Dec
03
2025
What Is a Non-Deductible IRA?

What Is a Non-Deductible IRA?

By | Growing Wealth, invest, Investing, Preparing for Retirement | Comments Off on What Is a Non-Deductible IRA?

A non-deductible IRA is an IRA, or IRA contributions, that cannot be deducted from your income. While contributions to a traditional IRA are tax-deductible, non-deductible IRA contributions offer no immediate tax break.

In both cases, though, contributions grow tax free over time — and in the case of a non-deductible IRA, you wouldn’t owe taxes on the withdrawals in retirement.

Why would you open a non-deductible IRA? If you meet certain criteria, such as your income is too high to allow you to contribute to a traditional IRA or Roth IRA, a non-deductible IRA might help you increase your retirement savings.

It helps to understand how non-deductible contributions work, what the rules and restrictions are, as well as the potential advantages and drawbacks.

Who Is Eligible for a Non-Deductible IRA?

Several factors determine whether an individual is ineligible for a traditional IRA, and therefore if their contributions could fund a non-deductible IRA. These include an individual’s income level, tax-filing status, and access to employer-sponsored retirement plans (even if the individual or their spouse don’t participate in such a plan).

If you and your spouse do not have an employer plan like a 401(k) at work, there are no restrictions on fully funding a regular, aka deductible, IRA. You can contribute up to $7,000 in 2025; $8,000 if you’re 50 and older. In 2026, you can contribute up to $7,500; $8,600 if you’re 50 or older.

However, if you’re eligible to participate in an employer-sponsored plan, or if your spouse is, then the amount you can contribute to a deductible IRA phases out — in other words, the amount you can deduct gets smaller — based on your income:

•   For single filers/head of household: the 2025 contribution amount is reduced if you earn more than $79,000 and less than $89,000. If you earn $89,000 and above, you can only contribute to a non-deductible IRA. For 2026, the phaseout begins when you earn more than $81,000 and less than $91,000. If you earn $91,000 or more, you can’t contribute to a traditional IRA.

•   For married, filing jointly:

◦   If you have access to a workplace plan, the phaseout for 2025 is when you earn more than $126,00 and less than $146,000. For 2026, the phaseout is when you earn more than $129,000, but less than $149,000.

◦   If your spouse has access to a workplace plan, the 2025 phaseout is when you earn more than $236,000 and less than $246,000. For 2026, the phaseout is when you earn more than $242,000 but less than $252,000.

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.

Non-Deductible IRA Withdrawal Rules

The other big difference between an ordinary, deductible IRA and a non-deductible IRA is how withdrawals are taxed after age 59 ½. (IRA withdrawals prior to that may be subject to an early withdrawal penalty.)

•   Regular (deductible) IRA: Contributions are made pre-tax. Withdrawals after 59 ½ are taxed at the individual’s ordinary income rate.

•   Non-deductible IRA: Contributions are after tax (meaning you’ve already paid tax on the money). Withdrawals are therefore not taxed, because the IRS can’t tax you twice.

To make sure of this, you must report non-deductible IRA contributions on your tax return, and you use Form 8606 to do so. Form 8606 officially documents that some or all of the money in your IRA has already been taxed and is therefore non-deductible. Later on, when you take distributions, a portion of those withdrawals will not be subject to income tax.

If you have one single non-deductible IRA, then the process is similar to a Roth IRA. You deposit money you’ve paid taxes on, and your withdrawals are tax free.

It gets more complicated when you mix both types of contributions — deductible and non-deductible — in a single IRA account.

Here’s an example of different IRA withdrawal rules:

Let’s say you qualified to make deductible IRA contributions for 10 years, and now you have $50,000 in a regular IRA account. Then, your situation changed — perhaps your income increased — and now only 50% of the money you deposit is deductible; the other half is non-deductible.

You contribute another $50,000 in the next 10 years, but only $25,000 is deductible; $25,000 is non-deductible. You diligently record the different types of contributions using Form 8606, so the IRS knows what’s what.

When you’re ready to retire, the total balance in the IRA is $100,000, but only $25,000 of that was non-deductible (meaning, you already paid tax on it). So when you withdraw money in retirement, you’ll owe taxes on three-quarters of that money, but you won’t owe taxes on one quarter.

Contribution Limits and RMDs

There are limits on the amount that you can contribute to an IRA each year, and deductible and non-deductible IRA account contributions have the same contribution caps. People under 50 years old can contribute up to $7,000 for 2025, and those 50 and older can contribute $8,000. People under 50 years old can contribute up to $7,500 for 2026, and those 50 and older can contribute $8,600.

IRA account owners are required to start taking required minimum distributions (RMDs), similar to a 401(k), from their account once they turn 73 years old. Prior to that, account holders can take money out of their account between ages 59 ½ and 73 without any early withdrawal penalty.

Individuals can continue to contribute to their IRA at any age as long as they still meet the requirements.

Benefits and Risks of Non-Deductible IRA

While there are benefits to putting money into a non-deductible IRA, there are some risks that individuals should be aware of as well.

Benefits

There are several reasons you might choose to open a non-deductible IRA. In some cases, you can’t make tax-deductible contributions to a traditional IRA, so you need another retirement savings account option. Though your contributions aren’t deductible in the tax year you make them, funds in the IRA that earn dividends or capital gains are not taxed, because the government doesn’t tax retirement savings twice.

Another reason people use non-deductible IRAs is as a stepping stone to a Roth IRA. Roth IRAs also have income limits, but they come with additional choices. High income earners can start by contributing funds to a non-deductible IRA, then convert that IRA into a Roth IRA. This is called a backdoor Roth IRA.

One thing to keep in mind with a backdoor Roth is that the conversion may not be entirely tax free. If an IRA account is made up of a combination of deductible and non-deductible contributions, when it gets converted into a Roth account some of those funds would be taxable.

