Deductible

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A traditional 401(k) and a Roth 401(k) are tax-advantaged retirement plans that can help you save for retirement. While both types of accounts follow similar rules — they have the same contribution limits, for example — the impact of a Roth 401(k) vs. traditional 401(k) on your tax situation, now and in the future, may be quite different.

In brief: The contributions you make to a traditional 401(k) are deducted from your gross income, and thus may help lower your tax bill. But you’ll owe taxes on the money you withdraw later for retirement.

Conversely, you contribute after-tax funds to a Roth 401(k) and can typically withdraw the money tax free in retirement — but you don’t get a tax break now.

To help choose between a Roth 401(k) vs. a traditional 401(k) — or whether it might make sense to invest in both, if your employer offers that option — it helps to know what these accounts are all about.

5 Key Differences Between Roth 401(k) vs Traditional 401(k)

Before deciding on a Roth 401(k) or traditional 401(k), it’s important to understand the differences between each account, and to consider the tax benefits of each in light of your own financial plan. The timing of the tax advantages of each type of account is also important to weigh.

1. How Each Account is Funded

•   A traditional 401(k) allows individuals to make pre-tax contributions. These contributions are typically made through elective salary deferrals that come directly from an employee’s paycheck and are deducted from their gross income.

•   Employees contribute to a Roth 401(k) also generally via elective salary deferrals, but they are using after-tax dollars. So the money the employee contributes to a Roth 401(k) cannot be deducted from their current income.

💡 Quick Tip: The advantage of opening a Roth IRA and a tax-deferred account like a 401(k) or traditional IRA is that by the time you retire, you’ll have tax-free income from your Roth, and taxable income from the tax-deferred account. This can help with tax planning.

2. Tax Treatment of Contributions

•   The contributions to a traditional 401(k) are tax-deductible, which means they can reduce your taxable income now, and they grow tax-deferred (but you’ll owe taxes later).

•   By contrast, since you’ve already paid taxes on the money you contribute to a Roth 401(k), the money you contribute isn’t deductible from your gross income, and withdrawals are generally tax free (some exceptions below).

3. Withdrawal Rules

•   You can begin taking qualified withdrawals from a traditional 401(k) starting at age 59 ½, and the money you withdraw is taxed at ordinary income rates.

•   To withdraw contributions + earnings tax free from a Roth 401(k) you must be 59 ½ and have held the account for at least five years (often called the 5-year rule). If you open a Roth 401(k) when you’re 57, you cannot take tax-free withdrawals at 59 ½, as you would with a traditional 401(k). You’d have to wait until five years had passed, and start tax-free withdrawals at age 62.

4. Early Withdrawal Rules

•   Early withdrawals from a 401(k) before age 59 ½ are subject to tax and a 10% penalty in most cases, but there are some exceptions where early withdrawals are not penalized, including certain medical expenses; a down payment on a first home; qualified education expenses.

You may also be able to take a hardship withdrawal penalty-free, but you need to meet the criteria, and you would still owe taxes on the money you withdrew.

•   Early withdrawals from a Roth 401(k) are more complicated. You can withdraw your contributions at any time, but you’ll owe tax proportional to your earnings, which are taxable when you withdraw before age 59 ½.

For example: If you have $100,000 in a Roth 401(k), including $90,000 in contributions and $10,000 in taxable gains, the gains represent a 10% of the account. Therefore, if you took a $20,000 early withdrawal, you’d owe taxes on 10% to account for the gains, or $2,000.

5. Required Minimum Distribution (RMD) Rules

With a traditional 401(k), individuals must take required minimum distributions starting at age 73, or face potential penalties. While Roth 401(k)s used to have RMDs, as of January 2024, they no longer do. That means you are not required to withdraw RMDs from a Roth 401(k) account.

For a quick side-by-side comparison, here are the key differences of a Roth 401(k) vs. traditional 401(k):

Traditional 401(k) Roth 401(k)
Funded with pre-tax dollars. Funded with after-tax dollars.
Contributions are deducted from gross income and may lower your tax bill. Contributions are not deductible.
All withdrawals taxed as income. Withdrawals of contributions + earnings are tax free after 59 ½, if you’ve had the account for at least 5 years. (However, matching contributions from an employer made with pre-tax dollars are subject to tax.)
Early withdrawals before age 59 ½ are taxed as income and are typically subject to a 10% penalty, with some exceptions. Early withdrawals of contributions are not taxed, but earnings may be taxed and subject to a 10% penalty.
Account subject to RMD rules starting at age 73. No longer subject to RMD rules as of January 2024.

Bear in mind that a traditional 401(k) and Roth 401(k) also share many features in common:

•   The annual contribution limits are the same for a 401(k) and a Roth 401(k). For 2024, the total amount you can contribute to these employer-sponsored accounts is $23,000; if you’re 50 and older you can save an additional $7,500 for a total of $30,500. This is an increase over the 2023 limit, which was capped at $22,500 ($30,000 if you’re 50 and older).

•   For both accounts, employers may contribute matching funds up to a certain percentage of an employee’s salary.

•   In 2024, total contributions from employer and employee cannot exceed $69,000 ($76,500 for those 50 and up). In 2023, total contributions from employer and employee cannot exceed $66,000 ($73,500 for those 50 and up).

•   Employees may take out a loan from either type of account, subject to IRS restrictions and plan rules.

Because there are certain overlaps between the two accounts, as well as many points of contrast, it’s wise to consult with a professional when making a tax-related plan.

Recommended: Different Types of Retirement Plans, Explained

How to Choose Between a Roth and a Traditional 401(k)

In some cases it might make sense to contribute to both types of accounts (more on that below), but in other cases you may want to choose either a traditional 401(k) or a Roth 401(k) to maximize the specific advantages of one account over another. Here are some considerations.

When to Pay Taxes

Traditional 401(k) withdrawals are taxed at an individual’s ordinary income tax rate, typically in retirement. As a result these plans can be most tax efficient for those who will have a lower marginal rate after they retire than they did while they were working.

In other words, a traditional 401(k) may help you save on taxes now, if you’re in a higher tax bracket — and then pay lower taxes in retirement, when you’re ideally in a lower tax bracket.

