A. Here are 4 retirement plan options that freelancers can use -
- Roth Individual Retirement Account (IRA). You don't have to be a freelancer to open a Roth IRA, but these accounts do have significant relevance for freelancers. When it’s time to withdraw, there’s no need to pay taxes on the earnings on a Roth IRA, because they’re paid up front. The 2019 contribution limit is $6,000 or $7,000 for those who are 50 or older. Although there are income limits on who can contribute, anyone can convert existing IRA or 401(k) assets to Roth plans. Keep in mind that a Roth IRA, is not for everyone, and even some of those who choose a Roth IRA going forward may not convert a Traditional IRA to a Roth.
- Traditional Individual Retirement Account (IRA). Like with a Roth IRA, freelancers can also open a traditional IRA account, which has different tax advantages. Contributions to a traditional IRA, which have the same limits as for a Roth IRA, can be deducted from your income taxes that year, unlike contributions to a Roth IRA. However, keep in mind that when you withdraw the funds you will be required to pay taxes on any gains.
- Simplified Employee Pension (SEP). In addition to contributing to a traditional or Roth IRA, freelancers can also contribute to a SEP IRA, which is a special plan just for entrepreneurs. This plan allows workers to contribute and deduct 25% of their freelance income up to $56,000 for the 2019 tax year. The SEP IRA is flexible: It’s possible to change the percentage of contributions every year, skip years, or even contribute once and never again.
- Solo 401(k). Another plan only available to entrepreneurs - and especially solo-preneurs like freelancers - is a form of 401(k) called a Solo 401(k). Also known as an individual 401(k), a solo 401(k) provides the ability to contribute and deduct 25% of freelance income up to $56,000 for the 2019 tax year. Those 50 years or older may qualify for $6,000 in catch-up contributions.