share float that is shorted — can rise above 100% in a stock.

The fee generated by lending out shares depends on their availability. A small number of stocks tend to account for a large proportion of revenue in securities lending.

Criticism of Securities Lending

The lack of transparency in securities lending is a concern for many investors — both retail, and institutional.

The Dark Side of Share Lending

In December 2019, Japan’s Government Pension Investment Fund, among the world’s largest, announced that it would halt stock lending, saying the practice is not in line with its goals as a long-term investor. They further cited a lack of transparency regarding the identity of the individuals or entities borrowing the loaned securities, as well as their motivations for borrowing.

This became a bigger concern for investors after the “cum-ex” scandal in Germany, where borrowed shares were allegedly used in a tax evasion scheme.

Voting Rights Transferred

Another one of the biggest criticisms of share lending is that shareholder voting rights attached to the actual stock are transferred to the borrower.

This practice challenges the traditional model, in which institutional investors vote and push for change in companies in order to maximize shareholder value for their investors. Money managers can recall shares in order to cast a vote in an upcoming shareholder meeting. But there are concerns that they don’t, and it’s unclear how often they do.

A Hidden Problem

Another concern is that share lending programs incentivize money managers to own stocks that are popular to borrow, but may underperform. A 2017 paper entitled “Distortions Caused By Lending Fee Retention,” updated in June 2023, found that mutual funds that practice securities lending tend to overweight high-fee stocks which then underperform versus funds that do not rent out shares.

Pros and Cons of Share Lending

There are numerous pros and cons to share lending.

Pros

The most obvious upside for investors is that they may be able to open up an additional revenue stream to increase their returns by lending their shares. Along the same lines, share lending can also help investors turn otherwise dormant investments into return-boosters, under the right circumstances.

Also, lending shares allows for investors to lend their shares to short-sellers – thereby greasing the wheels of the market and allowing short-sellers to do their work. It adds liquidity to the market, in other words.

Cons

One downside to share lending is that retail investors should take note that securities that have been loaned are not protected by the Securities Investor Protection Corporation (SIPC). The SIPC, however, does protect the cash collateral received for the loaned securities for up to $250,000.

There can also be negative tax consequences when lending out shares of stock. You don’t receive dividends for the stocks you’ve loaned out, but you do get Payment in Lieu that’s equal to the value of the dividends paid on loan shares. Unfortunately, though, these payments are taxed at your marginal tax rate, not the more favorable dividend rate.

Another concern is the increase in counterparty risk (similar to credit risk). Let’s say a short seller’s wager goes sour. If the shorted stock rallies enough, the short seller could default and there’s a risk that the collateral posted to the lender isn’t enough to cover the cost of the shares on loan.

Finally, there may be additional and special criteria that investors need to meet in order to qualify for share-lending programs. This will depend on individual brokerages or platforms, however. And a final note: If you use a platform that allows you to buy or trade fractional shares, those fractional shares may not be eligible for share lending, either.

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Pros:

•   Potential to earn more revenue

•   Allows investors to boost returns from dormant investments

•   Adds liquidity to short-seller market

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Cons:

•   Lack of SIPC protection

•   Increased counterparty risk (the borrower may default)

•   You’re taxed at the marginal rate on payments in lieu of dividends

•   Investors may need to qualify

Test your understanding of what you just read.

The Takeaway

Share lending or securities lending is a potential source of revenue for institutional investors and brokerage firms, who rent out shares that otherwise would have sat idly in portfolios. The practice has ramped up in recent years as management and brokerage fees have shrunk dramatically due to competition and the popularity of index investing.

There are pros and cons, however, as there’s always a risk that a borrower could default. That’s offset, naturally, by the chance to earn additional revenue and boost your ultimate returns. But there are no guarantees.

Ready to invest in your goals? It’s easy to get started when you open an investment account with SoFi Invest. You can invest in stocks, exchange-traded funds (ETFs), mutual funds, alternative funds, and more. SoFi doesn’t charge commissions, but other fees apply (full fee disclosure here).

¹Opening and funding an Active Invest account gives you the opportunity to get up to $3,000 in the stock of your choice.

FAQ

What are the risks of share lending?

Some of the biggest risks of share lending are counterparty risk (or, the risk that a borrower will default and not be able to return your shares); the fact that you may lose SIPC protection on your shares; and that you may need to qualify in order to actually lend shares.

What exactly happens when you lend shares?

When you lend shares, ownership is temporarily transferred to a borrower, who transfers other shares or investments to the lender as collateral. The borrower also pays the lender a fee for the privilege of borrowing their shares.

Does share lending save money?