On the other hand, an investor might look into the Roth 401(k) option if they feel that they pay lower taxes now than they will in retirement. In that case, you’d potentially pay lower taxes on your contributions now, and none on your withdrawals in retirement.

Your Age

Often, younger taxpayers may be in a lower tax bracket. If that’s the case, contributing to a Roth 401(k) may make more sense for the same reason above: because you’ll pay a lower rate on your contributions now, but then they’re completely tax free in retirement.

If you’re older, perhaps mid-career, and in a higher tax bracket, a traditional 401(k) might help lower your tax burden now (and if your tax rate is lower when you retire, even better, as you’d pay taxes on withdrawals but at a lower rate).

Where You Live

The tax rates where you live, or where you plan to live when you retire, are also a big factor to consider. Of course your location some years from now, or decades from now, can be difficult to predict (to say the least). But if you expect that you might be living in an area with lower taxes than you are now, e.g. a state with no state taxes, it might make sense to contribute to a traditional 401(k) and take the tax break now, since your withdrawals may be taxed at a lower rate.
💡 Quick Tip: Before opening any investment account, consider what level of risk you are comfortable with. If you’re not sure, start with more conservative investments, and then adjust your portfolio as you learn more.

The Benefits of Investing in Both a Roth 401(k) and Traditional 401(k)

If an employer offers both a traditional and Roth 401(k) options, employees might have the option of contributing to both, thus taking advantage of the pros of each type of account. In many respects, this could be a wise choice.

Divvying up contributions between both types of accounts allows for greater flexibility in tax planning down the road. Upon retirement, an individual can choose whether to withdraw money from their tax-free 401(k) account or the traditional, taxable 401(k) account each year, to help manage their taxable income.

It is important to note that the $23,000 contribution limit ($30,500 for those 50 and older) for 2024 is a total limit on both accounts.

So, for instance, you might choose to save $13,500 in a traditional 401(k) and $9,500 in a Roth 401(k) for the year. You are not permitted to save $23,000 in each account.

What’s the Best Split Between Roth and Traditional 401(k)?

The best split between a Roth 401(k) and a traditional 401(k) depends on your individual financial situation and what might work best for you from a tax perspective. You may want to do an even split of the $23,000 limit you can contribute in 2024. Or, if you’re in a higher tax bracket now than you expect to be in retirement, you might decide that it makes more sense for you to put more into your traditional 401(k) to help lower your taxable income now. But if you expect to be in a higher income tax bracket in retirement, you may want to put more into your Roth 401(k).

Consider all the possibilities and implications before you decide. You may also want to consult a tax professional.

The Takeaway

Employer-sponsored Roth and traditional 401(k) plans offer investors many options when it comes to their financial goals. Because a traditional 401(k) can help lower your tax bill now, and a Roth 401(k) generally offers a tax-free income stream later — it’s important for investors to consider the tax advantages of both, the timing of those tax benefits, and whether these accounts have to be mutually exclusive or if it might benefit you to have both.

When it comes to retirement plans, investors don’t necessarily have to decide between a Roth or traditional 401(k). Some might choose one of these investment accounts, while others might find a combination of plans suits their goals. After all, it can be difficult to predict your financial circumstances with complete accuracy — especially when it comes to tax planning — so you may decide to hedge your bets and contribute to both types of accounts, if your employer offers that option.

Another step to consider is a 401(k) rollover, where you move funds from an old 401(k) into an IRA. When you do a 401(k) rollover it can help you manage your retirement funds.

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

Easily manage your retirement savings with a SoFi IRA.

FAQ

Is it better to contribute to 401(k) or Roth 401(k)?

Whether it’s better to contribute to a traditional 401(k) or Roth 401(k) depends on your particular financial situation. In general, if you expect to be in a lower tax bracket in retirement, a traditional 401(k) may make more sense for you since you’ll be able to deduct your contributions when you make them, which can lower your taxable income, and then pay taxes on the money in retirement, when you’re in a lower income tax bracket.

But if you’re in a lower tax bracket now than you think you will be later, a Roth 401(k) might be the preferred option for you because you’ll generally withdraw the money tax-free in retirement.

Can I max out both 401(k) and Roth 401(k)?

No, you cannot max out both accounts. Per IRS rules, the annual 401(k) limits apply across all your 401(k) accounts combined. So for 2024, you can contribute a combined amount up to $23,000 (or $30,500 if you’re 50 or older) to your Roth 401(k) and your traditional 401(k) accounts.

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.

SoFi Invest®
INVESTMENTS ARE NOT FDIC INSURED • ARE NOT BANK GUARANTEED • MAY LOSE VALUE
SoFi Invest encompasses two distinct companies, with various products and services offered to investors as described below:
Individual customer accounts may be subject to the terms applicable to one or more of these platforms.

1) Automated Investing and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser (“SoFi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC.

2) Active Investing and brokerage services are provided by SoFi Securities LLC, Member FINRA (www.finra.org)/SIPC(www.sipc.org). Clearing and custody of all securities are provided by APEX Clearing Corporation.

For additional disclosures related to the SoFi Invest platforms described above please visit SoFi.com/legal.

Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform.

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

SOIN0124032

Source: sofi.com

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Paw Protect

Annual max coverage

Reimbursement rates

70%, 80%, 90%

Deductibles

$100, $250, $500

Policy highlight

Free access to PawSupport, a 24/7 vet helpline available even on holidays.

About Paw Protect pet insurance

Paw Protect earned 4.5 stars out of 5 for overall performance. It stands out for having comprehensive accident and illness coverage that includes congenital and hereditary conditions, dental illnesses, behavioral issues and alternative therapies.

Strengths: Paw Protect’s vet telehealth service is free for all policyholders. Available by phone, live chat or video call, it offers round-the-clock support if you have any health concerns about your pet.

Weaknesses: Paw Protect doesn’t have a mobile app to manage your policy, and it’s slower than some other pet insurers in handling claims.

Paw Protect pet insurance plans and coverage

Paw Protect has a few plans to choose from.

Note: Coverage options and availability may vary depending on where you live and the age and breed of your pet.

Accident and illness

Paw Protect’s accident and illness plan is a comprehensive plan that covers:

  • Sick vet exam fees and medical waste disposal.

  • Emergency and specialist care. 

  • Prescription medication.