Risks

The primary benefits of non-deductible IRAs come when used to later convert into a Roth IRA. It can be risky to keep a non-deductible IRA ongoing, especially if it’s made up of both deductible and non-deductible contributions, which can be tricky to keep track of for tax purposes. You can keep a blended IRA, it just takes more work to keep track of the amounts that are taxable.

As noted above, it requires dividing non-deductible contributions by the total contributions made to all IRAs one has in order to figure out the amount of after-tax contributions that have been made.

Non-Deductible IRA vs Roth IRA

With a non-deductible IRA, you contribute funds after you’ve paid taxes on that money, and therefore you’re not able to deduct the contributions from your income tax. The contributions that you make to the non-deductible IRA earn non-taxable interest while they are in the account. The money isn’t taxed when it is withdrawn later.

Roth IRA contributions are similarly made with after-tax money and one can’t get a tax deduction on them. Also, a Roth IRA allows an individual to take out tax-free distributions during retirement.

Unlike other types of retirement accounts, a Roth IRA doesn’t require the account holder to take out a minimum distribution amount.

There are income limits on Roth IRAs, so some high-income earners may not be able to open this type of account. The non-deductible IRA is one way to get around this rule, because an individual can start out with a non-deductible IRA and convert it into a Roth IRA.

How Can I Tell If a Non-Deductible IRA Is the Right Choice?

Non-deductible IRAs can be a way for high-income savers to make their way into a backdoor Roth account. This strategy can help them reduce the amount of taxes they owe on their savings. However, they may not be the best type of account for long-term savings or lower-income savers.

The Takeaway

For many people, contributing to an ordinary IRA is a clearcut proposition: You deposit pre-tax money, and the amount can be deducted from your income for that year. Things get more complicated, however, for higher earners who also have access (or their spouse has access) to an employer-sponsored plan like a 401(k) or 403(b). In that case, you may no longer qualify to deduct all your IRA contributions; some or all of that money may become non-deductible. That means you deposit funds post tax and you can’t deduct it from your income tax that year.

In either case, though, all the money in the IRA would grow tax free. And the upside, of course, is that with a non-deductible IRA the withdrawals are also tax free. With a regular IRA, because you haven’t paid taxes on your contributions, you owe tax when you withdraw money 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).

Help grow your nest egg with a SoFi IRA.

Photo credit: iStock/Drazen Zigic

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.

SOIN0124129
CN-Q425-3236452-10

Read more
Dec
03
2025
woman on phone and laptop in office mobile

What Is the Roth IRA 5-Year Rule? Are There Exceptions?

By | Growing Wealth, Investing, Preparing for Retirement | Comments Off on What Is the Roth IRA 5-Year Rule? Are There Exceptions?

The Roth IRA 5-year rule is one of the rules that governs what an investor can and can’t do with funds in a Roth IRA. The Roth IRA 5-year rule comes into play when a person withdraws funds from the account; rolls a traditional IRA account into a Roth; or inherits a Roth IRA account.

Here’s what you need to know.

Key Points

•   The Roth IRA 5-year rule requires accounts to be open for five years before earnings can be withdrawn tax-free after age 59 ½.

•   Contributions to a Roth IRA can be withdrawn at any time without penalties.

•   Exceptions to the 5-year rule include reaching age 59 ½, disability, and using funds for a first home purchase.

•   Each conversion from a traditional IRA to a Roth IRA starts a new 5-year period for tax purposes.

•   Inherited Roth IRAs also adhere to the 5-year rule, affecting the taxation of earnings withdrawals.

What Is the Roth IRA 5-Year Rule?

The Roth IRA 5-year rule pertains to withdrawals of earnings from a Roth IRA. A quick reminder of how a Roth works: An individual can contribute funds to a Roth IRA, up to annual limits. For 2025, the maximum IRS contrbution limit for Roth IRAs is $7,000, while investors 50 and older can contribute an extra $1,000. For 2026, the maximum contribution limit is $7,500, and investors ages 50 and older can contribute an addiitional $1,100.

Roth IRA contributions can be withdrawn at any time without tax or penalty, for any reason at any age. However, investment earnings on those contributions can only typically be withdrawn tax- and penalty-free once the investor reaches the age of 59 ½ — and as long as the account has been open for at least a five-year period. The five-year period begins on January 1 of the year you made your first contribution to the Roth IRA. Even if you make your contribution at the very end of the year, you can still count that entire year as year one.

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.

Example of the Roth IRA 5-Year Rule

To illustrate how the 5-year rule works, say an investor opened a Roth IRA in 2022 to save for retirement. The individual contributed $5,000 to a Roth IRA and earned $400 in interest and they now want to withdraw a portion of the money. Since this retirement account is less than five years old, only the $5,000 contribution could be withdrawn without tax or penalty. If part or all of the investment earnings is withdrawn sooner than five years after opening the account, this money may be subject to a 10% penalty.

In 2027, the investor can withdraw earnings tax-free from the Roth IRA because the five-year period will have passed.

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

Exceptions to the 5-Year Rule

There are some exceptions to the Roth IRA 5-year rule, however. According to the IRS, a Roth IRA account holder who takes a withdrawal before the account is five years old may not have to pay the 10% penalty in the following situations:

•   They have reached age 59 ½.

•   They are totally and permanently disabled.

•   They are the beneficiary of a deceased IRA owner.

•   They are using the distribution (up to $10,000) to buy, build, or rebuild a first home.

•   The distributions are part of a series of substantially equal payments.

•   They have unreimbursed medical expenses that are more than 7.5% of their adjusted gross income for the year.

•   They are paying medical insurance premiums during a period of unemployment.

•   They are using the distribution for qualified higher education expenses.

•   The distribution is due to an IRS levy of the qualified plan.

•   They are taking qualified reservist distributions.

5-Year Rule for Roth IRA Conversions

Some investors who have traditional IRAs may consider rolling them over into a Roth IRA. Typically, the money converted from the traditional IRA to a Roth is taxed as income, so it may make sense to talk to a financial or tax professional before making this move.

