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Suddenly Become Self-Employed? We’ve Got a Retirement Plan for You.

Suddenly Become Self-Employed? We’ve Got a Retirement Plan for You.

Has your furlough become permanent or have you decided not to return to your place of work due to the COVID-19 pandemic? Is it time to turn a long-time interest into a business? If so, you are among the many older Americans who have recently joined the ranks of the self-employed, or are now semi-retired and working a nontraditional job. If that’s you, putting a tax-advantaged retirement plan in place is a smart step along your entrepreneurship and/or nearing-retirement journey.

Deciding how to approach your new employment situation and retirement strategy depends on certain factors. Perhaps you already have an established IRA you’ve been contributing to over the course of your career, with ample savings there and Social Security benefits on the horizon—but you like the idea of continuing to work in some capacity. Or maybe you had an employer-sponsored retirement plan but have separated service from that employer—in which case, you can roll those funds over into a new retirement plan.

With the sudden change in status from W-2 employee to independent contractor or business owner, you may not be aware of the self-employment taxes that come along with this new phase of your working life. You can continue to beef up your nest egg with several different retirement plans that also provide shelter from those taxes—and can all be self-directed.

Three ways for the self-employed to save for retirement

While you may continue to contribute to an existing Traditional or Roth IRA, there are additional options for the self-employed to consider, each with distinct tax advantages: a SEP IRA, SIMPLE IRA, or a solo 401(k). Plus, if you open a self-directed retirement plan, you can include many alternative assets and build diversity into your retirement portfolio through the nontraditional investments these plans allow—like real estate, private equity, lending, hedge funds and partnerships.

A solo 401(k) is for individuals operating an owner-only business (a spouse may also participate) and can replace your employer-sponsored 401(k) plan. Note that employee elective deferrals must be made by December 31; the employer contribution can be made upon calculating and finalizing the net income when doing the tax returns (March or April of the following year).

Qualifying for each type of plan depends on whether you are entirely self-employed or also still working for a company with a retirement plan (to which you may still contribute). These plans not only help individuals maximize their retirement savings—they are tax-saving tools as well, with different contribution strategies for each type of plan and according to your specific financial situation. Therefore, we recommend you review and discuss these with your trusted advisor to maximize your tax-saving opportunities.

If you have any questions about the types of alternative assets allowed in a self-directed SEP IRA, SIMPLE IRA or solo(k), or how the transaction process works with a self-directed retirement plan administrator, schedule a complimentary education session with a Next Generation representative. Alternatively, we’re also available to answer your questions via phone at 888.857.8058 or by email at

The Gig Economy and Retirement – Are You Saving for Your Post-freelance Life?

Here’s a sobering statistic: 52 percent of employees have access to an employer-sponsored retirement plan but only 16 percent of independent workers have a retirement savings plan.

If you’re making money writing, consulting, or even renting rooms on demand, you might be enjoying your freelance life and the freedom that comes with making your own schedule. But are you thinking ahead for retirement?

As many more traditional independent contractors already know-creatives, certain commission sales people, consultants—gross pay must be allocated to cover self-employment tax, contributions to FICA, and money that’s set aside to save for the future.

It seems the federal government is concerned about this. In fact, the US Senate held a hearing in early February to discuss the gig economy and retirement savings.

Of course, there are more ways to save for retirement than investing in a company-sponsored 401(k) plan or defined benefit plan of some kind. So why aren’t more independent contractors opening an IRA—whether a Traditional or Roth, or for the self-employed, a SEP IRA?

A 2017 survey of freelancers by Small Business Majority shed light on a few key reasons:

Fluctuating income can certainly be an impediment to saving, no question. And, because independent contractors are not treated as employees, they typically do not have access to a workplace retirement plan; without the automatic contributions from a paycheck into a retirement plan, it can be hard for some people to be disciplined about making their own contributions, even if they are doing well financially.

One retirement savings solution that came up at the Senate hearing is for gig economy workers to have “Multiple Employer” plans, in which a single 401(k) plan is sponsored by multiple employers. Some states are working on state-sponsored retirement plans for independent contractors as well.
Some of the digital apps driving this gig economy are ahead of that curve. Lyft offers something called Honest Dollar to its drivers, and Uber offers a retirement savings option in some cities through Betterment. The investing platforms are voluntary.

In the meantime, motivated, savvy investors can put their hard-earned freelance dollars to work for them through a self-directed retirement plan. For those who like their independence in terms of occupation, self-direction offers greater independence in terms of investment options. With self-directed retirement plans, you as the account holder make all your own investment decisions and you can include a wide array of alternative assets not typically allowed in traditional retirement plans. If you’re self-employed, you can open a self-directed SEP IRA and enjoy all the same tax advantages with the ability to contribute more out of pocket (see IRS website for annual contribution limits). You may also self-direct a Traditional or Roth IRA, and include real estate, precious metals, private equity, loans, and many more nontraditional investments.

Whether your freelance life is full time or on the side, you can build a more diversified retirement portfolio with self-directed investments. Want to learn more? Watch our informative videos or contact our team at or 1-888-857-8058.