  • X-rays, ultrasounds and other diagnostic tests.

  • Hospitalization and overnight stays.

  • Dental injuries.

  • Dental illnesses, up to $1,000 per policy term.

  • Congenital and genetic conditions, including hip dysplasia, ACL injuries, allergies and intervertebral disc disease (IVDD). 

  • Cancer and chronic conditions.

  • Acupuncture, chiropractic treatment and laser therapy.

  • Behavioral therapy.

  • Euthanasia.

Accident only

Paw Protect’s accident-only plan is generally for older pets. It covers treatment for accidents like broken bones, bite wounds, ingested objects and car accidents. It doesn’t cover any claims related to illnesses.

Wellness Rewards

Paw Protect’s Wellness Rewards is an extra package you can add to your insurance plan. It’s offered through Embrace pet insurance and pays for routine care up to $250, $450 or $650 per year. You can get reimbursed for:

  • Wellness exam fees.

  • Flea, tick and heartworm prevention.

  • Microchipping.

  • Nutritional supplements and prescription food.

  • Fecal and blood tests.

  • Pet activity monitors.

  • Hip dysplasia exams.

  • Routine chiropractic, acupuncture, massage therapy and reiki care.

  • Routine anal gland expression.

  • Cremation and burial expenses.

What’s not covered

Paw Protect pet insurance doesn’t cover:

  • Breeding, pregnancy or giving birth.

  • DNA testing or cloning.

  • Intentional injuries by you or someone in your household.

  • Injuries or illnesses from racing, fighting, cruelty or neglect.

  • Cosmetic procedures like tail docking or ear-cropping.

  • Routine veterinary care, unless you have a wellness plan.

  • Avian flu or nuclear war.

If you have an accident-only plan, Paw Protect also won’t cover any illness-related claims.

Paw Protect coverage options

Deductibles: A pet insurance deductible is the amount you have to pay before your plan reimburses you for vet expenses. Paw Protect’s annual deductible options are typically $100, $250 and $500.

Reimbursement amounts: Pet owners have the option to get reimbursed for 70%, 80% or 90% of vet expenses.

Paw Protect applies your reimbursement percentage to the vet bill first, before subtracting your deductible. Say you have a $2,000 vet bill, an 80% reimbursement rate and a $500 deductible. To determine your eligible expenses, Paw Protect calculates 80% of $2,000, which is $1,600. Then, it subtracts your $500 deductible, so your reimbursement amount is $1,100.

Some pet insurers subtract your deductible from the vet bill before applying the reimbursement rate. Using the same figures, that method would result in a slightly higher $1,200 payout ($2,000 bill – $500 deductible = $1,500. 80% of $1,500 is $1,200).

Coverage limits: You can choose an annual coverage limit of $5,000, $10,000 or unlimited.

Restrictions and waiting periods

Age restrictions: At Paw Protect, pets must be at least 2 months old to get a policy. The company’s website states that the maximum age of enrollment is 5 years for an accident and illness plan, with accident-only coverage available for older pets. However, in certain states, we were able to get online quotes for accident and illness plans for pets older than 5. We’ve reached out to Paw Protect for clarification.

Waiting periods: A waiting period is the time between when you buy your policy and when your coverage starts. Paw Protect has a two-day waiting period for accidents and a 14-day waiting period for illnesses. Dogs also have a 12-month waiting period for orthopedic conditions like hip dysplasia. Paw Protect may waive the orthopedic waiting period if your vet performs an examination after enrollment and verifies that your dog has no orthopedic issues.

Paw Protect pet insurance rates

The cost of Paw Protect pet insurance will depend on where you live and your pet’s age and breed. Below are sample monthly rates from Paw Protect for six common dog breeds at ages 2 and 8. Our sample dogs lived in Katy, Texas, and had accident and illness coverage with a $250 deductible, $5,000 of annual coverage and an 80% reimbursement rate. Your own price will vary.

French bulldog

German shepherd

Golden retriever

Labrador retriever

Medium mixed-breed dog

We also gathered rates for a variety of cat breeds with the same coverage limits as above. Rates below are sample monthly premiums for cats living in Katy, Texas.

Domestic shorthair

Exotic longhair

Maine coon

Discounts

Paw Protect offers a 10% multipet discount and a 5% military discount.

State availability

Paw Protect is licensed to sell policies in all 50 states and Washington, D.C. Wellness plans aren’t available in Rhode Island.

Availability may change at any time. Coverage may not be available to all pets in a given state.

Consumer experience

Website: Paw Protect’s website is easy to navigate and has an education center with information about pet insurance. You can also get a quote, view sample policies and see how Paw Protect compares with other insurance companies.

App: Paw Protect doesn’t have a mobile app.

Claims: The fastest way to submit a claim is by logging into your account on Paw Protect’s website. But you can also email, fax or mail your claim forms. It takes about 10 to 15 business days to process an accident or illness claim and about five business days to process a wellness claim. You have your entire policy term to file a claim, plus an extra 60 days after renewal.

Customer service: You can call Paw Protect customer service at 888-812-6704 Monday through Friday from 9 a.m. to 8 p.m. ET and Saturdays from 10 a.m. to 2 p.m. ET. You can also email customer support.

Other pet insurance companies to consider

Not ready to make a decision? You may be interested in these other pet insurance companies:

How we review pet insurance

Our writers and editors follow strict editorial guidelines that ensure fairness and accuracy to help you choose the financial products that work best for you. In our pet insurance reviews, we consider coverage, discounts, financial strength ratings from AM Best and more to determine our star ratings.

Our rating system rewards companies that cover a wide range of potential expenses, offer many ways to customize your plan and have a strong financial rating. Within the consumer experience category, we looked at features such as mobile app ratings and whether the company offers direct vet payments. To calculate each insurer’s rating, we adjusted the scores to a curved 5-point scale.

Frequently asked questions

Source: nerdwallet.com

Apache is functioning normally

A Roth IRA can be used to pay for college expenses, and it is possible to do so without incurring taxes or penalties. However, there are disadvantages of using a Roth IRA for college, and it’s important to weigh the pros and cons.

A Roth IRA is designed to help individuals save for retirement. While you can also use a Roth IRA for college expenses, you’ll want to understand the potential ramifications.

