Opher Ganel
Aug 31, 2018 · 1 min read

Nice rundown of options for freelancers to save for retirement.

I’d add that subject to having a stable and high enough profit, you might talk with your accountant about setting up your business as a limited liability company (LLC) and then asking the IRS to tax it as a Sub-S corp.

Once you do that, your business has to pay you a salary. The drawback is that the complexity is much better handled by an accountant and payroll servicer (could be the same company), with the attendant costs.

However, if your profit is high enough that you can take a defensibly high salary and still have a good chunk of profit left over, you can take that extra income as a distribution, which is subject to income tax but not to self-employment or payroll taxes. This could save you as much as 15.3% on that extra income.

Another benefit is that you can set up a solo 401(k) retirement plan, and contribute more than you could to a SEP IRA.

I’m glad you also mentioned the all-important emergency cash cushion before starting to discuss a retirement saving plan— here are some of my thoughts on that: https://medium.com/@opher.ganel/your-emergency-fund-following-advice-from-financial-gurus-can-lead-you-the-wrong-way-b7c4d0acf2b8.

Opher Ganel

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Consultant | physicist | systems engineer | writer | small-business coach for solo professionals (opherganel.com) | avid reader | amateur photographer & artist