By Jeremy L. Stanley, CFP®, AIF®
According to a 2009 study, around 14% of CRNAs worked as freelancers or independent contractors. However, there’s no doubt that number has increased in the last few years as freelancing across numerous industries is on the rise. In fact, according to UpWork, 55 million Americans work as freelancers.
If you’re currently freelancing as a CRNA or would like to make the transition, you likely know of the perks: flexible hours, an independent schedule, the opportunity to travel, and more. However, with the upsides come a few downsides—namely, a lack of access to a company-sponsored retirement account. Luckily, this doesn’t mean you can’t strategically save for retirement. Here are a few ways you can get started.
Break Down Your Paycheck into “Now” and “Later” Accounts
A common mistake freelancers make is neglecting to maintain a sufficient cash flow. Divvy up every paycheck into a few different accounts. For example, you may devote 40% to current expenses, 20% to an emergency fund, 25% to retirement savings (and don’t forget to reserve 15% for taxes).
Choose Retirement Accounts That Make Sense for You
Next, you’ll want to decide where you’ll devote that 25% to retirement savings. Let’s look at a few options freelancers have.
Solo 401(k) or Uni-K
If you’ve established a business, you can open a solo 401(k) or uni(k) plan, which acts like a traditional employer sponsored 401(k). As of 2017, you can save up to $18,000 per year as an employee (or $24,000 if you’re over the age of 50). Your employer, can also contribute up to 25% of your salary on your behalf (up to a total combined contribution of $54,000 or $60,000 if over age 50).
A 401(k) is a great option for CRNAs because, as high income earners, using pre-tax dollars for retirement can put you in a greater position to build and keep more of your wealth. Some 401(k) plans also offer a Roth 401(k) provision. The main difference is that you fund a Roth 401(k) with after-tax dollars instead of pre-tax dollars. One of the biggest benefits of a Roth 401(k) is that you can contribute to a retirement account that provides future qualified tax-free withdrawals regardless of your adjusted gross income. As there aren’t income limitations on Roth 401(k) contributions, they may provide a good option for high income earners like CRNAs who may not qualify for a Roth IRA but would like to generate a tax-free retirement income.
Individual retirement plans are another option for freelance CRNAs to use along with their 401(k). Three popular options are the Traditional, Roth, and SEP IRA.
A Traditional IRA is similar to a 401(k) in that you can contribute pre-tax dollars to an investment account that grows tax-deferred. For 2017, you can contribute up to $5,500 annually, or if you’re over age 50, a total of $6,500. However, if you’re married and filing jointly with a combined income of $196,000 or higher, you won’t be eligible for a Traditional IRA.
With a Roth IRA, your contributions are not tax-deductible, like Traditional IRAs and 401(k)s. However, your earnings grow tax-deferred and your qualified withdrawals are tax-exempt (subject to IRS guidelines). Like a Traditional IRA, you can contribute up to $5,500 annually, or if you’re over age 50, a total of $6,500. However, like a Traditional IRA, there are income restrictions for Roth contributions, and many CRNAs won’t be eligible, but if you’re new in your career, you may be able take advantage of a Roth IRA.
If your income surpasses the cutoff amount for a Roth IRA, you may have another option; a backdoor Roth. Consult your Financial Advisor to see if you qualify to contribute to a backdoor Roth.
A SEP IRA, also known as a Simplified Employee Pension, is a pre-tax IRA similar to a Traditional IRA. As an employer (of yourself), you can make contributions on your own behalf for your retirement. You can set up a SEP IRA and can contribute up to 25% of your self-employment income or $54,000 per year (whichever is the lesser amount). A SEP IRA may be a good option for freelance CRNAs who have a retirement plan they’re already maxing out at work, as this gives them another opportunity to save more for retirement.
Save Aggressively Where and When You Can
Any financial advisor will tell you how important it is to start saving as early you can and as aggressively you can. Channel any bonuses or raises directly to savings. Automate your savings increases of 1% every month or so.
A Few Other Options
There are a few other ways you can maximize your savings for retirement. For one, consider investing for growth, as opposed to what you think you should be investing based on your age. You may want to retire in 10 years, but you don’t need to set a 10-year horizon for your investments because you’ll only need a small portion of your nest egg in the early years. The rest of your money may stay invested for another 20 to 40 years. Invest with an appropriate perspective so you don’t end up cheating yourself out of years (or even decades) of growth.
Additionally, you may consider giving yourself more time to save by pushing out your retirement date. Every additional year that you work is one less year that you will be depending on savings and draining your nest egg.
And lastly, don’t forget to take advantage of tax deductions that are available for the self-employed. Knowing what write-offs you can claim may help you save more on your taxes, which you can then funnel into your retirement savings.
Next Steps to Take
There are a number of options for boosting your retirement savings as a freelance CRNA, but the rules and specifics of each option can be complex and overwhelming. If you encounter questions as you investigate some of these retirement savings options, don’t hesitate to reach out to us. We’d be happy to help you review your options or offer guidance. You can call our office at 855.304.3748 or email firstname.lastname@example.org.
About Jeremy Stanley
Jeremy Stanley is the founder of CRNA Financial Planning® as well as CRNA Tax Associates®. He has been providing advice and guidance for Certified Registered Nurse Anesthetists (CRNAs) for over two decades. As a CERTIFIED FINANCIAL PLANNER™, Jeremy has met rigorous certification and professional standards set by the CFP® Board. He is committed to adhering to the principles of integrity, objectivity, competence, fairness, confidentiality, professionalism and diligence when dealing with clients.
Jeremy is also the author of The Wealthy CRNA and A CRNA’s Life After Anesthesia. The Wealthy CRNA features insights into becoming a financially successful CRNA and how to start planning for your financial future, and has been prior approved for up to 4 Class A CE credits by the AANA. A CRNA’s Life After Anesthesia serves as your financial roadmap for a smooth emergence into retirement. It reviews recent changes in the CRNA industry along with the new rules of retirement and the final steps of legacy planning. This book has been prior approved by the AANA for up to 2 Class A CE credits.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.
The Roth IRA offers tax deferral on any earnings in the account. Withdrawals from the account may be tax free, as long as they are considered qualified. Limitations and restrictions may apply. Withdrawals prior to age 59 ½ or prior to the account being opened for 5 years, whichever is later, may result in a 10% IRS penalty tax. Future tax laws can change at any time and may impact the benefits of Roth IRAs. Their tax treatment may change.