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Part of the Series Guide to Successful Self EmploymentKnow These Terms
Self Employment in the Economy
Manage Your Life
Self-Employment Business Strategy
Plan for Retirement
Many people find themselves outside of the formal workforce from time to time. Some end up unemployed by choice, while others find themselves without work because of layoffs. These individuals have several options available to them in order to keep the income flowing. For instance, some may join the gig economy, while others try consulting or freelancing.
When people stop picking up a regular paycheck, they often stop contributing to their retirement savings. This might not be wise. Keeping up those contributions, however small, can make a big difference in the income you have during retirement. Here are some ways to keep that retirement account growing even when you don’t have a steady source of income.
Although it’s true that the majority of working people save for retirement via an employer-sponsored plan, you can do it on your own. It’s easier than you think to save money without a regular paycheck, and you don’t need regular employment to get the tax advantages that come with many plans.
There are a number of ways to use existing retirement-savings vehicles to save without an employer, including a solo 401(k), a spousal individual retirement account (IRA), and a health savings account (HSA).
The solo 401(k), also known variously as a “solo k,” “one-participant k,” “uni-k,” or “individual 401(k),” is designed for people who are self-employed as sole proprietors, independent contractors, or members of a partnership. It is for people who work on their own or with a spouse and don’t have employees (aside from their spouse). The contributions combine deferred income and profit-sharing elements.
For 2024, a participant may contribute up to $23,000 to their solo 401(k). Individuals age 50 or older can contribute an additional catch-up contribution of $7,500.
As your own employer, you may also make employer contributions to your account in addition to your participant contributions. For 2024, the total allowed amount of these combined contributions (participant deferrals and profit-sharing) is $69,000 a year, or $76,500 with a catch-up contribution.
According to the Internal Revenue Service (IRS), you calculate the maximum amount for deferrals and nonelective contributions using either a rate table or worksheets in Chapter 5 of IRS Publication 560, Retirement Plans for Small Business. When figuring it, “compensation” means “your ‘earned income,’ which is defined as net earnings from self-employment after deducting both one-half of your self-employment tax and contributions for yourself.”
Let’s say that Jasmine, a 33-year-old marketing manager, left her full-time job when she had a baby. She does some consulting work and earns $30,000 in a year. As a sole proprietor she can put away up to $23,000. Though Jasmine is too young, those 50 or older could make an additional catch-up contribution of $7,500, raising their total to $30,500.
Solo 401(k) plans must be established by Dec. 31 of the tax year for which contributions will be made.
A nonworking spouse who files jointly has the option of investing in either a traditional IRA or Roth spousal IRA as long as their spouse has taxable compensation. The maximum contribution for 2024 for either IRA is $7,000, plus an additional catch-up contribution of $1,000 for individuals age 50 or older. This allows the family to double its IRA retirement savings (although, as noted by the IRS, “the total of your combined contributions can’t be more than the taxable compensation reported on your joint return.”)
Keep in mind that your filing status can affect the level of allowable contributions. Let’s say Joe, 51, lost his job late in 2023 and hasn’t been able to find full-time work during 2024, but he wants to continue contributing toward his retirement. His husband, Erik, is 47 and has taxable compensation of $50,000 for 2024. If Joe and Erik filed separately, Joe would be unable to contribute any amount to an IRA for 2024 because he had no taxable compensation that year.
If they filed separately and Joe had taxable earnings of only $2,000 for 2024, his IRA contribution would be limited to $2,000. No catch-up contribution would be allowed, despite Joe being over 50, because it would put the final amount over his total earnings for the year.
However, if Joe and his husband file jointly as a married couple, everything changes. Thanks to Erik’s $50,000 income, Joe could contribute a total of $8,000 to a spousal IRA for 2024. This is the standard $7,000 contribution plus a $1,000 catch-up contribution. Joe could make the contribution as late as Tuesday, April 15, 2025, as the deadline for contributing to any IRA is tax day of the year following the one for which you’re making it. Thus, Joe and his husband could contribute a total of $15,000 to their respective IRAs in 2024 if they file jointly.
A health savings account (HSA) is another option. An HSA is a tax-advantaged account that can help you save for medical expenses that aren’t covered by insurance. HSAs are only available to individuals with a high-deductible health plan (HDHP).
For people who are employed, both the employer and the employee may contribute to the account. Those who are not employed may contribute on their own behalf, and those contributions are eligible for a tax deduction.
The maximum contribution to an HSA for 2024 is $4,150 for an individual and $8,300 for a family. Additional catch-up contributions of $1,000 are allowed for people 55 years of age or older.
Distributions used for qualified medical expenses are tax-free at any age. Those that are not used for medical expenses are counted as income and are taxable. In addition, depending on your age, they can be subject to a 20% penalty.
If you keep these funds in the HSA and begin withdrawing them at the age of 65 or older, you can use them for any purpose, just as with a traditional IRA. Similarly, you will owe income tax on the money but no penalties.
The money deposited to an HSA doesn’t have to come from earned income. The source can be savings, stock dividends, unemployment compensation, and more.
You can also invest for your retirement through a brokerage account. The earnings won’t be tax-deferred, but you will be increasing the pot of money that can provide you with a source of income during your retirement.
This can be an excellent way to invest money once you exhaust your tax-deferred contribution amounts. In addition, as withdrawals of contributions from a taxable account aren’t taxable again, an investment account gives you added tax-planning flexibility that can be helpful. However, be aware that withdrawals of gains from a brokerage account are taxed at capital gains rates.
Your working status doesn't need to determine whether or not you can save for retirement. For instance, you can put any available funds you have into a high-yield savings account or a brokerage account. How much you save may be a challenge due to your lack of income, but any amount can help you.
Plus, while the two options just mentioned aren't tax-advantaged accounts, you can open an HSA if you have a high-deductible health plan. It allows you to make tax-deductible contributions, and withdrawals used for qualified medical expenses are tax-free.
Yes, you can. If you file taxes jointly and your spouse has taxable income, you can open an IRA and contribute the maximum amount allowed for the particular tax year. In 2024, that's $7,000 if you're under 50, or $8,000 if you're 50 or older.
With regard to how you can save, one of the benefits related to earned income (having that paycheck) is that you get easy access to tax-advantaged accounts for your long-term saving and investing. This applies to self-employed people, too: independent contractors and gig workers can open up solo 401(k)s and IRAs.
Without earned income, you can still save what money you can, but you won't necessarily get the tax-advantaged compounding growth opportunities offered by a 401(k) or an IRA.
Saving for retirement without a regular paycheck is possible. Several options offer tax advantages. For those who are eligible, solo 401(k)s, spousal IRAs, and HSAs can help build a retirement nest egg. Investments in a brokerage account, while not tax-deferred, can also help grow retirement savings. Regardless of which route you choose, start saving for retirement as early as possible, so your money has more time to grow.