If this Roth IRA conversion is made, the 5-year rule still applies. The key date is the tax year in which the conversion happened. So, if an investor converted a traditional IRA to a Roth IRA on September 15, 2022, the five-year period would start on January 1, 2022. If the conversion took place on March 10, 2023, the five-year period would start on January 1, 2023. So, unless the conversion took place on January 1 of a certain year, typically, the 5-year rule doesn’t literally equate to five full calendar years.

If an investor makes multiple conversions from a traditional IRA to a Roth IRA, perhaps one in 2023 and one in 2024, then each conversion has its own unique five-year window for the rule.

5-Year Rule for Inherited Roth IRA

The 5-year rule also applies to inherited Roth IRAs. Here’s how it works.

When the owner of a Roth IRA dies, the balance of the account may be inherited by beneficiaries. These beneficiaries can withdraw money without penalty, whether the money they take is from the principal (contributions made by the original account holder) or from investment earnings, as long as the original account holder had the Roth IRA for at least five years. If the original account holder had the Roth IRA for fewer than five tax years, however, the earnings portion of the beneficiary withdrawals is subject to taxation until the five-year anniversary is reached.

People who inherit Roth IRAs, unlike the original account holders, must take required minimum distributions (RMDs). They can do so by withdrawing funds by December 31 of the 10th year after the original holder died if they died after 2019 (or the fifth year if the original account holder died before 2020), or have the withdrawals taken out based upon their own life expectancy.

💡 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.

How to Shorten the 5-Year Waiting Period

To shorten the five-year waiting period, an investor could open a Roth IRA online and make a contribution on the day before income taxes are due and have it applied to the previous year. For example, if one were to make the contribution in April 2023, that contribution could be considered as being made in the 2022 tax year. As long as this doesn’t cause problems with annual contribution caps, the five-year window would effectively expire in 2027 rather than 2028.

If the same investor opens a second Roth IRA — say in 2024 — the five-year window still expires (in this example) in 2027. The initial Roth IRA opened by an investor determines the beginning of the five-year waiting period for all subsequently opened Roth IRAs.

The Takeaway

For Roth IRA account holders, the 5-year rule is key. After the account has been opened for five years, an account holder who is 59 ½ or older can withdraw investment earnings without incurring taxes or penalties. While there are exceptions to this so-called 5-year rule, for anyone who has a Roth IRA account, this is important information to know about.

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

Do I have to wait 5 years to withdraw from my Roth IRA?

Because of the Roth IRA 5-year rule, you generally have to wait at least five years before withdrawing earnings tax-free from your Roth IRA. You can, however, withdraw contributions you made to your Roth IRA at any time tax-free.

Does the 5-year rule apply to Roth contributions?

No, the Roth IRA rule does not apply to contributions made to your Roth IRA, only to earnings. You can withdraw contributions you made to your IRA tax-free at any time.


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.

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.

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.

SOIN0124023
CN-Q425-3236452-05

Read more
Nov
22
2025
A man and a woman filling out paperwork for a student loan transfer, with the image focusing on their hands and the forms.

Guide to Student Loan Transfers

By | Debt Payoff, Student Loans, student_loan | Comments Off on Guide to Student Loan Transfers

Sometimes, student loan debt can start to feel like it’s slowing you down. Maybe the interest rate is too high, you’re not happy with your loan terms, or you’re frustrated with the lender’s customer service. If so, you have the right to look for a new lender and transfer your debt to a different company.

However, you can’t simply ask a new lender to take on your debt with the same terms. To transfer your student loan, you generally need to take out a new loan with a new lender or servicer. The process of switching will be different depending on whether your student loans are private or federal, and it may involve consolidating the loan or refinancing.

If you’re thinking about a loan transfer, keep in mind that there’s no guarantee you’ll end up in a more favorable situation just by switching lenders. Here’s what you need to know about student loan transfers.

Key Points

•   Private student loans can be transferred to a new lender through student loan refinancing.

•   Federal student loans can be transferred to a new loan servicer through federal student loan consolidation or through private student loan refinancing.

•   Changing loan servicers by refinancing federal loans with a private lender results in loss of federal benefits.

•   The only way to transfer a Parent PLUS loan from a parent to a student is by refinancing the loan in the child’s name.

•   It’s possible, though generally not advisable, to transfer private student loan balances to a credit card with a 0% introductory rate, which might save a borrower interest, but only if the loans are paid off within the short promotional period.

How Do I Transfer Student Loans to Another Private Lender?

If you have private student loans, the main way to transfer your debt to another lender is to refinance your loans. This involves taking out a new loan with a different lender and using it to pay off your current student loans. Moving forward, you only make payments on your new loan to your new lender.

If you have multiple private student loans, refinancing can simplify repayment by giving you only one monthly payment to manage. And, if your financial picture has improved since you took out your original private student loan(s), you may be able to qualify for a lower interest rate. Another perk of refinancing is the ability to lengthen your repayment timeline to reduce your monthly payment amount. Keep in mind, though, that a longer repayment period will generally end up costing you more in the long run.

You’ll need to meet certain criteria to be eligible for private student loan transfer via student loan refinancing. Most lenders have a minimum income threshold as well as a minimum credit score (often in the upper 600s). If you don’t meet the income or credit requirements, you may be able to qualify by adding a cosigner.

Many lenders offer prequalification, which lets you see what type of rates and terms you may be able to qualify for without impacting your credit score. To find the loan with the best rate, it can be a good idea to shop around and compare lenders through prequalifying. Once you find a lender you want to work with, you’ll need to officially apply for the student loan refinance.

Can I Transfer My Sallie Mae Loans to Another Lender?

Currently, Sallie Mae only offers private student loans. Prior to 2014, however, the lender serviced federal student loans. If you want to refinance a Sallie Mae loan you took out before 2014, you’ll need to check whether it’s federal or private before moving forward.

If you took out a Sallie Mae loan after 2014, it’s a private student loan, and you can refinance the loan with another private lender. This might be a good idea if you can qualify for a lower interest rate.

