How Gig Workers Can Still Save for Retirement

You don’t have to depend on others (i.e. traditional employment) for retirement savings.

The other day, I came across an article that was written to depress side hustlers and gig economy workers. The story basically said that a majority of freelancers and the self-employed will never get to retire.

My thoughts were, why not?

It’s true that freelancers and gig workers don’t have access to employee-sponsored retirement accounts like 401(k) plans. However, you don’t have to be a traditional employee to gain access to retirement-savings vehicles.

If you are willing to take the initiative, you can find any number of viable ways to save for retirement as a freelancer or self-employed professional.

How to Save for Retirement When You Are Self-Employed

1. Traditional IRA

If you are looking for a simple account to open that offers the similar tax-savings benefits of a traditional 401(k) plan, then you should consider opening a Traditional IRA. Anyone with 1) earned income, and 2) no access to an employer-sponsored retirement plan can open a Traditional IRA.

And for every dollar you invest in a Traditional IRA — up to the current IRS limits — $7,000 for those under 50, and $8,000 for those over 50, you can deduct it from your taxable income.

For example, lets say that you save $5,000 in a Traditional IRA, and that you are in the 20% income tax bracket. That means you would pay $1,000 less in federal income taxes.

However, you can’t touch the money until you are 59 1/2, and once you begin making withdrawals, you will owe income taxes on the money you withdraw. And any withdrawals made prior to age 59 1/2 will cost you an additional 10% penalty on top of your regular income tax rate.

But with the tax savings you can get by contributing to a Traditional IRA, you may actually have more money than you think to fund your retirement savings.

2. Roth IRA

My personal favorite retirement account and wealth-building vehicle is the Roth IRA. Unlike Traditional IRAs, contributions made to Roth accounts are after-tax — meaning you can’t claim a deduction on your taxes.

However, you can withdraw contributions at any time without any taxes or penalties. Furthermore, once you reach age 59 1/2, you can also withdraw your earnings without any taxes or penalties.

Essentially, the Roth IRA enables you to build long-term wealth that can end up being 100% tax-free in the future. So, thinking about generating a future income during your retirement years where Uncle Sam can’t get his hands on any of your money is a nice thought.

The contribution limits can vary depending on your income.

3. Other Retirement Plans for the Self-Employed

Traditional and Roth IRA accounts are probably the easiest ways for most freelancers and gig workers to save for retirement. However, some self-employed professionals, especially small business owners, have access to self-employed retirement plans.

For example:

1. Solo 401(k) — Similar to a Traditional 401(k) plan offered by an employer.
2. SEP IRA — Allows for contributing up to 25% of net self-employment income.
3. Simple IRA — Contributions are tax deductible.

How to Afford to Save for Retirement When You Are Self-Employed

For most freelancers and gig economy workers, the question may be, how can I afford to save for retirement? Even if you can just save a little money, a little money is better than nothing!

Here are some ideas on how to fund your retirement savings goals.

1. Invest your tax refund into a retirement account.
2. Contribute any cashback rewards from credit/debit cards towards retirement savings.
3. Look for areas in your budget where you can reduce your spending.
4. See if there are additional business deductions you can take to boost your after-tax income.
5. Consider another side gig to help fund your retirement savings.

In short, don’t let people tell you that being a freelancer or gig worker is all bad. And definitely don’t allow people to convince you that you will be working the rest of your life. You can retire — just like many traditional employees — by 1) taking the time to open a retirement plan, and 2) putting money in your retirement account.

Learn more about retirement savings, managing your finances, and other important considerations in my helpful quick-reference guide for freelancers.