How to plan for retirement as a freelancer

How to plan for retirement as a freelancer

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In its fifth annual year 2018,  a survey by Upwork and Freelancer’s Union findings show that Americans are spending more than 1 billion hours freelancing.

So, somewhere the freelance work is quantified in a much larger number. But, retirement plan is essential for freelancers too. With the perks of working anywhere, freelancing is gaining its momentum over the traditional work setting. But the lack of employer providing retirement benefits such as 401 (k) plan can make things confusing when one makes the retirement plan.

Retiring with $1 million is not going to suffice the retirement success. As a millennial freelancer, one should understand the fact that as costs rise in the future, a dollar value will not be the same. Hence, calculating the future dollar value to today’s dollar will help to track the retirement plan in a proper way.

For example, using inflation calculator, ( Average of 2% inflation rate), the future value of $1 million dollars is equal to $500k for today’s dollar value. So, planning retirement is crucial.

With the right investments and current payoff rates, here are a variety of retirement plans for freelancers.


A SEP-IRA is for anyone who is self-employed or earns freelance income.

Over a traditional or Roth IRA one of the key advantages of a SEP IRA is the elevated contribution limit.

Until withdrawal, money in a SEP IRA is not taxable. Also, SEP IRA has some features that 401 (K) don’t hold. There are financial institutions that offer varied investment payoffs within a SEP IRA. This is in stark contrast to the fixed menus of investments that most 401(k) retirement plans allow.

One great thing is that you can open SEP IRA and put whatever amount that you want to. This is a flexible option for freelancers whose work is billed at varied amounts.

Solo 401 (k)

Solo 401 (k) is a retirement plan designed specifically for employers with no full-time employees. The benefit here is you can also make contributions as an employer (kind of like matching yourself), so your total contribution may be higher.

For detailed information, here it is:

2018 contribution limits are $18,500 in elective deferrals, plus 25% of compensation in employer contributions, up to a maximum of $55,000 for certain individuals and contribution type include both pre and post-tax. (Source: Value Penguin)

Simple IRA

It is a simple retirement plan that works for both freelancer and full-time employees ( who has an employer). The contribution rate is lesser than 100% of your compensation rate or $12,500 ($15,500 if 50 or older). The limits are unchanged for 2018.

But, if you withdraw the money from the plan within the first two years, there is a steep penalty of 25%. As with the sole 401(k) or a SEP-IRA, you can open a SIMPLE IRA at most major financial institutions.

Roth and Traditional IRA’s

An IRA is a retirement savings account type that offers tax benefits. There are tax breaks depending on the type of IRA you choose- Traditional IRA or Roth IRA. The tax benefits include tax-free and tax-deferred compounding.

The money you put into a traditional IRA is pre-tax, meaning you’ll pay taxes when you withdraw funds in retirement.

With Roth IRA, contribution doesn’t give you tax deductions but, made with after-tax money. You can open accounts at various brokers, such as Vanguard, Fidelity or Betterment. In general, Roth IRA is beneficial to younger investors because of the freelance income or lower taxable income.

For 401 (k) and IRA investments, start here.

Also with Insurance policies, freelancers require to know the essentials. Here are the insurance policies required to know:

Finally, it is difficult to calculate the amount you’ll need to save for retirement. But, make sure to start the plan as earliest as possible and get the maximum benefit in the future.

As a freelancer, which plan do you suggest? Let us know in the comments.









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