What’s the Difference Between a Lender and a Loan Servicer?

While the terms lender and loan servicer are often used interchangeably, they are not the same thing. Here’s a look at how they differ.

Student Loan Lender

A lender is an institution or company that originates and funds the student loan. In other words, they’re the one lending you the money. For example, if you apply for a federal student loan, the federal government is your lender. If you apply for a private student loan, you can choose between a number of private lenders.

A Student Loan Servicer

A federal student loan servicer is the middleman between you and the federal government (the lender). Servicers handle your student loan billing and payments, and they keep track of whether you pay your loans on time. They will help you if you’re having trouble with your repayment plan or need to change your address or other personal information.

You do not get to pick your servicer. During the course of your federal student loan, your servicer might change a few times. For example, if you had a loan with Great Lakes, it was likely transferred to Nelnet some time between March 2022 and June 2023. You’ll typically get notified of a student loan transfer two two weeks prior to your transfer date.

If you have a federal student loan and you’re not sure who your servicer is, you can log in to your account on StudentAid.gov to find out.

Can I Change My Student Loan Servicer?

You can’t change your federal student loan servicer directly. However, if you’re willing to do some legwork, there are two main ways to move your federal student debt to a new servicer or lender.

If you want to keep your federal loan status but switch to a different loan servicer, you can transfer your loans by consolidating them into a Direct Consolidation Loan. If your main objective is to save on interest, you may want to look into refinancing your student loans with a private lender. Read below to learn more about each scenario.

What About Consolidating My Student Loans?

One way to switch loan servicers is to consolidate your federal student loan(s). This allows you to transfer the debt to a different servicer but keep your federal student loan status, since the lender will still be the federal government.

The consolidation process lets you combine several federal student loans into a single, easier-to-manage Direct Consolidation Loan. While it does not reduce your interest rate, it can lower your payment by extending the term. The downside is that the extended term will mean you pay more in interest over time.

Since not all federal loans have the same interest rate, the interest rate on a new Direct Consolidation Loan will be a weighted average based on your current loan amounts and interest rates. Any unpaid interest is added to your principal balance. The combined amount will be your new loan’s principal balance. You’ll then pay interest on the new principal balance.

Consolidation can be a good option if you are unhappy with your servicer or have several servicers and want to simplify your student debt by having only one payment.

If you have Federal Family Education Program or Parent PLUS loans, you need to consolidate to be eligible for income-driven repayment, public service loan forgiveness, and other relief programs.

You can complete a consolidation loan application at StudentAid.gov.

What About Student Loan Refinancing?

Another way to change your federal student loan servicer is to refinance your federal student loans with a private lender. If you also have private student loans, you can refinance them together with federal loans, giving you a single loan payment each month.

Generally, refinancing federal student loans may make sense if you can qualify for a lower interest rate. If you have higher-interest federal student loans, such as graduate PLUS loans or Direct Unsubsidized Loans, you may be able to get a lower rate by refinancing. To qualify for the best rates on a private student refinance, you generally need to have strong financials (or can recruit a cosigner who does).

It’s important to note that refinancing federal student loans with a private lender means losing federal protections, such as income-driven repayment plans, federal deferment and forbearance programs, and loan forgiveness options like Public Service Loan Forgiveness (PSLF).

If you’re interested in refinancing your federal loans, it’s a good idea to review offers from multiple lenders to find the best deal. Many private lenders will allow you to prequalify via a soft credit check so you can see your likely new interest rate without negatively impacting your credit score.

What About Transferring My Student Loan Balance to a Credit Card?

You generally can’t pay federal student loans with a credit card. If you have private loans, however, another option for student loan transfer is to move the balance onto a credit card and pay your monthly bills there. Some credit card issuers allow student transfers, but not all.

Generally speaking, this tactic only makes sense if you can qualify for a card with a 0% introductory rate and can pay off the entire balance before that promotional period expires (often between 12 and 21 months). Otherwise, you could be left paying even more in interest than you would with the original loan.

To see if you can manage this repayment schedule, simply divide your loan balance by the number of months you would need to pay it off before interest applies. Also check to make sure the credit card offers a high enough credit limit to accommodate your loan, and find out if there are any transfer fees.

If you decide it’s a good deal and are confident you can make it work, you would apply for the credit card and, once approved, give your credit card account details to your loan servicer. Your credit card issuer would then pay off your private student loan debt and move the balance to your credit card account. Moving forward, you only make payments to the credit card issuer.

Is It Possible to Transfer Student Loans From Parent to Student?

The federal government does not offer a way to transfer Parent PLUS loans to the child. However, if you’re looking to have your Parent PLUS loans transferred to your child, refinancing the loans with a private lender allows you to do that.

To make this type of loan transfer, you’ll first need to identify Parent PLUS refinance lenders that allow loan transfers. After that, your child may want to prequalify with a few of these lenders to see where they can get the best rate.

If your child meets the lender’s qualifications on their own, you can fully transfer the loan to them. If they don’t, you can serve as a cosigner on the refinanced loan and work with them to meet the lender’s cosigner release requirements. Many lenders allow cosigner release after a set number of successful payments.

The Takeaway

If you’re interested in transferring your student loans to a new servicer or lender, you have some options. If you have federal student loans, you can consolidate your loans to get a different servicer. If you have federal, private, or a mix of both types of student loans, another option for loan transfer is to refinance your loans with a private lender.

Looking to lower your monthly student loan payment? Refinancing may be one way to do it — by extending your loan term, getting a lower interest rate than what you currently have, or both. (Please note that refinancing federal loans makes them ineligible for federal forgiveness and protections. Also, lengthening your loan term may mean paying more in interest over the life of the loan.) SoFi student loan refinancing offers flexible terms that fit your budget.


With SoFi, refinancing is fast, easy, and all online. We offer competitive fixed and variable rates.

FAQ

What happens if my student loans are transferred to a new servicer?

