Retirement Saving Options for Freelancers and Single Contractors

Updated on February 22, 2023

Self-employed individuals, including contractors and freelancers, worry about saving money for retirement because of the need for more investment opportunities or access to workplace retirement accounts. At the same time, they also have quite a few options to benefit from, just as small business owners. Think of self-employed 401(k), IRA, and Simple IRA. During the pandemic, people started side gigs to compensate for the lost income caused by unemployment or layoffs. Some became entrepreneurs, some turned to freelance, while others to small projects. No matter who you are of those millions of people, you can also invest in a retirement plan with tax advantages. Let’s glance through them.

Self-employed 401(k)

Also called solo401k, it can help maximize your retirement savings even without earning a lot. Any self-employed person or business entity without employees can be eligible for it. Spouses working in the same business can be an exception. You can contribute to this plan as an employer and an employee. When you contribute as an employee, your tax-deductible contribution can go up to 100% of your income, capped at USD $22,500 in 2023. People age 50 and more can add up to USD $30,000. You can put 25% of your eligible pretax money into the account as an employer. Still, get clarity about this from your plan provider. Remember, you may have to submit Form 5500 to the IRS once your assets’ value reaches USD $250,000. You can open your account by the financial year-end. 

SEP IRA

It is a simplified employee pension plan relevant for freelancers and self-employed people. Business entities like S-corporations, C-corporations, partnerships, and sole proprietors can also participate. It can be a tax-deductible contribution. You may have to open accounts for eligible employees in your business, but money will go from your end rather than theirs. One can contribute 0-25% of their income to this plan in 2023. You must pay the same percentage to everyone. It’s a complex process that can be challenging to navigate independently. The primary motivation can be the low-cost nature of the plan. You may not have to file tax forms. One can open this account, conforming to the federal income tax filing deadline. 

Simple IRA

You can have options like pretax and tax-deferral contributions. This plan is also accessible to small business owners and self-employed people. A company with 100 workers or fewer can also apply for it. You can contribute as an employee or an employer. For employees, the contribution limit can be up to USD $15,500 in 2023. As an employer, you can match your contributions by 3% or pay a non-elective contribution of 2%. On the downside, employers have to contribute to the plan, regardless of the status of the business profit. You can open this account last by October 1. 

Finding the right provider can make the process much more convenient. You can use an option like self-employed 401(k) to invest in diverse portfolios, such as digital assets, real estate, traditional assets, alternatives, etc. Each independent category is rich with more choices, allowing decision-making flexibility. Considering all these, an individual 401k plan may look more sensible.

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