Here’s what you need to know about using a Roth IRA for college, plus other college savings options, to help make the best decision for your situation.

Can You Use a Roth IRA for College?

You can use a Roth IRA to help pay for college. However, as mentioned, a Roth IRA is primarily a vehicle for saving for retirement. You contribute after-tax dollars to the account (meaning you pay taxes on the contributions in the year you make them), and the money in the Roth IRA grows tax-free. You can generally withdraw the funds tax-free starting at age 59 ½. However, if you withdraw the money early, you may be subject to a 10% penalty.

But there are some ways to make early withdrawals from your Roth IRA to help pay for college without being penalized. Because you contribute to a Roth IRA with after-tax dollars, you can withdraw the contributions (but not the earnings) you’ve made to a Roth at any time without paying a penalty. You could then use those contributions to help pay for college.

Just be aware that there are annual contribution limits to a Roth IRA. In tax year 2023, you can contribute up to $6,500 (or $7,500 if you’re 50 or older), and in 2024 you can contribute up to $7,000 ($8,000 for those 50 or older). How much you’ve contributed will affect how much you have in contributions to withdraw, of course.

Another way to use a Roth IRA to pay for college without being penalized is by taking advantage of one of the Roth IRA exceptions that allow you to withdraw money from your account early. One of the exceptions is for qualified higher education expenses.

💡 Quick Tip: Did you know that you must choose the investments in your IRA? Once you open a new IRA and start saving, you get to decide which mutual funds, ETFs, or other investments you want — it’s totally up to you.

Do You Have To Pay Penalties if You Use a Roth IRA for College?

Typically, if you take out money from your Roth IRA before age 59 ½ , you will be subject to taxes and penalties. However, IRA withdrawal rules grant a few exceptions to this rule, and one of the exceptions is for qualified higher education expenses.

If you pay qualifying higher education expenses to a qualified higher education institution for your child, yourself, your spouse, or your grandchildren, you won’t have to pay the 10% penalty for withdrawing funds from a Roth IRA. Qualified higher education expenses include things like tuition, fees, books and supplies. However, you will still have to pay taxes on any earnings you withdraw from your Roth IRA.

Get a 2% IRA match. Tax season is now match season.

Get a 2% match on all your SoFi IRA contributions* through Tax Day (up to the annual contribution limits). Plus, you can still contribute to your 2023 IRAs until April 15th.

*Offer lasts through Tax Day, 4/15/24. Only offers made via ACH are eligible for the match. ACATs, wires, and rollovers are not included.

Pros and Cons of Using a Roth IRA for College

Whether using a Roth IRA for college is right for you depends on your particular situation. Here are the pros and cons you’ll want to consider.

Pros of Tapping Into a Roth IRA for College

Advantages of using a Roth IRA for college expenses include:

•   You might not have to borrow as much money to pay for college. Using a Roth IRA for college expenses may reduce the need for student loans. And for some students, using money from a Roth IRA might make the difference between being able to afford to attend college or not.

•   You won’t be penalized for withdrawing the money. Because of the exception for qualified higher education expenses, you can take out the money to pay for those expenses without having to pay the 10% penalty.

•   If you withdraw just your contributions, you won’t owe taxes on that money.

Cons of Tapping Into a Roth IRA for College

These are the drawbacks of using a Roth IRA to pay for college:

•   Your retirement savings will take a hit. This is the biggest disadvantage of using the money in a Roth IRA for college. While there are other ways to help cover the cost of college, there are generally fewer options to help you save for retirement if you spend your Roth IRA funds on college expenses.

•   Because of possible compounding returns, even a few thousand dollars withdrawn from your Roth IRA today might mean missing out on tens of thousands of dollars of potential growth by the time you’re ready to retire years from now.

•   Eligibility for financial aid could be affected. Another possible downside of using a Roth IRA for college is that the money you withdraw generally counts as income on the FAFSA (Federal Application for Federal Student Aid). That may limit financial aid you could receive, including grants and loans.

Roth IRA vs 529 for College

Before you decide to use a Roth IRA for college savings, you might want to consider a 529 plan. With a 529, you can save money for your child to go to college and withdraw the funds tax-free as long as they’re used for qualified higher education expenses.

A 529 plan has more generous contribution limits than a Roth IRA does, and other extended family members may also contribute to the plan. In addition, while 529 contributions aren’t deductible at the federal level, many states provide tax benefits for 529s.

💡 Quick Tip: Before opening an investment account, know your investment objectives, time horizon, and risk tolerance. These fundamentals will help keep your strategy on track and with the aim of meeting your goals.

Which College Expenses Can a Roth IRA Be Used For?

According to the IRS, a Roth IRA can be used to pay for qualified higher education expenses. These qualified expenses include tuition, fees, books and supplies, and equipment required for enrollment or attendance.

The Takeaway

It’s possible to use a Roth IRA to help pay for qualified higher education expenses, and you typically won’t be subject to a penalty for doing so. However, taking funds out of your Roth IRA means you won’t have that money available for retirement. You’ll also lose out on any gains that may have compounded throughout the years. That could impact your retirement savings or even delay your retirement date.

Instead of using a Roth IRA for college, you may want to consider other ways to save for college that might better fit your financial needs, such as a 529 plan. That way you can save for both college and 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.

FAQ

Can you use a Roth IRA for college?

Yes, it is possible to use a Roth IRA for college expenses. If you withdraw money from a Roth IRA for qualified higher education expenses, you generally will not be subject to the 10% early withdrawal penalty. Tuition, fees, books, supplies, and equipment needed for enrollment or attendance are usually considered qualified expenses.

Is a Roth IRA better than a 529 for college?

Deciding whether to use a 529 plan or a Roth IRA for college will depend on your specific financial situation. In many cases, a 529 plan may make more sense than a Roth IRA for college savings. You can generally contribute more to a 529 plan each year than you can to a Roth IRA, there are tax advantages to the plan, and other relatives can also contribute to it. Plus, by using a 529, you won’t be taking money from your retirement savings.

Can I withdraw from my IRA for college tuition without penalty?

Yes, you can use a Roth IRA to pay for college tuition without penalty in most cases because tuition is generally considered a qualified higher education expense. However, to avoid taking money from your retirement savings, you may want to consider other college saving options instead, such as a 529 plan.

