No 401(k)? No Problem: How Gig Workers Can Still Save for Retirement

Traditional employees often benefit from retirement education and easy access to savings options through their HR departments. Gig workers, however, face the challenge of navigating this information on their own, which can be overwhelming.

Many gig workers—freelancers, rideshare drivers, and independent contractors—tend to overlook long-term financial planning. Instead, they focus on short-term financial stability, managing irregular income, or living paycheck-to-paycheck.

Without the support of a traditional corporate HR team, they’re left to decipher a whole new language—SEP, SIMPLE, Solo… slow down! These plans can seem complex without guidance. Let’s break them down and simplify the options.

The 401(k) Gap

A 401(k) is a workplace retirement plan offered by many companies to full-time employees. It’s a powerful tool that allows workers to save for retirement, often with the added bonus of employer contributions. These contributions are like free money, and they can add up fast. Plus, the tax benefits help make it easier for employees to grow their savings.

For gig workers, the absence of an employer-sponsored 401(k) means there’s no automatic system in place to help them save. That’s where the gap begins: no HR department, no employer match, and no easy option right in front of them.

But just because you don’t have a 401(k) doesn’t mean you can’t save for retirement. In fact, gig workers have several alternatives that can provide similar, if not greater, benefits.

Retirement Savings Options for Gig Workers

Here’s where the alphabet soup of plans begins—SEP IRAs, SIMPLE IRAs, Solo 401(k)s—but don’t worry, these options are easier to navigate than they sound. Let’s break them down:

1. Traditional or Roth IRAs
   • What They Are: Individual Retirement Accounts (IRAs) allow anyone with earned income to save for retirement. A Traditional IRA provides tax deductions now, while a Roth IRA offers tax-free growth and withdrawals in retirement.
   • Why They’re Good for Gig Workers: IRAs are flexible and easy to set up, with low contribution limits compared to other plans but enough to get started. They’re a great option for gig workers who want a simple way to save.
   • Contribution Limits: The maximum contribution to both traditional and Roth IRAs for 2024 is $7,000, or $8,000 if you’re 50 or older
2. SEP IRA
   • What It Is: A Simplified Employee Pension (SEP) IRA is designed for self-employed individuals or small business owners, allowing them to contribute more than a traditional or Roth IRA.
   • Why It’s Good for Gig Workers: If your income fluctuates or you have a high-earning year, a SEP IRA gives you the flexibility to contribute up to 25% of your net earnings, up to $69,000 for the 2024 tax year.
   • Bonus: Contributions are tax-deductible.
3. SIMPLE IRA
   • What It Is: The Savings Incentive Match Plan for Employees (SIMPLE) IRA is another option for self-employed workers or small business owners. It’s similar to a 401(k) but simpler to manage.
   • Why It’s Good for Gig Workers: You can contribute up to $16,000 in 2024 ($19,500 if you’re 50 or older). While it’s less flexible than a SEP IRA, it’s easier to manage and still offers tax advantages.
   • Employer Match: If you have employees, you’re required to match a percentage of their contributions.
4. Solo 401(k)
   • What It Is: A Solo 401(k) is a retirement plan specifically for self-employed individuals with no employees. It functions like a regular 401(k), with the option to contribute both as the employer and the employee.
   • Why It’s Good for Gig Workers: You can contribute up to $23,000 in employee contributions ($30,000 if you’re over 50), plus up to 25% of your net income as the “employer,” for a total of up to $69,000 in 2024.
   • Flexibility: This plan offers the highest contribution limits for gig workers, making it ideal for those looking to maximize savings.

Where to start…

If the options are available, why don’t more gig workers take advantage of them?

There are a few key reasons. Many gig workers have variable or unpredictable income, making it difficult to set aside money consistently for retirement. Many simply don’t know these plans exist, or they think that retirement savings is only for people with steady jobs and traditional benefits. The key is to recognize that retirement planning is possible, even without a steady paycheck.

Here’s how to make retirement saving work, even with the challenges of gig work:

• Start Small: You don’t have to max out your contributions right away. Even small, regular contributions can add up over time thanks to compound interest.
• Automate Your Savings: Set up automatic transfers to a retirement account whenever you receive payment. This helps make savings a habit and prevents you from spending it all.
• Diversify Your Savings: Consider saving in both a Traditional or Roth IRA and one of the other options (like a SEP or Solo 401(k)) to take advantage of different tax benefits.
• Budget for Retirement: Include retirement savings in your monthly or yearly budget. Think of it as a non-negotiable expense, just like rent or groceries.
• Seek Professional Help: Many financial advisors specialize in working with gig workers and can help you create a plan that works for your unique situation.

Gig work offers freedom and flexibility, but it comes with the responsibility of planning for your own financial future. Retirement may seem far off, but starting now—even with small contributions—can make a huge difference in the long run.

Don’t let the lack of a 401(k) stop you from saving for retirement. With the right plan and a little bit of effort, gig workers can build a secure financial future on their own terms.