Dec
03
2025
What is an IRA?

What Is an IRA?

By | Growing Wealth, invest, Investing, Terminology | No Comments

What Is an IRA?

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

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

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

Key Points

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

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

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

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

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

What Are the Different Types of IRA Accounts?

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

Here is an overview of some different types of IRAs:

Get a 1% IRA match on rollovers and contributions.

Double down on your retirement goals with a 1% match on every dollar you roll over and contribute to a SoFi IRA.1

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.

Traditional IRA

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

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

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

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

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

Calculate your IRA contributions.

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

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Roth IRA

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

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

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

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

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

SEP IRA

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

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

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

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

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

SIMPLE IRA

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

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

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

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

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

money management guide for beginners

How to Open an IRA

Benefits of Opening an IRA

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

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

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

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

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

Which Type of IRA Works for You?

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

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

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

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

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

How Much Should You Contribute to an IRA?

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

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

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

How Can You Use IRA Funds?

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

IRA withdrawal exceptions include:

•   Permanent disability

•   Higher education expenses

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

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

•   Health insurance premiums while unemployed

•   IRS levy of the plan

•   Qualified military reservist called to active duty

•   Death of the IRA’s owner

The Takeaway

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

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

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

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

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

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

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

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

When should I make IRA contributions?

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

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

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

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

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

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

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

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Dec
03
2025

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

By | Growing Wealth, invest, Investing | Comments Off on How to Convert a Traditional 401(k) to a Roth IRA

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

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

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

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

Key Points

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

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

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

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

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

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

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

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

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

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


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

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

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

1. Open a new Roth IRA account.

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

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

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

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

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

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

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

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

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

Get a 1% IRA match on rollovers and contributions.

Double down on your retirement goals with a 1% match on every dollar you roll over and contribute to a SoFi IRA.1

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.

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

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

Roth IRA Contribution Limits

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

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

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

•   $23,500 for those under age 50.

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

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

In 2026, 401(k) contribution limits are:

•   $24,500 for those under age 50.

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

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

Income Limits for Roth IRA Eligibility

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

For tax year 2025, single filers with a MAGI:

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

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

•   $168,000 or more can’t contribute.

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

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

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

•   $246,000 or more can’t contribute.

For tax year 2026, single filers with a MAGI:

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

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

•   $168,000 or more can’t contribute.

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

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

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

•   $252,000 or more can’t contribute.

Rollover Amount Will be Taxed

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

A Roth IRA is Subject to the Five-Year Rule

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

Penalties for Early Withdrawals

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

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

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

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

Can You Reduce the Tax Impact?

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

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

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

The Takeaway

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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Nov
28
2025
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Selling a House With a Mortgage: Can You Do It?

By | Home Ownership, mortgage | Comments Off on Selling a House With a Mortgage: Can You Do It?

It’s entirely possible to sell a house with a mortgage. In fact, it’s common to sell a property that still has a mortgage, because most people don’t stay in a home long enough to pay off the home loan.

With the help of your lender and real estate agent, you can move ahead and sell a house with a mortgage. Yes, there’s a bit of paperwork involved, but settling your mortgage at the closing table shouldn’t prove too challenging. Here’s everything you need to know about selling a home with a mortgage.

Key Points

•   Selling a house with an outstanding mortgage is common, as the loan is typically paid off using the proceeds from the sale at closing.

•   When selling, you must first get a payoff quote from your mortgage servicer.

•   Your home equity — the difference between the home’s value and your mortgage payoff amount — determines your profit after costs are covered.

•   In a typical sale, the buyer’s payment clears your mortgage and closing costs, and any remaining equity is paid out to you.

•   If you owe more on the mortgage than the home is worth, you will need to pay the difference out-of-pocket or request a short sale from your lender.

What Happens to Your Mortgage When You Sell Your Home?

When you sell your home, the amount you contracted with the buyer is put toward your mortgage and settlement costs before any excess funds are wired to you. Here’s how it works for different transaction types.

A Typical Sale

In a typical sale, homeowners will put their current home on the market before buying another one. Assuming the homeowners have more value in their home than what is owed on their mortgage, they can take the proceeds from the sale of the home and apply that money to the purchase of a new home.

A Short Sale

A short sale is one when you cannot sell the home for what you owe on the mortgage and need to ask the lender to cover the difference (or short).

In a short sale transaction, the mortgage lender and servicer must accept the buyer’s offer before an escrow account can be opened for the sale of the property. This type of mortgage relief transaction can be lengthy (up to 120 days) and involves a lot of paperwork. It’s not common in areas where values are falling or at times when the real estate market is dropping.

When You Buy Another House

There are several roads you can take when you buy another house before selling your own. You may have the option of:

•   Holding two mortgages. If your lender approves you for a new mortgage without selling your current home, you may be able to use this option when shopping for a mortgage. However, you won’t be able to use funds from the sale of your current home for the purchase of your next home.

•   Including a home sale contingency in your real estate contract. The home sale contingency states that the purchase of the new home depends upon the sale of the old home. In other words, the contract is not binding unless you find a buyer to purchase the old home. The two transactions are often tied together. When the sale of the old home closes, it can immediately fund the down payment and closing costs of the new home (depending on how much there is, of course). Keep in mind that a home sale contingency can make your offer less competitive in a hot real estate market where sellers are not willing to wait around for a buyer’s home to sell.

•   Getting a bridge loan. A bridge loan is a short-term loan used to fund the costs of obtaining a new home before selling the old home. The interest rates are usually pretty high, but most homebuyers don’t plan to hold the loan for long.

💡 Quick Tip: You deserve a more zen mortgage. Look for a mortgage lender who’s dedicated to closing your loan on time.

Selling a House With a Mortgage: Step by Step

Here are the steps to take to sell a home that still has a mortgage.

