Gig Workers Deserve to Retire too — 5 Ways To Make it Happen

Gig workers emerge from a phone in this photo illustration.
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You are making a living, and perhaps enjoying financial success like never before.

But you are doing so as the owner of a small business with one employee (you!) or as a freelancer or contractor. Maybe you have two lucrative part-time jobs as part of the robust gig economy. The money is coming in, but you are living without the benefit of benefits.

You are on your own in preparing for retirement. You are in a position to put money away for that eventuality, but you don’t know the best options. Perhaps you don’t know any of your options.

The federal government wants citizens to save for retirement. There are frequent attempts to induce retirement savings for employees working for private firms, and the retirement programs for those working for federal or state organizations are plentiful and well-run.

There has not been a push to assist self-employed citizens. The motivation to set aside funds for retirement for self-employed people must come from workers themselves.

Two Kinds of Retirement Accounts

There are effectively two kinds of retirement accounts:

Defined Benefit Plan

A defined benefit plan which promises a specified monthly benefit upon retirement. The pre-determined amount is set by the number of years of contribution and the salary of the employee. Pension plans, which are not available to self-employed people and are becoming more scarce especially in private industry, are an example of a defined benefit plan. This is effectively a savings plan.

Defined Contribution Plan

A defined contribution plan receives contributions for the employee and perhaps the employer, at a set percent of earnings. These funds are then invested in the employee’s name and the account balance can fluctuate based on the value of the investments. A 401(k) is an example of a defined contribution plan. It is actively related to the stock market or mutual fund investments. These plans can be started by self-employed workers who can contribute to them regularly.

The retirement accounts differ in terms of how much an account holder can contribute to the account over a period of time, how much can be withdrawn over a period of time, and the age of the person withdrawing from the account.

Many retirement accounts penalize the account holder a 10% tax for withdrawing the funds early, usually before 59½. However, the Secure 2.0 Act of 2022 amended that rule, offering account holders under the age of 59½ an emergency withdrawal of $1,000 a year, with three years to pay back that amount to the account without penalty. The emergency designation is self-certified; there is no official investigation of the circumstances requiring the emergency withdrawal.

5 Retirement Savings Plans for Self-Employed Workers

The most workable retirement plans for the self-employed are the Individual Retirement Arrangement (IRA), the Roth IRA, the Solo 401(k), the SEP-IRA and the Simple IRA.

They differ in how much you can invest annually, the rules for eventually taking that money out, whether you actually work alone or with others, and whether you own your own business. There are qualification rules and age requirements and the next few paragraphs will explain all of that (or tell you where the details can be found).

1. Individual Retirement Arrangement (IRA)

As the name suggests, this type of retirement account is for individuals only. Contributions to an IRA are subtracted from your annual income, thus avoiding the annual income tax. Contributions are usually made regularly by automatic withdrawal set up by you.

Any money you make from investments made through that IRA are also untaxed until the money is withdrawn.

This is an advantage of investing in a brokerage account, in which income is taxed annually.

Traditional IRAS are available to anyone under the age of 70½ with earned income. However, if a person contributes to a workplace retirement plan such as a 401(k) or 403(b), their IRA contributions may not be tax deductible.

But this is a look at the opportunities for people who are self-employed, so that situation may not come up.

Two other details of the traditional IRA are:

  •  It often comes with lower annual contribution limits (It would be nice to be self-employed and be in a situation where you want to contribute more to your retirement fund than you are allowed to.)
  • At the age of 73 (up from 70 1/2 as of Jan 1, 2023), you must begin to take distributions from the account. Those distributions are then taxed, but at a rate lower than if they had been taxed as income.

2. Roth IRA

The way to look at Roth IRAs is to consider how they differ from traditional IRAs.

  • You can make contributions at any age, but there’s an annual limit of $6,500 for those under 50, and an annual limit of $7,500 for those people 50 and older.
  • The funds you contribute are part of your taxable income, but your withdrawals during retirement are tax free, including any earnings from your retirement account investment, assuming you withdraw the funds after you turn 59½.
  • You can make contributions to a retirement plan from work and still get the full tax benefit of traditional IRA contributions.

The negative aspect of the Roth IRA is that you cannot contribute to that kind of account if you make too much money. There is a formula involving your modified adjusted gross income and your tax filing status, but the more you make, the less likely you are to qualify to contribute to a Roth IRA.

3. Solo (one participant) 401(k)

Sounds sad, doesn’t it? But it’s not, really.

A solo 401(k) allows a person to serve as both an employer and an employee, making contributions to the 401(k) account in both capacities, and allows the account holder to contribute up to $26,000 in elective deferrals annually. This is true, however, only for those age 50 and older.

The employer contributions can occur if the self-employed individual has created an S corporation or similar business arrangement. The business can then contribute up to 25% of the employee compensation to the 401(k) as long as the total contributions to the account do not exceed $58,000.

The only negative aspect to this type of retirement account is that it serves only one person. If you plan to expand your company to include additional employees, you will need a different type of retirement account.


For those self-employed people who have their own business, whether it be as sole proprietor, partnership or corporation, the SEP-IRA (Simplified Employee Pension) was designed to take into account the fluctuation of business performance.

A SEP-IRA can only receive contributions from the employer; the employee cannot contribute their own funds. The benefit of a SEP-IRA is that the employer can choose to contribute to the account in years when the business is operating in the green and choose not to contribute when cash flow is low.

Employees are vested in a SEP-IRA, and can take their funds with them if they leave the company.

If there is a downside to the SEP-IRA, it is that when the employer contributes to the account, contributions must be equal to all employees. Also, employers can only contribute up to $66,000 or 25% of the employee’s compensation annually, whichever is the lesser amount.

Again, such limits are a nice thing to be in a position to complain about.


SIMPLE stands for Savings Incentive Match Plan for Employees, and it really is simple. Employers can establish such a plan simply by filling out one federal form, and the IRA is set to go.

The SIMPLE IRA forces employers to contribute to it annually, either up to 3% of employee annual compensation or a 2% nonelective contribution. Employees are allowed to contribute as well, and they are fully vested in the SIMPLE IRA, meaning they can take those funds with them if they leave the company.

SIMPLE IRAs are often chosen by small business owners because they are easy to administer. Some employees choose not to open a SIMPLE IRA because of its required annual contribution to accounts.

Kent McDill is a veteran journalist who has specialized in personal finance topics since 2013. He is a contributor to The Penny Hoarder.