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This law can help you put money aside for your future.

Main points:

  • The Secure 2.0 Act aims to help everyone save more for their retirement.
  • A provision called Saver’s Match can be particularly useful for freelancers.
  • Find out which tax-advantaged account will best suit your needs, regardless of your employment situation.

More and more people are self-employed or freelancing these days, which brings many benefits in terms of flexibility and independence. But there are also negative aspects. For example, it can be difficult to save money for old age. A recent survey of non-traditional workers by the Pew Charitable Trusts found that about half were not sure they would have a comfortable retirement.

That’s partly because the onus is on you, not the employer, to set up a retirement plan. Also, freelancers’ income streams aren’t always regular, so it’s hard to keep track of your investments. If these scenarios sound like you, it’s worth knowing that you may be eligible for federal assistance, both now and in the future.

The new law helps everyone build retirement savings, including freelancers

The Secure 2.0 Act was signed into law late last year. This is a broad retirement package that will affect nearly every American. The idea is to encourage people to save more for their old age. One aspect of the new law, called the “Lifeguard Match,” could make a big difference for freelancers.

The match replaces the current Saver’s Credit and will run until 2027. But when that happens, the government will match up to $2,000 of the amount you put into your retirement account for 50%. That means lower-income freelancers can get up to $1,000 more in retirement each year.

The match begins to phase out once you reach a certain income level. For example, joint members earning $41,000 or less may receive a full match, while those earning up to $71,000 will only receive a certain amount. Here are the phased income brackets for the Saver’s Match:

  • $20,500 to $35,500 for single filers and married filing separately
  • $30,750 to $53,250 for a head of household
  • $41,000 to $71,000 for co-browsers

The government will match contributions made to Individual Retirement Accounts (IRAs) and ABLE accounts. If you’re not freelancing, Saver’s Match also applies to employer pension plans. It is important to note that the money will be deposited directly into your retirement account, it will not take the form of a tax credit.

Start planning for retirement today!

You don’t have to wait until 2027 to start building your retirement savings. The temptation to put it off is understandable, especially since retirement savings often fall into the “important but not urgent” category. Unfortunately, even if your health insurance has planned for your retirement, your employer won’t do it for you.

Also, the sooner you start saving for your retirement, the better. The power of compound interest means that even five or 10 years can make a big difference to your nest egg. While you probably have many other demands on your finances and bank account balance, your future self will thank you.

If you don’t know where to start, a good place to start is to find out what type of retirement account might suit your needs. There are a number of options, including IRAs, Roth IRAs, Solo 401(k)s, SEP IRAs, and SIMPLE IRAs. All of them are tax-advantaged accounts that give you tax benefits in different ways. Check out our guide independent retirement accounts for more information on each.

Once you know what type of account you’ll be using, look at your budget and see how much you can realistically contribute. It’s okay if you decide to start small and work your way up. The important thing is to start somewhere. If you can automate your investments, so much the better. That means you’re less likely to put it off or forget about it.

It’s also worth seeing if the current Saver’s Credit, which will be replaced by Saver’s Match, can help you now. It’s a non-refundable tax credit, so it can reduce the tax you pay to zero, but it won’t give you a rebate. Depending on your earnings, you may qualify for a 50%, 20% or 10% tax credit on the first $2,000 you put into your retirement.

Bottom line

If you’re not as far into your retirement savings as you’d like, you’re not alone, especially if you’re a freelancer. Find out what tax advantages there are for saving for your old age and which route might benefit you the most. If you can qualify for a thrift loan or thrift match, so much the better.

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