Now more than ever, workers are learning what it means to be on their own. Rather than having an employer for life, many companies simply bring on workers for short-term contracts, leading to the rise of what's become known as the gig economy.

Being a gig worker has lots of challenges. But when it comes to retirement savings, it also opens up some options that most regular employees don't have. In particular, the multiple ways you can save for retirement will give you the ability to boost your savings dramatically -- as long as you have the earnings to back it up.

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The 5 ways to save as a gig worker

Typically, gig workers have five things they can do to save for retirement:

  • Use a regular taxable brokerage or mutual fund account
  • Make contributions to an IRA
  • Open a SIMPLE IRA account
  • Find a provider for a SEP IRA
  • Create a self-employed 401(k) or solo 401(k) plan for your retirement

We'll go through the pros and cons of these options below.

Using regular non-tax-favored accounts

Anyone can use a simple brokerage or mutual fund account to save. Doing so gives you maximum flexibility, because there aren't any restrictions on how you can invest or when you can get access to your money.

The downside of regular accounts is that they lack the tax benefits that other savings vehicles have. In particular, you'll have to pay tax on your income as you earn it, and when you sell an investment at a gain, you'll immediately have to pay tax on the capital gains. Depending on how you structure your portfolio, the tax disadvantages aren't always huge, but it's still something you have to keep in mind in weighing your options.

Contributing to a regular IRA

The money that gig workers make counts as earned income, letting you open an IRA. Contribution limits for the 2018 tax year -- which you can still make through April 15 -- are $5,500 for those under 50 or $6,500 for those 50 or older. 2019 contribution levels rise to $6,000 and $7,000, respectively.

IRAs let you either deduct your initial contributions for traditional accounts or get tax-free growth through retirement for Roth accounts. However, there are restrictions on taking the money out of an IRA, with penalties and taxes applying if you do so too early without qualifying for an exception. With a wide range of investments available, though, IRAs are quite flexible while giving you valuable tax benefits.

Keeping things SIMPLE

Despite their name, SIMPLE IRAs are different from regular IRAs. SIMPLE IRAs are special accounts that small businesses can use to help workers save for retirement. They're also available to gig workers and other self-employed individuals.

Establishing a SIMPLE IRA is pretty simple, as most financial institutions have the paperwork necessary to do so. One nice thing about the accounts is that they come with relatively high contribution limits -- $13,000 in 2019 for those younger than 50, and $16,000 for those 50 or older. You'll also generally have access to a wide set of investment choices, letting you follow your own investing strategy in saving for retirement.

Using a SEP IRA

Once your gig earnings get high, a SEP IRA can let you boost your retirement savings dramatically. SEP stands for simplified employee pension, and its contribution limits amount to one-quarter of your net compensation over the course of the year. That's subject to an overall maximum limit, but for 2019, that number is $56,000 -- well above what you can get from most retirement savings vehicles.

There's some added complexity with SEP IRA's for self-employed gig workers, because the definition of net compensation involves having to calculate self-employment taxes. But once your income gets above around $65,000 to $75,000, the greater savings available from a SEP IRA compared to a SIMPLE or regular IRA really start to show up.

Opening a solo 401(k)

The most extensive retirement plan a gig worker can open is the solo 401(k). This is essentially a simplified version of the same 401(k) plans that many large employers offer. For 2019, that lets you contribute up to $19,000 if you're younger than 50 and up to $25,000 for those 50 or older. In addition, you can also add on the same employer contribution as SEP IRAs allow -- essentially giving you the best of both worlds.

The downside of solo 401(k)s is that they involve even more paperwork than any of the other methods discussed above. Financial providers will walk you through all that paperwork, though, and once your earnings reach the top tier, a solo 401(k) can make it easier than ever to max out your available retirement savings in a tax-favored manner.

Be smart with your retirement

If you're a gig worker, saving as much as you can is smart. These five savings methods give you a nice range of choices to fit any situation, and all of them can get you closer to reaching your financial goals.

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