With the many advantages of self-employment, it’s no surprise the gig economy has expanded significantly over the last few years. Of those self-employed, freelancers represent the largest demographic within the gig economy. According to a study by UpWork and the Freelancers Union, freelancers are expected to represent over half of the American working class in the next few years. And surprisingly, Millennials aren’t the only generation dominating the gig economy – older demographics have found their nook in the self-employed industry.
We recently talked about the best cities to be self-employed. We even did a video showcasing the best (touching slightly on the worst) cities to live in as a self-employed individual. So let’s dive into the worst cities, the cities to absolutely avoid if you’re self-employed in 2019.
Worst Cities to be Self-Employed
Convenience is the name of the game – millennials who currently work a 9-to-5 job want a flexible work environment. In fact, a recent survey by FlexJobs revealed that 28% of participants polled said they would give up vacation days to have the option of working remotely.
As more individuals turn to the gig economy with the hopes of a more flexible schedule, beware that not all cities in the United States are as accommodating to the self-employed as others. Let’s take a look at the five worst cities to live in as a freelancer.
5 Worst Cities
Neighborhoods.com did an analyses and ranked the worst cities according to five key metrics, including internet speed, median rent, ease of transportation and even the number of coffee shops per capita. From their research, these are the top five cities you should avoid as a freelancer:
- Lexington, KY
- Palmdale, CA
- Port St. Lucie, FL
- Jackson, MS
- Memphis, TN
Cost of living was one of the most important factors. Neighborhoods.com looked at the income taxes based on the median freelancer income, which is $52,074. Although the majority of the top five worst cities had a relatively low cost of living, they lacked in other areas, such as coffee shops per capita and internet speed. As most freelancers know, high speed internet is crucial in maintaining a way of life.
Remember the best cities to be self-employed?
The same study by Neighborhoods.com ranked the best cities for freelancers to live, the top five being:
- Spokane, WA
- Vancouver, WA
- Ft. Lauderdale, FL
- Tempe, AZ
- Scottsdale, AZ
In terms of cost of living, Tempe and Spokane came out on top. When it comes to coffee shops (practically every freelancers’ office), Spokane and Vancouver were in the lead.
You can find the ten best and worst cities to be self-employed in 2019 on CNBC.
Solo 401(k) for the Gig Economy
Cities aren’t the only important factor to consider when you’re self-employed. Because you do not have access to a work-sponsored retirement plan, like the 401(k), you must find a retirement plan that meets your needs. Fortunately, the IRS created a plan specifically for those who are self-employed, such as small business owners with no full-time employees: the Solo 401(k).
The Solo 401(k) is essentially a 401(k) qualified retirement plan but designed for one person. Like any other retirement vehicle, the Solo 401(k) is designed for people to save for retirement in a tax-advantageous environment. All taxes will be deferred until the participant takes a qualified distribution.
Self-employed individuals can also make investments with their Solo 401(k) funds. Unlike a traditional IRA or 401(k) plan, a Solo 401(k) allows you to make traditional investments, such as stocks and bonds; but it also allows you to make IRS approved alternative investments, which opens the door to a world of investment opportunities. You can make investments in real estate, tax liens, precious metals, like gold, cryptocurrencies, private business/placements and much more. But more investment options are not the only benefits of the Solo 401(k). Plan participants can also experience higher contribution limits and a Solo 401(k) loan up to $50,000 tax and penalty-free.
Related: What is a Solo 401(k) Plan?
It’s likely that more cities will become more accommodating to self-employed individuals, as this will strengthen their economy. But until then, look for the cities that can meet your work needs; cities that have good transportation, high internet speed, affordable cost of living, etc. The data collected by Neighborhoods.com is a good starting point, as it analyzes the U.S. Census Bureau data from more than 150 cities in the United States.
But what about establishing the right retirement plan? That’s where we come in. Contact IRA Financial today at 800-472-0646 to learn more about the Solo 401(k) retirement plan. Our tax and ERISA specialists will be happy to help answer any questions you may have.