If your federal student loans are transferred to a new loan servicer, you will be notified at least two weeks in advance and provided with the new servicer’s name and contact information, according to the Education Department. The new servicer will take over the loan, and they should reach out to you when the loan transfer is complete. At that point, they will handle the billing, payments, and customer service for your student loans.

Can I stop my student loans from being transferred?

Generally, you cannot stop your federal loans from being transferred to a new loan servicer. Federal loans are owned by the Education Department, which assigns them to a servicer. If the contract with that servicer ends, your loans will be transferred to a new loan servicer.

Can a student loan transfer lower my payments?

Transferring your student loans might lower your monthly payments if you refinance the loans and qualify for a lower interest rate. You could also lower your payments by extending the payment term through refinancing — or with a federal Direct Consolidation Loan — but a longer loan term will cost you more in interest over the life of the loan. Be aware that refinancing federal student loans into private loans makes them ineligible for federal benefits like income-driven repayment and forgiveness.


SoFi Student Loan Refinance
Terms and conditions apply. SoFi Refinance Student Loans are private loans. When you refinance federal loans with a SoFi loan, YOU FORFEIT YOUR ELIGIBILITY FOR ALL FEDERAL LOAN BENEFITS, including all flexible federal repayment and forgiveness options that are or may become available to federal student loan borrowers including, but not limited to: Public Service Loan Forgiveness (PSLF), Income-Based Repayment, Income-Contingent Repayment, extended repayment plans, PAYE or SAVE. Lowest rates reserved for the most creditworthy borrowers. Learn more at SoFi.com/eligibility. SoFi Refinance Student Loans are originated by SoFi Bank, N.A. Member FDIC. NMLS #696891 (www.nmlsconsumeraccess.org).

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.


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

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.

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.

SOSLR-Q425-016

Read more
Nov
11
2025
A man sitting at a table working on his laptop to find out how much to withdraw from an account like an IRA in retirement.

4% Rule for Withdrawals in Retirement

By | invest, Investing, Preparing for Retirement | Comments Off on 4% Rule for Withdrawals in Retirement

After decades of saving for retirement, many new retirees often find themselves facing a new challenge: Determining how much money they can take out of their retirement account each year without running the risk of depleting their nest egg too quickly.

One popular rule of thumb is “the 4% rule.” Read on to learn more about the rule and how it works.

Key Points

•   The 4% rule suggests withdrawing 4% of retirement savings in the first year, and then adjusting for inflation annually.

•   The rule assumes a 30-year retirement period and a balanced 50% stock, 50% bond portfolio.

•   Flexibility is important to adapt to lifestyle changes and fluctuating expenses in retirement.

•   Additional income sources, such as Social Security or pensions, should be considered when it comes to how much to withdraw in retirement.

•   For those who hope to retire early, the 4% rule likely won’t provide a sustainable income for all their years of retirement.

What Is the 4% Rule for Retirement Withdrawals?

The 4% rule suggests that retirees withdraw 4% from their retirement savings the year they retire, and adjust that dollar amount each year going forward for inflation. Based on historical data, the idea is that the 4% rule should allow retirees to cover their expenses for 30 years.

The rule is intended to give retirees some planning guidance about retirement withdrawals. The 4% rule may also help provide them with a sense of how much money they need for retirement.

How to Calculate the 4% Rule

To calculate the 4% rule, add up all of your retirement investments and savings and then withdraw 4% of the total in your first year of retirement. Each year after that, you increase or decrease the amount, based on inflation.

For example, if you have $1 million in retirement savings in an online investment account, you would withdraw 4% of that, or $40,000, in your first year of retirement. If inflation rises 3% the next year, you would increase the amount you withdraw by 3% to $41,200.

Drawbacks of the 4% Rule

While the 4% rule is simple to understand and calculate, it’s also a rigid plan that doesn’t fit every investor’s individual situation. Here are some of the disadvantages of the 4% rule to consider.

It doesn’t allow for flexibility

The 4% rule assumes you will spend the same amount in each year of retirement. It doesn’t make allowances for lifestyle changes or retirement expenses that may be higher or lower from year to year, such as medical bills.

The 4% rule assumes that your retirement will be 30 years

In reality, an individual’s retirement may be shorter or longer than 30 years, depending on what age they retire, their health, and so on. If someone’s life expectancy goes beyond 30 years post-retirement they could find themselves running out of money.

It’s based on a specific portfolio composition

The 4% rule applies to a portfolio of 50% stocks and 50% bonds. Portfolios with different investments of varying percentages would likely have different results, depending on that portfolio’s risk level.

It assumes that your retirement savings will last for 30 years

Again, depending on the assets in your portfolio, and how aggressive or conservative your investments have been, your portfolio may not last a full 30 years. Or it could last longer than 30 years. The 4% rule doesn’t adjust for this.

4% may be too conservative

Some financial professionals believe that the 4% rule is too conservative, as long as the U.S. doesn’t experience a significant economic depression. Because of that, retirees may be too frugal with their retirement funds and not necessarily live life as fully as they could.

Others say the rule doesn’t take into account any other sources of income retirees may have, such as Social Security, company pensions, or an inheritance.

How Can I Tailor the 4% Rule to Fit My Needs?

You don’t have to strictly follow the 4% rule. Instead you might choose to use it as as a starting point and then customize your savings from there based on:

•   When you plan to retire: At what age do you expect to stop working and enter retirement? That information will give you an idea about how many years worth of savings you might need. For instance, if you plan to retire early, you may very well need more than 30 years’ worth of retirement savings.

•   The amount you have saved for retirement: How much money you have in your retirement plans will help you determine how much you can withdraw to live on each year and how long those savings might last. Also be sure to factor in your Social Security benefits and any pensions you might have.

•   The kinds of investments you have: Do you have a mix of stocks, bonds, mutual funds, and cash, for instance? The assets you have, how aggressive or conservative they are, and how they are allocated plays an important role in the balance of your portfolio. An investor might want assets that have a higher potential for growth but also a higher risk tolerance when they are younger, and then switch to a more conservative investment strategy as they get closer to retirement.

