Yes, Freelancers Can Save for Retirement


One of the more common laments I hear from people who think they know about freelance writing (but really don't) is, "But when you're working for yourself, you can't save for retirement." To quote the immortal Col. Sherman T. Potter of "M.A.S.H.," horse hockey. Of course you can save for retirement as a freelancer. In fact, you can save quite well. When you add that to the many other inestimable upsides of the freelance life—working from anywhere, controlling how much you earn, controlling your free time, deducting the cost of your online magazine subscription addiction from your taxes—it's easy to see why being a freelancer flat-out rules.

The know-nothings who insist you can't save for retirement if you're freelance are stuck in the "you need an employer to set up your 401(k)" mode of thinking. In reality, you don't. All you need is a computer, a web browser, and three little letters: SEP.

A SEP-IRA is the tool of tools for the freelancer who wants to save big for that time in life when leisure and travel will take precedence over deadlines and research. SEP stands for "simplified employee pension," and while the IRS description of a SEP talks about it as a retirement account that employers set up for their employees, you can also set up a SEP as a self-employed independent contractor. A SEP is easy to set up, inexpensive to run, and has annual contribution limits that blow traditional IRAs and 401(k)s out of the water.


  • How a SEP works—A SEP is similar to a traditional IRA. You can put money into it each year up to a contribution limit, and the money you put in comes off your taxable income. When you withdraw funds after you pass 59 1/2 years old, you have to pay income tax on the money you take out.

  • How to start a SEP—Starting a SEP is easy. Just contact a financial services company like Vanguard or Fidelity or even a robo-advisor like Betterment and open an account. Make sure they manage SEP accounts, because not everyone does. You'll get paperwork to sign and file with the IRS, choose the type of investments you want, make a contribution, and then you're on your way.

About the contribution...that's the best part. While a traditional IRA maxes out at an annual contribution of $6,000, and an employee 401(k) limits you to $19,500 per year, the 2021 annual limit for a SEP-IRA is a whopping $58,000. Now, I recognize that contributing that much may not be in the cards, and anyway, there's a catch. As a self-employed person, your SEP contribution is limited to 20% of your net income. So, if your total profit from your writing business for 2021 is $100,000, your maximum SEP contribution would be $20,000.

Still, that's nothing to sneeze at, and if you happen to have a few big years with big clients or bestselling books, you could sock away some huge dollars toward retirement. Look into the matter further at the always-useful Investopedia, and if you like what you read, open a SEP-IRA as soon as you can. The earlier you start investing, the more you'll have when it's time to trade in your laptop for a fishing pole.

Now, go write.

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