It doesn’t necessarily save money, but it can be a way to earn more money or drive more revenue from your owned investments. By lending out shares, you can garner fees from borrowers, amounting to a boost to your overall return.

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.

¹Claw Promotion: Probability of Member receiving $1,000 is a probability of 0.026%; If you don’t make a selection in 45 days, you’ll no longer qualify for the promo. Customer must fund their account with a minimum of $50.00 to qualify. Probability percentage is subject to decrease. See full terms and conditions.

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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.

Get a 1% IRA match on rollovers and contributions.

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1Terms and conditions apply. Roll over a minimum of $20K to receive the 1% match offer. Matches on contributions are made up to the annual limits.

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.

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.

External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.

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Feb
25
2025
457 vs. 401(k): A Detailed Comparison

457 vs 401(k): A Detailed Comparison

By | invest, Investing, Preparing for Retirement | Comments Off on 457 vs 401(k): A Detailed Comparison

Depending on where you work, you may be able to save for retirement in a 457 plan or a 401(k). While any employer can offer a 401(k), a 457 plan is commonly associated with state and local governments and certain eligible nonprofits.

Both offer tax advantages, though they aren’t exactly the same when it comes to retirement saving. Understanding the differences between a 457 retirement plan vs. 401(k) plans can help you decide which one is best for you.

And you may not have to choose: Your employer could offer a 401(k) plan and a 457 plan as retirement savings options. If you’re able to make contributions to both plans simultaneously, you could do so up to the maximum annual contribution limits — a terrific savings advantage for individuals in organizations that offer both plans.

Key Points

•   A 457 plan and a 401(k) are retirement savings options with tax advantages.

•   Both plans have contribution limits and may offer employer matching contributions.

•   A 401(k) is governed by ERISA, while a 457 plan is not.

•   457 plans allow penalty-free withdrawals before age 59 ½ if you retire, unlike 401(k) plans.

•   457 plans have special catch-up provisions for those nearing retirement.

401(k) Plans

A 401(k) is a tax-advantaged, defined contribution plan. Specifically, it’s a type of retirement plan that’s recognized or qualified under the Employee Retirement Income Security Act (ERISA).

With a 401(k) plan, the amount of benefits you can withdraw in retirement depends on how much you contribute during your working years and how much those contributions grow over time.

Understanding 401(k) Contributions

A 401(k) plan is funded with pre-tax dollars, meaning that contributions reduce your taxable income in the year you make them. And withdrawals are taxed at your ordinary income tax rate in retirement.

Some employers may offer a Roth 401(k) option, which would enable you to deposit after-tax funds, and withdraw money tax-free in retirement.

401(k) Contribution Limits

The IRS determines how much you can contribute to a 401(k) each year. For 2024, the annual contribution limit is $23,000; for 2025, it’s $23,500. Workers aged 50 or older can contribute an additional $7,500 in catch-up contributions in 2024 and 2025. And in 2025, those 60 to 63 may contribute an additional catch-up of $11,250 instead of $7,500, thanks to SECURE 2.0.

Employers can elect to make matching contributions to a 401(k) plan, though they’re not required to. If an employer does offer a match, it may be limited to a certain amount. For example, your employer might match 50% of contributions, up to the first 6% of your income.

401(k) Investment Options

Money you contribute to a 401(k) can be invested in such assets as mutual funds, index funds, target-date funds, and exchange-traded funds (ETFs). Your investment options are determined by the plan administrator. Each investment can carry different fees, and there may be additional fees charged by the plan itself.

Traditional 401(k)s are subject to required minimum distribution (RMD) rules beginning at age 73 (for those who turned 72 after December 31, 2022). However, as of 2024, Roth 401(k)s no longer require RMDs. That’s something to consider when you’re thinking about your income strategy in retirement.

Recommended: 5 Steps to Investing in Your 401k Savings Account

Vesting in a 401(k) Retirement Plan

A 401(k) plan is subject to IRS vesting rules. Vesting determines when the funds in the account belong to you. If you’re 100% vested in your account, then all of the money in it is yours.

Employee contributions to a 401(k) are always 100% vested. The amount of employer matching contributions you get to keep can depend on where you are on the company’s vesting schedule. Amounts that aren’t vested can be forfeited if you decide to leave your job — at which point you may decide to open an IRA and roll over your 401(k) into it.

Employers may use a cliff vesting approach in which your percentage of ownership is determined by year. For instance, in year one and two, your ownership claim is 0%. Once you reach year three and beyond, you’re 100% vested.

With graded vesting, the percentage increases gradually over time. So, you might be 20% vested after year two and 100% vested after year six.

