A New Retirement Option for Freelancers

I don’t actually have a retirement account at the moment — I’m setting aside money to open one this year, but I’m still looking to make sure that I get exactly the right plan for me. I’ve been sorting through the variety of IRAs available to me and considering the new possibilities that come with incorporating.

An announcement from the Freelancers Union caught my eye this week. They’ve just started offering a retirement plan for freelancers. The plan is a 401(k), operated in partnership with Charles Schwab Trust Company and Milliman. It isn’t a solo 401(k) — typically the only 401(k) option available to freelancers and the self-employed — but a standard 401(k) plan, with the Freelancers Union standing in for an employer.

I’m not entirely sold on this 401(k) plan: there are many freelancers who will be able to save more money with a SEP IRA or another account. It will simplify retirement savings for many people, but I do think it’s worthwhile for freelancers to talk to a financial planner before deciding one way or the other.

5 Comments

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  2. Melissa Ek   •  

    I started a self employed 401(k) last year at my CPA’s suggestion. I had a SEP and a traditional IRA in place already. The thing that enticed me with the 401(k) is that i could contribute substantially more than into my SEP. You can contribute as an employer AND as an employee (like matching). I believe it’s something like up to 24% of your salary can be put into a 401(k) as opposed to 15% or so with a SEP. Double check those numbers, bc I can’t remember, but I know it was a big difference.

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  4. stephanerd   •  

    As you mention above, the step they’re taking is admirable, and bodes well for freelancers. It’s worrisome, however, that many freelancers who don’t have a clue about how these things work (me!) may default and use this one just because the process is simplified for them, without doing more extensive research.

  5. thursday   •     Author

    There are definitely days when I feel that at least taking a simple approach — even if it isn’t the most effective option out there — is still a step in the right direction for most freelancers.

    It’s certainly best to do the research and find the right option for your individual needs, but at least having something in place is better than nothing.

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