Get a Payoff Quote

To determine exactly how much of the mortgage you still owe, you’ll need a payoff quote from your mortgage servicer. This is not the same thing as the balance shown on your last mortgage statement. The payoff amount will include any interest still owed until the day your loan is paid off, as well as any fees you may owe.

The payoff quote will have an expiration date. If the outstanding mortgage balance is paid off before that date, the amount on the payoff quote is valid. If it is paid after, sellers will need to obtain a new payoff quote.

Determine Your Home Equity

Equity is the difference between what your property is worth and what you owe on your mortgage (your payoff quote is most accurate). If your home is worth $400,000 and your payoff amount on the existing mortgage is $250,000, your equity is $150,000.

When you sell your home, you gain access to this equity. Your mortgage, any second mortgage like a home equity loan, and closing costs are settled, and then you are wired the excess amount to use how you like. Many homeowners opt to use part or all of the money as a down payment on their next home.

Secure a Real Estate Agent

A real estate agent can walk you through the process of selling a home with a mortgage and clear up questions on other mortgage basics. Your agent will be particularly valuable if you need to buy a new home before selling your current home.

Set a Price

With your agent, you will look at factors that affect property value, such as comparable sales in your area, to help you set a price. There are different price strategies you can review with your agent to bring in more buyers to bid on your home.

Accept a Bid and Open Escrow

After an open house and showings, you may have an offer (or a handful). Consider what you value in accepting an offer. Do you want a fast close? The highest price? A buyer who is flexible with your moving date? A buyer with mortgage preapproval?

You may also choose to continue negotiating with prospective buyers. Once you’ve selected a buyer and have signed the contract, it’s time to go into escrow.

Review Your Settlement Statement

You’ll be in escrow until the day your transaction closes. An escrow or title agent is the intermediary between you and the buyer until the deal is done. While the loan is being processed, title reports are prepared, inspections are held, and other details to close the deal are being worked out.

Three days before, you’ll see a closing disclosure (if you’re buying a house at the same time) and a settlement statement. The settlement statement outlines fees and charges of the real estate transaction and pinpoints how much money you’ll net by selling your home.

💡 Quick Tip: Generally, the lower your debt-to-income ratio, the better loan terms you’ll be offered. One way to improve your ratio is to increase your income (hello, side hustle!). Another way is to consolidate your debt and lower your monthly debt payments.

Selling a House With a Negative Equity

Negative equity means that the value of an asset (such as a home) is less than the balance due on the loan against it. Say you purchased a property for $400,000 with a $380,000 loan, but then the real estate market took a nosedive. Your property is now worth $350,000, less than the amount of the mortgage.

If you have negative equity in the home and need to sell it, it is possible to sell if you come up with the difference yourself.

In this scenario (an alternative to a short sale), you pay the difference between the amount left on your mortgage note and the purchase offer at closing. So in the example above, if you sold the house for $350,000, at the closing, you would need to pay the loan holder an additional $30,000 to clear the debt.

The Takeaway

Selling a house with a mortgage is common. The buyer pays the sales price, and that money is used to pay off your remaining mortgage, your closing costs, and any second mortgage. The rest is your profit to spend however you like — perhaps on a new house.

Looking for an affordable option for a home mortgage loan? SoFi can help: We offer low down payments (as little as 3% - 5%*) with our competitive and flexible home mortgage loans. Plus, applying is extra convenient: It's online, with access to one-on-one help.

SoFi Mortgages: simple, smart, and so affordable.

FAQ

Who is responsible for the mortgage on the house during the sale?

The homeowner is responsible for continuing to pay the mortgage until paperwork is signed on closing day.

What happens if you sell a house with a HELOC?

When you sell a home that is used to secure a home equity line of credit with a balance, a home equity loan, or any other kind of lien against the house, that will need to be paid off before the remaining equity is paid out to you.

What happens to escrow money when you sell your house?

Your mortgage escrow account will be closed, and any money left will be refunded to you.

Can I make a profit on a house I still owe on?

Yes. You can make a profit if the amount you sell your house for is greater than the amount you owe on it, less closing and settlement costs.

Can I have two mortgages at once?

Yes, you can have two mortgages at once if the lender approves it.

Photo credit: iStock/Beton studio

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

SoFi Mortgages
Terms, conditions, and state restrictions apply. Not all products are available in all states. See SoFi.com/eligibility-criteria for more information.


*SoFi requires Private Mortgage Insurance (PMI) for conforming home loans with a loan-to-value (LTV) ratio greater than 80%. As little as 3% down payments are for qualifying first-time homebuyers only. 5% minimum applies to other borrowers. Other loan types may require different fees or insurance (e.g., VA funding fee, FHA Mortgage Insurance Premiums, etc.). Loan requirements may vary depending on your down payment amount, and minimum down payment varies by loan type.
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.
²SoFi Bank, N.A. NMLS #696891 (Member FDIC), offers loans directly or we may assist you in obtaining a loan from SpringEQ, a state licensed lender, NMLS #1464945.
All loan terms, fees, and rates may vary based upon your individual financial and personal circumstances and state.
You should consider and discuss with your loan officer whether a Cash Out Refinance, Home Equity Loan or a Home Equity Line of Credit is appropriate. Please note that the SoFi member discount does not apply to Home Equity Loans or Lines of Credit not originated by SoFi Bank. Terms and conditions will apply. Before you apply, please note that not all products are offered in all states, and all loans are subject to eligibility restrictions and limitations, including requirements related to loan applicant’s credit, income, property, and a minimum loan amount. Lowest rates are reserved for the most creditworthy borrowers. Products, rates, benefits, terms, and conditions are subject to change without notice. Learn more at SoFi.com/eligibility-criteria. Information current as of 06/27/24.
In the event SoFi serves as broker to Spring EQ for your loan, SoFi will be paid a fee.

