How to Save for Retirement as a Freelancer or Self-employed Worker

piggy bank image to show how to save for retirement as a freelancer

When many of us think of retirement, we typically picture 401ks, pensions, and other employer-backed options. They’re easy to enroll in because they usually involve checking a box on a form and handing it to someone at your job. Well, when you want to save money to retire as a freelancer, some of these options aren’t so straightforward. That said, freelancers can put money away for retirement, and I’ll show you a few ways to save for retirement as a freelancer in this article!

Should all freelancers save for retirement?

CNBC reports that most American’s are not financially ready to retire at age 65. Will you be part of the minority who save and plan for retirement? 

I have friends who say that working freelance is their retirement. They plan on putting in 10-20 hours per week and living off this money while traveling. In some cases, this works fine; however, it is not a sound retirement plan. One injury or serious mishap could prevent you from working, leaving you in a weak financial state.

For this reason, I recommend that freelance and self-employed workers plan for the future by saving for retirement. Even if you plan on working until you’re in the grave, putting money aside will help for any unexpected expenses throughout your life.

Ways to save for retirement as a freelancer

I understand that income and lifestyle vary for freelancers, and that is crucial for creating a retirement plan. For example, certain plans benefit people who can wait longer to withdraw their funds or already have a substantial nest egg. 

Let’s review some of these ways to save to see which best suit your lifestyle.

Traditional/Roth Individual Retirement Account

Anyone can start an Individual Retirement Account (IRA), not just freelancers and the self-employed. An IRA is a self-directed account that lets you put up to $6,000 away each year. If you are 50 or older, you can save an additional $1,000 to help “catch up” to your retirement goals. This money is then invested in stocks, bonds, or other securities.

Roth IRA vs Traditional IRA

Anyone can start an Individual Retirement Account (IRA), not just freelancers and the self-employed. An IRA is a self-directed account that lets you put up to $6,000 away each year. If you are 50 or older, you can save an additional $1,000 to help “catch up” to your retirement goals. This money is then invested in stocks, bonds, or other securities.

The main difference between these two options is how and when you are taxed.

Roth IRA: You are taxed when you invest the money and receive no immediate tax deduction. If you think you will be in a higher tax bracket than you currently are when you retire, then this is advantageous.

Traditional IRA: You are taxed when you withdraw the funds but receive a tax deduction for that year. Traditional is a smart move if you think you will be in a lower tax bracket than you currently are when you retire.

For both of these IRAs, you typically have to wait until you are 59½ years old to withdraw. Taking out your money before this age may result in a penalty.

SEP-IRA

The Simplified Employee IRA is a perfect way to save for retirement as a freelancer, especially due to its very easy to create an account and get started. You can put up to $56,000 or 25% of your earnings – whichever is less – into a SEP IRA each year. Your contributions are also tax-deductible, but you will be taxed when you remove the funds at retirement.

If you are self-employed and have a few other employees, the SEP-IRA can get more complicated. If you want to contribute to your savings, you also have to make a contribution to each employee’s plan. The value of the contributions must be equal in percentage of total pay across the board.

Solo 401k

Many people think they can only get a 401k from their employer. Well, this isn’t true at all. As a freelancer, you can use a Solo 401k to save for retirement just like you would at a company. All other aspects of this option function just as they do through an employer.

You can contribute up to $19,500 of your income each year. If you are over 50 years old, you can tack on another $6,500 to help catch up to your retirement goals. As the employer, you can also add on another 25% of compensation, maxing out at $55,000. This feature allows you to add more pre-tax income to your retirement savings than the SEP-IRA.

Roth 401k: The Solo 401k has a Roth counterpart, which is perfect if you plan on increasing your earnings as a freelancer. It works identically to the standard 401k, but you will contribute your after-tax earnings. When you retire, you can withdraw the funds and not pay taxes at your current bracket.

Where to start a traditional retirement account

When you work at a company, your finance department automatically invests your 401k contributions. You only have to assign your percentage to save and watch the dollars add up. 

As a freelancer, you’re on your own. Luckily, there are plenty of user-friendly online investment platforms that will make it easy to save for retirement as a freelancer. 

Our recommended online investing platforms:

  • SuperMoney: If you want to compare options and find a broker who best fits your goals, SuperMoney is a great fit. I’m sure will love the SuperMoney Robo Investment Advisors
  • Acorns: Investing doesn’t have to be complicated. Acorns allows you to stash away small or large sums in Roth, SEP, and Traditional IRAs that are fully automated.  Try Acorns Today!
  • Rocket Dollar: This platform lets you set up a 401k or IRA, as well as invest in real estate, gold, cryptocurrencies, and more. Visit Rocket Dollar to learn more!

Non-traditional retirement options

Aside from these tried and tried methods of saving, you can opt for less common retirement options. While these methods can yield higher rewards, they come with more risk. 

Here is a short list of a few non-traditional retirement strategies for freelancers and self-employed workers:

  • Rental properties: Real estate is booming. Be sure to read my guide on buying a house as a gig worker!
  • Investing in cryptocurrency: This is super speculative and risky, so try to keep your crypto portfolio under 5% of your total investments.
  • Angel investing: Perhaps you have a friend who wants to take their company off the ground. Angel investing sites let you fund businesses and reap the rewards when they succeed.
  • Royalties from books and other items: Publishing a book has never been easier, and you can collect royalties for decades from your work. 
  • Investing in gold or other precious metals: The price of gold increased dramatically over the last decade. Allocating a small chunk of your portfolio to metals can lead to a nice windfall!

Don’t wait until it is too late!

To quote the famous saying, “Time in the market is better than timing the market.” The earlier you start saving, the higher your return will likely be when you retire.

Take control of your finances and plan for the future now by opening an account with a reputable broker or pursuing one of the non-traditional methods. Better yet, diversify your investments and dabble in a few of these options!