•   How much you think you’ll spend each year in retirement: To figure out what your expenses might be each year that you’re retired, factor in such costs as your mortgage or rent, healthcare expenses, transportation (including gas and car maintenance), travel, entertainment, and food. Add everything up to see how much you may need from your retirement savings. That will give you a sense if 4% is too much or not enough, and you can adjust accordingly.

Should You Use the 4% Rule?

The 4% rule can be used as a starting point to determine how much money you might need for retirement. But consider this: You may have certain goals for retirement. You might want to travel. You may want to work part-time. Maybe you want to move into a smaller or bigger house. What matters most is that you plan for the retirement you want to experience.

Given those variations, the 4% rule may make more sense as a guideline than as a hard-and-fast rule.

Having flexibility in planning for withdrawals in retirement means saving as much as possible first. A starting place for many people is their workplace 401(k), but that’s not the only way you can save for retirement. For instance, those who don’t have access to a workplace retirement account might want to open an IRA or a retirement savings plan for the self-employed to invest for their future.

Recommended: How Much Retirement Money Should I Have at 40?

The Takeaway

The 4% rule represents a percentage that retirees can withdraw from their retirement savings annually (increasing or decreasing the amount each year, based on inflation) and theoretically have their savings last a minimum of 30 years. For example, in the first year in retirement, someone following this rule could withdraw $20,000 from a $500,000 retirement account balance.

However, the 4% rule has limitations. It’s a rigid strategy that doesn’t take factors like lifestyle changes into consideration. It assumes that your retirement will last 30 years, and it’s based on a specific portfolio allocation. A more flexible plan may be better suited to your needs.

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).


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

FAQ

How long will money last using the 4% rule?

The intention of the 4% rule is to make retirement savings last for approximately 30 years. But exactly how long your money may last will depend on your specific financial and lifestyle situation.

Does the 4% rule work for early retirement?

The 4% rule is based on a retirement age of 65. If you retire early, you may have more years to spend in retirement and your financial needs will likely be different. In this instance, the 4% rule may not give you enough income to sustain you through all the years of retirement.

Does the 4% rule preserve capital?

With the 4% rule, the idea is to withdraw 4% of your total funds and allow the remaining money in the account to keep growing. Because the withdrawals would at least partly consist of dividends and interest on savings, the amount withdrawn each year would not come totally out of the principal balance.

Is the 4% rule too conservative?

Some financial professionals say the 4% rule is too conservative, and that by using it, retirees may be too frugal with their retirement funds and not live as comfortable a life as they could. Others say withdrawing 4% of retirement funds could be too much because the rule doesn’t take into account any other sources of income retirees may have, such as Social Security.

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.

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

SOIN-Q425-016

Read more
Oct
28
2025
Close-up of a person's hands researching auto insurance on a white smartphone, wearing a striped shirt and rings

How Much Auto Insurance Do I Really Need?

By | Insurance | Comments Off on How Much Auto Insurance Do I Really Need?

Figuring out just how much car insurance you really need can be a challenge.

At minimum, you’ll want to make sure you have enough car insurance to meet the requirements of your state or the lender who’s financing your car. Beyond that, there’s coverage you might want to add to those required amounts. These policies will help ensure that you’re adequately protecting yourself, your family, and your assets. And then there’s the coverage that actually fits within your budget.

We know it may not be a fun topic to think about what would happen if you were involved in a car accident, but given that there are well over six million accidents every year, it’s a priority to get coverage. Finding a car insurance policy that checks all those boxes may take a bit of research — and possibly some compromise. Here are some of the most important factors to consider.

Key Points

•   State and lender insurance requirements should be checked to ensure compliance and protection.

•   Liability insurance covers damages to others if at fault in an accident.

•   Collision and comprehensive coverage protect the car from various damages.

•   Uninsured or underinsured motorist coverage safeguards against drivers with insufficient insurance.

•   Discounts and coverage options help balance financial protection with budget constraints.

How Much Car Insurance Is Required by Your State?

A good launching pad for researching how much auto insurance you need is to check what your state requires by law. Only New Hampshire does not require a car owner to carry some amount of insurance. If you live elsewhere, find out how much and what types of coverage a policyholder must have. Typically, there are options available. Once you’ve found this information, consider it the bare minimum to purchase.

Types of Car Insurance Coverage

As you dig into the topic, you’ll hear a lot of different terms used to describe the various kinds of coverage that are offered. Let’s take a closer look here:

Liability Coverage

Most states require drivers to carry auto liability insurance. What it does: It helps pay the cost of damages to others involved in an accident if it’s determined you were at fault.

Let’s say you were to cause an accident, whether that means rear-ending a car or backing into your neighbor’s fence while pulling out of a shared driveway. Your insurance would pay for the other driver’s repairs, medical bills, lost wages, and other related costs. What it wouldn’t pay for: your costs or the costs relating to passengers in your car.

Each state sets its own minimum requirements for this liability coverage. For example, in Pennsylvania, drivers must carry at least $15,000 in coverage for the injury/death of one person, $30,000 for injury/death to more than one person, and $5,000 for damage to property. The shorthand for this, in terms of shopping for car insurance, would be that you have 15/30/5 coverage.

But in Maryland, the amounts are much higher: $30,000 in bodily injury liability per person, $60,000 in bodily injury liability per accident (if there are multiple injuries), and $15,000 in property damage liability per accident. (That would be 30/60/15 coverage.)

And some may want to go beyond what the state requires. If you carry $15,000 worth of property damage liability coverage, for example, and you get in an accident that causes $25,000 worth of damage to someone else’s car, your insurance company will only pay the $15,000 policy limit. You’d be expected to come up with the remaining $10,000.

Generally, recommendations suggest you purchase as much as you could lose if a lawsuit were filed against you and you lost. In California, for instance, some say that you may want 250/500/100 in coverage – much more than the 30/60/15 mandated by law.