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

SOHL-Q425-193

Read more
Nov
25
2025
A pair of hands wearing work gloves reaches toward an HVAC unit hanging against a peach-colored wall. The right hand holds a screwdriver.

How to Track Home Improvement Costs — and Why You Should

By | Family Finances, Home Ownership, mortgage | Comments Off on How to Track Home Improvement Costs — and Why You Should

Embarking on a home renovation to transform your living space is an exciting endeavor. Home improvements are also an investment that can significantly increase the value of your property, so it’s important to track expenses to be prepared for capital gains tax when you sell your home. Tracking home improvement costs can also help homeowners stick to a budget and ensure a greater return on investment.

Let’s take a closer look at how to track home improvement costs, which upgrades qualify for tax purposes, and options for financing a home renovation.

Key Points

•   Tracking home improvement costs can help reduce or eliminate capital gains tax when you sell your home.

•   The IRS allows qualifying home improvement costs to be added to your primary residence’s original cost basis, lowering your taxable profit.

•   Qualifying improvements must add value, prolong the life, or adapt the home for new uses; routine repairs and replaced items do not qualify.

•   Maintain detailed records, including receipts, invoices, and before-and-after photos, and keep them for three years after the tax return for the sale year.

•   Common financing options for home improvements include a home equity line of credit (HELOC), cash-out refinance, personal loan, or credit card.

Why Track Home Improvement Costs?

Amid all the work and logistics that goes into renovations, tracking home improvement costs might not feel like a high priority. However, having documented home improvement costs can help reduce potential capital gains tax when it’s time to sell your home.

The IRS allows qualifying home improvement costs to be added to the original purchase price of the property, known as the cost basis, when calculating capital gains on a home sale. The basis is subtracted from the home sale price to determine if you’ve realized a gain and subsequently owe tax. But by adding home improvement expenses to your cost basis, the profit from the sale that’s subject to taxes decreases — lowering or even potentially exempting you from property gains tax.

Besides home improvements, other factors that affect property value, like location and the current housing market, could make a property sale subject to capital gains tax.

Here’s an example of how capital gains tax on a home sale works: A married couple who purchased a home for $200,000 in 2001 and sold it for $750,000 in 2025 would have a $550,000 realized gain. Assuming that the sellers made this home their main residence for two of the last five years, they’d be able to exclude $500,000 of the gain from taxes. The remaining $50,000 would be taxed at 0%, 15%, or 20% based on the sellers’ income and how long they owned the property.

However, the sellers spent $70,000 on home improvements during their 23 years of homeownership, so the capital gains calculation would be revised to: $750,000 – ($200,000 + $70,000) = $480,000. Tracking home improvement costs in this example exempted the sellers from needing to pay capital gains taxes.

Note that single filers may exclude only the first $250,000 of realized gains from the sale of their home. Eligibility for the exclusion also requires living in the home for at least two years out of the last five years leading up to the date of sale. Those who own vacation homes should note that the IRS has very specific rules about what constitutes a main residence.

💡 Quick Tip: A Home Equity Line of Credit (HELOC) brokered by SoFi lets you access up to $500,000 of your home’s equity (up to 90%) to pay for, well, just about anything. It could be a smart way to consolidate debts or find the funds for a big home project.

Qualifying vs. Nonqualifying Improvements

The IRS sets guidelines that determine what home improvements can be added to your cost basis for calculating capital gains tax. Thus, not every dollar spent on sprucing up your home’s curb appeal or living space needs to be tracked for tax purposes. Generally, tracking costs is a good idea for any home improvements that increase your home’s value and fall outside general repair and upkeep to maintain the property’s condition.

Qualifying Improvements

According to the IRS, improvements that add value to the home, prolong its useful life, or adapt it to new uses can qualify. This includes the following categories and home improvements:

•   Home additions: Bedroom, bathroom, deck, garage, porch, or patio

•   Home systems: HVAC systems, central humidifier, central vacuum, air/water filtration systems, wiring, security systems, law and sprinkler systems.

•   Lawn & grounds: Landscaping, driveway improvements, fencing, walkways, retaining walls, and pools

•   Exterior: Storm windows, roofing, doors, siding

•   Interior: Built-in appliances, kitchen upgrades, flooring, wall-to-wall carpeting, fireplaces

•   Insulation: Attic, walls, floors, pipes, and ductwork

•   Plumbing: Septic system, water heater, soft water system, filtration system

It’s also important to track any tax credits or subsidies received for energy-related home improvements, such as solar panels or a heat pump system, since these incentives must be subtracted from the cost basis.

Recommended: How to Find a Contractor for Home Renovations and Remodeling

Nonqualifying Expenses

Owning a home requires routine maintenance and occasional repairs — think fixing a leaky pipe or mowing the lawn. And the longer you own your home, the greater the chance you reapproach past home improvements with a fresh design or modern technologies. The IRS considers regular maintenance and any home improvement that’s been later replaced as nonqualifying costs.

For instance, a homeowner could have installed wall-to-wall carpet and later swapped it out for hardwood floors. In this case, the hardwood floors would qualify, but not the carpeting.

Recommended: The Costs of Owning a Home

How to Track Your Costs

Developing a system for tracking home improvement costs depends in part on where you are in the process. Here’s how to get track home improvement costs before, during, and after a renovation project.

Before You Renovate

The average cost to renovate a house can vary from $20,000 to $80,000 based on the size of the home and type of improvements. Given this range in cost expectations, it’s helpful to create an itemized budget that estimates the cost for each improvement. It’s hardly uncommon for renovations to take more time and money than expected, so consider budgeting an extra 10% to 20% for the unexpected. “One strategy to approaching home improvements is to create your dream list but have alternates in mind in case your budget or material availability creates a need to alter the project down the road. For example, you may love the look of marble flooring, but its price point might be higher than you initially estimated. Having a cost-efficient back-up plan can keep your budget in check,” says Brian Walsh, CFP® and Head of Advice & Planning at SoFi.

