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How Freelancers in America Are Keeping Up With Their Retirement Preparation

By Dmitriy Fomichenko, President and Founder of Sense Financial


"If you're not willing to risk the usual, you will have to settle for the ordinary." ~ Jim Rohn

Many freelance professionals or self-employed individuals would connect with what Jim Rohn said. Working as a freelancer has its own set of challenges and benefits, and judging by the numbers, freelancing is catching up in the US. According to a survey conducted by the Freelancers Union and Upwork, nearly 54 million Americans did freelance work in 2015 i.e. one in every three Americans forming the current labor market. What's even more surprising is that nearly 60% of these freelancers started freelancing out of choice. Further, as many as 60% of the freelancers made more money as compared with their traditional employment income. When compared with their counterpart salaried employees, freelancers and independent contractors made 17% more per hour.

Despite these encouraging figures, freelancers are hardly better than their counterpart salaried professionals in planning for their retirement. According to a national scientific poll conducted by Greenberg Quinlan Rosner Research in 2016, at least 40% of the participating freelancers didn't have a formal retirement plan. At the same time, 52% of the respondents were concerned about the unavailability of employer-sponsored retirement plan when choosing to freelance over traditional employment.

Why are freelancers not saving for their retirement?

Unpredictable Income: Around 38% of the respondents do not save for retirement because of their inability to generate enough income. Further, 31% freelancers rate unpredictable payment schedule as a reason behind the lack of retirement contributions.

Unfavorable Retirement Plans: As many as 12% freelancers said that retirement plans are too expensive whereas 8% said that there aren't any good retirement plans for freelancers.

What are the primary features freelancers want in retirement plans?

First, freelancers are in favor of a portable retirement plan, which allows them to make contributions even when working with different employers. Further, they require a plan that supports intermittent contributions. As many as 83% of the freelancers favor a retirement plan that allows withdrawals without imposing a penalty; hence, increasing the financial flexibility of the plan holders. Some other features that freelancers would like to have included automatic portfolio adjustment (with age) et cetera.

What are some potential retirement plans for freelancers?

Self-Directed Solo 401k

When it comes to retirement saving plans, Solo 401k retirement plans are quite popular among self-employed professionals. The only eligibility requirement is to have some sort of self-employment activity and lack of full-time employees. A self-directed Solo 401k allows investment discretion and depending upon the plan documents, it may even allow plan participants to borrow from their retirement savings. Here are some features to understand before opening a self-directed Solo 401k plan.

  • Investment Discretion: Self-directed means you hold the right to direct your investments, allowing you to invest in asset classes that you understand. Some of the popular investment options include mortgage notes, tax liens, tax deeds, real estate, precious metals, private lending, private equity, and the traditional stock/bond investments.
  • Participant Loan: Considering the fact that freelancers seek a retirement plan that allows penalty-free withdrawals, a self-directed Solo 401k could be of use. While it doesn't allow withdrawals, it does offer participant loans of up to $50,000 or 50% of the account balance, whichever is lower. However, your plan documents must have a provision for participant loans.
  • Contributions: After the latest revisions, you can contribute up to $60,000 to your self-directed retirement plan in 2017. Further, there are no required minimum contributions, which mean you can contribute as much as you can during a financial year. For professionals above 50 years of age, there are catch-up contributions worth $6,000, allowing them to accelerate the fund accumulation process.
  • Roth Contributions: For individuals planning to make after-tax contributions, a Roth Solo 401k plan allows after-tax contributions. You can contribute up to $24,000 to your Roth savings plan in 2017. Since you are paying the taxes up front, your distributions are tax-free, provided you abide by the IRS regulations.


SEP IRA is another popular retirement plan among small business owners and self-employed professionals. It offers higher contributions, allowing you to contribute up to $54,000 in 2017. However, if you have employees, you need to make equal percentage contributions for every eligible employee and it could be a costly affair for small business owners. While the contributions are higher in SEP IRAs, they do not offer catch-up or Roth contributions for plan participants.

Choosing a retirement plan is an important step of your financial life. It is best to consult an expert in case of any uncertainties. Always choose a plan that aligns with your retirement goals.

Dmitriy Fomichenko is President and Founder of Sense Financial, a leading provider of retirement accounts with "Checkbook Control": The Solo 401k and the Checkbook IRA. To learn more about the Solo 401k plan, please visit sensefinancial.com or email us at info@sensefinancial.com.


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