4 Secrets to Building a Nest Egg in the Gig Economy

In today’s evolving work landscape, many individuals are embracing the gig economy as a means of earning a living. However, it’s important to consider the future and plan for retirement, even in this non-traditional work environment. Saving for retirement not only secures your financial future but can also help reduce your income taxes. To aid you in navigating the complexities of retirement planning in the gig economy, let’s explore four different retirement plans suited for self-employed individuals.

1. Traditional or Roth IRA

• IRAs offer a straightforward and accessible way to save for retirement, allowing you to contribute up to $7,000 ($8,000 if you are aged 50 or older) in 2024.
• With a traditional IRA, you can deduct your contributions as long as they are within specific income thresholds and you have sufficient earned income.
• On the other hand, a Roth IRA does not provide tax deductions, but your disbursements after age 59 ½ are tax-free. Earnings on a Roth IRA are also tax-free after maintaining the funds for at least 5 years and reaching age 59 ½.

2. SIMPLE IRA

• The SIMPLE IRA offers higher contribution limits compared to a regular IRA, with up to $16,000 ($19,500 if you are 50 or older) in 2024.
• You can establish a plan for your gig work and make tax-deductible contributions, even if you already have a plan through your primary job.
• Like a regular IRA, a SIMPLE IRA can be self-directed, allowing you to choose where to invest your contributions.

3. 401(k) only

• A Solo 401(k) functions similarly to an employer 401(k) but is designed for self-employed individuals or side gig activities. It offers generous contribution limits of $23,000 ($30,500 if you are aged 50 or older) in 2024.
• With a Solo 401(k), you can contribute up to 100% of your income as an employee, in addition to up to 25% of your income as an employer contribution.
• Having a Solo 401(k) alongside a retirement plan from your primary job is possible, with a combined contribution limit of $69,000 in 2024.

4. Simplified Employee Pension (SEP) IRA

• SEP IRA allows for high contributions based on a percentage of your earnings, up to $69,000 for 2024.
• The contribution limit can be advantageous for high-income earners, but may be less beneficial for those just starting out in their side gig.

It’s crucial to choose a retirement plan that aligns with your financial goals and the nature of your freelance work. By saving for retirement while working in the gig economy, you can ensure a secure financial future and potentially enjoy tax benefits along the way. Consider opening one of these retirement plans to secure your financial well-being and take advantage of potential tax credits. Planning for retirement can be rewarding both financially and personally, so take the necessary steps today to invest in your future.