According to the Bureau of Labor Statistics (BLS), who tracks this kind of stuff, there are about 16 million workers in the US who are self-employed, tilling the soil of the gig economy, working a side hustle, or are otherwise on their own.
They are freelancers, part-timers, consultants, and small business owners. And yes, Uber drivers and Airbnb hosts are a part of the number. It's commonly thought these are mostly millennial age people, but in fact, such workers are spread across the entire labor force and demographic spectrum.
If you're among them, you should know there are powerful ways to save, invest efficiently, and enjoy meaningful tax breaks.
Here are three common and easily manageable ways to do this:
1. Individual 401(k)
An Individual 401(k) works much like the 401(k) that large employers offer. In this case, the individual is considered both the employer and employee—and can contribute more as a result..
As an employer, you can contribute as much as 25% of your earnings. As an employee, you can also contribute up to $18,500 a year—plus an additional $6,000 if you’re over age 50.
It doesn't stop there. You can even add after-tax dollars to a Roth 401(k)! No tax benefit upfront, but withdrawals later are tax-free.
Individual 401(k)s are best if you’re self-employed and work alone; having employees complicates things.
Natalie Choate at Morningstar published this informative piece in July, 2019, on the topic.
2. SEP IRA
A SEP (Simplified Employee Pension) allows you to make pre-tax contributions of the lesser of 25% of your earnings or $54,000 a year. You’re not required to contribute to a SEP IRA every year; that can be helpful if you have a slow year or take some time off.
If you have employees who are using a SEP, you can contribute to their plans as well. The disadvantage is that only the employer (you) can contribute; there’s no provision for employee contributions.
3. SIMPLE IRA
This is an easy way for a small-business owner to set up a retirement plan that can be used to match employee contributions dollar for dollar up to 3%, or make a 2% minimum contribution to each employee earning at least $5,000 a year.
A SIMPLE IRA works best for small businesses with up to 100 employees. Employee contribution limits are $12,500 a year, plus another $3,000 for those age 50 and over.
If this sounds like something for you, let's talk.
They are freelancers, part-timers, consultants, and small business owners. And yes, Uber drivers and Airbnb hosts are a part of the number. It's commonly thought these are mostly millennial age people, but in fact, such workers are spread across the entire labor force and demographic spectrum.
If you're among them, you should know there are powerful ways to save, invest efficiently, and enjoy meaningful tax breaks.
Here are three common and easily manageable ways to do this:
1. Individual 401(k)
An Individual 401(k) works much like the 401(k) that large employers offer. In this case, the individual is considered both the employer and employee—and can contribute more as a result..
As an employer, you can contribute as much as 25% of your earnings. As an employee, you can also contribute up to $18,500 a year—plus an additional $6,000 if you’re over age 50.
It doesn't stop there. You can even add after-tax dollars to a Roth 401(k)! No tax benefit upfront, but withdrawals later are tax-free.
Individual 401(k)s are best if you’re self-employed and work alone; having employees complicates things.
Natalie Choate at Morningstar published this informative piece in July, 2019, on the topic.
2. SEP IRA
A SEP (Simplified Employee Pension) allows you to make pre-tax contributions of the lesser of 25% of your earnings or $54,000 a year. You’re not required to contribute to a SEP IRA every year; that can be helpful if you have a slow year or take some time off.
If you have employees who are using a SEP, you can contribute to their plans as well. The disadvantage is that only the employer (you) can contribute; there’s no provision for employee contributions.
3. SIMPLE IRA
This is an easy way for a small-business owner to set up a retirement plan that can be used to match employee contributions dollar for dollar up to 3%, or make a 2% minimum contribution to each employee earning at least $5,000 a year.
A SIMPLE IRA works best for small businesses with up to 100 employees. Employee contribution limits are $12,500 a year, plus another $3,000 for those age 50 and over.
If this sounds like something for you, let's talk.
