How Freelancers Can Save for Retirement After an IRA
So, you’re a freelancer and you want to know what retirement savings options you have. How can you save money outside of the IRA? It’s time to ask the bonus reader a question, why not.
This q bonus comes from Mark:
I am a freelance entertainment industry worker and my union has established a 401 (k) annuity and retirement fund to which my employer contributes every day I work on a project.
I recently received all my financial losses in a row and wanted to start making additional contributions to my 401 (k). However, due to the vagaries that exist between unions and studios and payroll companies, I cannot make any additional contributions to my 401 (k). I have a Roth IRA that I am already running out of every year, and a pretty sizable emergency fund.
I still want to start investing in the long term for retirement, but I’m not sure what other options exist and will be useful. If times get tough, I would like to have easy access to this money if needed, but I’m not sure what potential tax implications other investment accounts might have.
This is what individual experts usually say about a problem that affects each person differently: if you need personalized advice, you should see a financial planner.
Striking a balance between short-term and long-term needs
Kudos to you for putting your finances in order! It looks like you’re in a great place.
The consultants I spoke with agreed that you can find a balance between your long-term retirement and short-term liquidity needs based on the information you provide, which is especially important because you work as a freelancer and are arguably more economical. once.
First: remember that you can withdraw contributions (not income) to your Roth IRA in the event of an emergency without penalties , so there is some liquidity there. And although you said that your emergency fund is large enough, if you are worried about emergencies, then you probably are not. So consider saving a little more to make your life easier. If you have 1099 income from work not related to your union contract, consider Solo 401 (k) or SEP IRA. You can deposit up to $ 55,000 in 2018 depending on your income (however, you will need to take out a loan in case of an emergency).
Your best bet is probably a taxable brokerage account – just because it’s not labeled as a retirement account doesn’t mean you can’t use it that way. You can deposit as much as you want and withdraw money whenever you want – just know that dividends, interest and capital gains earned each year are tax deductible.
“It’s not a perfect solution, and it would be ideal if he could work with companies and the union to contribute to his 401 (k),” says Michael Eagleson, a certified financial planner from Indiana. “But if that option remains unavailable, a brokerage account will allow him to keep saving and investing until he retires. It would also provide the desired easy access to money, if necessary, provided that he has invested in funds that do not have liquidity constraints that are easy to avoid. “
Hold the stocks or mutual funds you invest in for at least one year and you will only pay long-term capital gains tax and not the short-term fund / share rate when you sell (long-term capital income tax is capped at 20 interest, while the short-term rate is based on your regular income). “If funds are invested tax efficiently and are not exchanged frequently, the annual tax implications should be negligible,” says Mark Wilson, a California- based chartered financial planner .
“So many people are afraid to pay taxes that they are not considering investing in an after tax brokerage account, but based on current tax laws, we are likely to have one of the lowest tax rates over the next year. eight years than we expect to see in the long run, ”says Monica Dwyer, a certified financial planner based in Ohio. You can open it with a discount brokerage firm like TD Ameritrade or Schwab, or Vanguard or Fidelity, and invest in various funds at low cost. Link your account to your checking account and you can make automatic contributions.
Another thought: what is your health insurance? If you have a high-deduction plan, increasing your health savings account contribution will give you a triple tax credit and a great way to save on medical expenses when you retire.
All of this suggests that you will probably find it helpful to contact a financial planner who will guide you through all the options with more detailed information about your life and goals. You can find someone you can trust through the Garrett Planning Network .
As always, if you have a general question or money issue please email me at alicia.adamczyk@lifehacker.com.