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Gig Economy and Retirement

Gig economy and retirement
Key Points
  • More companies are turning to the gig economy than ever before
  • Workplace savings for retirement is still most popular way to save
  • Gig economy workers have options for retirement savings

More Independent Workers Than Ever

The past year has seen a sharp rise in the number of gig economy workers and the number of companies hiring them. According to the GAO (Government Accountability Office), as many as 30% of American workers may now have a contingent job. This doesn’t mean it is the primary source of income, but it can be significant enough to report earnings. In total, there are 6 million more gig workers today than a decade ago. Half, or 3 million, of that growth reflects the shift of the labor force toward this type of work and away from more traditional employment.

Independent contractors, freelancers, on-call, and temporary workers are showing up in more places than just Uber and Lyft. Payroll company ADP indicates payment options for these employees are changing as well, and may be indicative of more changes to come in the workforce. To book a contractor, track time, and make and receive payments, organizations need secure systems and bold new ideas.

Along with a big jump in gig economy employees comes additional responsibilities for the worker. Some they would normally get from a traditional employer, like a 401(k), which they don’t have as they are not employees of the corporation for which they work. So many workers are now more directly responsible for their own retirement savings and investments. But there is good news for anyone in business for themselves, even if they also work for a more traditional company as well.

Gig Economy and Retirement

As a member of the gig economy, you have to be pro-active, and set up your own retirement fund. There is no other employer or third-party that you can rely on to set one up for you. But, taking control of retirement savings doesn’t need to be overwhelming or frustrating.

Solo 401(k)

A Solo 401(k) is available to those who are in business themselves and do not have employees other than a spouse in their entity. Those who choose a Solo 401(k) are able to make contributions as both the employer and employee, which means even greater savings toward eventual retirement. You can maximize your benefits, saving up to $57,000 per year if under 50 for 2020, or as much as $63,500 if age 50 or older.

Also, with the Solo 401(k) plan, a $50,000 (or 50% of the account value, whichever is less) Solo 401(k) loan can be taken, if needed, without penalty or tax. And instead of needing to follow the wishes of a corporation’s retirement plan and their goals, the Solo 401(k) plan allows the holder of the plan to make their own determination on investments. Besides the traditional stocks, alternative investments are possible, in real estate and other areas.

Related: How to Choose the Best Solo 401(k) Provider


The Solo 401(k) offers many benefits over the SEP IRA, and is generally best for businesses with only a sole proprietor or owner and spouse. However, once you start hiring more full-time employees, you can no longer use the Solo 401(k). The SEP IRA, which stands for Simplified Employee Pension, is a great option when your business grows. It’s cost effective to set up and easy to administer.

However, if you have no full-time employees, it’s generally an inferior plan. You may only make contributions to a SEP as the employer. Therefore, it takes longer (and a lot more earnings) to max out your contributions. Further, unlike the Solo 401(k), there is no catch-up contribution for a SEP IRA.

Self-Directed IRA & Roths

The Self-Directed IRA and Roth IRA are other retirement choices for freelancers and sole proprietors. As long as you have any type of earned income for the year, you may fund an IRA. However, the amount you can contribute annually is far less than other options. For 2020, you may contribute up to $6,000 plus an extra $1,000 if you are at least age 50. Far less than the Solo 401(k) and SEP IRA!

Again, you can invest in anything that is not prohibited by the IRS. The most popular alternative investments include real estate, precious metals and private businesses. A traditional Self-Directed IRA is funded with pre-tax dollars, which affords you an upfront tax break. Taxes are deferred until you start withdrawing during retirement. On the other hand, Roth IRAs are funded with post-tax dollars. There is no immediate tax-break, but all qualified distributions are tax-free!

Get Started Now!

For the gig economy worker, getting ahead on retirement goals can take some creativity and advance planning. Start saving today by using your tax refund to begin building your own nest egg. A little sacrifice now can have a big impact on your future!

IRA Financial can help you choose the best retirement plan for your situation. Not every plan is suitable for everyone. Each individual has different financial goals and risk tolerances. We’ll ensure that you are comfortable and knowledgeable about the plan you choose. Call us today at 800.472.0646 or check out the IRA Financial app!


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