Photo credit: iStock/Tempura

SoFi Invest®
INVESTMENTS ARE NOT FDIC INSURED • ARE NOT BANK GUARANTEED • MAY LOSE VALUE
SoFi Invest encompasses two distinct companies, with various products and services offered to investors as described below:
Individual customer accounts may be subject to the terms applicable to one or more of these platforms.

1) Automated Investing and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser (“SoFi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC.

2) Active Investing and brokerage services are provided by SoFi Securities LLC, Member FINRA (www.finra.org)/SIPC(www.sipc.org). Clearing and custody of all securities are provided by APEX Clearing Corporation.

For additional disclosures related to the SoFi Invest platforms described above please visit SoFi.com/legal.

Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform.

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.

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

Exchange Traded Funds (ETFs): 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 by email customer service at [email protected]. Please read the prospectus carefully prior to investing.

Shares of ETFs must be bought and sold at market price, which can vary significantly from the Fund’s net asset value (NAV). Investment returns are subject to market volatility and shares may be worth more or less their original value when redeemed. The diversification of an ETF will not protect against loss. An ETF may not achieve its stated investment objective. Rebalancing and other activities within the fund may be subject to tax consequences.

SOIN0224027

Source: sofi.com

Apache is functioning normally

Annual max coverage

Reimbursement rates

Deductibles

$250 – $1,000

Policy highlight

Processes most claims within 48 hours.

About ManyPets pet insurance

ManyPets earned 4 stars out of 5 for overall performance thanks to its modern take on pet insurance. You can live-chat customer support and receive a claims decision within 48 hours in many cases.

Unlike many of its competitors, ManyPets doesn’t have a separate, multi-month waiting period for orthopedic conditions like knee injuries or hip dysplasia. Coverage for these and all other conditions begins 15 days after you buy your policy. The company will waive the waiting period if you’re switching to ManyPets from another pet insurance provider.

ManyPets insurance was founded in 2012.

Strengths: ManyPets has a comprehensive accident and illness plan that includes coverage for exam fees and dental disease treatment — two items not always covered by other plans.

Weaknesses: ManyPets doesn’t cover prescription food or behavioral modification. It also doesn’t have an accident-only plan, and its wellness package won’t pay for spaying or neutering.

ManyPets pet insurance plans and coverage

ManyPets offers a single accident and illness plan with the option to add preventive care coverage.

Note: Coverage options and availability may vary depending on where you live and the age and breed of your pet.

Accident and illness

The ManyPets accident and illness plan has no annual coverage limit. This plan can reimburse you for:

  • Sick visit exam fees.

  • Vet specialist and ER visits. 

  • Prescribed medications.

  • Treatment for illnesses including cancer, dental diseases and hereditary conditions. 

  • Diagnostic tests. 

  • Rehabilitation, acupuncture and chiropractic treatments.

  • Surgeries.

  • Hospitalization.

  • Euthanasia and cremation.

Wellness plan

You can add an optional wellness plan to get reimbursed for preventive care expenses. The ManyPets wellness plan has a total annual benefit of $600. It covers:

  • Checkups and vaccines, up to $150 per year.

  • Parasite testing and prevention, up to $150 per year. 

  • Teeth cleaning, dental chews and other oral care expenses, up to $150 per year. 

  • Vitamins, supplements, and services such as acupuncture or massage, up to $150 per year. 

What’s not covered

A ManyPets accident and illness plan won’t pay for:

  • Pre-existing conditions, unless your pet has been symptom-free without treatment for at least 18 months.

  • Routine care, unless you’ve added a wellness plan.

  • Hip dysplasia, if you enrolled your pet after age 5 or the animal has previously been diagnosed with this condition.

  • Behavioral modification treatments.

  • Anal gland expression.

  • Breeding, pregnancy or giving birth.

  • Sickness or injury due to neglect, racing or guarding.

  • Cosmetic procedures like tail docking or dew claw removal.

  • Treatment of cruciate ligament problems if your pet has had prior cruciate ligament injuries to any leg before the start of the policy.

The ManyPets wellness plan doesn’t cover the following (some of which other companies’ preventive care packages will cover):

  • Spay or neuter surgery.

  • Microchipping.

  • Blood tests.

  • Grooming services.

  • Prescription diet food.

ManyPets coverage options

Deductibles: A pet insurance deductible is the amount you have to pay before your plan reimburses you for vet expenses. For the ManyPets accident and illness plan, deductible options may range from $250 to $1,000 per year, though not all pets have the same choices.

Wellness plans have no deductible.

Reimbursement amounts: ManyPets will reimburse you for a certain percentage of vet expenses, minus your deductible. With ManyPets plans, you can generally choose between a 70% and 80% reimbursement rate.

ManyPets first applies its reimbursement rate to your vet bills, then your deductible. This is a less generous method of payment than that of some other pet insurers. Say you have a $1,000 vet bill, an 80% reimbursement rate and a $500 deductible. ManyPets will deem $800 of your bill reimbursable (80% of $1,000), then subtract the $500 deductible from your payout. That leaves ManyPets paying $300 and you covering the remaining $700.

Companies that apply the deductible first would pay $400 of the same vet bill. Here’s the math: $1,000 vet bill – $500 deductible = $500. 80% of the remaining $500 vet bill = $400.

Reimbursement percentages don’t apply to the ManyPets wellness plan.

Coverage limits: ManyPets has no annual coverage limit for its accident and illness plan. Its wellness plan can pay up to $600 per year.

Restrictions and waiting periods

Age restrictions: New policies are available to pets between the ages of 8 weeks and 14 years. Once enrolled, your pet won’t be denied coverage due to age as long as your policy stays active. You must enroll pets before age 6 for hip dysplasia coverage.

Waiting periods: A waiting period is the time between when you buy your policy and when your coverage starts. ManyPets has a 15-day waiting period in most states for accident and illness coverage. Wellness coverage begins the day after purchase.

ManyPets pet insurance rates

The cost of ManyPets pet insurance depends on where you live and your pet’s age and breed. Below are sample monthly rates from ManyPets for six common dog breeds at ages 2 and 8. Sample pets lived in Katy, Texas, and had accident and illness coverage with a $250 deductible, unlimited annual coverage and an 80% reimbursement rate. Your own price will vary.

