My So-Called Freelance Life - Michelle Goodman [66]
There is a dizzying amount of IRAs to choose from, which you can learn more about on sites like Fool.com and SmartMoney.com. But the popular vote seems to be for the SEP IRA, which is easy to set up and, in 2008, lets you contribute up to 20 percent (or $46,000—as if!) of your annual pre-tax freelance income (you pay taxes when you take the money out at age fifty-nine and a half). Another winner is the Roth IRA, which let singles contribute up to $5,000 of post-tax freelance income in 2008 ($10,000 is the limit for couples; $6,000 per person is the limit if you’re over fifty) and is tax-free on the back end. If you have the happy “misfortune” of having a six-figure income, you may not be eligible for a Roth IRA per IRS rules; check with IRS.gov or your tax preparer for details, as the income and contribution limits change annually.
You don’t have to limit yourself to just one retirement account. “If you are gung-ho enough, the ideal is to fully fund your Roth and then max out your SEP IRA,” say Manisha Thakor and Sharon Kedar, authors of On My Own Two Feet: A Modern Girl’s Guide to Personal Finance. (I don’t know about you, but I’m all for making that my next New Year’s resolution.)
You can easily open an IRA with your favorite bank or investment firm. I suggest setting up the fund so your contributions are automatically withdrawn from your checking account each month. That way, you won’t be tempted to cheat.
I had a money-savvy friend (okay, my mom) help me choose my IRA. But if it’s professional advice you want, talk to a fee-only certified financial planner (one who doesn’t work on commission). A number of them are willing to give you a one-hour, one-time meeting to help with retirement advice. As always, ask around for referrals. Failing that, see NAPFA.org to find a planner near you.
So how much should you save? “Self-employed or corporate-employed, the magic number for retirement is at least 10 percent of your gross income if you are in your twenties and thirties,” say Manisha and Sharon. “If you are starting from ground zero in your forties, you’ll want to target at least 15 percent of your gross income to retirement.”
Do this even if you’re making $15,000 a year as a freelancer. Seriously. I didn’t start saving for my sixties until I was in my thirties, and I’ve been scrambling to catch up ever since—and not just with the money I contribute to the account, but in the interest I could have been making all these years if only I’d started sooner. Remember, the choice is yours: $350 cashmere sweater now, or dog kibble in your sixties.
Insure Your Ass
Over the past fifteen years, I’ve managed to rack up more health insurance plans than boyfriends, which I believe qualifies me to tell you a thing or two about spending several thousand dollars a year so that you don’t have to spend ten times that amount should you get sick.
No matter how you slice it, finding and paying for health insurance as a self-employed person is a bitch. But so is trying to skate by without the coverage, only to fall on the ice, bust your tailbone, and wind up with an ER bill that eclipses your annual income. At the very least, you should cover your rear with catastrophic health insurance. Getting a more comprehensive plan with a high deductible ($1,500, $2,500, $5,000) is another way you can cut costs if you’re reasonably healthy. So is skipping dental insurance (that is, if you have good teeth), which can cost more in annual premiums than just paying for your cleanings and x-rays out of pocket.
If you have the option to join a group plan through a part-time job or a contract job, seriously consider it. I’ve done this