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Please note, membership is required to open a DCU Savings Account. Visit our membership eligibility page for more information.
When you work for yourself, you have to look out for yourself. It’s up to you to make sure you’re getting the hours in. It’s up to you to retrieve payment from forgetful customers. Most importantly, it’s up to you to save for retirement.
Even if you think you’ll want to work until you’re old and grey, it’s important to have retirement savings put away. After all, at some point, we all slow down. While you might not have an employer that offers a 401k, you can still save using one of the saving vehicle options available to the self-employed. Below, you’ll learn about your retirement savings options and how to budget so that you can put enough away.
When you’re self-employed, you may have to set aside money on your own and won’t have access to employee 401ks and matching programs, but you’ll still have many of the same options as those who are employed with a company. For instance, you still have access to both traditional and Roth IRA. In fact, there are IRAs that are specifically designed for those who are self-employed.
Freelancers often save for retirement using self-directed IRAs that allow the investor to choose when and what to buy and sell while also offering the same tax advantages as other retirement savings accounts.
We know that the unpredictable nature of a freelance career can make it difficult to set aside money on a strict schedule. However, it’s still important to set aside money when you’re doing well. In the next few sections, we’ll cover popular freelance saving strategies and the savings vehicles they use to plan for retirement.
Freelancing turns people into planners, fast. You need to budget for everything from your day-to-day expenses to your quarterly taxes. Employers usually have an accounting team for that kind of thing but as a freelancer, it’s up to you.
Every industry has its fluctuations. Sometimes business is booming, sometimes it trickles. When it’s booming. If you’ve been self-employed for any amount of time, you know that it’s up to you to save enough to relax a little when the slow times roll by. That’s exactly what you’re doing when you’re saving for retirement, only on a larger scale. Here are a few ways you can prepare for the unpredictable nature of self-employment:
If all goes well, you will never have to use the funds in this account and the assets will be a welcome additional resource when it’s time to retire. If you do need the funds, you’ll be able to avoid early withdrawal penalties from retirement savings. Learn more about DCU’s business savings to help you meet your goals.
There are many different types of freelancers. Some may have a predictable income that may allow for regular contributions, making it easy to grow standard IRAs. Here are a few details on the retirement savings options available to the self-employed.
Whether you’re self-employed or an employee of a large corporation, diversification of your income and retirement programs is imperative. A diverse retirement plan is more likely to withstand the unpredictable nature of our economy. For instance, while the low-interest bond may not seem appealing in times of inflation, it can support your savings should the stock market take a downward spin.
These days, many freelancers have learned to make multiple income streams from gigs. For instance, making tutorial videos for a skill that you know well may not make you instant money, but when you publish tutorials on the internet, you’re building yourself an asset that may pay you for decades to come. People also do this by taking client work and creating their own products or services in times when client work isn’t as available.
Between saving for retirement, slow times and quarterly taxes, organizing the freelancing finance can be complicated. We recommend seeking counseling and banking at a supportive financial institution such as DCU.
DCU offers financial education, advice and financial tools to make planning easier. Need more help? Many freelancers turn to bookkeepers or fellow freelancing accountants to ensure their books are balanced, savings are funded and their taxes are paid. Contacting a financial advisor can ensure that you keep your peace of mind as you continue to grow your business.
Are you interested in learning more about tax management as a freelancer? Check out our article on the basics of self-employment money management. There are many expenses that come with running your own business from the high-speed internet that keeps you in touch with your client to the van you may need to transport your product. This means you may also be able to deduct those from your taxes.
Consider using your tax refunds to make an annual splash in your retirement savings account. Remember important deductions such as health insurance as 100% of your premiums are deductible. Many retirement account contributions, up to a certain income percentage are also deductible.
When you’re a freelancer, you’re likely to need more financial guidance. After all, not everyone needs to pay quarterly taxes. If you’re looking for a more supportive financial environment, look into DCU membership to see if you’re eligible. We’re devoted to financial wellness. Whether you’re a member or not, feel free to explore the rest of our financial education articles.
Please note, membership is required to open a DCU savings account. Visit our membership eligibility page for more information.
This article is for informational purposes only. It is not intended to serve as legal, financial, investment or tax advice or indicate that a specific DCU product or service is right for you. For specific advice about your unique circumstances, you may wish to consult a financial professional.
*The national average annual percentage yield ("APY") for savings accounts is updated monthly, please refer to the Federal Deposit Insurance Corporation.