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There are a lot of benefits to working for yourself or having a side job and being a part of what some call the "gig economy." However, having a built-in retirement plan isn't one of them. If you want to set money aside for your post-job life, you'll need to do it yourself with one of several available independent retirement plans. After all, clients don't automatically withdraw money and deposit it into your retirement plan the way an employer would.

Retirement Planning

So how do freelancers and side-hustle enthusiasts create their own retirement plan? For many gig workers, it can feel like a huge task. According to a survey by the nonprofit advocacy group Small Business Majority, up to four in 10 self-employed workers have no retirement plan. This is often the case because they don't feel they earn enough to put money into a retirement plan or don't know how to contribute to retirement with a fluctuating income.

One way to work with an inconsistent income, according to CNBC, is to set aside a percentage of every client check for retirement, rather than a flat amount. Consider holding retirement funds in a dedicated savings account you only use for retirement money. Once a month — or whenever you like — transfer the accumulated savings into your retirement plan.

Tax & Other Benefits

When you put money into certain types of retirement plans (personal IRA, SEP, or SIMPLE) as a self-employed worker, keep in mind that you may qualify for an upfront tax break on contributions.

Another benefit of contributing to your own retirement plan is the impact on health insurance you buy through Contributions to tax-deferred retirement plans lower your adjusted gross income (AGI) and leave you eligible for higher insurance subsidies.

Your Retirement Plan Choices

You can set up a retirement account at most banks, brokers, and mutual fund/exchange-traded fund companies. Freelance workers have four plan options:

  • Traditional or Roth Independent Retirement Account (IRA): If you're just starting out as a freelancer, or have a side job, one of these two IRAs might be a good fit. You can set aside up to $5,500 per year ($6,000 per year starting in 2019) to either of these plans or $6,500 ($7,000 in 2019) if you're 50 or older.
  • Simplified Employee Pension (SEP) plan: A SEP allows you to contribute up to 20 percent of your net business earnings (as reported on your IRS, Schedule C), minus your self-employment tax, or up to $55,000 per year ($56,000 in 2019). You can also contribute up to 25 percent of an employee's compensation to their account.
  • SIMPLE IRA: This plan allows you to make both employee contributions of up to $12,500 yearly ($13,500 in 2019) and employer matching contributions of up to 3 percent of a worker's pay.
  • Individual 401(k): These 401(k) plans are for solo entrepreneurs. As the employee, you can set aside up to $18,500 (add $1,000 in 2019). As the employer, you can contribute up to $55,000 ($56,000 in 2019), or 25 percent of an employee's compensation.

If you also contribute to an employer retirement plan through a day job, you may want to consult with a tax professional. Your limits for contributing to the above plans could be lower, since the IRS also considers how much you've contributed to workplace plans. For more information, talk to your financial advisor — they can offer advice on choosing an independent retirement plan that will work best for you.


This information and recommendations contained herein is compiled from sources deemed reliable, but is not represented to be accurate or complete. In providing this information, neither KeyBank nor its affiliates are acting as your agent or is offering any tax, accounting, or legal advice.

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