Retirement for Freelancers: Oh-So-Many-Options

Jackie Lam

By Jackie Lam
Jackie Lam is the creator of Cheapsters, where she helps freelancers get by in the gig economy. She lives in L.A., where she is on the perpetual hunt for the perfect breakfast burrito.
Posted on 03/11/2018

Fact: When it comes to finances, we freelancers have to deal with far more costs than the 9-to-5 worker bees. There's health insurance, self-employed taxes, not to mention spending Friday nights perfecting the art of the invoice (or maybe that's just me).

But one of the sweet spots is all the existing retirement options for self-employed folks. While there's no employer to match retirement contributions (womp) you can potentially save more for retirement than with a standard 401(k). Enticed yet?

If so, here's the low-down on retirement for freelancers:


Short for Simplified Employed Pension, SEP IRAs are retirement accounts that only small business owners and the self-employed can set up. The 2018 contribution limits are either 25 percent of your employee's income (tip: you and your spouse count as your own employee) or $55,000, whichever is less. The downside? There's no catch-up contributions.

As you can gather, if you rake in a lot of dough, you could potentially save more than the $18,500 a year max from an employer-sponsored 401(k).

Solo 401(k)s

Also known as an Individual 401(k), a Solo 401(k) is another option for self-employed folks. With this retirement account, the employer (that's you) can wear both employee and employer hats. This is usually for those who have their business set up as an S-Corp, where you play both roles.
For 2018, the employee can contribute up to 100 percent of earned income, up to $18,500 a year. If you're 50 or over, you can squirrel away up to $24,500. Now when you put on your employer hat, you can make an additional contribution of 25 percent of business income (or 20 percent if you're a sole proprietor) to an Individual 401(k) plan up to $55,000.

There are some perks that come with an Individual 401(k) that don't come with a Simplified Employee Pension IRA. For instance, there's a catch-up contribution if you're 50 and up, and you have the option of setting it up as a pre-tax, after-tax, or Roth format. However, Solo 401(k)s are known to be a bit more complicated to set up, and there's more paperwork involved, so you might want to check in with your tax professional. Confession: Opening up one of these babies is still on my to-do list.


An IRA is a retirement account that you can open independently from an employer. Note: You don't have to be self-employed to set up an IRA. You're allowed to sock away up to $5,500 a year. If you're 50 or older, the catch-up contribution is an extra $1,000, which bumps up your max annual contribution to $6,500. There are two types of IRAs: Roth and Traditional.

The major difference between the two is when you pay taxes on your contributions. Traditional IRAs are pre-tax, which means you avoid having to pay Uncle Sam on the money in your account until you start taking out money. With Roth IRAs, on the other hand, you're contributing money that's already been taxed and you may avoid paying taxes on your withdrawals.

Just keep in mind you may not be allowed to deduct the maximum amount to your Traditional IRA if your income is at or above a certain level. Additionally, the IRS imposes rules that “phase out” the ability to contribute to a Roth IRA if you make too much money.

How to Maximize Your Contributions

Now that we've gone over the savings options for retirement, how can you make the most of these accounts? Here are a few tactics to try out:

Automation is for winners. First things first: automate—if you can. This may be a tall order, especially since many freelancers have income that fluctuates from month to month. But automation is a wonderful thing. When you automate, you pay yourself first, plus you can rest assured that you're making proper headway on your retirement goals.

What I do is a combo of automating my savings toward my Roth IRA, and putting a percentage of any money “left over” toward my SEP IRA after paying myself my monthly salary. And because I no longer have a high-deductible health plan (HDHP) I now funnel money I would have otherwise socked away toward a health savings account (HSA) to my SEP IRA.

Fees, fees, fees. Investment fees such as expense ratios, investment management fees, annual fees, transaction fees, front- and back-end fees can all eat into your investment returns. Sometimes this info is buried or the fees are folded in, so be sure to look closely for this. If you're having trouble getting your head around what fees are involved with your retirement accounts, talk to a human being. Hop on a call with a financial planner or rep at an investment company.

Mix and match. Yes, you can mix and match different types of retirement plans. For instance, I have both a Roth IRA and a SEP IRA, and contribute to both on the regular. But that strategy may not work best for you. I'm sure you've heard of the old portfolio diversification mantra “don't put all of your eggs in one basket.” You could apply the same strategy to your retirement accounts. You may have more withdrawal options when retirement finally gets here.

But don't worry about being an expert and having the perfect retirement planning strategy. Planning retirement for freelancers is never easy. The most important part is that you're getting to know what savings options exist, and you recognize the need to stay on track for that glorious day you won't need to work anymore.