And why you should make this a priority sooner than later!
Deciding to make the jump and going into freelancing or self-employment is one of the bravest things that some people do for their careers. The benefits of leaving a corporate job are many: You get to manage your own schedule, you become your own boss and even get a better work/life balance. But, as a self-employed worker, there are also things that a corporation will no longer provide, like a retirement savings account or 401k.
If saving for retirement is something that worries you, chances are you’re one of 57.3 million freelancers in the U.S. (and growing!) who are on the same boat. The good news is that by having the right information and making an early decision, saving for retirement as a freelancer is completely possible! Here’s why you need to start working on your retirement account and how.
Why saving for retirement matters now
According to a Personal Capital-sponsored study conducted by ORC International, nearly 37% of pre-retirees have no money saved for retirement. To avoid falling into this group, starting to contribute to retirement savings should be a priority for everyone … even those who think they are too young to worry about it.
Whether you’re a freelancer, independent contractor or self-employed, starting early makes a difference due to interests. In fact, it’s been proven that those who start saving early will actually end up with more money than those who started later and contributed more. Take a look at this Fidelity.com graph for more on how this works.
I need to start saving for retirement, but how?
When working the gig life there are four retirement savings account options you can take advantage of:
- Traditional IRA
- Roth IRA
- SEP IRA
- Solo 401k
The one that works for you will depend on your business model, your income, your age and whether you have employees under you or plan on hiring soon. Here’s an overview for each one.
Traditional IRA and Roth IRA
Both Traditional IRAs and Roth IRAs are meant for anyone with an income to put money aside for retirement. The only catch is that when choosing this option, if you’re under 50, you can put up to $5,500 a year into your IRA. For those over 50, you can play “catch” up and add another $1,000 to the investment.
A Simplified Employee Pension Individual Retirement Arrangement, or SEP IRA, is ideal for business owners who want to contribute to their employees’ retirement saving accounts as well as their own. In order to open a SEP IRA there are three steps to follow:
- Choose one of the available models and fill out the documentation, which can be found here
- Provide eligible employees with all necessary information regarding this retirement savings account
- Set up a SEP-IRA for each eligible employee through a qualified institution, such as a bank or an insurance company.
According to NerdWallet.com “Solo 401(k) plans are qualified retirement plans for self-employed professionals and business owners with no employees other than a spouse. These plans have gained popularity because of investor-friendly features and higher contribution limits than traditional retirement accounts,” they explain on their website.
The only catch for a Solo 401k is that business owners with employees under them aren’t eligible.
It’s not surprising that the more you contribute and the earlier you start will give you more money when you retire, so don’t let your entrepreneurial spirit prevent you from saving for retirement. Visit www.irs.gov to learn more about your options.
The Gig Life
As rewarding and exciting as the gig life is, we also understand there are challenges that you must overcome as an entrepreneur. Follow The Gig Life for tips and information from the entrepreneurial community on how to navigate your journey to success. At the Gig Life we’re here to help you in every step of the way!