Now more than ever, workers are learning what it means to be alone. Instead of having an employer for life, many companies simply hire workers for short-term contracts, leading to the increase of what is known as the labor economy.
Being a concert worker has many challenges. But when it comes to retirement savings, it also opens up some options that most regular employees do not have. In particular, the many ways in which you can save for retirement will give you the opportunity to increase your savings dramatically, as long as you have the earnings to support them.
Image source: Getty Images.
The 5 ways to save as a concert worker.
Normally, concert workers have five things they can do to save for retirement:
- Use a taxable brokerage account or mutual fund account.
- Making contributions to an IRA
- Open a SIMPLE IRA account
- Find a provider for an SEP IRA
- Create a 401 (k) or 401 (k) plan on your own for your retirement.
We will review the advantages and disadvantages of these options below.
Using regular accounts without favored taxes
Anyone can use a brokerage or mutual fund account to save. By doing so, it offers you maximum flexibility, as there are no restrictions on how you can invest or when you can get access to your money.
The disadvantage of regular accounts is that they lack the tax benefits that other savings vehicles have. In particular, you will have to pay taxes on your income as you earn them, and when you sell an investment with a profit, you will immediately have to pay taxes on capital gains. Depending on how you structure your portfolio, the fiscal disadvantages are not always huge, but it is still something you should consider when weighing your options.
Contributing to a regular IRA
The money that concert employees make counts as earned income, which allows you to open an IRA. The contribution limits for fiscal year 2018, which you can still do until April 15, are $ 5,500 for those under 50 or $ 6,500 for those 50 and older. The contribution levels of 2019 increase to $ 6,000 and $ 7,000, respectively.
IRAs allow you to deduct your initial contributions for traditional accounts or obtain tax-free growth through the retirement of Roth accounts. However, there are restrictions to withdraw money from an IRA, and fines and taxes apply if you do it too early without qualifying for an exception. However, with a wide range of available investments, IRAs are quite flexible and provide valuable tax benefits.
Keep things simple
Despite its 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 are also available to concert workers and other people who are self-employed.
Establishing a SIMPLE IRA is quite simple, since most financial institutions have the necessary documentation to do so. One good thing about the accounts is that they come with relatively high contribution limits: $ 13,000 in 2019 for those under 50 and $ 16,000 for those 50 and older. In general, you will also have access to a broad set of investment options, which will allow you to follow your own investment strategy to save for retirement.
Using a SEP IRA
Once your concert earnings increase, an SEP IRA can allow you to increase your retirement savings dramatically. SEP means simplified employee pension, and its contribution limits amount to a quarter of its net compensation throughout the year. It is subject to a general maximum limit, but by 2019, that amount is $ 56,000, well above what you can get from most retirement savings vehicles.
There is a certain additional complexity with SEP IRAs for self-employed workers, because the definition of net compensation involves having to calculate labor taxes on their own. But once your income exceeds $ 65,000 to $ 75,000, the largest available savings from a SEP IRA compared to a SIMPLE or normal IRA really start to appear.
Opening a single 401 (k)
The most extensive retirement plan that a concert worker can open is the single 401 (k). This is essentially a simplified version of the same 401 (k) plans that many large employers offer. By 2019, that allows you to contribute up to $ 19,000 if you are under 50 and up to $ 25,000 for those 50 and older. In addition, you can also add the same employer contribution that the SEP IRAs allow, which essentially gives you the best of both worlds.
The disadvantage of the single 401 (k) is that they involve even more paperwork than any of the other methods mentioned above. However, financial providers will guide you through all the paperwork, and once your earnings reach the highest level, a 401 (k) can only make it easier than ever to maximize your available retirement savings from a way in favor of taxes.
Be smart with your retirement
If you are a concert worker, saving as much as you can is smart. These five savings methods give you a good variety of options to adapt to any situation, and all of them can bring you closer to reaching your financial goals.