For freelancers, contemplating the concept of retirement savings may have cropped up on occasion. It’s essential to plan for retirement to ensure a secure and tranquil future, so it’s advisable to start preparing as early as possible.
Being a freelancer can often mean unpredictable and fluctuating income. Hence, it’s significant to select a retirement plan that accommodates your monthly earnings.
But, how should you begin?
WAYS A FREELANCER CAN SAVE FOR RETIREMENT
1. MONITOR YOUR EXPENDITURE
Understanding your expenditure is crucial before you can start saving. Establish a method to keep track of your spendings.
2. EVALUATE YOUR SPENDING BEHAVIOR
Pay careful attention to where your money is being spent and how that aligns with your values. Consider your spending habits and if they might interfere with your retirement saving plans.
3. AUTOMATE YOUR SAVINGS
With proper budgeting, try to reach a stage where you’re making use of money that’s been in your account for a month or longer. This strategy offers better control over your finances, which can be beneficial for freelancers with variable incomes. Once you’re in a decent financial position, design a feasible plan to set aside a specific amount or percentage from each payment for your retirement.
Here are some popular retirement saving strategies for freelancers, including setting up an IRA (traditional or Roth), establishing a Solo 401(k), a SEP IRA, a SIMPLE IRA, or a defined benefit plan.
TRADITIONAL OR ROTH IRA
IRAs are perhaps the simplest means for freelancers to start building a retirement fund. They don’t come with any special filing requirements and can be used whether or not you employ others. Traditional or Roth IRAs differ in when you pay income tax on your contributions.
SOLO 401(K)
This is a recently introduced retirement plan that allows freelancers to maximize their retirement savings, regardless of their monthly income. A Solo 401(k) lets you save more due to its higher limit compared to traditional IRAs.
SEP-IRA
A SEP-IRA (Simplified Employee Pension) is a straightforward retirement plan suitable for self-employed individuals, business owners, employers, or independent earners.
SIMPLE IRA
This simple IRA plan is meant for tax-deferred and pre-tax contributions, including both employee and employer match contributions.
DEFINED BENEFIT PLANS
Defined benefit plans can be a useful source of income after retirement. These employer-endorsed retirement plans offer tax incentives to both employers and participating employees.
WRAPPING IT UP
While saving for retirement can be daunting, especially when juggling various goals, numerous resources can offer valuable financial advice and steps to start saving for retirement as a freelancer. Each of the five options mentioned above can be a potential choice for freelancers, but they aren’t universal solutions. Deciding which of the retirement plans to open involves choosing where to do it. Most online brokers facilitate the opening of the four most common account types: IRA, solo 401(k), SEP IRA, and SIMPLE IRA.
