Do you rent out a spare bedroom on Airbnb? Collect driving fares from Lyft? Sell your hand-crocheted hats on Etsy? Maybe you earn a living through freelancing or consulting. The abundance of online job platforms has made it easier than ever to carve out an income in the so-called “gig economy.”

Maybe you don’t consider yourself a small-business owner working these gigs, but the IRS probably does. While independent income may make your life a bit more complicated at tax time, your earnings can open up valuable financial planning options. As your own boss (and your own employee), you make your own hours and set your own performance expectations. However, you’re also running your own HR department and you’re the benefits manager, which means taking sole responsibility for your retirement.

Build your own retirement plan

If you have earned income, you can contribute up to $5,500 ($6,500 if you’re age 50 or older) to a traditional or Roth IRA. If you’re self-employed* and looking to save more for retirement, you might consider a SEP-IRA, a SIMPLE IRA, or an Individual 401(k). For all of these options, you’re the employer and the employee.

A SEP-IRA allows an employer to contribute to an employee’s account up to 25% of the employee’s compensation. If you’re self-employed, this translates to a maximum contribution of 20% of the net profit reported on IRS Schedule C, minus the self-employment tax.** (The maximum contribution for 2018 can’t exceed $55,000.)

A SEP-IRA is easy to set up, and you can even establish an account after the end of the calendar year—you only need to open and fund the account before the tax-filing deadline.

A SIMPLE IRA features both employee salary deferral contributions of up to $12,500 ($15,500 if you’re age 50 or older) for 2018 and an employer matching contribution of up to 3% of compensation.

A SIMPLE IRA is also easy to establish and administer, but the deadlines are stricter. Generally, you must open a SIMPLE IRA by October 1 to contribute for the current tax year.

Individual 401(k)
While 401(k) plans may have a reputation for high costs and complexity, an Individual 401(k) could be appropriate for business owners with no employees (other than a spouse). They offer potentially higher contribution amounts and the flexibility to choose either pre-tax or Roth employee salary deferrals of up to $18,500 ($24,500 if you’re age 50 or older) for 2018.

Employer contributions are identical to the SEP-IRA (up to 25% of the employee’s compensation up to $55,000).

Determine how much you want to save

For most investors, choosing the right plan comes down to how much you earn each year and how much you want to save. The figure below estimates how much an individual can contribute to each account type, depending on income level, for 2018.

Source: Vanguard calculations.

Primary employment or side job?

Before you choose a retirement plan, consider whether you have other income sources or if you’re participating in another plan through an employer. If you’re earning income on the side and you’re already contributing to a 401(k) plan through another employer, you can still set up a plan for your self-employment income—but you have fewer options.

Salary deferral contribution limits apply across all plans, but employer contribution limits are plan-specific. For example, if you’ve already contributed the maximum ($18,500 plus $6,000 if you’re over age 50) to an employer-sponsored 401(k) plan through salary deferral, you can’t make any additional salary deferral contributions to a SIMPLE IRA or Individual 401(k). But you can make an employer contribution to a SEP-IRA.

You’re in charge (but you can always ask for help)

If you’re already forging a unique career path, you can also take control of your future retirement savings. Mastering the details of your own benefits package can be challenging—but the good news is that helpful resources are readily available. Learn more about Vanguard’s small-business plan options or speak with a financial advisor about your specific situation.

Special thanks to my colleague Hank Lobel for his contributions to this blog.

*Generally, you’re self-employed if any of the following apply to you: You carry on a trade or business as a sole proprietor or an independent contractor; you’re a member of a partnership that carries on a trade or business; or you’re otherwise in business for yourself (including a part-time business). See the IRS Self-employed individuals tax center for more information.

**See IRS publication 560 for more information.


  • All investing is subject to risk, including the possible loss of the money you invest.
  • We recommend that you consult a tax or financial advisor about your individual situation.