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Tips for the independent worker

If you work freelance or contract jobs, are your finances prepared for retirement and future costs of care?

It used to be that after graduating college you’d get a job with benefits — one that had employer-paid health care and life insurance, plus retirement benefits. Oftentimes, employees considered these “extras” to be just as important as your salary. But a lot has changed.

After the financial crisis of 2008–2009, many Americans began working various contract and freelance jobs to make ends meet. Then, in 2020, when Covid hit, the number of independent workers grew, surging 69 percent since the start of the pandemic. Currently, there are close to 65 million independent workers in the country. Otherwise known as consultants, freelancers, contractors, solopreneurs, microbusiness owners, and temporary and on-call workers.1

Today musicians, writers, photographers, graphic designers, dog walkers and many others make up a big portion of the independent contractors, as do people who drive for rideshare services.

Those who make freelance jobs their full-time work often don’t have employer-provided benefits. But that’s not stopping them. In fact, independent contracting is growing. In a recent survey, 36 percent of employed respondents identify as independent workers. (In 2017, it was just 27 percent.)2 By 2027, it’s expected that freelancers will make up more than half the American workforce.3

Though gig careers typically don’t come with traditional benefits, many workers opt to work this way because of necessity or because they like the freedom and flexibility. In fact, 64 percent of independent workers chose their career path willingly.1 However, saving for retirement and managing day-to-day expenses can be a real challenge. But it can be done.

Here’s a look at some of the strategies and considerations people who work either freelance or contract jobs should consider. Afterall, it comes with the job.

Retirement accounts

Oftentimes, it’s hard to think about saving for retirement when you’re always on to the next job. Nearly 30 percent of full-time independent workers don’t have any money saved for retirement.4 And a recent study reports that just 21.9 percent of independent workers participate in a workplace-based retirement savings plan.5

As they say, time is money. So, the sooner you start saving for retirement, the quicker the compound interest you earn will grow. A good retirement plan should have tax benefits that include contributions that can be deducted from your income, and your retirement account savings should grow tax-deferred. Here are some retirement options to consider:

Individual Retirement Account (IRA)

Traditional and Roth IRAs are a good place to start. They allow you to contribute up to $6,500 annually (or $7,500 if you’re 50 or older) of your earned income.6

With a Roth IRA, contributions are made after tax and you can usually withdraw the money tax-free after you’re age 59.5, as long as you’ve had the account for five years or longer.7

Simplified employee pension (SEP)

For retirement, you may need to contribute more than what a regular IRA allows. Thankfully, a SEP allows you to do just that if you are eligible. In 2023, self-employed workers can contribute up to the lesser of 25 percent of pay or $66,000.8

Self-employed 401(k) profit-sharing plan

The self-employed are allowed to make generous contributions with this retirement plan. They may contribute a fixed-dollar amount up to the employee 401(k) contribution limits of $22,500 or $30,000 (if over age 50). A self-employed worker can contribute an additional 25% of their net earnings, totaling $66,000 in contributions.8

Savings Incentive Match Plan for Employees (SIMPLE IRA Plan)

You can contribute up to $15,500 from your net earnings or up to $19,000, if you’re 50 or older. This is in addition to a 2% fixed contribution or a 3% matching contribution.8

Consider working with a financial professional and/or tax professional to determine which type of account is appropriate for your situation. 

Tax (1099) tips 

Not only do you have to make a concerted effort to squirrel away money for your future, you also need to set aside enough money to pay your quarterly taxes (federal and state). Plan to set aside about 30 to 40 percent of your earnings — preferably in a separate bank account. Included in this percentage is the self-employment tax rate of 15.3 percent (12.4 percent for Social Security and 2.9 percent for Medicare).9 (Typically, employers send in their employees’ Social Security and Medicare taxes, of which employees pay 7.65 percent and employers pay the other 7.65 percent.)10 The good news is you get to claim a deduction for a portion of the percentage on your tax return.

