The gig economy, comprising contract workers and freelancers, is rapidly growing and evolving. Considerations for gig workers include navigating a unique work environment, saving for retirement, paying taxes and managing volatility. Be realistic about how much you will likely earn and base your budget on that estimate. The gig economy, fueled by contract workers and freelancers, is rapidly growing and evolving as digital platforms facilitate connections between customers and service workers. The gig economy – which gets its name from each piece of work resembling an individual “gig” – comprises a labor market where freelance, temporary or independent contract work is prevalent (as opposed to full-time employment) and, in many cases, workers are hired for short-term engagements. Common examples of gig worker positions include ride-sharing drivers, consultants, handymen, tutors and photographers. Across the U.S., 57 million people — or 36% of workers — categorized themselves as gig workers in 2018, according to Gallup, and another 24% had an alternate work arrangement they considered to be their primary job. The gig economy has become so popular that 30% of Americans said they would quit their jobs to go work in the gig economy if it meant they could make the same amount of money. 1 Gig workers typically fall into two categories: independent workers or contingent workers. Independent workers are freelancers who manage themselves and submit invoices and billing for the services they provide. Meanwhile, contingent workers are employed by a company and may have more flexible work arrangements, but receive fewer benefits than full-time W-2 employees. No matter which type of gig worker you are, here are four considerations to keep in mind as you navigate the gig economy. Retirement savings Access to benefits, such as employer sponsored health insurance and retirement plans, is a major challenge for gig workers. Only 7% of temp-agency workers, 30% of on-call workers and 38% of contract workers have access to employer-sponsored retirement plans, compared with 46% of traditional employees. 2 However, there are options for gig workers to save for retirement on their own. Depending on your circumstances, you may be eligible to contribute to a Roth IRA and/or to a Traditional IRA. Both options may allow you to make yearly contributions to your retirement account. The same combined contribution limit applies to all of your Roth and Traditional IRAs. 3 Additionally, if you are self-employed or a business owner with no full-time employees, you can consider a Solo 401(k), which has essentially the same rules and requirements as any other 401(k) plan. 4 You can also consider a Simplified Employee Pension (SEP) plan or Savings Incentive Match Plan for Employees (SIMPLE) IRA plan, both of which can allow business owners to set aside money in retirement accounts for themselves. It really depends on your personal situation at the time and overall long-term savings goals. A tax professional can help you learn more about the options available to you. For whatever reason, if you are not ready to open a retirement plan […]
