Why Every Freelancer Should Consider Opening an IRA

Freelancing comes with a lot of perks—flexibility, freedom, and the ability to be your own boss. However, it also comes with some major challenges, especially when it comes to finances. Unlike traditional employees, freelancers don’t have an employer handing out 401(k)s or matching retirement contributions. That means planning for retirement is 100% on you.

So, how do you avoid working forever just to pay the bills? That’s where an IRA is helpful. Whether you’re new to freelancing or have been freelancing for decades, an IRA (Individual Retirement Account) is one of the best methods of building long-term financial stability. Let’s talk about why you need one, how it works, and how to choose the right one for your situation.

Freelancers Should Have a Retirement Plan—Here’s Why

As a freelancer, you’re responsible for retirement savings yourself. No reminders from an HR department, no payroll deductions made automatically into a retirement fund. You save for the future, or nobody will.

And let’s be honest—freelancing is unstable. Some months are fantastic, others… not so much. It’s easy to put off saving when you’re concerned about covering present bills. But here’s the catch: the sooner you start, the more you’ll gain. With compound interest on your side, tiny payments add up in the end.

Think about it: Do you want to start saving a little bit today and let your money compound, or wake up at age 60 realizing you have to continue working just to make ends meet?

Traditional IRA vs. Roth IRA: Which Is Right for You?

When it comes to IRAs, you have two main choices: Traditional IRA vs Roth IRA. Both let you save for retirement, but they provide different tax benefits.

• Traditional IRA: You get tax deductions on contributions now, so you’ll lower your income for the year. But in retirement, when you withdraw the funds, you’ll owe taxes on it.
• Roth IRA: You pay tax on your contributions upfront, but once you reach retirement age, withdrawals (all your investment profits included) are tax-free.

So how do you decide? A lot of it depends on your current vs. future tax status. If you think you’ll be in a lower tax bracket when you retire, a Traditional IRA might be for you because you get tax savings now. But if you expect higher incomes in your older years, a Roth IRA could be better because you’re saving the current tax rate and paying taxes on withdrawals down the road.

For most freelancers—especially new freelancers or expecting their income to rise—a Roth IRA is a great choice since it offers flexibility and long-term tax advantages.

The Tax Perks of an IRA (Because Who Doesn’t Love Paying Less?)

One of the biggest advantages of an IRA is the tax advantages.

• With a Traditional IRA, you get tax savings upfront because contributions reduce the amount you must pay taxes on this year. This can be a big plus if you have an enormous income year and want to lower your tax bill.
• With a Roth IRA, the benefit is postponed. You won’t get a tax deduction now, but when you retire, you won’t pay a penny in taxes on your withdrawals.

Either way, an IRA allows you to keep more of your money—today or tomorrow.

How to Open an IRA as a Freelancer

It’s easier to open an IRA than you might think. Here’s how you can do it in a few simple steps:

• Choose a provider – Banks, brokerage firms, and robo-advisors (like Vanguard, Fidelity, and Charles Schwab) all offer IRAs. Look for low fees and solid investment options.
• Pick your investments – IRAs let you invest in mutual funds, bonds, stocks, and ETFs. If you’re not sure where to begin, index funds or target-date funds are easy, low-maintenance choices.
• Make automatic deposits – Even small amounts each month, the more consistent the better. 

When income is irregular, you can adjust as needed.

Don’t know how much to contribute? The 2024 limit for IRAs is $7,000 annually ($8,000 if you’re 50 or older). But even if you can’t contribute that amount, something is better than nothing.

Other Retirement Options for Freelancers

While an IRA is a good beginning, freelancers who want to save even more should also consider:

• SEP IRA – Great for independent contractors who have a higher income. It allows you to make more contributions than a regular IRA.
• Solo 401(k) – If you own your own business and have no employees, this lets you contribute as both an employer and an employee, so you can save a great deal more tax-free.

These plans are best if you have other income and want to save more for retirement than an IRA will allow.

Final Thoughts: Don’t Wait to Start Saving

Freedom is what freelancing is all about, but so is financial security. Since you don’t have an employer-sponsored retirement plan, it’s your responsibility to make sure future-you isn’t barely scraping by.

Regardless of whether you choose a Traditional IRA or a Roth IRA, the idea is to start now. Even small, frequent contributions can lead you to a more secure (and less stressful) retirement. Your future self will appreciate it.