Speaking of deductions, make sure you take into account if you have a dedicated home office, you drive your car to work-related engagements, and more. You can deduct your home office if you use it regularly and exclusively for your business.11 Do you also use your car for business purposes? If you do, you can deduct car expenses (i.e., car repairs and tune-ups, insurance, registration fees, and more) or mileage. In 2022, you can deduct 58.5 cents (first half of the year) or 62.5 cents (second half) per mile.12

A good way to keep track of business expenses is to open a business-only bank account and credit card. That will help you to keep track of costs for much-needed office supplies, cups of coffee (or meals) for clients, and traveling to that can’t-miss business conference in Atlanta. Also, save receipts and record them either the low-tech way (i.e., write the date and reason for the expense and store in files) or by using high-tech methods (use an app to digitize the receipts) — but just make sure to do it. Also, when used regularly, accounting software can help you keep track of business expenses, thus keeping the IRS at bay. Not a DIYer? Then hire a bookkeeper to do it for you.

There’s a lot to keep straight when you have your own small business. That’s why having a CPA on your side is a good thing. They can help advise you if you should incorporate your business or designate it as an LLC, among other things.

Work with a tax advisor or reference the IRS for more helpful tax tips. Read more today.

Cost of care

Medical coverage

The cost of health care is expensive. So it’s important to find the right health care that meets your needs, is affordable, and complies with the Affordable Care Act. 

Go to to get a good picture of plans available to you. Depending on your income, you might qualify for premium tax credits and cost-sharing reductions when buying a policy from the site. Also, be sure to contact major health care companies directly since many might have individual plans that aren’t listed on

Health savings accounts

Have a high-deductible health plan? To help offset medical expenses, consider getting a tax-deductible health savings account (HSA), which can be used for co-pays, prescription drugs, and doctor or hospital visits. You can also invest your HSA contributions once it reaches its investment threshold, and you have the option of not withdrawing any money until retirement (the funds roll over year to year), allowing the savings to grow tax-free for many years.

Each year, you can contribute up to $3,650 (individual) or $7,300 (family) to an HSA. Those older than 55 can contribute an extra $1,000.13

Accident or illness coverage

If serious injury or sickness keeps you sidelined for a lengthy period of time, you might miss out on a large portion of income. To avoid this scenario, experts say appropriate coverage is a must for freelancers and solopreneurs.

Accident or sickness insurance can be an important addition to help plan for the unexpected.

Life insurance

Have you thought about what could happen after you pass away? Are you married or perhaps a sole breadwinner? Your untimely death could leave your family with financial obligations. Life insurance can help.

Term life insurance is a simple, affordable way to protect your loved ones for a specific period. The policy pays a benefit to your beneficiaries should you pass away during the term your coverage is active. Terms can generally range from 10 to 20 or 30 years.

Regardless of where you are in life, your family may benefit from life insurance to cover medical bills, funeral costs and estate management expenses.

Budgeting tips

Take a look at the history of your income earning power, and use it to project how much you’ll make in a year. When building a budget, think of the 50-20-30 rule; basically, 50 percent to cover the basics, 20 percent to save for the future, and 30 percent (or less) to pay for your lifestyle. Finally, create an emergency fund (six months’ to a year’s worth of income) that will cover the basics such as groceries, rent, utilities, medical, transportation, and cell phone.

One more tip: The jobs you get can fluctuate from month to month, so consider that when building a monthly budget. Try to have one steady gig (or enough regular gigs) that can pay for the basics. Then any additional gigs are gravy.

Make it sustainable

Since independent workers are on their own, thus making them feel “out of sorts” at times, it’s important they cultivate connections with routines (i.e., a schedule, to-do list, exercise, sleep), place (somewhere to retreat), purpose, and people (for reassurance and encouragement).

Working as an independent contractor requires a lot of effort. But if you manage it right, you won’t want to have it any other way.

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An independent contractor

is a self-employed person or entity contracted to perform work for—or provide services to—another entity as a non-employee.14

1. November 2022

2. August 2022

3. As of February 10, 2023

4. September 2022

5. 2021

6. December 2022

7. August 2022

8. November 2022

9. August 2022

10. December 2022

11. November 2022

12. February 2023

13. September 2022

14. November 2022


This information is a general discussion of the relevant tax laws provided to promote ideas that may benefit a taxpayer. It is not intended for, nor can it be used by any taxpayer for the purpose of avoiding federal tax penalties. Taxpayers should seek the advice of their own advisors regarding any tax and legal issues specific to their situation.

Life insurance products contain fees, such as mortality and expense charges (which may increase over time), and may contain restrictions, such as surrender periods.

DOFU 2-2023