Financial strategies for contract workers*

Flexibility and freedom are two words that typically come to mind when you think of contract or part-time work.  However, with flexibility and freedom, there is also financial responsibility.
If you don’t have the safety net of employer benefits or a retirement plan and are looking for financial strategies, here are some ways to help get you on solid financial ground.

Have 3-6 months of savings

As a contractor or part-time worker, your income will likely tend to ebb and flow. Having an emergency fund with enough savings to cover three to six months’ worth of your critical expenses can help ensure you can pay your bills even during times of low employment.

Know what you owe

If you’re doing contract work and don’t want taxes withheld from your pay, you’ll need to make quarterly, estimated state and federal tax payments. A tax professional can help you determine how much to budget for taxes and how to file.

Take advantage of savings tools

Contract workers and part-time employees can utilize the savings tools below to help meet important financial goals.1
  • 529 college savings plans2: Money invested in these state-sponsored plans can be withdrawn federal income tax-free if you use them to pay for qualified educational expenses, such as tuition, books and supplies. You can open one for anyone, including your children or yourself. Keep in mind that non-qualified withdrawals may be subject to federal and state taxes and the additional 10% federal tax.
  • Traditional IRA: If you’re not eligible to contribute to a workplace retirement plan, this account can be a good alternative. Money you contribute to a Traditional IRA grows tax-deferred until you withdraw it during retirement. If you’re in a lower tax bracket when you retire, you’ll pay less in taxes on your IRA earnings later than you would today.
  • Roth IRA: You won’t get an upfront tax deduction for using a Roth IRA as you would a Traditional IRA. However, a Roth can be an excellent companion to a Traditional IRA or an employer-sponsored retirement plan. To be eligible to contribute to a Roth, you must meet certain income guidelines.
  • SEP, SIMPLE, Keogh and Solo Roth 401(k) plans: These accounts are all tax-deferred retirement plans for self-employed workers. Your tax or financial advisor can help you determine which one is most appropriate for you.
If you’re unsure how much to save toward retirement or college, our tools and calculators can provide insight.
Employer benefits are not the only path to financial security. Planning ahead, knowing what you owe and taking advantage of saving tools can help contract or part-time workers have a successful journey toward their long-term savings goals.
*TIAA does not provide legal or tax advice.  The tax information contained herein is not intended to be used, and cannot be used, by any taxpayer for the purpose of avoiding tax penalties. Taxpayers should seek advice from an independent tax advisor based on their own particular circumstances.
1Withdrawals of earnings from a retirement account or annuity are subject to ordinary income tax, plus a possible federal 10% penalty if you make a withdrawal before age 59 ½.
2Most states offer a 529 college savings plan. Before investing, check your state's website for information about favorable state tax benefits that are only available if you invest in that state’s plan. Consider the investment objectives, risks, charges and expenses before investing in a state 529 college savings plan. Read the Disclosure Booklet containing this and other information carefully. Investments in a state 529 college savings plan are neither insured nor guaranteed and there is risk of investment loss.