Freelancer IRA

If you are one of the millions of freelancers without a retirement plan, you may have several options to save for retirement. Unlike employed workers who get an employer-sponsored plan, gig workers must figure out retirement on their own. 

Freelancers working in the gig economy have several IRA options, including a traditional IRA, Roth IRA, SEP IRA, and a SIMPLE IRA. A traditional IRA is ideal for freelancers looking to lower their taxable income since it is funded with pre-tax dollars. In comparison, a Roth IRA is funded with after-tax income, allowing freelancers to make qualified tax-free withdrawals in retirement.

Best IRAs for Freelancers

Freelancers are self-employed individuals, and they may have plenty of retirement saving options. Here are the IRA options freelancers can consider:

Traditional IRA

A traditional IRA is a good option for freelancers who want to lower their taxable income. It is funded with pre-tax dollars, and this means that freelancers can claim a tax deduction to reduce their taxable income. The contributions grow tax-deferred, and they won't pay taxes on the money until they make a withdrawal from the account.

If you got fired or quit your job, you can also roll over your old 401(k) into an IRA. An IRA offers more investment options than a 401(k), and you get more control over your money. For 2024, you can contribute up to $7,000 to a traditional IRA, and an additional $1,000 if you are age 50 and older. The IRA contribution limit will remain unchanged in 2025. 

Roth IRA

A Roth IRA is funded with after-tax contributions, and it is particularly appealing to freelancers who expect to be in a higher tax bracket in the future. Since you contribute money that is already taxed, qualified withdrawals in retirement will be tax-free. You can allocate your contributions to various retirement options like stocks, bonds, mutual funds, and ETFs.

For 2024, you can contribute up to $7,000 to a Roth IRA, and an additional $1,000 if you are age 50 and older. Be aware that there are IRS income limits for Roth IRA contributions. For 2024, the income limit to make a full contribution in 2024 is less than $146,000 for single filers and less than $230,000 for couples filing jointly.

Single filers are eligible to make a partial contribution if their income is higher than $146,000 but below $161,000, while joint filers are eligible to make a partial contribution if their income is higher than $230,000 but less than $240,000. Single filers with incomes above $161,000 and joint filers with incomes above $240,000 are ineligible to contribute to a Roth IRA.

SEP IRA

Freelancers and workers with self-employment income are eligible to open a SEP IRA. This retirement plan is available to small business owners with few or no employees, and it allows higher contributions than a regular IRA. If you have a 401(k) from an old job, you will be allowed to roll over to a SEP IRA.

For 2024, you can contribute up to 25% of your net compensation, or $69,000 (increasing to $70,000 in 2025), whichever is lower. However, there is an income limit of $345,000 on compensation that is used to determine the contributions; this limit increases to $350,000 in 2025.

If you have employees, you can open SEP IRA accounts for eligible employees. Employers are required to contribute an equal percentage of salary for each employee. For example, if you contribute 15% of your net compensation to your SEP IRA, you must contribute 10% of net compensation to each eligible employee’s account.

SIMPLE IRA

If you are a freelancer with up to 100 employees, you can consider opening a SIMPLE IRA. Contributions to a SIMPLE IRA are tax deductible, but withdrawals will be taxed at your tax bracket.

For 2024, you can contribute up to $16,000 as an employee to a SIMPLE IRA, plus a catch-up contribution of $3,500 for people age 50 and older. As an employer, you can contribute either a 3% matching contribution or a 2% non-elective contribution. The employer can make additional non-elective contributions to all employees at 10% of compensation, or $5,000, whichever is less.

Although a SIMPLE IRA has lower contribution limits than a SEP IRA, it is easier to set up and manage.

Can a freelancer contribute to multiple IRAs simultaneously?

Self-employed individuals, including freelancers, can contribute to multiple IRAs at the same time. For example, you can contribute to a traditional and Roth IRA, but the total amount you can contribute to both retirement plans is subject to the annual contribution limit.

For 2024, the cumulative contribution to both IRAs cannot exceed $7,000, or $8,000 if you are 50 or older. Contributing to both IRAs can help you balance your tax benefits by contributing to a Roth IRA during low-income years and switching to a traditional IRA during high-income years to claim a tax deduction.

Can a freelancer have a 401(k)?

One of the 401(k) plans available to freelancers is a 401(k) for 1099 earners, which allows people with self-employment income to contribute up to $61,000 in 2024. This 401(k) is ideal for freelancers looking for flexibility with their money since they can tap into their retirement savings at any time without taxes or penalties.

A freelancer can also open a solo 401(k) plan, which is designed for individuals without employees, except a spouse. The spouse must earn an income from the freelance business to qualify for contributions.

For 2024, you can contribute up to $69,000 to a Solo 401(k) and an additional $7,500 if you are age 50 or older. This contribution increases to $70,000 in 2025. Individuals aged 60 to 63 are eligible for a higher catch-up contribution of up to $11,250.