Your itemized budget can be leveraged for tracking home improvement costs once the project starts. Simply plug in the completion date, cost, and description for each improvement, and keep receipts, to itemize the expense as it’s incurred.

Recommended: How to Make a Budget in 5 Steps

Keep Detailed Records

Tracking home improvement costs goes beyond crunching the numbers. The IRS requires documentation to adjust the cost basis on a property. As improvements are made, catalog contractor and store receipts and take pictures before and after the work is done to document the improvements for your records. Store these records digitally in a secure and accessible location; the IRS recommends keeping records for three years after the tax return for the year in which you sell your home.

Catch Up After the Fact

Tracking home improvement costs after the work has been completed is doable, but it requires more effort. If your renovations required any building permits, your municipality should have records on file.

For other projects, start by searching your email for receipts and records. This can help you find a paper trail and track down documentation. Reach out to contractors you worked with for copies of missing receipts or invoices. If you paid with a check or credit card, you can browse through your previous statements or contact the bank for assistance.

Consult a Tax Pro

Taxes are complicated. If you have any doubts about what improvements qualify, consult a tax professional for assistance. Homeowners who used their property as a home office or rented it for any duration could especially benefit from a tax pro. Any property depreciation that was claimed in previous tax years may need to be recaptured if the home sale price exceeds the cost basis.

Home Improvement Financing Options

Renovations and upgrades to your home can be expensive. Many homeowners use a combination of savings and financing to pay for home improvements.

•   HELOC: A home equity line of credit lets homeowners tap into their existing equity to fund a variety of expenses, such as home improvements. With a HELOC, you can take out what you need as you need it, rather than the full amount you’re approved for, which could be up to 90% of your equity. You only pay interest on the amount you draw.

•   Cash-out refinance: Some owners take out a new home loan that allows them to pay off their old mortgage but also provides them with a lump sum of cash that they can use for home repairs (or other expenses). How much you might be able to borrow using this cash-out refi process will depend on the amount of equity you have in your home. (Your equity is the home’s market value minus whatever you owe on your home loan.)

•   Personal loan: An unsecured personal loan could be a good option for quick funding that doesn’t require using your home as collateral. The interest rate and whether you qualify are largely based on your credit score.

•   Credit card: Financing a home improvement with a credit card can help earn cash back or rewards on your investment. However, these perks should be weighed against the risk of higher interest rates. If using a 0% interest credit card, crunch the numbers to ensure you can pay off the balance before the introductory offer expires.

The Takeaway

Tracking home improvement costs from the start can help stick to your project budget and lead to significant tax savings when it comes time to sell your property. A HELOC is one way to fund home improvements, and may be especially useful to borrowers who aren’t sure how much money they will need for home projects. If you’re unsure whether a home improvement qualifies under the IRS rules around capital gains tax on home sales, consult a tax professional.

SoFi now partners with Spring EQ to offer flexible HELOCs. Our HELOC options allow you to access up to 90% of your home’s value, or $500,000, at competitively lower rates. And the application process is quick and convenient.

Unlock your home’s value with a home equity line of credit brokered by SoFi.

FAQ

Does the IRS require receipts for home improvements?

Although you aren’t required to provide receipts to the IRS when filing your taxes, you should have them as proof of the money you spent on home improvements in the event that you are audited. Keep all receipts for significant renovations for as long as you own the home and three years after the tax year in which you sell the property.

Will my property taxes increase if I remodel?

If your renovation requires pulling a building permit, there is a good chance your taxes will increase on your next home assessment because tax assessors can access building department records.

If I sell my home at a loss is the loss tax deductible?

Selling your home at a loss does not provide you with a tax deduction. In this instance, the IRS treats the loss differently than it does a loss resulting from an investment in, say, the stock market.

Photo credit: iStock/Cucurudza

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


SoFi Mortgages
Terms, conditions, and state restrictions apply. Not all products are available in all states. See SoFi.com/eligibility-criteria for more information.



*SoFi requires Private Mortgage Insurance (PMI) for conforming home loans with a loan-to-value (LTV) ratio greater than 80%. As little as 3% down payments are for qualifying first-time homebuyers only. 5% minimum applies to other borrowers. Other loan types may require different fees or insurance (e.g., VA funding fee, FHA Mortgage Insurance Premiums, etc.). Loan requirements may vary depending on your down payment amount, and minimum down payment varies by loan type.

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.

²SoFi Bank, N.A. NMLS #696891 (Member FDIC), offers loans directly or we may assist you in obtaining a loan from SpringEQ, a state licensed lender, NMLS #1464945.
All loan terms, fees, and rates may vary based upon your individual financial and personal circumstances and state.
You should consider and discuss with your loan officer whether a Cash Out Refinance, Home Equity Loan or a Home Equity Line of Credit is appropriate. Please note that the SoFi member discount does not apply to Home Equity Loans or Lines of Credit not originated by SoFi Bank. Terms and conditions will apply. Before you apply, please note that not all products are offered in all states, and all loans are subject to eligibility restrictions and limitations, including requirements related to loan applicant’s credit, income, property, and a minimum loan amount. Lowest rates are reserved for the most creditworthy borrowers. Products, rates, benefits, terms, and conditions are subject to change without notice. Learn more at SoFi.com/eligibility-criteria. Information current as of 06/27/24.
In the event SoFi serves as broker to Spring EQ for your loan, SoFi will be paid a fee.


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

SOHL-Q425-192

Read more
Nov
20
2025
house keychain on key in door

Top 50 Safest Cities in the US

By | Home Ownership, mortgage | Comments Off on Top 50 Safest Cities in the US

For many homebuyers, safety is a top concern when shopping for a house. It can influence where you feel comfortable living, and safety ratings can have a big effect on local housing market trends.

