Gig Workers: Tips for Building Your Retirement Savings Hustle

Published on October 6, 2022

The gig economy is growing, with more people working “on-demand” and side jobs. According to the U.S. Chamber of Commerce, gig workers are independent contractors or freelancers who typically do short-term work for multiple clients. The work may be project-based, hourly or part-time, an ongoing contract or a temporary position. What they have in common is that they earn income outside of traditional long-term, employer/employee arrangements.

Popular food delivery, pet care and transportation services, usually app or online-based, are among the more well-known side hustles that emerged in recent years. However, there’s more than on-demand work in the gig economy. Upwork reported that in 2021:

• 36% of the U.S. workforce were freelancers, with skilled remote freelancing a growing sector
• 53% of all freelancers provided skilled services such as computer programming, marketing, IT, and business consulting in 2021, up from 50% in 2020
• 51% of workers with postgraduate degrees are freelancers, up 6% since 2020

Saving for retirement as a gig worker

As independent contractors, gig workers do not get the same workplace benefits that many employees may have, such as health insurance or access to an employer-sponsored retirement plan. Plus, the lack of a steady paycheck may make it difficult for some to save for retirement.

At Next Generation, we’re all about educating people on how to build retirement savings. And we love the entrepreneurial spirit that goes along with growing a freelance business or enjoying the schedule and location flexibility of gig work. To that end, we offer these retirement tips for those working in the gig economy:

#1: Explore the types of tax-advantaged retirement plans available to you as a self-employed taxpayer.

• Traditional and Roth IRAs are available to anyone earning income. They have the same contribution limits ($6000 a year or $7000 for those ages 50+).
  • With a Traditional IRA, contributions grow tax free, withdrawals are taxed as ordinary income, and you may be able to deduct your contributions.
  • You may open a Roth IRA and make nondeductible contributions that are taxed going in, and take tax-free withdrawals in retirement.
  • There are certain income restrictions regarding who may contribute to a Roth IRA, which your trusted advisor can explain in detail.

• A simplified employee pension (SEP) plan enables self-employed individuals (sole proprietors) to make larger contributions than one can to a Traditional or Roth IRA.
  • In a SEP IRA, you can boost retirement savings and take advantage of strong business years by contributing the lesser of 25% of eligible compensation or $61,000 (2022 figures).

• A SIMPLE (Savings Incentive Match Plan for Employees) is another option for the self-employed or a small-business owner with 100 or fewer employees. You contribute as the employee and employer in this arrangement.
  • As the employee – up to $14,000 and an additional $3000 for those age 50+.
  • As the employer – you also put in a 3% matching or 2% nonelective contribution.
  • We recommend you consult your trusted tax or financial advisor on whether a SIMPLE IRA makes sense for you.

• The solo 401(k) is popular among self-employed professionals. You may also open a solo 401(k) if you own a business or partnership with no employees (and a spouse who works in the business can also participate). Even if your income varies every month, you can maximize your retirement savings.
  • As the employee, you may make a tax-deductible Roth contribution of up to 100% of your compensation, with a maximum of $20,500 in 2022.
  • As the employer, you can contribute up to 25% of your eligible earnings (before tax).
  • The total that can be contributed for employee and employer in 2022 is $61,000, plus an additional $6,500 for people ages 50+.

#2: Tap into your affinity for flexibility with a self-directed IRA.

When it comes to the types of investments these retirement plans can include, a self-directed IRA offers a higher level of flexibility and creativity—with the same tax advantages of their typical counterparts. You can self-direct a Traditional, Roth, SIMPLE or SEP IRA, as well as a solo 401(k) – you can even self-direct an Education Savings Account (ESA) or Health Savings Account (HSA).

As a member of the gig workforce, you can make contributions to your self-directed retirement plan as your income allows—and grow those contributions through a broad array of alternative assets not available in other plans. These include real estate, unsecured and secured loans, precious metals, royalties, and many more. Doing so gives that extra boost to your retirement savings, provides a hedge against stock market volatility, and allows you to take advantage of investment opportunities not available through stocks, bonds or mutual funds.

Furthermore, if you weren’t always part of the gig-economy and you used to have a regular, W-2 job, you may have some cash sitting in an old employer-sponsored plan, like a 401(k), that can be rolled over into a self-directed account.

“Self-direction” means you are comfortable doing your own research and making your own investment decisions—just as you are directing your professional life. And many people who already know and understand nontraditional investments want to build a more diverse retirement portfolio by including alternative assets in a self-directed IRA. If that sounds like you, and you’d like to learn more, we invite you to register for a complimentary educational session with a Next Generation representative. You can also contact us by email at NewAccounts@NextGenerationTrust.com or call 888.857.8058 for answers to your questions about self-directed IRAs.