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Personal Financial Planning

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Retirement & Health Insurance for Freelancers

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Retirement & Health Insurance Freelancers

Is it possible for a freelancer making $60,000 in New York City to save for retirement and have health insurance coverage? The biggest difference between W-2 employees and freelancers is that freelancers don’t have existing HR benefits and therefore do not enroll in health insurance or retirement plans. While W-2 workers have access to established employee benefits and group insurance plans, freelancers do everything themselves: sales, marketing, operations, techonology and bookkeeping. For a freelancer, there is no time leftover to setup retirement accounts, research and signup for insurance, and enroll in other tax advantaged benefits.

Let’s take a look at 2 different scenarios of a freelancer in New York City who made a net profit of $60,000 in 2015:

In the first example, the freelancer did not contribute to a retirement plan or have health insurance coverage. They ended up paying $21,000 in Federal, New York State and City Income Taxes, including a $900 penalty for being uninsured.

In the second example, the freelancer gets NY Silver Plan health insurance coverage for the entire year, and contributes $1,200 to a Traditional IRA. As a result, they paid $3,000 less in taxes, going from owing $21,000 to $18,000. Saving for retirement and having health insurance coverage would normally cost $475/mo. However, because these benefits provide a tax deduction, it lowered the cost to $225/month.

If you are a freelancer, make time in your calendar now to do these 3 things:

  1. Review your budget. What monthly expenses can be reduced or removed by $225, how can you increase your income, or a combination of the two to make up the difference?
  2. Review health insurance plans and sign up for coverage.
  3. Open a Traditional IRA account, and setup monthly transfers of $100 to your new account.
Retirement Planning for Freelancers
Retirement Planning for Freelancers

Product Review: FeeX is finding hidden 401k fees

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feex

What would you do if you knew that $50,000 of your retirement account money was going to fees and expenses?

More than 50% of Americans are not aware of how much they pay in annual administrative fees and expenses for their 401k and individual retirement accounts. Over the course of 30 years, those fees can add up to over $50,000 of lost savings and interest.

Recent legislation from the Department of Labor has required that 401k and retirement plan providers disclose fees and expenses on client statements. While this should resolve the problem of fee transparency, nearly 40% surveyed still believe that they do not pay any 401k fees! On top of that, 20% never even look at their statements.

Here are a few tips for the DIYers:

  • FeeX offers a free online site to help people discover hidden 401k fees that may be eroding their retirement savings. They also provide alternative solutions with lower fees that have a similar or better risk-reward profile.
  • If you have a 401k account with a former employer, roll it over to an IRA. Look for a broker with low trading fees and funds with low expense ratios.
  • Create a task or calendar appointment to check your retirement accounts on a quarterly basis. Make sure that you look at transaction details for what fees are being charged.

For the 20% surveyed who do not look at retirement accounts and avoid financial statements, there are important things that need to be done:

  • portfolio allocation- does your portfolio allocation match your unique risk tolerance and what you are willing to lose when the markets are down?
  • beneficiaries- when was the last time that you reviewed your account beneficiaries? Has anything changed in your life?
  • fees- What are the fees being charged? Are they high and do you need to make a change?

If you don’t have the time or don’t want to manage your portfolios, ask a financial advisor for help. A one time fee of $500 is worth the $50,000 in fees saved over your lifetime.