According to a recent Bloomberg article, aid for gig workers are on the rise across the globe. It doesn’t matter if you work for a large corporation, own a small business, or are self-employed, you have probably been impacted by the COVID-19 pandemic. Stimulus packages, especially the CARES Act here in the US, are aimed to help out all workers. The self-employed are a growing sector in all countries (as show in the chart below).

Gig Worker Responsibilities

As a gig worker, or self-employed individual, you are responsible for everything. This can be ensuring bills are paid, health insurance and even retirement planning. With more and more people ditching the office to go out on his or her own, it’s important they are remembered during these troubling times. They are suffering just as much as the restaurateur, deli owner and contractor. Federal funding is needed by them, just as much as anyone else.

Some gig workers have full-time jobs. However, more and more are going full time with their side gigs. Those that don’t have another job, don’t have access to business-sponsored health care, stock options and retirement plans options. There isn’t an HR department ensuring these services are paid for from your paycheck. You need to be proactive with setting these up for yourself and your family. Therefore, you must pay for them out of your own pocket. With no money coming in, many self-employed individuals are struggling to pay their bills.

These stimulus packages are welcomed by all gig employees, even with the drawbacks. Much of the funds are getting eaten up before having a chance to get your cut. According to the article, countries like Australia, Greece, Singapore, Japan and the UK are among those directing money to the self-employed. Although the US self-employed share is way down the list, the government knows they must be taken care of. Failure to do so would have a dramatic impact on the economy. Here in the US, 50 different state governments are dealing with the bailout money in their own ways. This has led to confusion and delays.

What Else Can You Do?

Many can’t wait to receive benefits from the government. Although there is some leniency, bills still need to be paid. The CARES Act has provided some relief. Namely, stimulus checks to all deserving Americans and increased unemployment benefits. However, there are ways you can help yourself out. This is assuming you had the wherewithal to set up a retirement plan. There are several provisions in the CARES Act dedicated to your retirement savings.

Solo 401(k) -What Is It?

The most popular plan for the self-employed is the Solo 401(k), also known as an Individual 401(k). It’s a 401(k) plan that’s strictly for the self-employed and business owners with no full-time employees. If you have self-employment income, you should already have a Solo 401(k)! If not, you should use this as a lesson and start one now!

Essentially, it works like an employer-sponsored 401(k) plan. You can fund it with either pre-tax money (traditional plan) or after-tax funds (Roth 401(k). Your investments grow tax-deferred in the case of a traditional Solo 401(k) and tax-free in the case of a Roth. The onus is on YOU to start the plan, fund it and make investment choices. But, that’s the beauty of being self-employed. You make all the decisions. You get to pick and choose the plan administrator, how much you contribute and the investments you make.

The CARES Act and Your 401(k)

The two most important provisions of the CARES Act are distribution rules and loan options. This will help give aid for gig workers and self-employed people. First, you may take up to a $100,000 withdrawal from your retirement plan, penalty free. There is no penalty if you are under age 59 1/2. You also don’t need a triggering event to withdraw from your Solo 401(k). Further, taxes can be spread over the next three years. This mean you won’t have a huge tax hit next year if you make a large distribution. Lastly, you have the option to re-contribute the funds back to any retirement plan. If you do so, you will owe ZERO taxes on the amount.

Secondly, you may now borrow up to $100,000 from your 401(k) plan. That is twice the normal limit set forth by the IRS. If you have a Solo 401(k), you can decide to have the loan option. Many employers do not have this feature in their plans. Moreover, you do not have to start repaying the loan for one year. Essentially, this means you can have a six year loan. As a bonus, interest gets paid back into the plan, instead of a bank or other financial institution.

Other Options

If you do not have a 401(k) plan, but have an IRA, you have similar options. Although the loan option is not available, you may still take a penalty-free distribution. The same rules apply to the taxes, so if you pay the money back, it can be considered a loan. One other thing is that all required distributions (RMDs) have been waived for this year. Therefore, you are not forced to withdraw funds that are now valued lower than they were as of the end of last year.

Of course, if you are self-employed or a small business owner, you should know about the available SBA loans. The Payroll Protection Program is available for those who have employees. While the Economic Injury Disaster loan also is available for business owners. Gig workers probably won’t qualify, but you should look into it if you have a business.

Aid for Gig Workers

If you are self-employed, do not despair. The government sees you and will help you out. But don’t wait on them if you don’t have to. Utilize the CARES Act provisions to take advantage of the penalty-free use of your funds. Be warned, you should only take from the plan what you absolutely must. Don’t use this as an opportunity to withdraw too much.

If you have any questions about what resources are available to you, please reach out to us at 800.472.0646. For more information, be sure to check out our YouTube channel!