If you’re in the market to buy or rent a home and you’re looking for just the right spot, check out this list of the 50 safest cities from NeighborhoodScout.

Key Points

•   The safest cities in the U.S. are determined based on the number of violent and property crimes per 1,000 inhabitants in each city.

•   Factors such as low crime rates, strong law enforcement presence, and proactive community initiatives contribute to a city’s safety.

•   The safest cities can vary by region and population size, with smaller cities often ranking higher.

•   Safety rankings can help individuals and families make informed decisions about where to live and raise children.

How Is the Safest Cities List Determined?

To compile its list of the safest cities, NeighborhoodScout looks at FBI statistics for property and violent crime in cities across the country that have a population of 25,000 or more. This list now includes areas with a township form of government, which has resulted in a larger pool of locations and many newcomers to the list. (See the full list of 100 safest cities on the NeighborhoodScout site.)

💡 Quick Tip: Buying a home shouldn’t be aggravating. SoFi’s online mortgage application is quick and simple, with dedicated Mortgage Loan Officers to guide you through the process.


Get matched with a local
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$9,500‡ cash back when you close.

What Are the Safest Cities in the US?

The safest cities in America tend to be suburban areas close to major cities like Boston. Only one spot on this list, Rexburg, Idaho, is outside a major metropolitan area.

Massachusetts is home to the most cities on the list at 18. Texas, with six cities on the list, ranks in second place.

Recommended: Price-to-Rent Ratio in 50 Cities

The 50 Safest US Cities in 2025

Here’s a countdown of the 50 safest cities in the U.S. that you could call home. Consider safety, along with local housing market trends, if you’re thinking about relocating.

50. Friendswood, Texas

Friendswood began as a Quaker town in 1895 and became known for growing and preserving Magnolia figs. Since the 1950s, it has transformed into a quiet bedroom community 30 minutes from Houston and Galveston.

Population: 41,004
Total Crime Rate (per 1,000 residents): 6.5
Chance of Being a Victim: 1 in 152
Major City Nearby: Houston

49. Newton, Massachusetts

A strong school system and proximity to downtown Boston draw homebuyers to this suburban community, which is actually a cluster of 13 villages.

Population: 87,453
Total Crime Rate (per 1,000 residents): 6.5
Chance of Being a Victim: 1 in 152
Major City Nearby: Boston

48. Prosper, Texas

This growing town in the Dallas area is known for great schools and beautiful scenery. Texas has no state income tax, which may be a draw for many homebuyers, although it does have a sales tax and property taxes may be higher than in some other areas.

Population: 34,136
Total Crime Rate (per 1,000 residents): 6.4
Chance of Being a Victim: 1 in 155
Major City Nearby: Dallas

47. Dracut, Massachusetts

Dracut was home to Pennacook Indian settlements before Europeans arrived in the 1650s, and the town’s early economy depended on manufacturing and milling. The town provides easy access to the Lowell and Boston metropolitan areas.

Population: 32,159
Total Crime Rate (per 1,000 residents): 6.4
Chance of Being a Victim: 1 in 155
Major City Nearby: Boston

46. Shrewsbury, Massachusetts

Shrewsbury was incorporated in 1727 and rests just outside the Boston metropolitan area near the city of Worcester. Although the violent crime rate has risen in recent years (while the property crime rate has declined), it is still one of the safest places to live in the U.S.

Population: 38,999
Total Crime Rate (per 1,000 residents): 6.4
Chance of Being a Victim: 1 in 156
Major City Nearby: Worcester

45. Keller, Texas

Settled in the 1850s and named for a railroad foreman, Keller today blends urban amenities with a small-town emphasis on quality of life for its residents. The lovely Big Bear Creek Trail cuts through the city, ensuring access to a natural setting.

Population: 45,397
Total Crime Rate (per 1,000 residents): 6.3
Chance of Being a Victim: 1 in 158
Major City Nearby: Dallas

44. Rochester Hills, Michigan

This Detroit suburb features the 102-acre Avon Nature Study Area on the Clinton River and the Rochester Hills Museum, where visitors can learn about pioneer farmers, Native American history, and local ecology.

Population: 76,028
Total Crime Rate (per 1,000 residents): 6.2
Chance of Being a Victim: 1 in 160
Major City Nearby: Detroit

43. Beverly, Massachusetts

Beverly is a suburb of Boston on the North Shore of Massachusetts, just north of Salem. Like its witchy neighbor, Beverly offers historic New England architecture and water access.

Population: 42,446
Total Crime Rate (per 1,000 residents): 6.2
Chance of Being a Victim: 1 in 161
Major City Nearby: Boston

42. North Kingstown, Rhode Island

Sailboats bob on the water in this pretty Narragansett Bay town. A cluster of villages, the town was settled in the 17th century and boasts some buildings from that era, as well as the Silas Casey Farm, which is maintained as a classic New England farmstead.

Population: 27,911
Total Crime Rate (per 1,000 residents): 6.1
Chance of Being a Victim: 1 in 162
Major City Nearby: Providence

41. Ballwin, Missouri

This West St. Louis town, home to high-quality public schools, is located within 30 minutes of five universities and colleges. It has a diverse array of housing options at many price points.

Population: 30,870
Total Crime Rate (per 1,000 residents): 6.1
Chance of Being a Victim: 1 in 162
Major City Nearby: St. Louis

40. Melrose, Massachusetts

Another suburb of Boston, Melrose was first known as Ponde Fielde due to its many ponds and streams. The charming Downtown Melrose, known for its Victorian architecture, is on the National Register of Historic Places.

