More people are working “side gigs” outside of their 9-to-5 jobs these days. This can offer them more opportunities to save for retirement and even help them make up for lost time.
Nearly 40 percent of people who hold more than one job say they do so to grow their nest egg, according to recent findings by TD Ameritrade. Around the same share of millennials describe their ideal work arrangement as a combination of traditional and temporary work.
More than 2,000 adults were surveyed toward the end of 2018.
Receive income from more than one place? “Be very goal-focused with your side hustle, instead of spending-focused,” said Christine Russell, senior manager of retirement and annuities at TD Ameritrade.
Your first priority should be to contribute enough at your job to get the full company match, if one is available, said Ed Slott, a retirement savings expert. “The company match is free money, so you never want to lose out on that,” Slott said.
If you’re worried that contributing to that point will leave you with too small a paycheck, your side gig can come in handy, Russell said. “You could increase your contributions into your 401(k) plan at work, because you know you’ll have some side gig income to pay that electric bill,” she said.
If you’re in a position to save more for retirement, your next stop should be opening a Roth Individual Retirement Account, Slott said. In 2019, you can contribute up to $6,000 in this investment account, in which your money grows tax-free.
However, to make this contribution your income cannot exceed $122,000 if you’re single, or $193,000 if you’re married.
Yet another option is a SEP IRA, or simplified employee pension IRA, Russell said. Any money that goes into this account must come from your freelance income, and you can contribute up to a quarter of those earnings each year (or up to $56,000 in 2019).
“If you’re really serious about saving, that SEP IRA is going to give you a deduction and it’s going to have a much higher limit than you’re able to do in your corporate plan,” Russell said.
Russell recommends automating your retirement savings from your extra jobs, just as many companies do with their 401(k)s. Although freelancing income tends to be irregular, try to commit to an amount you know you can afford to contribute and “then if you have a really good month or quarter, you can always put in some extra,” Russell said.
Some businesses that you freelance for might be willing to route some of your pay into a retirement account, if you request that they do, she added.
Many people won’t be able to hold multiple jobs as they get older, Russell said, and so you should know exactly what you’d like to get out of the additional work – and in how much time.
“Then when you get to the end, you can make choices,” she said.