For freelancers, who may not have stable income from month to month, saving money can seem hard. We’re told that we need to be saving for retirement, a house, college for our kids and a whole host of other things. But it can be hard, especially since we can’t set up automatic payments to a 401(k) like our working stiff counterparts.
We can, however, set up a similar system on our own. We can set up our own retirement accounts. IRAs of various flavors are typically recommended for freelancers, especially the Roth IRA.
How does an IRA differ from a 401(k) plan?
The big difference is that a 401(k) is an employee-sponsored plan, while IRAs are entirely based on an individual’s decisions. Additionally, 401(k)s are based on pre-tax dollars (taxes aren’t paid on funds until they’re withdrawn for retirement). IRAs pay taxes on funds before depositing them.
Why a Roth IRA, rather than a traditional IRA?
Roth IRAs take full advantage of the fact that a contributer funds an account with post-taxed dollars. Most withdrawals from a Roth IRA account are tax-free (there are some exceptions). There is also some flexibility on withdrawing some funds before retirement in order to buy a home.
Now, I’m not any sort of certified financial planner or anything, so take the time to do your research and even talk to a professional financial planner. But this seems to be one of the better options for retirement planning for freelancers — although we’re not known for being the most retiring sorts of people.