Population: 29,312
Total Crime Rate (per 1,000 residents): 6.0
Chance of Being a Victim: 1 in 164
Major City Nearby: Boston


💡 Quick Tip: To see a house in person, particularly in a tight or expensive market, you may need to show the real estate agent proof that you’re preapproved for a mortgage. SoFi’s online application makes the process simple

39. Milton, Georgia

Milton has one of Georgia’s highest rates of educational attainment and lowest rates of unemployment. The majority of its 39 square miles are zoned for agriculture, so residential lots are large here, at least one acre.

Population: 41,259
Total Crime Rate (per 1,000 residents): 5.9
Chance of Being a Victim: 1 in 167
Major City Nearby: Atlanta

38. Commerce Township, Michigan

Commerce Township boasts easy access to lots of lakes, although not all are accessible to the public. If waterfront living is a goal, there are many options here, from smaller, older cottages to spacious new homes.

Population: 38,718
Total Crime Rate (per 1,000 residents): 5.9
Chance of Being a Victim: 1 in 169
Major City Nearby: Detroit

37. Wylie, Texas

Once known as the “Onion Capital of the World,” Wylie is a fast-growing community with strong schools and abundant recreation opportunities for families.

Population: 59,394
Total Crime Rate (per 1,000 residents): 5.9
Chance of Being a Victim: 1 in 169
Major City Nearby: Dallas

36. Waltham, Massachusetts

Nicknamed “the watch city” because it was home to an early watch factory, this diverse Boston suburb dates from the 17th century. Today, it is home to both Bentley University and Brandeis University.

Population: 64,015
Total Crime Rate (per 1,000 residents): 5.8
Chance of Being a Victim: 1 in 169
Major City Nearby: Boston

35. Merrimack, New Hampshire

Options abound in Merrimack. Within an hour, you can get to busy Boston, hike in the beautiful Kearsarge Mountain State Forest, or take a dip at Hampton Beach State Park on the Atlantic coast.

Population: 27,132
Total Crime Rate (per 1,000 residents): 5.7
Chance of Being a Victim: 1 in 172
Major City Nearby: Manchester

34. Little Elm, Texas

A suburban vibe and easy access to parks and lakes, including an entertainment district on the shores of Lake Lewisville, would make this an appealing place to live even if crime rates weren’t so exceptionally low.

Population: 51,042
Total Crime Rate (per 1,000 residents): 5.6
Chance of Being a Victim: 1 in 176
Major City Nearby: Dallas

33. Edwardsville, Illinois

Edwardsville may be in Illinois, but it is a suburb of St. Louis and benefited from proximity to Route 66 as it grew. Among the oldest cities in Illinois, it has produced five of the state’s governors.

Population: 25,218
Total Crime Rate (per 1,000 residents): 5.5
Chance of Being a Victim: 1 in 178
Major City Nearby: St. Louis

32. Andover, Massachusetts

Andover, about 23 miles north of Boston, was incorporated in 1646 and later became a thriving mill town. The city is home to prestigious college prep school Phillips Academy.

Population: 36,517
Total Crime Rate (per 1,000 residents): 5.4
Chance of Being a Victim: 1 in 182
Major City Nearby: Boston

31. Cumberland, Rhode Island

Cumberland boasts a lovely bike trail which is part of a continuous 31.9-mile route. Its unique public library is built on the site of a former monastery, with tranquil walking paths and has offered, in the summer, a free “Music at the Monastery” concert series.

Population: 36,434
Total Crime Rate (per 1,000 residents): 5.4
Chance of Being a Victim: 1 in 184
Major City Nearby: Providence

30. Brandon, Mississippi

This city may be approaching its 100th birthday, but it is one of the fastest-growing cities in Mississippi.

Population: 25,373
Total Crime Rate (per 1,000 residents): 5.3
Chance of Being a Victim: 1 in 186
Major City Nearby: Jackson

29. Mundelein, Illinois

Less than an hour west of Chicago, Mundelein offers well-priced housing and a strong school system. Top employers are industrial and manufacturing companies, but the village also offers easy access to the Windy City.

Population: 31,560
Total Crime Rate (per 1,000 residents): 5.3
Chance of Being a Victim: 1 in 187
Major City Nearby: Chicago

28. Wellesley, Massachusetts

West of Newton, Wellesley is a much smaller municipality, though the median household income is higher, at $250,001, and the homeownership rate tops 80%.

Population: 30,191
Total Crime Rate (per 1,000 residents): 5.2
Chance of Being a Victim: 1 in 189
Major City Nearby: Boston

Recommended: Cost of Living by State

27. North Andover, Massachusetts

Massachusetts makes a good showing on the safest cities list, representing nearly 30% of the burgs listed.

Population: 30,711
Total Crime Rate (per 1,000 residents): 5.2
Chance of Being a Victim: 1 in 190
Major City Nearby: Boston

26. Reading, Massachusetts

Another Boston suburb just north of the city, Reading is a town of about 9,374 households with a median household income around $163,725.

Population: 25,223
Total Crime Rate (per 1,000 residents): 5.1
Chance of Being a Victim: 1 in 192
Major City Nearby: Boston

25. Mason, Ohio

Mason is the largest city in Warren County. The county is known as “Ohio’s Largest Playground” and boasts regional attractions including the Grizzly Golf and Social Lodge, the Great Wolf Lodge, and Kings Island amusement park.

Population: 35,089
Total Crime Rate (per 1,000 residents): 5.1
Chance of Being a Victim: 1 in 192
Major City Nearby: Cincinnati

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24. Billerica, Massachusetts

Billerica sits on the Shawsheen and Concord rivers about 20 miles northwest of Boston and is home to about 15,653 households.

Population: 41,453
Total Crime Rate (per 1,000 residents): 5.1
Chance of Being a Victim: 1 in 195
Major City Nearby: Boston

23. Johns Creek, Georgia

The City of Johns Creek is a fairly young one, having been designated in 2006. But it is home to 200 companies and a thriving population.