French bulldog

German shepherd

Golden retriever

Labrador retriever

Medium mixed-breed dog

We also gathered rates for a variety of cat breeds with the same coverage limits as above. Rates below are sample monthly premiums for cats living in Katy, Texas.

Domestic shorthair

Exotic longhair

Maine coon

Discounts

ManyPets doesn’t advertise any pet insurance discounts.

State availability

ManyPets pet insurance is available in Washington, D.C., plus all states except Hawaii, Idaho, Maine, Massachusetts and Minnesota.

Availability may change at any time. Coverage may not be available to all pets in a given state.

Consumer experience

Website: The ManyPets website is easy to use. You can get a free quote and enroll your pet, plus browse FAQs to get answers to your questions. The website also has sample policies if you’d like to review details before you purchase a plan.

App: The ManyPets mobile app is available for both iOS and Android. You can use the app to submit and track claims, view benefit information, refer friends, and watch pet care videos.

Claims: With ManyPets insurance, you pay your vet upfront and get reimbursed after filing a claim. You have 180 days to file a claim from when you pay your vet bill. You can file a claim online or in the mobile app. ManyPets tries to process most accident and illness claims within 48 hours. It issues reimbursements within 24 business hours of approval, so you can generally expect a quick turnaround. You can get your reimbursement via bank deposit or check.

Customer service: The ManyPets customer care team is available by phone at 888-978-5291 and by email at [email protected]. You can also reach out via live chat. The company’s business hours are Monday through Friday from 9 a.m. to 9 p.m. and Saturdays from 10 a.m. to 6 p.m. ET.

Other pet insurance companies to consider

Not ready to make a decision? You may be interested in these other pet insurance companies:

How we review pet insurance

Our writers and editors follow strict editorial guidelines that ensure fairness and accuracy to help you choose the financial products that work best for you. In our pet insurance reviews, we consider coverage, discounts, financial strength ratings from AM Best and more to determine our star ratings.

Our rating system rewards companies that cover a wide range of potential expenses, offer many ways to customize your plan and have a strong financial rating. Within the consumer experience category, we looked at features such as mobile app ratings and whether the company offers direct vet payments. To calculate each insurer’s rating, we adjusted the scores to a curved 5-point scale.

Frequently asked questions

Source: nerdwallet.com

Apache is functioning normally

  • Amy Yzaguirre and her husband bought a home in Oregon with a 2.5% interest rate in 2023.
  • The lower mortgage rate, attained via an assumable mortgage, saves them $40,000 over 28 years.
  • Yzaguirre and her husband have used their savings to pay off medical debt and purchase a new car.

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This as-told-to essay is based on a conversation with Amy Yzaguirre, 40, a student and barista. She and her husband purchased a home with an assumable mortgage in Tigard, Oregon, in March 2023. An assumable mortgage allows qualifying buyers to acquire the interest rate, current principal balance, and other conditions of a seller’s existing loan. Not all loans can be assumed. The essay has been edited for length and clarity.

I grew up in the Portland, Oregon, area but moved to Boise, Idaho, in 2017. In 2022, my husband and I decided to move back to Oregon.

My husband had applied for some jobs in Portland and got a position, but we had just refinanced our Boise home. Since we had signed a no-flip clause, we couldn’t sell it until April 2022.

We planned that he would move to Portland and live with a friend while our son and I stayed back and got the house ready to be sold in April. Then, we would join him and buy a house.

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But in January 2022, I was diagnosed with stage 4 non-Hodgkin’s lymphoma. I didn’t want to undergo half of my chemo treatment in Boise and the other half in Portland, so we had to figure out a way to be together as a family while I underwent chemotherapy.

Yzaguirre and her husband in front of their RV.

Courtesy of Amy Yzaguirre



We had to keep the house until April, but we couldn’t afford to pay two mortgages or pay rent and a mortgage. A family friend gave us the idea to buy an RV and live on my parents’ land in Oregon. We lived there for eight months. It was pretty rough, but we made it work.

In March of 2022, we started looking at houses through our real-estate agent. I was in the middle of chemo, but on the days that I would feel good, we would meet up with brokers.

One suggested, “To get the type of mortgage loan that you want, you need to wait until you’re back to work.” So, we decided to pause our home search until then. While waiting, we got our credit in a good spot. When August came around and I got a job, we started seriously looking at houses.

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Finding an affordable home to buy was difficult

We wanted to live in the suburb that my parents lived in, called Tigard, but the area was too expensive for us, and the real-estate market was fairly competitive.

It’s funny how an area can be a nice, family-friendly, affordable place to live, and then all of a sudden, it becomes overpopulated and it’s not nearly as reasonable as it used to be.

We eventually decided to look in the Sherwood area instead. At this point, I had beaten cancer and was in remission. My husband and I were excited that we could take the next step and buy a new house.

We qualified for a substantial loan through our mortgage company, but we didn’t want our monthly payments to be too high. We set our budget for a home at no more than $450,000 — but even that was a bit of a stretch.

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Amy Yzaguirre’s Oregon home.

Courtesy of Amy Yzaguirre



As we looked, we really couldn’t find many homes that checked all the boxes for that amount.

But in September 2022, we found a townhouse that was on the market for $416,000. On a flyer for the home, its seller had written that if we wanted to assume her loan, she was locked in at 2.5%.

That didn’t necessarily draw us in because we didn’t quite know what that meant.

Related stories

I was more interested in the fact that it was a 1,500-square-foot townhouse that had everything we wanted, like a backyard, a big garage, and an open floor plan with hardwood floors.

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At the time, I believe mortgage rates were close to 6%. If we had a traditional mortgage, our monthly payment would have been about $3,000 a month. I remember being like, “OK, that’s pretty high, but I think we can make it work. We’re just going to have to be really careful.”

An assumable mortgage was too irresistible to pass up

We told our real-estate agent about the home and asked her what an assumable mortgage was. She said, “You’ll have to talk to our mortgage broker. I don’t really have any experience with that and don’t know what it entails.”

I asked the mortgage broker, and he admitted, “Well, we haven’t dealt with this in probably about 30 years, so I’m not entirely familiar with the process. But essentially, when you assume a loan, you’re taking over the seller’s mortgage. If you qualify, you can adopt their locked-in rate, and you don’t have to pay current mortgage rates.”