All employees in the plan must be 100% vested by the time they reach their full retirement age, which may or may not be the same as their date of retirement. The IRS also mandates 100% vesting when a 401(k) plan is terminated.

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1Terms and conditions apply. Roll over a minimum of $20K to receive the 1% match offer. Matches on contributions are made up to the annual limits.

457 Plans

A 457 plan is a deferred compensation plan that can be offered to state and local government employees, as well as employees of certain tax-exempt organizations. The most common version is the 457(b); the 457(f) is a deferred compensation plan for highly paid executives. In certain ways, a 457 is very similar to a 401(k), such as:

•   Employees can defer part of their salary into a 457 plan and those contributions are tax-deferred. Earnings on contributions are also tax-deferred.

•   A 457 plan can allow for designated Roth contributions. If you take the traditional 457 route, qualified withdrawals would be taxed at your ordinary income tax rate when you retire.

•   Traditional 457 accounts are subject to RMDs once you turn 73; Roth-designated 457 accounts are not.

•   For 2024, the annual contribution limit is $23,000, and $7,500 for the catch-up amount for workers who are 50 or older. For 2025, the annual contribution limit is $23,500 with $7,500 in catch-up contributions for those aged 50 and up. Also in 2025, those 60 to 63 may contribute an additional $11,250 instead of $7,500 to a 457 plan, thanks to SECURE 2.0.

One big difference with 457 plans is that these limits are cumulative, meaning they include both employee and employer contributions rather than allowing for separate matching contributions the way a 401(k) does.

Another interesting point of distinction for older savers: If permitted, workers can also make special catch-up contributions if they are in the three-year window leading up to retirement.

They can contribute the lesser of the annual contribution limit, plus the amount of the limit not used in any prior years. The second calculation is only allowed if the employee is not making regular catch-up contributions.

Vesting in a 457 Retirement Plan

Vesting for a 457 plan is similar to vesting for a 401(k). You’re always 100% vested in any contributions you make to the plan. The plan can define the vesting schedule for employer contributions. For example, your job may base vesting on your years of service or your age.

As with a 401(k), any unvested amounts in a 457 retirement plan are forfeited if you separate from your employer for any reason. So if you’re planning to change jobs or retire early, you’d need to calculate how much of your retirement savings you’d be entitled to walk away with, based on the plan’s vesting schedule.

457 vs 401(k): Comparing the Pros

When comparing a 457 plan vs. 401(k), it’s important to look at how each one can benefit you when saving for retirement. The main advantages of using a 457 plan or a 401(k) to save include:

•   Both offer tax-deferred growth

•   Contributions reduce taxable income

•   Employers may match contributions, giving you free money for retirement

•   Both offer generous contribution limits, with room for catch-up contributions

•   Both may offer loans and/or hardship withdrawals

Specific 457 Plan Advantages

A 457 plan offers a few more advantages over a 401(k).

Unlike 401(k) plans, which require employees to wait until age 59 ½ before making qualified withdrawals, 457 plans allow withdrawals at whatever age the employee retires. And the IRS doesn’t impose a 10% early withdrawal penalty on withdrawals made before age 59 ½ if you retire (or take a hardship distribution).

Also, independent contractors can participate in an organization’s 457 plan.

And, as noted above, 457 plans have that special catch-up provision option, for those within three years of retirement.

457 vs 401(k): Comparing the Cons

Any time you’re trying to select a retirement plan, you also have to factor in the potential downsides. In terms of the disadvantages associated with a 457 retirement plan vs. 401(k) plans, they aren’t that different. Here are some of the main cons of both of these retirement plans:

•   Vesting of employer contributions can take several years, and plans vary

•   Employer matching contributions are optional, and not every plan offers them

•   Both plans are subject to RMD rules, unless they are Roth 401(k)s or Roth-designated 457 plans

•   Loans and hardship withdrawals are optional

•   Both can carry high plan fees and investment options may be limited

Perhaps the biggest drawback to 457 plans is that employer and employee contributions are combined when applying the annual IRS limit. A 401(k) plan doesn’t have that same requirement so you could make the full annual contribution and enjoy an employer match on top of it.

457 vs 401(k): The Differences

The most obvious difference between a 401(k) vs. 457 account is who they’re meant for. If you work for a state or local government agency or an eligible nonprofit, then your employer can offer a 457 plan for retirement savings. All other employers can offer a 401(k) instead.

Aside from that, 457 plans are not governed by ERISA since they’re not qualified plans. A 457 plan also varies from a 401(k) with regard to early withdrawal penalties and the special catch-up contributions allowed for employees who are nearing retirement. Additionally, a 457 plan may require employees to prove an unforeseeable emergency in order to take a hardship distribution.