Population: 82,065
Total Crime Rate (per 1,000 residents): 4.9
Chance of Being a Victim: 1 in 202
Major City Nearby: Atlanta

22. West Bloomfield, Michigan

This township less than 30 miles from Detroit has many small- and medium-sized lakes. West Bloomfield has a large Jewish population and is home to the J, formerly known as the Jewish Community Center of Metropolitan Detroit.

Population: 65,560
Total Crime Rate (per 1,000 residents): 4.9
Chance of Being a Victim: 1 in 204
Major City Nearby: Detroit

21. Colleyville, Texas

Conveniently sandwiched between the Dallas and Fort Worth areas, Colleyville offers a rural feel close to big-city amenities.

Population: 25,986
Total Crime Rate (per 1,000 residents): 4.8
Chance of Being a Victim: 1 in 206
Major City Nearby: Dallas

20. South Kingstown, Rhode Island

South Kingstown is home to two scenic beaches, as well as picturesque farmlands and a riverfront walkway.

Population: 31,851
Total Crime Rate (per 1,000 residents): 4.7
Chance of Being a Victim: 1 in 212
Major City Nearby: Providence

19. Windsor, Colorado

The only Colorado city on the list, Windsor, near the front range of the Rocky Mountains, once boasted giant herds of bison and a bustling sugar beet industry. Today, it is a hotbed of green industry, including windmill blade production and ethanol production.

Population: 35,788
Total Crime Rate (per 1,000 residents): 4.5
Chance of Being a Victim: 1 in 218
Major City Nearby: Greeley

18. Wakefield, Massachusetts

Residents of Wakefield enjoy easy commuter-rail service to Boston and recreational activities on and around scenic Lake Quannapowitt.

Population: 27,104
Total Crime Rate (per 1,000 residents): 4.5
Chance of Being a Victim: 1 in 218
Major City Nearby: Boston

17. Madison, Mississippi

This suburb of Jackson has a rural feel and a small-town atmosphere. It is a popular choice for retirees.

Population: 27,719
Total Crime Rate (per 1,000 residents): 4.5
Chance of Being a Victim: 1 in 221
Major City Nearby: Jackson

16. Avon Lake, Ohio

This suburb of Cleveland lies on the shore of Lake Erie. Ample parks, a bike trail, and an aquatic center ensure residents of all ages have plenty of options for fitness.

Population: 25,588
Total Crime Rate (per 1,000 residents): 4.3
Chance of Being a Victim: 1 in 232
Major City Nearby: Cleveland

15. White Lake, Michigan

Of the four Michigan cities on this list, White Lake ranks the safest.

Population: 30,990
Total Crime Rate (per 1,000 residents): 4.2
Chance of Being a Victim: 1 in 233
Major City Nearby: Detroit

14. Needham, Massachusetts

Like many of the Massachusetts cities on this list, Needham is a well-off bedroom community of Boston, with a median household income of about $212,241.

Population: 32,048
Total Crime Rate (per 1,000 residents): 4.2
Chance of Being a Victim: 1 in 233
Major City Nearby: Boston

13. Milton, Massachusetts

Milton, an attractive suburb 10 miles south of Boston, is the birthplace of former U.S. President George H.W. Bush.

Population: 28,388
Total Crime Rate (per 1,000 residents): 4.2
Chance of Being a Victim: 1 in 233
Major City Nearby: Boston

12. Oswego, Illinois

Located about 50 miles west of Chicago on the Fox River, Oswego lies on two rail lines and near three state highways and two U.S. highways. It has experienced rapid growth in recent years.

Population: 35,316
Total Crime Rate (per 1,000 residents): 4.1
Chance of Being a Victim: 1 in 238
Major City Nearby: Chicago

11. Independence, Kentucky

The only Kentucky town to make it to the list, Independence is a short drive across the Ohio River to Cincinnati.

Population: 28,920
Total Crime Rate (per 1,000 residents): 3.9
Chance of Being a Victim: 1 in 253
Major City Nearby: Cincinnati

10. Rexburg, Idaho

Rexburg, in eastern Idaho, is one of the only cities on this list that’s not near a major metropolitan area. Its proximity to nature is one of its calling cards. Yellowstone National Park is just 80 miles away.

Population: 35,300
Total Crime Rate (per 1,000 residents): 3.9
Chance of Being a Victim: 1 in 253
Major City Nearby: N/A

9. Muskego, Wisconsin

This cozy city sits within the orbit of Milwaukee and is around 88 miles from Chicago.

Population: 25,242
Total Crime Rate (per 1,000 residents):3.8
Chance of Being a Victim: 1 in 265
Major City Nearby: Milwaukee

8. Lexington, Massachusetts

Known as the town where the first shots of the Revolutionary War were fired, Lexington is a suburb of Boston where the median household income tops $200,000.

Population: 34,071
Total Crime Rate (per 1,000 residents):3.7
Chance of Being a Victim: 1 in 270
Major City Nearby: Boston

7. Zionsville, Indiana

Excellent schools and stable home values attract residents looking for a small-town feel just 20 minutes outside Indianapolis.

Population: 31,702
Total Crime Rate (per 1,000 residents):3.6
Chance of Being a Victim: 1 in 275
Major City Nearby: Indianapolis

6. Fulshear, Texas

Fulshear has grown significantly in size in the 21st century, though it has retained its small-town charm.

Population: 25,169
Total Crime Rate (per 1,000 residents): 3.6
Chance of Being a Victim: 1 in 276
Major City Nearby: Houston

5. Arlington, Massachusetts

Settled in 1635 as the town of Menotomy, Arlington was renamed in 1867 in honor of those buried at Arlington National Cemetery. The city is about six miles from Boston.

