A Primer on Retirement Accounts for Freelancers


Reggie Clodfelter

Director of Communications at Thor

San Francisco, May 14, 2018—Everyone knows it. We’re supposed to be saving for our retirement. Social Security probably won’t be enough to cover everything — if it’s even around at all by the time I try to retire. But, especially for millennials like myself, it can be an easy responsibility to push off for later.

In fact, according to a 2017 survey from GoBankingRates, a staggering 41% of millennials aged 25–34 have zero dollars in a savings account. Yes, zero. Another 20% have less than $1,000 saved.

But, I totally get it. The ins and outs of retirement plans are confusing and there are a lot of options. The whole thing can be quite overwhelming. And the problem seems… distant. It can be especially challenging for independent contractors that aren’t given access to plug-and-play employer-sponsored 401(k)s.

Still, it’s important to do, and — even better — your contributions are made BEFORE your income is taxed. In effect, it’s a sizable increase to your income, just deferred a few decades (keep in mind, if you decide to pull your money out of the account prior to retirement, it is taxed then). It can really add up, too. If you save just $1,000 a year for 30 years at an 8% interest rate, it will add up to more than $132,000!

So, in an attempt to help my fellow millennial brethren and independent contractors navigate the confusing world of retirement savings, I’ve put together some brief explainers on some of the pre-tax retirement plans available to the self-employed or those without access to employer-sponsored 401(k)s.

Traditional/Roth IRA

These are the standard alternatives to an employer-sponsored 401(k) and can work well for plan holders that don’t intend to commit a lot of capital annually. They each allow for contributions up to $5,500 ($6,500 for folks 50 and older) and can be used alongside a 401(k).

Contributions to Traditional IRAs are made pre-tax, while contributions to Roth IRAs are made after-tax. The advantage to Roth IRAs is that contributions can be withdrawn at anytime with no tax or penalty, though withdrawing your investment earnings is more complicated.

More information on these plans is available here and here.


The name says it all! A Savings Incentive Match Plan for Employees, or a SIMPLE IRA, is a basic pre-tax retirement plan available to businesses with 100 employees or fewer. It can be set up by adopting a Form 5304-SIMPLE, 5305-SIMPLE, or with a plan document designed yourself.

The best feature of the SIMPLE IRA is the high annual contribution limit. You can contribute $12,500 a year of pre-tax income or as much as $15,500 in pre-tax income if you are over 50 years old. The plan gets a little more complicated if you have employees — the employer cannot have a separate plan and must match up to 3% of an employee’s compensation — but freelancers don’t have to worry about that!

More information is available here.


The Simple Employee Pension retirement account is, true to it’s moniker, a fairly simple plan. It can be set up by adopting Form 5305-SEP or, like a SIMPLE IRA, with a plan document designed yourself.

The plan allows you to contribute as much as 25% of your total annual income untaxed up to a total of $55,000. If you want to get into the weeds (never a bad idea IMO), SEP IRAs do not allow for catch-up contributions or elective salary deferrals.

One of the main complications of a SEP IRA is that the plan holder must contribute the equivalent percentage of income to each employee’s plan as they did to their own. But most independent contractors don’t have to concern themselves with this at all!

More information is available here.

Solo 401(k)

A Solo 401(k), also known as a one-participant 401(k), is a retirement plan for a business owner with no employees (that means you, contractors!) with the option to cover their spouse as well. The annual pre-tax contribution limit for this type of plan in 2018 is $18,500 or $24,500 if you are at least 50 years old. BUT, as the employer, the participant can also contribute up to one fourth of the annual business income pre-tax. The combined contribution cannot exceed $55,000 in 2018. The combination of the two allows you to reach the higher end of the contribution limit with a lower total income than in the SEP-IRA.

The mechanics here can be confusing, but the below example from the IRS helps to explain. More information is available here.

Example: Ben, age 51, earned $50,000 in W-2 wages from his S Corporation in 2018. He deferred $18,500 in regular elective deferrals plus $6,000 in catch-up contributions to the 401(k) plan. His business contributed 25% of his compensation to the plan, $12,500. Total contributions to the plan for 2018 were $37,000. This is the maximum that can be contributed to the plan for Ben for 2018.

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