A 457 plan and a 401(k) can offer a different range of investments as well. The investments offered are determined by the plan administrator.

457 vs 401(k): The Similarities

Both 457 and 401(k) plans are subject to the same annual contribution limits, though again, the way the limit is applied to employer and employee contributions is different. With traditional 401(k) and 457 plans, contributions reduce your taxable income and withdrawals are taxed at your ordinary income tax rate. When you reach age 73, unless you have the Roth version of these plans, you’ll need to take RMDs unless you’re still working.

Either plan may allow you to take a loan, which you’d repay through salary deferrals. Both have vesting schedules you’d need to follow before you could claim ownership of employer matching contributions. With either type of plan you may have access to professional financial advice, which is a plus if you need help making investment decisions.

457 vs 401(k): Which Is Better?

A 457 plan isn’t necessarily better than a 401(k) and vice versa. If you have access to either of these plans at work, both could help you to get closer to your retirement savings goals.

A 401(k) has an edge when it comes to regular contributions, since employer matches don’t count against your annual contribution limit. But if you have a 457 plan, you could benefit from the special catch-up contribution provision which you don’t get with a 401(k).

If you’re planning an early retirement, a 457 plan could be better since there’s no early withdrawal penalty if you take money out before age 59 ½. But if you want to be able to stash as much money as possible in your plan, including both your contributions and employer matching contributions, a 401(k) could be better suited to the task.

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Investing in Retirement With SoFi

If you’re lucky enough to work for an organization that offers both a 457 plan and a 401(k) plan, you could double up on your savings and contribute the maximum to both plans. Or, you may want to choose between them, in which case it helps to know the main points of distinction between these two, very similar plans.

Basically, a 401(k) has more stringent withdrawal rules compared with a 457, and a 457 has more flexible catch-up provisions. But a 457 can have effectively lower contribution limits, owing to the inclusion of any employer contributions in the overall plan limits.

The main benefit of both plans is the tax-advantaged opportunity to save for retirement. The money you contribute reduces your taxable income, and grows tax free (you only pay taxes when you take money out).

Another strategy that can help you manage your retirement savings: Consider rolling over an old 401(k) account so you can keep track of your money in one place. SoFi makes setting up a rollover IRA pretty straightforward, and there are no rollover fees or taxes.

Help grow your nest egg with a SoFi IRA.

FAQ

What similarities do 457 and 401(k) retirement plans have?

A 457 and a 401(k) plan are both tax-advantaged, with contributions that reduce your taxable income and grow tax-deferred. Both have the same annual contribution limit and regular catch-up contribution limit for savers who are 50 or older, plus an additional catch-up contribution in 2025 for those 60 to 63. Either plan may allow for loans or hardship distributions. Both may offer designated Roth accounts.

What differences do 457 and 401(k) retirement plans have?

A 457 plan includes employer matching contributions in the annual contribution limit, whereas a 401(k) plan does not. You can withdraw money early from a 457 plan with no penalty if you’ve separated from your employer. A 457 plan may be offered to employees of state and local governments or certain nonprofits while private employers can offer 401(k) plans to employees.

Is a 457 better than a 401(k) retirement plan?

A 457 plan may be better for retirement if you plan to retire early. You can make special catch-up contributions in the three years prior to retirement and you can withdraw money early with no penalty if you leave your employer. A 401(k) plan, meanwhile, could be better if you’re hoping to maximize regular contributions and employer matching contributions.

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.


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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.

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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25
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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 4.30% Annual Percentage Yield (APY) on SoFi Savings with a 0.70% APY Boost (added to the 3.60% APY as of 11/12/25) for up to 6 months. Open a new SoFi Checking & Savings account and enroll in SoFi Plus by 1/31/26. 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 3.60% 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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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 the APY for account holders with Eligible Direct Deposit, we encourage you to check your APY Details page the day after your Eligible Direct Deposit posts to your SoFi account. If your APY is not showing as the APY for account holders with Eligible Direct Deposit, 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 the APY for account holders with Eligible Direct Deposit from the date you contact SoFi for the next 31 calendar days. You will also be eligible for the APY for account holders with Eligible Direct Deposit on future Eligible Direct Deposits, as long as SoFi Bank can validate them.

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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.

Take control of your finances with SoFi. With our financial insights and credit score monitoring tools, you can view all of your accounts in one convenient dashboard. From there, you can see your various balances, spending breakdowns, and credit score. Plus you can easily set up budgets and discover valuable financial insights — all at no cost.


See exactly how your money comes and goes at a glance.

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

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

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