How freelancers save for retirement
by David Weliver

Freelancing comes with a variety of perks: Earning extra money, working in your pajamas and special ways to save for retirement.
That's right: If you earn freelance income, there are a couple of options available to you when it comes time to save for retirement that 9-to-5ers can't always use.
Let's take a look at retirement plans available to both full-time and part-time freelancers: the Individual Retirement Account (IRA), the Simplified Employee Pension (SEP-IRA), and the Solo 401(k).
IRAs
An IRA is the most common retirement account that you can open, whether you have an employer, work for yourself, or both.
You can start an IRA through a broker or a mutual fund and invest it however you see fit.
Contributions to a traditional IRA are tax-deductible, but you will pay income tax on withdrawals. Conversely, contributions to a Roth IRA are not deductible, but qualified withdrawals in retirement will be tax-free.

SEP-IRAs
A Simplified Employee Pension (SEP or SEP-IRA) is a retirement account for small employers to help employees set aside money for retirement. Here’s the thing: If you have freelance income (full- or part-time), you count as a small employer! Anyone with self-employment income can open a SEP, even if you have a day job.
You can establish a SEP through a broker and invest however you want. Contributions to a SEP are tax-deductible (there’s no Roth option).
A SEP’s primary advantage over an IRA is that you can contribute much more than $5,500 each year, up to IRS-specified annual contribution limits .
Solo 401(k)
For full-time freelancers, there is also the Solo 401(k), also known as the one-participant 401(k) or Individual 401(k). You can open a Solo 401(k) through certain brokers and mutual fund companies, although your investment choices may be limited – ask before you enroll.

Choosing your plan
For many savers, an IRA and an employer-sponsored savings plan like a 401(k) are all you need.
If you have freelance income, however, you may be able to increase your tax-advantaged savings with a SEP-IRA or a Solo 401(k). There are subtle differences between the benefits and rules of these accounts, so it makes sense to consult a CPA or qualified investment advisor before choosing one or the other.

David Weliver is the founding editor of Money Under 30. He’s a cited authority on personal finance and the unique money issues we face during our first two decades as adults. He lives in Maine with his wife and two children.
 
Please note that certain products and services are only available to eligible individuals.  Withdrawals are subject to income tax and a 10% penalty tax may apply if you are under age 59 1/2.
 
Teachers Insurance and Annuity Association of America (TIAA) has sponsored this post for information purposes only.  David Weliver is unaffiliated with TIAA, College Retirement Equities Fund, and their affiliates and subsidiaries (collectively TIAA), and TIAA makes no representations regarding the accuracy or completeness of any information on this post or otherwise made available by him.  Mr. Weliver’s statements are solely his own and are not endorsed or recommended by TIAA. The TIAA group of companies does not provide tax advice. You should consult your tax advisor regarding your personal circumstances. TIAA is not responsible for the content or privacy policies of third-party sites to which you may link.

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