The ROAR Forward View
Portfolio careers, part-time employment, freelancers, and consultancies are a growing element of many company’s workforces. How can those employees and “vendors” keep growing their retirement savings within a new career construct?
The recent news about retirement savings has not been positive, as fifty-one percent of Americans worry they will run out of money in retirement. Sixty-four percent say they wish they had started saving earlier, according to Voya, the financial services company. Adding to that worry, the noise coming from Washington regarding Social Security, Medicare, and Medicaid is sure to ratchet up worry and undermine confidence about retiring comfortably.
Today’s employees continue to experience changes in their employment, whether it is their – or their employer’s – decision. Full-time employment often morphs into part-time, freelance, or consulting and that often will affect how people save for retirement.
For those undergoing a change in career and work status, there are plenty of options to keep saving for retirement. Because there are so many choices – and each person’s circumstances are so different – it’s always a good idea to have employees consult with a financial planner or tax pro before they make any decisions. Either way, it’s more important that they have a strong plan to save for potentially longer retirement and healthspan.
Here are some of the options available:
Individual Retirement Account (IRAs) for Part-Time and Freelance Employees
For those who become part-time employees or freelancers with limited size, there are two options: a traditional IRA, where taxes are paid in the future, or a Roth, where taxes are paid today.
Contribution Limit: Up to $7,000 for 2025, plus a $1,000 catch-up contribution for those aged 50 or older.
Tax Deductibility: For contributions to a traditional IRA, the amount one can deduct may be limited if either the employee or their spouse is covered by a retirement plan at work. Also whether either has income that exceeds certain levels. Roth IRA contributions aren’t deductible.
Contribution Deadline: Tax return filing deadline (not including extensions).
Pros: Easy and best first plan for those just starting out or not earning a lot.
Cons: Low funding limit; only available to an individual, not to other employees.
Solo 401(k) plans for Small Businesses with No Employees
Alternatively referred to as an “individual 401(k)” or “uni-401(k),” this plan is geared to small business owners who have no employees (other than a spouse) and have the capacity to sock away a lot of dough.
Contribution Limit: Salary deferrals up to $23,500 in 2025, plus an additional $7,500 if you’re 50 or older ($11,250 if you are 60, 61, 62, or 63 by year-end), either on a pre-tax basis or as designated Roth contributions. The plan owner can add another 25 percent of their net earnings from self-employment for total contributions of $70,000 for 2025, including salary deferrals. The limit in 2025 on compensation that can be used to factor the contribution is $350,000.
Contribution Deadline: Plan must be established before calendar year-end and funding allowed up to tax filing deadline (including extensions).
Pros: One may be able to put more money into a 401(k) than a SEP, due to the way the contribution levels are calculated.
Cons: More paperwork than a SEP.
Simplified Employee Pension (SEP-IRAs) for Growing Businesses and Consultancies
When the “side gig” or consultancy experiences healthy growth, this is a good option, especially if they have up to 25 employees and want to offer a retirement benefit that is easy to operate.
Contribution Limit: The lesser of 25 percent of their net earnings from self-employment (net profit less half of your self-employment taxes paid and your SEP contribution), up to $70,000 for 2025, with a $350,000 limit on compensation.
Tax Deductibility: To qualify for the deduction, the company must complete IRS Form 5305-SEP, or an IRS-approved “prototype SEP plan,” offered by many mutual funds, banks, and other financial institutions, and by plan administration companies.
Contribution Deadline: One can establish and fund the SEP plan as late as the due date (including extensions) of that year’s income tax return.
Pros: Available to any size business; low cost; no filing requirement for the employer; and open to all eligible employees.
Cons: Only the employer contributes, so the fiscal burden is on the employer alone. Additionally, contribution percentages must be equal to the ones you make for yourself, which can add up. Also, there is no Roth version of a SEP IRA.
Savings Incentive Match Plan for Employees (SIMPLE IRA Plans) for Larger Businesses
If their new career path experiences real growth, SIMPLE plans are an option for the larger small businesses (usually up to 100 employees) that want to provide employees with a way to save for retirement.
Contribution Limit: Net earnings from self-employment up to $16,500 in 2025. Plus an additional $3,500 if you’re age 50 or older ($5,250 for ages 60, 61, 62 or 63). Plus an employer contribution of either a 2 percent fixed contribution or a 3 percent matching contribution. The compensation limit in 2025 for factoring contributions is $350,000.
Tax Deductibility: Establish the plan by completing Form 5305-SIMPLE, Form 5304-SIMPLE, or an IRS-approved “prototype SIMPLE IRA plan” offered by many mutual funds, banks, and other financial institutions, and by plan administration companies. Contributions made to employee accounts are deductible as a business expense.
Contribution Deadline: A SIMPLE IRA plan can be established any time between January 1 and October 1. If someone becomes self-employed after October 1, they can set up a SIMPLE IRA plan for the year as soon as administratively feasible after their business starts operating.
Pros: Employees can contribute through salary deferral; less paperwork and testing than a standard 401(k).
Cons: Employers are required to make contributions; there is an early withdrawal penalty of 25 percent if participants withdraw within the first two years of participation in a SIMPLE IRA.
Defined Benefit Plans (DB) for High Earners
For those whose consultancies or new businesses have made them high earners, and who want to sock away large sums for retirement, they can establish their own DB plan. These are very tricky, not to mention expensive, so it is necessary to hire someone who specializes in the establishment and record-keeping of the plan.
For those who earn $250,000+, it may make sense for them to jump through all of those hoops because depending on their age, these plans allow savers to sock away sometimes up to hundreds of thousands of dollars.
This bulletin was created in conjunction with Jill Schlesinger. She is an Emmy and Gracie Award-winning Business Analyst for CBS News, a weekly guest on NPR’s “Here and Now” and writes the nationally syndicated column “Jill on Money” for Tribune Media Services. Jill’s second book, The Great Money Reset, was published in January 2023. She is the host of the “Jill on Money” and the “MoneyWatch” podcasts and of the nationally syndicated radio show, “Jill on Money”.
