How to Save for Retirement When You’re Self-Employed

We quit working our day jobs several years ago to pursue the dream of writing and working on this blog full-time — however, we also do several other freelance contract jobs, such as writing for companies, freelance construction work and more.

Most employers offer a contribution match to their 401(k) plan to help employees plan for retirement, and that is what most people rely on for their financial future.

But what do we self-employed freelancers do to prepare for those golden years? Are there any retirement options for the self-employed that will grow our savings to the amount needed for a comfortable retirement?

There are several options available for how to save when you’re self-employed, including both conventional and nonconventional ways.

Retirement Plans for the Self-Employed

Though many people are unaware of this, the Internal Revenue Service (IRS) states that self-employed freelancers actually have many of the same retirement options as employees.

• The Simplified Employee Pension (SEP) plan allows you to contribute up to 25 percent of your net earnings, not including the contributions for yourself, and the funds are tax-deductible.

• The 401(k) Plan is available for self-employed freelancers as an individual plan. You can contribute up to $18,000 annually, plus an additional $6,000 each year if you are age 50 or over. These deferrals can be either pre-tax or as Roth contributions.

• Savings Incentive Match Plan for Employees, also known as the SIMPLE IRA Plan, is available to small business owners with employees. You can contribute up to $12,500 annually. If you’re age 50 or older, you can add $3,000 in contributions per year. This plan also allows you to contribute a 3 percent matching contribution or 2 percent fixed contribution.

• The SIMPLE IRA Plan for the Sole Proprietor treats you as the employer and the employee when you file a Schedule C form. The plan allows you to defer up to $12,500 and an additional $3,000 if you are age 50 or older. However, you cannot exceed your net earnings from your business sponsoring the plan.

• Traditional or Roth IRA allows you to roll over your 401(k) funds from your previous day job to save for retirement. You can contribute up to $5,500 and an additional $1,000 if you are age 50 or older. These IRAs offer tax advantages, including a tax deduction on traditional IRAs and tax-free withdrawals during retirement on Roth IRAs.

The best retirement option for self-employed people is based on whether or not your business has employees – however, both the SEP and the individual 401(k) plans allow your earnings to grow tax-deferred until you are ready to withdraw the funds. Speak to a financial advisor or tax consultant before making contributions to ensure you are going to meet your financial goals.

Unconventional Income Streams for Retirement

Financial retirement accounts are not the only way to increase your self-employed retirement savings. There are other options available, including the one we are using to build a passive income stream to last a lifetime – blogging.

• Blogging allows us to reach a wider audience and share our knowledge and expertise. As we are building our site and our subscriber list, companies pay us to run their ads and/or include affiliate links for products we use and trust. When it comes to increasing our income and learning how to save for retirement when self-employed, blogging has proven to be a lucrative plan for us.

• Network marketing and direct selling through a legitimate company can result in earned income as well as passive income. Most companies offer a compensation plan for not only selling products, but for recruiting others to distribute the merchandise. The network marketing model promotes entrepreneurship and usually includes free training from the direct selling company.

• Renting houses or apartments is an option that will provide a monthly income from paying tenants. Depending on the location, a rental property can garner you an extra $200 to $1,000 or more each month. Renting property also has its tax advantages, and you can increase the monthly rent over time, or after major repairs or additions. 

• Accruing real estate takes the above option one step further. Not only can you purchase and rent out houses and apartment buildings, but you can rent out commercial real estate buildings to businesses that will provide you with an additional income stream. You can buy shares in a real estate investment trust or have direct ownership of the property. You will want to consult an investment advisor for the best option for you and your financial retirement goals.

Consider combining a couple of the retirement plans listed above with one or two of the unconventional income additions that fit into your schedule to help you save for retirement while self-employed. You can still retire with a plan in place without going back to your old day job — just keep an open mind and be willing to hustle to make it happen.

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