Population: 45,617
Total Crime Rate (per 1,000 residents): 3.4
Chance of Being a Victim: 1 in 292
Major City Nearby: Boston

4. Marshfield, Massachusetts

Marshfield is about 30 miles from Boston on the South Shore where Cape Cod meets the Massachusetts Bay. The year-round population grows to 40,000 in the summer months.

Population: 25,869
Total Crime Rate (per 1,000 residents): 3.3
Chance of Being a Victim: 1 in 300
Major City Nearby: Boston

3. Lake in the Hills, Illinois

Once a sleepy rural community home to seasonal residents who enjoyed the area’s lakes, Lake in the Hills became a quickly growing suburb of Chicago in the last few decades.

Population: 28,945
Total Crime Rate (per 1,000 residents): 3.1
Chance of Being a Victim: 1 in 321
Major City Nearby: Chicago

2. Franklin, Massachusetts

Franklin is conveniently located between Boston and Providence, Rhode Island. The town is named in honor of Benjamin Franklin, whose donated books formed the first public library in the country.

Population: 33,036
Total Crime Rate (per 1,000 residents): 2.9
Chance of Being a Victim: 1 in 344
Major City Nearby: Boston

1. Ridgefield, Connecticut

This pretty colonial town nestled in the foothills of the Berkshire Mountains was founded over 300 years ago and today ranks as America’s safest city. Visitors come for its historic Main Street. Families stay for its strong schools and, of course, its excellent safety rating.

Population: 25,011
Total Crime Rate (per 1,000 residents): 1.9
Chance of Being a Victim: 1 in 510
Major City Nearby: Bridgeport

The Takeaway

It’s a safe bet that house hunters will find many of these 50 safest cities in the U.S. appealing. There’s a lot to like about these towns in addition to their low crime rates, including great schools, high-quality housing stock, and natural wonders.

Looking for an affordable option for a home mortgage loan? SoFi can help: We offer low down payments (as little as 3% - 5%*) with our competitive and flexible home mortgage loans. Plus, applying is extra convenient: It's online, with access to one-on-one help.


SoFi Mortgages: simple, smart, and so affordable.

FAQ

What is the No. 1 safest town?

Safety can be tricky to gauge, but Ridgefield, Connecticut, was recently named America’s safest town by NeighborhoodScout.

What is America’s happiest city?

Happiness is highly subjective. However, a 2025 WalletHub analysis that looked at 25 key happiness indicators found that Fremont, California, ranked highest.

What U.S. city has the highest quality of life?

Quality of life can mean different things to different people, but overall, Brookline, Massachusetts, ranked highest in a 2025-2026 evaluation by U.S. News & World Report. The publication’s annual Quality of Life index looks at factors like quality of education, average commute time, health care availability and quality, and others to rank U.S. cities.



*SoFi requires Private Mortgage Insurance (PMI) for conforming home loans with a loan-to-value (LTV) ratio greater than 80%. As little as 3% down payments are for qualifying first-time homebuyers only. 5% minimum applies to other borrowers. Other loan types may require different fees or insurance (e.g., VA funding fee, FHA Mortgage Insurance Premiums, etc.). Loan requirements may vary depending on your down payment amount, and minimum down payment varies by loan type.

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Terms, conditions, and state restrictions apply. Not all products are available in all states. See SoFi.com/eligibility-criteria for more information.


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

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

‡Up to $9,500 cash back: HomeStory Rewards is offered by HomeStory Real Estate Services, a licensed real estate broker. HomeStory Real Estate Services is not affiliated with SoFi Bank, N.A. (SoFi). SoFi is not responsible for the program provided by HomeStory Real Estate Services. Obtaining a mortgage from SoFi is optional and not required to participate in the program offered by HomeStory Real Estate Services. The borrower may arrange for financing with any lender. Rebate amount based on home sale price, see table for details.

Qualifying for the reward requires using a real estate agent that participates in HomeStory’s broker to broker agreement to complete the real estate buy and/or sell transaction. You retain the right to negotiate buyer and or seller representation agreements. Upon successful close of the transaction, the Real Estate Agent pays a fee to HomeStory Real Estate Services. All Agents have been independently vetted by HomeStory to meet performance expectations required to participate in the program. If you are currently working with a REALTOR®, please disregard this notice. It is not our intention to solicit the offerings of other REALTORS®. A reward is not available where prohibited by state law, including Alaska, Iowa, Louisiana and Missouri. A reduced agent commission may be available for sellers in lieu of the reward in Mississippi, New Jersey, Oklahoma, and Oregon and should be discussed with the agent upon enrollment. No reward will be available for buyers in Mississippi, Oklahoma, and Oregon. A commission credit may be available for buyers in lieu of the reward in New Jersey and must be discussed with the agent upon enrollment and included in a Buyer Agency Agreement with Rebate Provision. Rewards in Kansas and Tennessee are required to be delivered by gift card.

HomeStory will issue the reward using the payment option you select and will be sent to the client enrolled in the program within 45 days of HomeStory Real Estate Services receipt of settlement statements and any other documentation reasonably required to calculate the applicable reward amount. Real estate agent fees and commissions still apply. Short sale transactions do not qualify for the reward. Depending on state regulations highlighted above, reward amount is based on sale price of the home purchased and/or sold and cannot exceed $9,500 per buy or sell transaction. Employer-sponsored relocations may preclude participation in the reward program offering. SoFi is not responsible for the reward.

SoFi Bank, N.A. (NMLS #696891) does not perform any activity that is or could be construed as unlicensed real estate activity, and SoFi is not licensed as a real estate broker. Agents of SoFi are not authorized to perform real estate activity.

If your property is currently listed with a REALTOR®, please disregard this notice. It is not our intention to solicit the offerings of other REALTORS®.

Reward is valid for 18 months from date of enrollment. After 18 months, you must re-enroll to be eligible for a reward.

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