🌴 Retirement & saving

Self-employment removes the automatic pension and replaces it with something better, if you use it. The contribution limits available to a sole proprietor are several times what an employee can put into a workplace plan, because you are both the employee and the employer.

Which plan, and how much

The first question is usually SEP-IRA or Solo 401(k), and the answer depends on your profit more than anything else. A Solo 401(k) lets you contribute as employee and employer, which means it wins comfortably at moderate profits — often by tens of thousands of dollars — while a SEP-IRA is simpler and catches up at higher incomes. The gap is largest exactly where most freelancers are.

There is a second reason to care, and it has nothing to do with retirement. A deductible contribution reduces your adjusted gross income, which is the figure that governs your ACA premium tax credit. For anyone near the subsidy cliff, that makes a retirement contribution the highest-return move available.

What it becomes

Once the plan is chosen the question is what the money does. The compound interest calculator shows the shape of regular contributions over decades, the retirement calculator projects a nest egg and the income it could sustain, and the savings goal calculator works the other way — from a target and a date back to the monthly amount that gets you there.

One habit is worth more than any of them for irregular income: set the contribution at what a bad month can support and treat good months as extra, rather than committing to a figure that a quiet quarter will break.