Even though freelancing gives you the opportunity to live the life you want, travel, and set your own schedule, you still will probably want to retire someday. Since freelancers aren’t offered retirement savings through their employers, how are they supposed to save for retirement? There is a way, and even if you’re starting late, there’s never been a better time than now for self-employed workers to start planning for their golden years.
How can freelancers build retirement savings?
People who are employees often have access to their employer’s 401K retirement savings plan. Usually, the contribution comes directly out of their paychecks, so they don’t even have to think about it. Better still, employers sometimes match their contributions and retirement funds build even faster. How can self-employed people level the playing field and build up retirement savings on their own?
Traditional individual retirement accounts (IRA)
IRA’s are simple and flexible, and make a good choice for freelancers. You can put up to $6,000 into the account per year, and if you’re over 50, you can put up to $7,000. Freelancers contributions are usually tax deductible, so that’s an added savings bonus. Self-employed workers can keep contributing up until they’re 71 1/2 years of age.
What is the difference between a traditional and a Roth IRA? Basically, you can make contributions after you’ve already paid your taxes and self-employment taxes which means you get tax-free withdraws once you retire. This is a very attractive option for most freelancers. Both Roth IRA’s and traditional IRA’s can be set up through any financial services company.
Health savings accounts (HSA)
While technically not meant for retirement, you can get creative and use your health savings account to make your money grow. They are a very tax-friendly way to accumulate cash, and better still, you can contribute up to 25 percent of your earnings.
Health savings accounts are both a tax free contribution and a tax free deduction, if it is used for a qualified medical expense. Either way, an HSA is a good way to build up retirement savings for freelancers and self-employed workers.
Top tips to make retirement savings happen
When you’re self-employed and it’s just you running the show, it’s easy to make retirement savings a low priority. That is something that you’ll probably live to regret, so it’s a good idea to decide once and for all that it is a top priority. If you find you don’t have the funds at the end of the month, it’s time to make lifestyle changes in order to get ahead.
Just do it
The most important tip for saving for retirement is simply to just start. If you’re getting older and you haven’t started saving yet, you may feel like it’s a lost cause and you’re just going to freelance forever. Don’t despair! It’s never too late to start retirement savings and every little bit helps. If you haven’t started yet, do it today. It doesn’t take long to open an account and savings start building immediately.
Make savings automatic
Set up your IRA so it automatically takes funds out of your bank account every month. This is the best way for freelancers to build retirement savings over time. If you pay yourself a certain amount weekly or monthly, set up an automatic contribution with your retirement plan at the same time. This way, you never need to think about saving, it just happens.
Freelancers, remote workers, and independent contractors have plenty of ways to save for their retirement. Start today, and you’ll soon have nice nest egg to look forward to at the end of your freelance career.