Those who are self-employed or work freelance have a lot of flexibility—the ability to set one’s own rates and hours, work from anywhere they’d like, and choose their own clients. One downside to being freelance, however, is that no employer contributes to your retirement fund. While you may not benefit from employer contributions if you’re self-employed, there are still great savings options. Here’s an overview of some retirement plans to consider if you’re a freelancer—
Known formally as a Simplified Employee Pension, a SEP IRA is a retirement savings plan option that’s designed for small business owners and the self-employed. Like other retirement savings plans, SEP IRAs provide tax-deferred contributions, although withdrawals are taxed. One of the benefits of a SEP IRA is that the contribution limits are much higher than they are with a traditional IRA.
Solo 401(K)s, much like SEP IRAs, also have much higher contribution limits than traditional IRAs, making them a great option for those who have a lot of disposable income to save. What’s more, there are both traditional and Roth solo 401(k) options, so you can choose the option of having withdrawals taxed at regular income during your retirement years (traditional), or making qualified withdrawals tax-free after age 59 ½ (Roth).
Traditional or Roth IRA
Just because you don’t have an employer and are self-employed does not mean that you can’t open an IRA; indeed, IRAs are individual retirement plans—there’s no employer element. You can open an IRA in just a few minutes and can start making contributions immediately. Remember, though, if you open a SEP IRA, the contribution limits are much higher. There are four primary types of IRAs: SEP IRAs (discussed above), traditional IRAs (your contributions are taxed when you withdraw the money), Roth IRAs (you pay taxes on your contributions upfront), and SIMPLE IRAs. A SIMPLE IRA is for small business owners with fewer than 100 employees.
Get Help from Harvest Financial Planning, LLC Today
If you are a self-employed person who is looking for ways to save for retirement and invest in your future, our experienced professionals at Harvest Financial Planning, LLC can help. To learn more about our retirement planning services and how we may be able to help you set up the retirement savings account that makes sense, call us directly today or send us a message online at your convenience. Our team is here to support you!
This material was prepared for Harvest Financial Planning financial advisor’s use.
Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. To determine which strategies or investments may be suitable for you, consult the appropriate qualified professional prior to making a decision.
A Roth IRA offers tax deferral on any earnings in the account. Qualified withdrawals of earnings from the account are tax-free. Withdrawals of earnings prior to age 59 ½ or prior to the account being opened for 5 years, whichever is later, may result in a 10% IRS penalty tax. Limitations and restrictions may apply.
Contributions to a traditional IRA may be tax deductible in the contribution year, with current income tax due at withdrawal. Withdrawals prior to age 59 ½ may result in a 10% IRS penalty tax in addition to current income tax.