Retirement planning strategies for freelancers

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Saving for retirement is different for freelancers than it is for full-time employees — and more difficult. Not only do freelancers have income that often fluctuates from month to month, but they also have expenses that full-time employees don’t, such as a 15.3% tax on self-employment earnings to cover social security and health insurance contributions, health insurance costs, and other types of benefits. Freelancers also have operating expenses like website hosting and marketing that they often have to cover themselves.

“The biggest obstacle to saving for retirement as a freelancer is the fact that you have to take the initiative,” Ben Henry-Moreland, founder of Independent financial planningsay it New York Times. “You have to put money aside, figure out what kind of retirement vehicles you want to use, and then you have to find one or more providers.”

There are ways for the self-employed to organize their finances so they can save. But before they can even start saving for retirement, they must first have an emergency cash fund. Lazetta Rainey Braxton, co-CEO of Wealth Partners 2050, advises freelancers to “set aside six months of living expenses and three months of business expenses”. After that, freelancers need to figure out a percentage they want to contribute to retirement savings and automate it.

Julie Cunningham, a freelance writer, uses three business bank accounts in addition to her personal bank account: one for operating expenses, one for taxes, and a reserve account for her business. She also uses the free Wave accounting app to track business expenses.

These are the four main retirement savings options for freelancers. There is the Simplified Employee Retirement Plan Individual Retirement Account, or SEPIRAwhich can be used by the self-employed and whose contribution limits vary from year to year.

The Solo 401(k) plan “is an amazing way to save for retirement and reduce taxes,” according to freelance writer Holly Larson. “It’s money that the US government will allow you to deduct from your income,” Larson added.

The Health Savings Account, or HSA, allows those with high-deductible health insurance to set aside money with pre-tax dollars. “Although the funds can be used to pay out-of-pocket medical expenses, including deductibles, you can choose to keep the funds in your HSA and use them as an investment vehicle,” said Atiya Brown, president of Savvy Accountant. . the temperature.

And finally there is the Roth IRA. The maximum contribution of after-tax dollars to the Roth IRA is $6,000 per year, with an additional catch-up contribution of $1,000 for participants over age 50. This money can be withdrawn tax-free after age 59.5 if the account has been open for more than five years.

There is an assortment of retirement plan options for self-employed clients and for financial advisors looking to meet their clients’ income needs. Nationally, a variety of actively managed ETFs for advisors that suit a range of investment exposures and strategies, including seeking a measure of downside protection within major indices.

For more news, information and strategy, visit the Retirement Income Channel.


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