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How to save pension when you are self-employed or freelanced



Working for yourself has so many perks: flexible hours, less cumbersome commuters – if at all – and the ability to ramp up work and call it back on your terms. It's no wonder that in a study by Harris Poll for
TD Ameritrade

60% of respondents said freelancing is the modern version of the American dream.

But the freedom that gig economy gives also has its disadvantages. When it comes to saving for retirement, solo workers are eg. Alone. In the same survey, 66% of non-traditional workers said it was more difficult to plan for retirement.

It is not that independent people do not have access to tax-saving vehicles. On the contrary, they have more. In addition to saving on a traditional individual pension account (IRA) or Roth IRA, self-employed individuals have the option of a simplified employee pension (SEP) that allows deferred contributions of up to 25% of self-employed income before maxing out at $ 56,000. It's almost three times more than the maximum $ 1

9,000 that traditional employees can put away before tax.

Instead of most do-it-yourself employees, the savings gap is largely behavioral. With no turn-key plan in place, and no auto-registration to kick-start regular savings and matching benefits to sweeten the deal, self-employment must proactively blast savings.

The Good News: Gig Workers can take signs from employers to put their own savings strategies in place. Here's how you do it.

Just start saving already

More and more employers save for retirement as the default setting for employees – and it works. The participation rates of new leaseholds tracked by Vanguard are almost double for plans that have auto-enrollment. "Fatigue can be a powerful thing," says Scott Thoma, a fisheries policy and retired strategist for Edward Jones.

In fact, many large freelancers assume that a large holdup is supposed to make the perfect retirement strategy before they can set aside money. There is something to say to explore the pros and cons of saying a traditional SEP against other options or fine-tune your portfolio for your time horizon and risk profile. But do not turn these details into obstacles that get in the way of what ultimately is the biggest factor in saving success.

Read our latest cover story : How your children can ruin your retirement – and how to make sure they don't.

If you already have an IRA or Roth IRA in place, this step is an easy one. Block out 30 minutes on your calendar to find your login information, review your assignments, and set up automatic contributions (more in a minute). You may eventually roll over these funds to a SEP or standalone 401 (k), but the decision may come later.

If you start from scratch, you can create a SEP at any major brokerage company like Fidelity,
Charles Schwab

or TD Ameritrade, and choose a target date fund that matches your approximate retirement date.

Hire a counselor, human or robot

In the absence of an employer to make legwork and nudge you to save regularly, consider hiring a financial advisor. A good advisor will guide you through the pros and cons of different account structures and investment options, and be sure to stick to your knitting when market or income volatility tempts you to make poor choices.

Not ready to go there? One way to get your feet wet on the counseling front is to open an account with a robo advisor. These investment companies use sophisticated software to match savers with cheap portfolios that match their time horizons, savings needs and risk tolerance.

Most plans have very low minimum prices and the price is fair. Robo consultants charge approx. 0.25% in annual fees, or $ 25 on a $ 10,000 investment, against the typical 1% fee fee for traditional advisers. You can create an account and save in less time than your peers with full-time commuting using commuting.

Remember that money is king

It is important to establish a routine with regular pension savings, but do not do so at the expense of building an emergency fund.

In fact, having three to six months of cash on the clear should be your number one savings priority. The more unpredictable your payslips or industries are, the more you need in the fund.

Without cash as a backlash, there may be too much temptation to withdraw from retirement accounts in lean times – and pay a 10% early withdrawal penalty. Meanwhile, if you miss or make late payments for loans and recurring bills, you can damage your credit. That means higher interest rates that can haunt you long after you've captured your bills.

Striving for regular pay slips

After the first prevention of the creation of a retirement account, self-employed people encounter another obstacle to saving: unpredictable income. Although it can be difficult to plan automatic payrolls if your claims are large one month and non-existent the next, there are ways to smooth your income.

An Attempted and True Strategy, According to Michelle Brownstein, a Fisheries Policy and Vice President of Private Client Services at Personal Capital: Pay yourself a weekly pay, from which you automatically cut taxes, health insurance, and retirement. [19659004] To do this, start by taking a conservative estimate of your annual income and dividing it by 26 pay periods. Reduce this amount by 10% and then deduct the share of federal and state taxes you need for quarterly payments. half of your monthly health insurance premiums and pension savings equal to 3% of your paycheck, which is in line with the initial contributions to the employer's automatic enrollment plans.

Ideally, your self-income will be more than what you pay yourself, so you can build your emergency savings. When your profits exceed what you need in the fund, you can start increasing your pension contribution, giving yourself periodic bonuses, and even taking occasional paid vacation.


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