He warned us that the seller’s mortgage company was not going to hold our hand through the process. But if we were willing to put in a rigorous amount of work and do a lot of bugging, we should definitely try it because it would save us a lot of money.

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I did the math. The seller was locked in at 2.5%, so if we qualified to assume the loan, our mortgage would be a little over $2,100 a month versus the over $3,000 we would be paying with a traditional mortgage at current market rates. It would save us over $40,000 in the long run. That would give us wiggle room and allow us to continue our lifestyle instead of having to scale back.

It sounded amazing, so my husband and I decided to pursue the loan assumption.

It’s not easy assuming a loan — and it took forever

In March 2023, we purchased our home for $418,900 and made a down payment of $48,000. The home had a 30-year fixed-rate mortgage, with 28 years left on a $383,000 Federal Housing Administration loan.

We worked with Flagstar to assume the mortgage, and they assigned us an advocate. He was really nice and helped us through the process.

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In the end, we ended up submitting over 200 documents, and the process took three full months.

At a certain point, my husband was over it and just wanted to go with a normal mortgage. I had to assure him I could take care of it and that it would all be worth it — we just had to be patient.

Yzaguirre’s husband and son.

Courtesy of Amy Yzaguirre



The mortgage broker we originally spoke to was right — as the company processing the assumable mortgage isn’t making any money, you really have to advocate for yourself, jump in there, and ask questions.

I tell anybody who has asked me about assuming loans that it’s going to take a long time and it will be grueling. The process will humble you in some ways, too, because you start doubting yourself, like, “Am I a horrible financial person? Why did they need so much information? Am I not doing this right? Is there something that I’ve done wrong?”

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But once you get through the process, you should be able to get it.

It just takes time.

The hard work getting the assumable mortgage was worth it

After living in a tiny 21-foot RV, buying a home gave us freedom and a new beginning. It also helped me not feel boxed in anymore.

Amy Yzaguirre and her husband.

Courtesy of Amy Yzaguirre



Even though I was fortunate to have good insurance during chemotherapy — once I hit a certain deductible, insurance covered the rest — and have excellent insurance through my current job, I still had quite a few medical bills to pay off.

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With the extra money we have saved on our mortgage payment, I’ve been able to pay them down.

We also used the extra money to pay off other debt and purchase a Toyota Tacoma with cash — we don’t have a car payment at all.

We’re not living grand or extravagantly, but at least we’re not having to eat ramen every night. Knowing that we worked so hard for this lifestyle and achieved it ourselves, I feel like we’re truly living life to the fullest.

Source: businessinsider.com

Apache is functioning normally

If disaster strikes, will your home insurance be enough to help you rebuild? Even if you have a policy with replacement cost coverage, there’s a chance the payout won’t fully cover reconstruction if building costs escalate.

If you want an extra buffer against being underinsured, extended replacement cost coverage is worth considering.

What is extended replacement cost coverage?

Extended replacement cost coverage takes it further by paying a certain percentage above your coverage limit if rebuilding your home costs more than expected. This coverage typically adds an extra 10% to 25% over your policy limit, although some insurers will pay up to 50% over your limit.

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Answer a few questions to see custom quotes and find the right policy for you.

Say your dwelling coverage limit is $300,000. You buy an extended replacement cost coverage rider that provides an extra 25% over that limit. If your home is destroyed in a covered disaster and the estimated cost to rebuild is $375,000, your insurer will pay the $300,000 dwelling limit plus 25% of that limit, which is $75,000. You would get $375,000 total — enough to rebuild your home.

Most insurance companies offer extended replacement cost coverage. Many offer it as an optional endorsement, although some include it with your policy automatically. Policies with extended replacement cost coverage tend to be more expensive than those without it.

Extended replacement cost vs. guaranteed replacement cost

As you shop for home insurance, you may see the option to add extended replacement cost or guaranteed replacement cost coverage to your policy. What’s the difference?

Extended replacement covers up to a set percentage over your dwelling limit, while guaranteed replacement will pay to rebuild your home after a covered disaster, no matter what it costs.

To use the previous example, if you have a dwelling limit of $300,000 and 25% extended replacement cost coverage, your policy would pay up to $375,000 to repair or rebuild your home to its original condition. But if the construction company quoted you $400,000 to rebuild, you would have to come up with $25,000 yourself. With guaranteed replacement cost coverage, your policy would cover the full $400,000.

In other words, you may still pay out of pocket with extended replacement cost coverage, but with guaranteed replacement cost coverage, the insurer covers the entire cost of rebuilding your home, no matter how much it costs. You just need to pay your deductible, which is the amount you’re responsible for paying before coverage begins.

Who should consider extended replacement cost coverage?

You may want to consider extended replacement cost coverage if you live in an area that sees hurricanes, wildfires and other severe weather. It gives you a buffer in case rebuilding your home costs more than your policy limits due to inflation or a sudden increase in construction costs, which commonly happens after disasters.

Remember that this coverage will pay only a certain percentage above your dwelling limit, so in some cases, you may still face out-of-pocket costs. You will also be responsible for paying your deductible.

🤓Nerdy Tip

Extended replacement cost won’t cover expenses related to bringing your house up to current building codes. For this type of coverage, look into ordinance or law coverage.

Companies that offer extended replacement cost coverage

Most home insurance companies offer extended replacement cost coverage, but availability may vary by state or region. These home insurance companies offer extended replacement cost coverage as standard:

Source: nerdwallet.com

Apache is functioning normally

Millions of employees work from home at least part time. They’ve carved out dedicated office space and plopped laptops on kitchen counters and in closets. They almost never can declare the home office tax deduction.

Millions of self-employed people have also created workspaces at home. If they use that part of their home exclusively and regularly for conducting business, and the home is the principal place of business, they may be able to deduct office-related business expenses.

Why the difference? The Tax Cuts and Jobs Act nearly doubled the standard deduction and eliminated many itemized deductions, including unreimbursed employee expenses, from 2018 to 2025.

Read on to learn whether or not you may qualify for the home office tax deduction.

What Is a Home Office Tax Deduction?

The home office tax deduction is available to self-employed people — independent contractors, sole proprietors, members of a business partnership, freelancers, and gig workers who require an office — who use part of their home, owned or rented, as a place of work regularly and exclusively.

