Top Ways for Savvy Freelancers to Save for Retirement

Being a freelancer has its perks, the prominent being “free.” You are free to work wherever, whenever, and however, you want. Working inside an office cubicle that measures four feet by four feet is hell on earth for you. You also want to be your own boss. 

However, being a freelancer, be it a writer, illustrator, or photo-journalist, also has drawbacks. It is harder to make real money (freelancers rarely get rich), but you also don’t enjoy the benefits of a traditional retirement program like you might earn if you worked a typical job. 

But there are ways to make up for much-needed cash when your retirement years roll around. One of the most beneficial is to apply for a reverse mortgage. If you’re 62 or older, have owned your own home for decades, and have been paying on the mortgage religiously, you can tap into all that equity you’ve built up. This can potentially run into the hundreds of thousands of dollars you can use for home repairs, medical expenses, and more. 

You can take your proceeds in one lump sum payment or monthly disbursements. You can use this handy calculator to find out how much of a reverse mortgage you qualify for (https://reversemortgagereviews.org/reverse-mortgage-calculator).

That said, there’s just one problem. Many freelancers don’t own their own homes. Nowadays, freelancers and gig workers are likely to embrace the Airbnb lifestyle. Moreover, rather than assume the expense of owning their vehicle, they choose to use Uber for transportation. 

What, then, can a freelancer do during their working years to ensure they have enough cash in retirement? 

According to a recent business article, more Americans than ever before are working in “the gig economy,” which can have its own specific challenges when it comes to their goals for retirement savings. Without HR departments or coworkers, lots of freelancers and side hustlers often find themselves neglecting to save for retirement. 

Even if you’re a freelance writer who plans on working for the rest of your life, it’s still important to establish a solid savings plan just in case a medical issue prevents you from engaging in your money-making endeavors in your golden years.   

With this in mind, here are some of the best options for saving for your retirement, according to Forbes Magazine. 

The SEP IRA

Freelancers and self-employed persons who have few to no employees who are contributing to a 401(K) are said to be eligible to contribute to a SEP IRA. In order to do this, you need to be 21 or older and “have worked for the same employer for three of the last five years.” You also need to have earned a minimum of $600 per year from the employer for the years worked.   

A SEP IRA is sometimes referred to as a “profit sharing contribution.” Employers are usually the sole contributor to the plan. But keep in mind that contributions to an employee’s SEP IRA are not allowed to exceed 25 percent of their entire annual compensation or $61,000. SEP IRAs can grow tax deferred. Also, all contributions are said to be tax deductible. 

If you’re a freelancer and you report your annual earnings on a Schedule C in your 1040, your contribution is 25 percent of your “adjusted net earnings,” or what is also called your net profit. This is minus Medicare and Social Security taxes. 

The Solo 401(k)

To be eligible for a solo 401(K) plan, you need to be a self-employed freelancer, or you can be a business that’s run by a married couple minus employees. It’s said to be similar to a traditional 401(k) since it enables pre-tax contributions that will be deducted from your annual income. 

A Solo 401(k) can be contributed to as an employer or employee. The contributions you make will save you more cash than other plans for freelancers, especially those with low-income levels. 

If you consider yourself an employee, you can contribute up to $20,500 if you’re under 50. If you’re over 50, you can contribute $27,000. 

If you consider yourself an employer, you can contribute 25 percent of your self-employed adjusted income. But the total contribution cannot exceed $61,000 or $67,500 if you are 50 or older.  

The SIMPLE IRA

Said to be the best option for freelance and self-employed persons, the SIMPLE IRA means you have to have earned at least $5,000 from an employer in “any two preceding years.” You have to be expecting to receive another $5,000 during the current year also.   

Contributors to this plan can be considered both employer and employee. But employers are said to be required to contribute a 3 percent matching contribution or 2 percent of all employee’s compensation, no matter whether they contribute or not.  

Employees are allowed to contribute up to 100 percent of their entire compensation, the maximum being $14,000 if you’re under 50 or $17,000 if you’re over 50. 

One last bit of financial advice if you’re a freelancer. If you do nothing else, contribute annually to a tax-deductible IRA. Nowadays, you can even invest in a crypto IRA.