By Crystal Prachyl
When it comes to saving for retirement as a freelance worker, contractor, or someone who is self-employed, it is important to pay yourself first, considering different ways you can pay yourself. While it can be rewarding to work for yourself and be your own boss, you serve as your own company which means you are responsible for your own taxes, healthcare and retirement. As a general rule, first consider setting aside savings from self-employment income for taxes and second, review the different types of retirement accounts you can open for yourself as a 1099 individual. As a self-employed individual, the IRS allows you to open and fund a Self-Employed IRA (SEP IRA). The IRS states the contribution limits for tax year 2021 on a SEP IRA is 25% of compensation up to a limit of $58,000. The benefit of funding a SEP IRA for yourself is that you can take the amount you contribute to the SEP IRA and deduct directly against your income. By writing off a SEP IRA contribution, this helps effectively lower the taxes you would pay in a specific tax year. A SEP IRA will grow tax-deferred; withdrawals taken after age 59 ½ will be taxed at the ordinary income tax rates. You can open a SEP IRA at most financial institutions that offer retirement accounts. For more simplicity, you can also open and contribute to a Traditional, Pre-tax IRA or an after-tax Roth IRA. The IRS contribution limits for a traditional or Roth IRA are $6,000 if you are under age 50; $7,000 if you are over age 50. Prior to making financial decisions, our team recommends working with an attorney, tax advisor or financial advisor that can advise to your specific situation. Regulations are constantly changing and it is important to stay updated on tax laws.