Recommended: What Does Liability Auto Insurance Typically Cover?

Collision Coverage

Collision insurance pays to repair or replace your vehicle if it’s damaged in an accident with another car that was your fault. It will also help pay for repairs if, say, you hit an inanimate object, be it a fence, tree, guardrail, building, dumpster, pothole, or anything else.

If you have a car loan or lease, you’ll need collision coverage. If, however, your car is paid off or isn’t worth much, you may decide you don’t need collision coverage. For instance, if your car is old and its value is quite low, is it worth paying for this kind of premium, which can certainly add up over the years?

But if you depend on your vehicle and you can’t afford to replace it, or you can’t afford to pay out of pocket for damages, collision coverage may well be worth having. You also may want to keep your personal risk tolerance in mind when considering collision coverage. If the cost of even a minor fender bender makes you nervous, this kind of insurance could help you feel a lot more comfortable when you get behind the wheel.

Find the Right Auto Coverage at the Right Price.

Competitive quotes from different car insurance providers could help you save $1,007 a year on average.*

*Results will vary and some may not see savings. Average savings of $1,007 per year for customers who switched and saved with Experian from May 1, 2024 through April 30, 2025. Savings based on customers’ self-reported prior premium. Experian offers insurance from a network of top-rated insurance companies through its licensed subsidiary, Gabi Personal Insurance Agency, Inc.

Comprehensive Coverage

When you drive, you know that unexpected events happen. A pebble can hit your windshield as you drive on the highway and cause a crack. A tree branch can go flying in a storm and put a major dent in your car. Comprehensive insurance covers these events and more. It’s a policy that pays for physical damage to your car that doesn’t happen in a collision, including theft, vandalism, a broken windshield, weather damage, or even hitting a deer or some other animal.

If you finance or lease your car, your lender will probably require it. But even if you own your car outright, you may want to consider comprehensive coverage. The cost of including it in your policy could be relatively small compared to what it would take to repair or replace your car if it’s damaged or stolen.

Recommended: What Does Car Insurance Cover?

Personal Injury Protection and Medical Payments Coverage

Several states require Personal Injury Protection (PIP) or Medical Payments coverage (MedPay for short). This is typically part of the state’s no-fault auto insurance laws, which say that if a policyholder is injured in a crash, that person’s insurance pays for their medical care, regardless of who caused the accident.

While these two types of medical coverage help pay for medical expenses that you and any passengers in your car sustain in an accident, there is a difference. MedPay pays for medical expenses only, and is often available only in small increments, up to $5,000. PIP may also cover loss of income, funeral expenses, and other costs. The amount required varies hugely depending on where you live. For instance, in Utah, it’s $3,000 per person coverage; in New York, it’s $50,000 per person.

Uninsured/Underinsured Motorist Coverage

Despite the fact that the vast majority of states require car insurance, there are lots of uninsured drivers out there. On average, there are more than one in seven of them on the road! In addition, there are people on the road who have the bare minimum of coverage, which may not be adequate when accidents occur.

For these reasons, you may want to take out Uninsured Motorist (UM) or Underinsured Motorist (UIM) coverage. Many states require these policies, which are designed to protect you if you’re in an accident with a motorist who has little or no insurance. In states that require this type of coverage, the minimums are generally set at about $25,000 per person and $50,000 per accident. But the exact amounts vary from state to state. And you may choose to carry this coverage even if it isn’t required in your state.

If you’re seriously injured in an accident caused by a driver who doesn’t carry liability car insurance, uninsured motorist coverage could help you and your passengers avoid paying some scary-high medical bills.

Let’s take a quick look at some terms you may see if you shop for this kind of coverage:

Uninsured motorist bodily injury coverage (UMBI)

This kind of policy covers your medical bills, lost wages, as well as pain and suffering after an accident when the other driver is not insured. Additionally, it provides coverage for those costs if any passengers were in your vehicle when the accident occurred.

Uninsured motorist property damage coverage (UMPD)

With this kind of policy, your insurer will pay for repairs to your car plus other property if someone who doesn’t carry insurance is responsible for an accident. Some policies in certain states may also provide coverage if you’re involved in a hit-and-run incident.

Underinsured motorist coverage (UIM)

Let’s say you and a passenger get into an accident that’s the other driver’s fault, and the medical bills total $20,000…but the person responsible is only insured for $15,000. A UIM policy would step in and pay the difference to help you out.

Guaranteed Auto Protection (GAP) Insurance

Here’s another kind of insurance to consider: GAP insurance, which recognizes that cars can quickly depreciate in value and helps you manage that. For example, if your car were stolen or totaled in an accident (though we hope that never happens), GAP coverage will pay the difference between what its actual value is (say, $5,000) and what you still owe on your auto loan or lease (for example, $10,000).

GAP insurance is optional and generally requires that you add it onto a full coverage auto insurance policy. In some instances, this coverage may be rolled in with an auto lease.

Non-Owner Coverage

You may think you don’t need car insurance if you don’t own a car. (Maybe you take public transportation or ride your bike most of the time.) But if you still plan to drive occasionally — when you travel and rent a car, for example, or you sometimes borrow a friend’s car — a non-owner policy can provide liability coverage for any bodily injury or property damage you cause.

The insurance policy on the car you’re driving will probably be considered the “primary” coverage, which means it will kick in first. Then your non-owner policy could be used for costs that are over the limits of the primary policy.

Recommended: Does Car Insurance Cover Other Drivers?

Rideshare Coverage

If you drive for a ridesharing service like Uber or Lyft, you may want to consider adding rideshare coverage to your personal automobile policy.

Rideshare companies are required by law in some states to provide commercial insurance for drivers who are using their personal cars — but that coverage could be limited. (For example, it may not cover the time when a driver is waiting for a ride request but hasn’t actually picked up a passenger.) This coverage could fill the gaps between your personal insurance policy and any insurance provided by the ridesharing service. Whether you are behind the wheel occasionally or full-time, it’s probably worth exploring.

