Freelancers guide to retirement savings

The freedom and independence of freelancing come with some responsibilities unique to the profession. Retirement contribution matching is often a perk that comes with traditional employment. Employers can make it an automatic and easy way to start saving effectively for retirement. As a self-employed small business owner or freelancer, you have to do a little extra planning to ensure that you can take advantage of similar investment opportunities and enjoy the benefits of successful retirement planning. 

To better understand what is available, here are the most common options to save for retirement as a freelancer. 

Good Financial Health for Freelancers

Before you dive into retirement savings, understand the basics of what good financial health looks like for a freelancer. Your business money should be kept in a separate bank account from your personal money. This helps you not only during tax time, but also in tracking and understanding your business’ success. Either within that business bank account or a separate business savings account, you should be saving for three main events:

  1. Taxes
  2. Emergencies
  3. Investing

Stay ahead of the game by saving for estimated quarterly taxes. A good general rule of thumb is to save about 30% of your income for tax purposes. 

Emergencies can include a month with less client work, needed time off, or broken equipment repairs. 

Investing can look like buying a course or coaching services, new equipment, or hiring a virtual assistant. 

Once you regularly can contribute to these three savings accounts, consider the opportunity that you now have to start saving for your retirement. 

Saving for Retirement as a Freelancer

Freelancers notoriously love freedom and flexibility. So why not retire on your own terms as well? 

Traditional employment often comes with the benefit of a 401(k) account that the company and employee contribute towards. But just because you have a non-traditional career doesn’t mean you can’t save for your retirement.

Retirement savings is easy enough to disregard as not a priority right now, but T.Rowe Price recommends you have one to one-and-a-half times your salary saved by the time you are 35. So if you make $60,000 annually, it would be wise to have at least that much in your retirement account. 

Woman sitting on the couch with a laptop and her dog

Perks of Choosing a Tax-Deferred Retirement Account 

Choosing a retirement-specific account is the wisest choice you can make for your retirement savings. They are designed to maximize your long-term savings. 

A healthy retirement investment plan backed by a retirement account gives you:

  • More security for how you’ll spend your retirement years.
  • Independence from relying on family support or social security.
  • A reduction in your taxable income each year you invest in it.
  • Extra earnings from compound interest (not found in a traditional savings account). 

As a freelancer, you can still successfully save for retirement. Here are just a few of the most advantageous options for your retirement account. 

Great Options for Retirement Savings as a Freelancer

In both 401(k)s and IRAs, there are annual contribution limits. As of 2022, the limit for 401(k)s is $20,500 and $6,000 for IRAs. Both accounts allow for “catch-up” contributions after the age of 50. Each year you can contribute an extra $6,500 or $1,000, respectively. 

Self-Employed 401(k)

Also called a solo or individual 401(k), this is a great option for freelancers and consultants that have no other employees (except for a spouse). It is similar to a traditional 401(k) that you would find with a large company. You’ll invest a percentage of your pre-tax income into your 401(k). However, in this case, you are acting as both the employer and the employee which gives you the ability to have a higher level of contributions than some other retirement accounts.

IRA/Roth IRA (Individual Retirement Account)

Individual retirement accounts (IRAs) are a great option for solopreneurs and freelancers to save for retirement. While both types of accounts are similar, there are a few differences to consider. The biggest consideration is when you want to pay taxes on your contributions. A traditional IRA is funded by your pre-tax dollars which means you’ll have to pay taxes when you retire and withdraw funds from your account. A Roth IRA uses your money after taxes which means you get fewer tax breaks now, but you can distribute funds tax-free at retirement. 

Graphic describing the difference between Roth IRA and traditional IRA



It might be a mouthful, but a Simplified Employee Pension Individual Retirement Account could be a great choice for you if you are looking for higher contribution limits than our previously listed accounts. 

SEP IRAs will allow you to contribute up to $61,000 annually. These accounts will work best for you if you have few or no employees because if you do have qualifying employees, you will be required to contribute to their SEP IRAs as well. They are flexible: you don’t have to contribute every year and you can combine it with your other IRAs. However, you do not have the option for tax-free distributions like with a Roth IRA. 

Woman holding iPad while drinking coffee overlooking a city at dawn

Don’t Wait, Start Now

Saving for retirement may seem like a far-off task, but you’ll reduce so much financial stress and strain if you start planning for it now. It’s never too late to get started, the important thing is finding an investment opportunity that works well for you

*While we stand by these as good options for retirement savings. Always conduct full research for yourself and consult a professional before investing.

Related Post