Although unemployment is low in the United States, a recent Forbes article reported that wages have not grown since the end of the Great Recession of 2008 – at least not notably. Furthermore, while minimum wage is increasing, it is still less than the minimum wage 50 years ago, when taking inflation into account.
Statistics show that more than half of Americans have only $1,000 stashed away in savings, while the average household owes more than $16,000 toward credit card debt. With such dire statistics for the majority of American’s current situation, it may come as no surprise that many are behind when it comes to saving for retirement.
A Side Hustle Can Bring Financial Hope
If these bleak financial statistics are a reflection of your current finances, you may wonder how to make improvements. Of course, taking small steps towards financial freedom is a start, such as creating a budget. But a much bigger (and more effective) leap toward financial freedom is to start a side hustle.
According to author and entrepreneur, Chris Guillebeau, almost anyone can make their idea profitable. He didn’t come to this conclusion over night, but after years of studying the theory of side hustles. Having a side hustle does not mean you have to quit your 9-to-5, hence its name. But it can create extra income, and more importantly, job security as you become a member of the gig economy.
Needless to say, a side hustle is a good investment – of your time and money.
Side Hustles and the Solo 401(k)
In the recent Forbes article, entrepreneur Guillebeau listed a few benefits he sees with side hustling: extra income, new job security, and even freedom. We happen to agree with those benefits, but what he forgot to mention was the ability to adopt the Solo 401(k) retirement plan.
The Solo 401(k) is the most popular and robust retirement plan for self-employed individuals and business owners with no full-time employees. The two edibility requirements are:
1. Self-employment activity
2. No full-time employees
As the gig economy continues to grow, freelancers and side hustlers can also take their piece of the Solo 401(k) pie. With the numerous benefits that come with adopting the Solo 401(k), you should use your self-employment activities to establish this unique retirement plan.
And here’s why:
A Few Benefits of the Solo 401(k) Plan
Make Higher Contributions: If you haven’t started saving for retirement, the Solo 401(k) can help you catch up for lost times, thanks to its high annual contributions. The maximum contribution will increase in 2020 to $57,000 or $63,500 if you’re age 50 and over.
Make Alternative Investments: Unless you establish your Solo 401(k) at a bank, like Wells Fargo, or financial institution, like Vanguard, you have the freedom to invest in real estate, cryptocurrency, precious metals, and other alternative investments.
Tax-Free Loan Option: You can borrow up to $50,000 or 50% of your account value (whichever is less) to use for any purpose, like adding additional funds to propel your side hustle.
Easy Administration: The Solo 401(k) has no annual tax filing or information returns if the plan does not exceed $250,000 in assets.
Strong Creditor Protection: Most states offer better creditor protection for 401(k) qualified retirement plans than a Traditional IRA. Additionally, Solo 401(k) Plan assets are protected against creditor attack in a bankruptcy proceeding.
No need to establish an LLC: You will be trustee of the Solo 401(k), meaning all investment decisions are truly yours. Additionally, you’re not required to establish a Limited Liability Company (LLC), which could be costly.
Invest in a Side Hustle, Establish the Solo 401(k)
From the many published statistics and for some of us, our personal situations, it is clear that financial strife is prevalent among Americans.
Sadly, statistics have revealed that, for many, their financial future is looking equally as bleak, simply because a majority of Americans are not saving for retirement. And what they are saving isn’t enough.
But side hustles and the Solo 401(k) go hand in hand, and will create a stronger fiscal foundation than you had before. By starting a side hustle (all it takes is a good idea and determination) and adopting the Solo 401(k), it can put you on the right path today and for the future.