The freelancers. The self-employed. The consultants. The contractors. The on-call, temporary workers. They have a lot of names, but in our world, they’re called The Gig Workers — and there are a whole lot of them. And the group is growing. In fact, in 2022, there were 59 million Americans doing gig work. That’s about 36% of the total workforce (Velocity Global) and researchers believe that number is poised to grow to 78 million in 2023.
Gig working has become more popular because of flexible hours, more ability to work from home, sometimes you can be your own boss, and the jobs can provide a little extra spending money if you need it. Sounds good right?
Well, there are a couple of things you need to watch. Even if it isn’t your main source of income, you might have to report those earnings. And unlike full-time workers, gig workers don’t have a retirement plan.
Luckily, 1st Source always has your back with information you can use.
What Are My Options?
Being proactive and taking care of your own retirement savings seems like a daunting task. But with the right advice in your corner, you’ll have yourself prepared for what lies ahead.
Here are a few options:
- Solo 401(k). A Solo 401(k) is a great option for people who are in business for themselves without employees other than maybe their spouse in their business entity. Individuals who go with a Solo 401(k) can contribute as both employee and employer, meaning even bigger savings toward your retirement.
- Self-Directed IRA & Roth IRAs. Self-Directed IRAs and Roth IRAs are another choice for your retirement if you’re a sole proprietor or freelancer. You can fund an IRA as long as you have some earned income for the year. But the annual contribution limits are similar to other available IRA options.
- SEP IRA. Now, the Solo 401(k) provides many advantages over a SEP-IRA and is typically ideal for businesses with just a sole proprietor and spouse. But, once you begin hiring full-time employees, you can no longer use a Solo 401(k). The Simplified Employee Pension (SEP-IRA) is the ideal option at the time when your business begins growing. It is easy to administer and cost-effective to set up.
Dealing with Taxes
When you were a full-time employee, you were getting a W-2 form from your employer each year. Now, because you are a gig worker, freelancer, or sole-proprietor, you’ll receive a 1099-MISC form (most likely) unless you have made under $600. Depending on the type of freelancing you are doing, you might receive both a 1099 and W-2.
You’ll also have to pay your estimated taxes each quarter, too or you could face late fees and a large bill at the end of the year when you file your tax return. You could qualify for some type of monthly payment plan if you wind up owing more than you pay when tax season hits.
As an independent contractor, you pay your taxes directly to the IRS. So, you might be surprised by extra individual taxes. When you’re employed, your employer covers half of your Medicare and Social Security taxes, or 7.15%, combined. However, when you’re self-employed, you’re responsible for paying the full 15.3% of Medicare and Social Security taxes.
What Insurance Do I Need?
When you make the decision to become an independent contractor, one of the first orders of business is to get health insurance (if you don’t already have it). Without it, a severe medical condition or injury may make you go into your savings-or worse, file for personal bankruptcy.
If you cannot be on a spouse or parent’s plan or extend your COBRA coverage from a previous job, you will have to obtain your own health insurance. To do this, you can visit HealthCare.gov and choose from various plans in your area. You might also find a cost-effective health plan group via freelancers’ unions or professional organizations. Shop around to find the most affordable plan that will fit your needs.
Another option is opening up a Health Savings Account (HSA) – a tax-advantaged way of saving for health care costs. Many individuals don’t realize HSA money can also be used for non-health-care expenses once you have hit the age of 65-with no withdrawal penalties. However, for you to open an HSA, you will need a high-deductible health plan. If you want to talk more about your options a 1st Source Insurance agent would love to help.
There are certainly a lot of benefits to being part of the gig worker workforce. It just takes some advance planning and creativity to reach retirement goals. With a little sacrifice now, like saving your tax refund, you can find yourself secure for the future.
© Fintactix, LLC 2022