This is how a new law can help the self-employed save for retirement

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This law could help you save money for your future.

Key points

  • The Secure 2.0 Act aims to help everyone save more for retirement.
  • One provision, called Saver’s Match, could be of particular use to the self-employed.
  • Find out which tax-advantaged account would best suit your needs, whatever your employment status.

More and more people are self-employed or freelance these days, which brings many advantages in terms of flexibility and independence. But there are also disadvantages. For example, it can be difficult to save money for old age. A recent Pew Charitable Trusts survey of non-traditional workers showed that about half of them were not sure they would have a comfortable retirement.

That’s partly because the onus for setting up a retirement plan falls on you, rather than an employer. Also, freelancers’ income streams aren’t always regular, so it can be difficult to juggle your contributions. If those scenarios sound familiar to you, it’s worth knowing that you could qualify for federal aid, both now and in the future.

New law helps everyone build retirement savings, including the self-employed

The Secure 2.0 Act became law at the end of last year. It’s a comprehensive retirement package that will affect almost all Americans. The idea is to encourage people to save more for their old age. One aspect of the new law, called Saver’s Match, could make a big difference for the self-employed.

The match replaces the current Saver’s Credit and won’t take effect until 2027. But when it does, the government will make a 50% match on up to $2,000 of the money you contribute to your retirement account. That means low-income self-employed workers could get a boost of up to $1,000 toward their retirement each year.

The party starts to disappear once you reach a certain income level. For example, joint filers who earn $41,000 or less may receive the full match, while those who earn up to $71,000 will only receive some money. These are the tiered income brackets for Saver’s Match:

  • Between $20,500 and $35,500 for single and married taxpayers filing separately
  • Between $30,750 and $53,250 for head of household filers
  • Between $41,000 and $71,000 for joint filers

The government will match contributions made to IRAs and ABLE accounts. If you’re not self-employed, Saver’s Match also applies to employer retirement plans. It’s important to note that the money will be deposited directly into your retirement account, not in the form of a tax credit.

Start planning your retirement today

You don’t have to wait until 2027 to start building your retirement savings. The temptation to put it off is understandable, especially since retirement savings often fall into the “important, but not urgent” category. Unfortunately, whether it’s calculating your health insurance or planning your retirement, your employer won’t do it for you.

Plus, the sooner you start saving for retirement, the better. The power of compounding means that even five or 10 years can make a big difference in your savings. Although you likely have many other demands on your finances and bank account balance, your future self will thank you.

If you don’t know where to start, a good place is to find out what type of retirement account is right for you. There are a number of options, including IRAs, Roth IRAs, Solo 401(k)s, SEP IRAs, and SIMPLE IRAs. They are all tax-advantaged accounts, giving you tax benefits in different ways. Consult our guide to autonomous retirement accounts for more information on each.

Once you know what type of account you’ll be using, look at your budget and see how much you can realistically contribute. It’s okay if you decide to start small and work your way up little by little. The important thing is to start somewhere. If you can automate your contributions, so much the better. It means you’re less likely to put it off or forget about it.

It’s also worth seeing if the current Saver’s Credit, which will replace the new Saver’s Match, can help you now. It’s a non-refundable tax credit, so it can reduce the tax you pay to zero, but it won’t give you a refund. Depending on your earnings, you may qualify for a 50%, 20%, or 10% tax credit on the first $2,000 you invest for retirement.

Bottom line

If you’re not as on top of your retirement savings as you’d like, you’re not alone, especially if you’re self-employed. Find out what tax advantages there are in saving for old age and which route might benefit you the most. If you can qualify for Saver’s Credit or Saver’s Match, so much the better.

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