As a self employed or freelance worker, benefits are probably one of the major things that you'll miss. While you may have the ability to control your own schedule and work at your own pace, you also won't have an employee-sponsored health insurance plan or -- even more important -- a retirement account. But that doesn't leave you high and dry. There are two major ways that you can set up your retirement plan, and it's important that you do so right away.
401k for Self Employed or an IRA
Freelancers or the self employed can set up either an independent 401kor an IRA. A 401k for self employed may be a bit more challenging to create, as it requires more documentation; you have to set it up as a business, and you have to create your own business entity. An independent 401k has one major advantage, though: you can borrow against it tax-free (but with interest) if you need to later on. An IRA is much easier to create and usually fairly straightforward, but you can't borrow against it in the same way. Some people have both a 401k and an IRA, as they have separate caps on how much you can contribute. For those who have both, funding the IRA before the 401k is usually advised.
Retirement Calculator: Your Contributions
Most people set up retirement contributions on a monthly basis to be automatically drafted from their account. The amount that you're allowed to contribute tax-free to your retirement account changes from year to year, but you'll be able to see what the limit is on your statements. For 2014, the contribution maximum was $5,500 for a single person. That does not mean that you can't contribute more than that to your retirement account -- it only means that you lose the tax advantages after that cap. If you have a separate investment portfolio, it may be better to invest in that.
You may want to consult with a financial adviser before you make any long-term decisions about your retirement planning. But if you have any questions about freelance work, the challenges and the benefits, don't hesitate to contact us at Artisan Talent.
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