Recommended: Which Insurance Types Do You Really Need?

Why You Need Car Insurance

Car insurance is an important layer of protection; it helps safeguard your financial wellbeing in the case of an accident. Given how much most Americans drive – around 14,000 miles or more a year – it’s likely a valuable investment.

What If You Don’t Have Car Insurance?

There can be serious penalties for driving a car without valid insurance. Let’s take a look at a few scenarios: If an officer pulls you over and you can’t prove you have the minimum coverage required in your state, you could get a ticket. Your license could be suspended. What’s more, the officer might have your car towed away from the scene.

That’s a relatively minor inconvenience. Consider that if you’re in a car accident, the penalties for driving without insurance could be far more significant. If you caused the incident, you may be held personally responsible for paying any damages to others involved; one recent report found the average bodily injury claim totaled $29,700. And even if you didn’t cause the accident, the amount you can recover from the at-fault driver may be restricted.

If that convinces you of the value of auto insurance (and we hope it does), you may see big discrepancies in the amounts of coverage. For example, there may be a tremendous difference between the amount you have to have, how much you think you should have to feel secure, and what you can afford.

That’s why it can help to know what your state and your lender might require as a starting point. Keep in mind that having car insurance isn’t just about getting your car — or someone else’s — fixed or replaced. (Although that — and the fact that it’s illegal to not have insurance — may be motivation enough to at least get basic car insurance coverage.)

Having the appropriate levels of coverage can also help you protect all your other assets — your home, business, savings, etc. — if you’re in a catastrophic accident and the other parties involved decide to sue you to pay their bills. And let us emphasize: Your state’s minimum liability requirements may not be enough to cover those costs — and you could end up paying the difference out of pocket, which could have a huge impact on your finances.

Recommended: Electric Vehicle Insurance: Everything EV Drivers Need to Know

Finding the Best Car Insurance for You

If you’re convinced of the value of getting car insurance, the next step is to decide on the right policy for you. Often, the question on people’s minds is, “How can I balance getting the right coverage at an affordable price?”

What’s the Right Amount of Car Insurance Coverage for You?

To get a ballpark figure in mind, consider these numbers:

Type of Coverage

 Basic

 Good

 Excellent
Liability Your state’s minimum •   $100,000/person for bodily injury liability

◦   $300,000/ accident for bodily injury liability

◦   $100,000 for property damage

 •   $250,000/person for bodily injury liability

◦   $500,000/ accident for bodily injury liability

◦   $250,000 for property damage
Collision Not required Recommended Recommended
Comprehensive Not required Recommended Recommended
Personal Injury Protection (PIP) Your state’s minimum $40,000 Your state’s maximum
Uninsured and Underinsured Motorist (UM, UIM) Coverage Your state’s minimum •   $100,000/person for bodily injury liability

◦   $300,000/ accident for bodily injury liability

 •   $250,000/person for bodily injury liability

◦   $500,000/ accident for bodily injury liability

Here are some points to consider that will help you get the best policy for you.

Designing a Policy that Works for You

Your insurance company will probably offer several coverage options, and you may be able to build a policy around what you need based on your lifestyle. For example, if your car is paid off and worth only a few thousand dollars, you may choose to opt out of collision insurance in order to get more liability coverage.

Choosing a Deductible

Your deductible is the amount you might have to pay out personally before your insurance company begins paying any damages. Let’s say your car insurance policy has a $500 deductible, and you hit a guardrail on the highway when you swerve to avoid a collision. If the damage was $2,500, you would pay the $500 deductible and your insurer would pay for the other $2,000 in repairs. (Worth noting: You may have two different deductibles when you hold an auto insurance policy — one for comprehensive coverage and one for collision.)

Just as with your health insurance, your insurance company will likely offer you a lower premium if you choose to go with a higher deductible ($1,000 instead of $500, for example). Also, you typically pay this deductible every time you file a claim. It’s not like the situation with some health insurance policies, in which you satisfy a deductible once a year.

If you have savings or some other source of money you could use for repairs, you might be able to go with a higher deductible and save on your insurance payments. But if you aren’t sure where the money would come from in a pinch, it may make sense to opt for a lower deductible.

Checking the Costs of Added Coverage

As you assess how much coverage to get, here’s some good news: Buying twice as much liability coverage won’t necessarily double the price of your premium. You may be able to manage more coverage than you think. Before settling for a bare-bones policy, it can help to check on what it might cost to increase your coverage. This information is often easily available online, via calculator tools, rather than by spending time on the phone with a salesperson.

Finding Discounts that Could Help You Save

Some insurers (including SoFi Protect) reward safe drivers or “good drivers” with lower premiums. If you have a clean driving record, free of accidents and claims, you are a low risk for your insurer and they may extend you a discount.

Another way to save: Bundling car and home insurance is another way to cut costs. Look for any discounts or packages that would help you save.

The Takeaway

Buying car insurance is an important step in protecting yourself in case of an accident or theft. It’s not just about repairing or replacing your vehicle. It’s also about ensuring that medical fees and lost wages are protected — and securing your assets if there were ever a lawsuit filed against you.

These are potentially life-altering situations, so it’s worth spending a bit of time on the few key steps that will help you get the right coverage at the right price. It begins with knowing what your state or your car-loan lender requires. Then, you’ll review the different kinds of policies and premiums available. Put these pieces together, and you’ll find the insurance that best suits your needs and budget.

When you’re ready to shop for auto insurance, SoFi can help. Our online auto insurance comparison tool lets you see quotes from a network of top insurance providers within minutes, saving you time and hassle.

SoFi brings you real rates, with no bait and switch.

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.

SOPRO-Q425-008

Read more
Close modal

See what SoFi can do for you and your finances.

Select a product below and get your rate in just minutes.

Student Loan
Refinancing

Personal
Loans

Online
Investments

Other

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

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

©2025 Social Finance, LLC All rights reserved.
TLS 1.2 Encrypted
Equal Housing Lender