Uber driver 401(k)

Working independently as an Uber driver can be a good source of supplemental income. You can control your schedule, and manage other life priorities like children and your primary job. However, unlike traditional jobs where setting aside money for retirement is relatively easy, independent contractors like Uber drivers must figure out how to save for retirement.

Uber drivers are owner-operators, and they can set up their own 401(k) for people with self-employment income. One of the retirement savings options that Uber drivers have is a 401(k) for 1099 earners, which allows them to contribute up to $61,000 before tax. This 401(k) allows them to access their retirement money at any time without owing any taxes and penalties.

How Uber pays their drivers

When you work in a traditional job, your employer has likely set up an employer-sponsored retirement plan like 401(k), and it is easy to enroll and set up automatic savings that take money from your paycheck. Since you have a stable income, your retirement contributions are predictable.

However, when you work as a driver for a rideshare company like Uber, you are an independent contractor, not a company employee. Uber drivers do not receive the same benefits as Uber employees, and their pay is determined on a variable basis. The amount that a driver receives is determined through a process that combines various factors like distance covered, time rate, base fare, surge pricing, bonuses, and commissions.

Uber drivers receive a weekly payout, and the total earnings for the week are determined after deducting Uber's service fee, booking fee, and any additional fees. Drivers can also take instant payouts instead of waiting for the weekly payout, but this option comes with an extra fee for instant withdrawal. Since Uber drivers are independent contractors, they are responsible for their taxes and will receive a 1099 form for tax purposes.

Does Uber offer drivers a 401(k)?

Uber does not offer a 401(k) plan to its drivers. Uber drivers are classified as independent contractors and do not have the same rights and benefits available for Uber’s full-time employees, including health insurance, paid vacation, or an employer-sponsored retirement plan.

Like other gig economy operators such as Lyft and Doordash, Uber drivers are owner-operators, responsible for their benefits and taxes. Drivers who want to save for retirement can explore other retirement savings options available to self-employed individuals.

Retirement Options for Uber drivers

401(k) for 1099 earners

Beagle offers a 401(k) for 1099 earners that is designed for people with self-employment income. It functions similarly to a traditional 401(k), and Uber drivers can contribute both as an employee and employer.

For 2024, you can contribute up to $61,000 in pre-tax contributions. However, unlike a traditional 401(k) that imposes taxes and penalties for early withdrawals, Beagle’s 401(k) allows you to access your retirement savings at any time tax and penalty free.

Traditional IRA

A traditional IRA allows independent contractors to contribute a portion of their income for retirement. This type of IRA is funded with pre-tax contributions, which can reduce the taxable income for the year the contribution is made. You can open an IRA with a brokerage or bank, and fund the account through direct deposit, check, or electronic transfers.

For 2024, an individual can contribute up to $7,000 to a traditional IRA, and an additional $1,000 for people age 50 and over. The money grows tax-deferred, and you will only owe income taxes when you take a distribution in retirement. However, if you withdraw money from the 401(k) before age 59 ½, be aware that the withdrawals will be subject to income taxes and a 10% early withdrawal penalty.

Roth IRA

A Roth IRA is a popular option for both employed and self-employed individuals, and it is funded with after-tax dollars. You can contribute to this type of IRA if you are a single person earning less than $124,000 or a married couple earning below $196,000. While contributions are not deductible, qualified withdrawals in retirement are tax-free.

For 2024, the contribution limit for a Roth IRA is similar to a traditional IRA. You can contribute up to $7,000 annually, or $8,000 for people age 50 and over. If you expect to be in a higher tax bracket when you retire, a Roth IRA ensures you get to keep most of your money since you won’t owe taxes on qualified withdrawals.

SEP IRA       

1099 workers like Uber drivers can contribute to a SEP IRA. This retirement account is designed for self-employed people and small business owners and has a higher contribution limit compared to traditional IRA and Roth IRA.

For 2024, you can contribute the lesser of 25% of your net earnings, or $69,000 per year, or $76,000 for people age 50 and older. You can open a SEP IRA if you have employees, but be aware that you will need to contribute the same percentage to their retirement accounts as you contribute to your account. So, if you contribute 10% of your earnings to your SEP IRA, you must contribute a similar percentage to each employee's SEP IRA.

Solo 401k

A Solo 401(k) is suitable for self-employed individuals with no employees, and you can contribute both as an employee and employer. You can open a Solo 401(k) at most online brokerages, investment firms, or through a financial institution.

For 2024, you can contribute the lesser of 25% of your adjusted gross income or $69,000. People age 50 and older can contribute an additional $7,500 as a catch-up contribution, for a total of $76,500.

If you have a traditional 401(k) with your employer, you can still contribute to a Solo 401(k), but the annual contribution limit is shared across both 401(k) plans. So, if you max out your traditional 401(k) contributions, you won’t be able to make further contributions to a Solo 401(k).

Bottom line

While Uber drivers don’t enjoy the same rights and benefits as Uber’s full-time employees, they have various retirement plan options. Beagle's 401(k) for 1099 earners allows Uber drivers to contribute up to $61,000 before tax, and still access the money at any time without taxes or penalties. They can also consider contributing to a traditional IRA, Roth IRA, SEP IRA, or Solo 401(k), which are available to people with self-employment income.