“Home” can be a house, condo, apartment, mobile home, boat, or similar property, and includes structures on the property like an unattached garage, studio, barn, or greenhouse.

Eligible taxpayers can take a simplified deduction of up to $1,500 or go the detailed route and deduct office furniture, homeowners or renters insurance, internet, utilities needed for the business, repairs, and maintenance that affect the office, home depreciation, rent, mortgage interest, and many other things from taxable income.

After all, reducing taxable income is particularly important for the highly taxed self-employed (viewed by the IRS as both employee and employer.)

An employee who also has a side gig — like driving for Uber or dog walking — can deduct certain expenses from their self-employment income if they run the business out of their home.
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Am I Eligible for a Home Office Deduction?

People who receive a W-2 form from their employer almost never qualify.

In general, a self-employed person who receives one or more IRS 1099-NEC tax forms may take the home office tax deduction.

Both of these must apply:

•   You use the business part of your home exclusively and regularly for business purposes.

•   The business part of your home is your main place of business; the place where you deal with patients or customers in the normal course of your business; or a structure not attached to the home that you use in connection with your business.

Regular and Exclusive Use

You must use a portion of the home for business needs on a regular basis. The real trick is to meet the IRS standard for the exclusive use of a home office. An at-home worker may spend nine hours a day, five days a week in a home office, yet is not supposed to take the home office deduction if the space is shared with a spouse or doubles as a gym or a child’s homework spot.

There are two exceptions to the IRS exclusive-use rules for home businesses.

•   Daycare providers. Individuals offering daycare from home likely qualify for the home office tax deduction. Part of the home is used as a daycare facility for children, people with physical or mental disabilities, or people who are 65 and older. (If you run a daycare, your business-use percentage must be reduced because the space is available for personal use part of the time.)

•   Storage of business products. If a home-based businessperson uses a portion of the home to store inventory or product samples, it’s OK to use that area for personal use as well. The home must be the only fixed location of the business or trade.

Principal Place of Business

Part of your home may qualify as your principal place of business “if you use it for the administrative or management activities of your trade or business and have no other fixed location where you conduct substantial administrative or management activities for that trade or business,” the IRS says.

Can You Qualify for a Home Office Deduction as an Employee?

Employees may only take the deduction if they maintain a home office for the “convenience of their employer,” meaning the home office is a condition of employment, necessary for the employer’s business to function, or needed to allow the employee to perform their duties.

Because your home must be your principal place of business in order to take the home office deduction, most employees who work part-time at home won’t qualify.

Can I Run More Than One Business in the Same Space?

If you have more than one Schedule C business, you can claim the same home office space, but you’ll have to split the expenses between the businesses. You cannot deduct the home office expenses multiple times.

How to Calculate the Home Office Tax Deduction

The deduction is most commonly based on square footage or the percentage of a home used as the home office.

The Simplified Method

If your office is 300 square feet or under, Uncle Sam allows you to deduct $5 per square foot, up to 300 square feet, for a maximum $1,500 tax deduction.

The Real Expense Method

The regular method looks at the percentage of the home used for business purposes. If your home office is 480 square feet and the home has 2,400 square feet, the percentage used for the home office tax deduction is 20%.

You may deduct 20% of indirect business expenses like utilities, cellphone, cable, homeowners or renters insurance, property tax, HOA fees, and cleaning service.

Direct expenses for the home office, such as painting, furniture, office supplies, and repairs, are 100% deductible.
💡 Quick Tip: A major home purchase may mean a jumbo loan, but it doesn’t have to mean a jumbo down payment. Apply for a jumbo mortgage with SoFi, and you could put as little as 10% down.

Things to Look Out for Before Applying for the Home Office Tax Deduction

If you’re an employee with side gigs or just self-employed, it might be a good idea to consult a tax pro when filing.

To avoid raising red flags, you may want to make sure your business expenses are reasonable, accurate, and well-documented. The IRS uses both automated and manual methods of examining self-employed workers’ tax returns. And in 2020, the agency created a Fraud Enforcement Office, part of its Small Business/Self-Employed Division. Among the filers in its sights are self-employed people.

The IRS conducts audits by mail or in-person to review records. The interview may be at an IRS office or at the tax filer’s home.

A final note: Taking all the deductions you’re entitled to and being informed about the different types of taxes is smart.

If you’re self-employed, you generally must pay a Social Security and Medicare tax of 15.3% of net earnings. Wage-earners pay 7.65% of gross income into Social Security and Medicare via payroll-tax withholding, matched by the employer.

So self-employed people often feel the burn at tax time. It’s smart to look for deductions and write off those home business expenses if you’re able to.

To shelter income and invest for retirement, you might want to set up a SEP IRA if you’re a self-employed professional with no employees.

Recommended: First-Time Homebuyers Guide

The Takeaway

If you’re an employee working remotely, the home office tax deduction is not for you, right now, anyway.

If you’re self-employed, the home office deduction could be helpful at tax time. To qualify for the home office deduction, you must use a portion of your house, apartment, or condominium (or any other type of home) for your business on a regular basis, and it generally must be the principal location of your business. This is something to keep in mind if you’re in the market for a new home, since writing off a portion of your home expenses could help offset some of the costs of homeownership.

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

How much can I get written off for my home office?

Using the simplified method of calculating the home office deduction, you can write off up to $1,500. Using the regular method, you’ll need to determine the percentage of your home being used for business purposes. You may then be able to deduct that percentage of certain indirect expenses (like utilities, cellphone, cable, homeowners or renters insurance, property tax, HOA fees, and cleaning services). Direct expenses for the home office, such as painting, furniture, office supplies, and repairs, are generally 100% deductible.

Can I make a claim for a home office tax deduction without receipts?

The simplified method does not require detailed records of expenses. If using the regular method, you should be prepared to defend your deduction in the event of an IRS audit.

The IRS says the law requires you to keep all records you used to prepare your tax return for at least three years from the date the return was filed.

What qualifies as a home office deduction?

Things like insurance, utilities, repairs, maintenance, equipment, and rent may qualify as tax deductions.

Photo credit: iStock/Marija Zlatkovic

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*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.

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Source: sofi.com