Contribute to a retirement account
Freelancers and solopreneurs shouldn't underestimate the advantages of squirreling money away in retirement accounts. Although the "right" plan depends on your income level, savings goals and personal circumstances, retirement accounts offer tax benefits that ordinary savings accounts don't, says Kadrina Warren of the Warren Financial Group in Atlanta. Solo workers should consider these tax-favorable accounts in particular to prepare for retirement.
Individual 401(k): You can contribute up to $17,500 pretax dollars (plus a catch-up contribution of $5,500 if you're 50 or older), in addition to 25 percent of your annual compensation capped at $51,000 (not including catch-up contributions). Because contributions are only taxed upon withdrawal, they help reduce your current tax liabilities.
Roth individual retirement account: Contribution limits are $5,500 for those younger than 50, and $6,500 for those 50 and older, as long as you don't exceed certain earnings levels. Contributions are made with post-tax dollars, but withdrawals in retirement are tax-free. Warren says this type of plan may be advantageous for those anticipating being in a higher tax bracket upon retirement because they'd pay taxes on the contribution while in a lower bracket.
Simplified Employee Pension, or SEP: You can contribute up to 25 percent of your pretax income, with a cap of $51,000. The plan's major benefits include that it's easy and inexpensive, and it permits changes to your contribution amounts each year.