About 31% of American adults work in the gig economy, either full time or as a side hustle.

For those relying entirely on gig income, not having an employer-sponsored retirement plan becomes a “license for the neglect of saving for the future,” says Tim Maurer, a financial advisor at Buckingham Strategic Wealth and Forbes contributor.  Without the pressure of coworkers or HR departments, many side hustlers and freelancers simply forget to save for their retirement.

That difference is becoming even more pronounced, Maurer notes, as more employer 401(k) plans move to “opt-out” enrollment—a process by which new employees are automatically enrolled in the company plan unless they deliberately opt-out. “That means that those who find themselves without this option are faced with several more decisions than the employee with an employer-sponsored plan, and each one of those decisions acts as a behavioral roadblock standing in the way of future financial security,” he observes.

Maurer’s advice for those with gig income: “Find the right bucket for you to save in, and then save.”

Which retirement savings bucket is best for those whose income comes from self-employment or a small business? That depends on how much you earn, how much you want to save, and whether you have—or might hire—employees. Note that if you have a regular job, with a regular 401(k), the best way to sock away some of your side-hustle income for retirement may be different. But read on, since we cover that too, below.


Best for: Self-employed individuals, small business owners with few employees and side-hustlers who are already contributing to a 401(k) at work.

Eligibility: Self-employed individuals, small business owners and employees of those small businesses who are 21 or older, have worked for the employer in at least three of the last five years and have received at least $600 a year from the employer for each of those years.

This retirement plan is often referred to as a “profit sharing contribution,” says Maura Cassiday, Fidelity vice president of retirement and small business products. Employers are typically the sole contributors to a SEP IRA.

Employers can contribute up to 25% of each employee’s compensation up to $56,000 in 2019, and each employee must receive the same percentage. With a SEP IRA, earnings grow tax deferred and contributions are tax-deductible. You are able to withdraw these earnings at any time, but a 10% penalty may apply if you are under the age of 59 ½.

If you’re self-employed—meaning you report your earnings on Schedule C of your 1040—the contribution is 25% of your “adjusted net earnings,” or your net profit, minus one half of the Social Security and Medicare taxes you pay.

A SEP IRA offers a lot of flexibility, as you can contribute different amounts every year – or nothing at all. It’s important to note that, like traditional IRAs and 401K(s), participants age 70½ or over must take required minimum distributions from a SEP IRA.

Solo 401(k)

Best for: Self-employed individuals and businesses run by a married couple, with no other full-time employees.

Eligibility: Self-employed individuals and those running businesses that have no full-time employees, other than a spouse.

A solo-401(k) is very similar to a traditional 401(k), where you can both defer a portion of your salary and have a company match. But it’s a simplified version of a 401(k) plan that—as the “solo” name suggests—is designed for a single self-employed individual. It can also be used by spouses who run a business together, but without other employees.

In a solo-401(k) plan, you wear two hats (one for the employer and one for the employee), and you can contribute under each of those hats. That allows you to save significantly more money than with other plans for the self-employed, particularly at lower income levels.

As an “employee,” in 2019 you can contribute up to $19,000 in salary deferrals yearly, or $25,000 (including a $6,000 catch-up contribution) if you will be 50 or older this year.

As a self-employed “employer,” you can also contribute up to 25% of your “earned income,” which the IRS defines as net earnings from self-employment after deducting both one-half of your Social Security and Medicare tax and the 401(k) contributions you’re making as an employee. (Here’s an example from the IRS of how this is calculated.) You can make total employer and employee contributions combined of up to $56,000 (or $62,000 if you’re 50 or older).

The big benefit of the solo 401(k) over other plans for the self-employed is that you can make big pre-tax contributions at lower income levels because of the employee contribution, which can equal up to 100% of your earnings—meaning you’re not limited to the 25% of earnings of a SEP IRA.

Another advantage is that you can choose to make some of your employee contributions into a Roth account within the solo 401(k). You get no upfront deduction for money going into the Roth, but all growth and withdrawals from the account in retirement are tax free.

As with most other plans, early withdrawals are subject to a 10% tax penalty if you are under the age of 59 ½, although there are a few exceptions.

Warning for moonlighters: If you have a 401(k) at your main job, a Solo 401(k) probably isn’t the best choice for you. That’s because a single contribution limit applies to both plans—meaning you can’t make more than $19,000 in employee contributions (or more than $25,000 in employee contributions if you’re 50 or older), to both plans combined.


Best for: Self-employed individuals or small business owners with 100 or fewer employees

Eligibility: Employees must have earned at least $5,000 from the employer in any two preceding years and expect to receive at least $5,000 during the current year.

Both employees and employers can contribute to this plan. However, employers are required to contribute either a matching contribution of up to 3% of compensation (matching meaning, the employee must contribute to get it) or 2% of all eligible employees’ compensation, regardless of whether they contribute.

Employees can contribute up to 100% of their compensation, with a maximum of $13,000 for 2019 (or $16,000 if age 50 or older).

Like a SEP IRA, early withdrawals are subject to a 10% penalty if you are under the age of 59 ½. If you withdraw within the first two years of your plan participation, you’ll incur a 25% penalty instead. Your investments grow tax deferred until you make a withdrawal, and employer contributions are tax deductible as business expenses.

Roth IRA vs. Traditional IRA

If you can’t contribute a large amount to a retirement plan yet, fear not. It’s better to go with the simpler Roth or traditional IRA options if you don’t intend to save more than $6,000 per year, says Maurer. (The limit is $7

The best vehicle for most without an employer sponsored plan is going to be the Roth IRA, Maurer opines. With a Roth IRA, you are making after-tax contributions that should grow, and eventually be distributed, tax-free. (Note that if you’re a retiree with some earnings from part-time work, you can fund a Roth IRA, whereas contributions to a traditional IRA can’t be made once you turn 70 ½.)

“Essentially, for younger people, the Roth makes more sense because they’ve got a lot longer to build up that accumulated program,” says Bob Mauterstock, a veteran financial planner. “But, if your income is high, you probably want to get the tax deduction now.”

Enter the traditional IRA, which allows you to claim a tax-break up-front—if, that is, you don’t have an employer retirement plan. (If you’ve got an employer plan, then there are strict income limits on who can claim a deduction.)  With a traditional IRA, growth is tax deferred (not tax free) and you must begin taking taxable withdrawals at 70 ½.

In 2019, total annual contributions to your traditional and Roth IRAs combined cannot exceed $6,000 if you are under 50 and $7,000 if you are over 50, or will turn 50 by the end of the year.

What about those aforementioned income limits? If you’ve got a workplace plan and you’re single, then the deduction for a traditional IRA is phased out at modified adjusted gross income between $64,000 and $74,000. If you’re married and both have workplace plans, the phase out is between $103,000 and $123,000. If your spouse has a workplace plan and you don’t, then the deduction is allowed at much higher income levels, with the phase-up occurring between $193,000 and $203,000 in 2019.

As for the Roth IRA, it too comes with income limits–eligibility to contribute phases out between $122,000 and $137,000 in AGI for a single and between $193,000 and $203,000 for a couple.

Fortunately, there’s no income limit on nondeductible contributions to a traditional IRA. (And, if you want to get really fancy, you can make a nondeductible contribution to a traditional IRA and then convert it to a Roth. (Details here.)

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