‘I pay taxes once it’s time to withdraw, but the fact that I would be funding it with income I’ve already been taxed on throws me off’: I’m a self-employed high-income earner overwhelmed by retirement options. What’s the best plan for me?

Hey Help Me Retire,

So here’s the deal with my money situation: I bring in some cash from freelance gigs, and a bigger chunk from my regular job. But since I hop around different jobs, I can’t get in on a 401k plan. My income ranges from 125k to 200k, depending on the year.

I’ve got a wife and two kiddos, and she pulls in over 150k. She’s getting her employer’s 401k match, but isn’t hitting the max of 23k. She’s also putting some cash into an HSA.

I’m trying to figure out how to get some retirement savings going. There’s about 10k chillin’ in my old 401k that I haven’t touched in forever. Most of my savings hang out in a HYSA, but I know I should stash some away for retirement. Looks like my options are:

• Individual 401k: Nah, doesn’t feel right for me. My freelance work isn’t consistent enough to count on for contributions.
• IRA: Traditional vs. Roth. I’m leaning towards traditional to shave off some household income. Roth’s out since our joint income is over 230k. Just not vibin’ with funding it with already-taxed money.
• Backdoor IRA: Seems like a sneaky way to contribute to a Roth when you’re too loaded for the regular limit.
• SEP IRA: Not sure this one works since my freelance cash isn’t a sure thing every year.

Any folks out there in a similar money boat or who can point me in the right direction?

Much love,
Budgeting Bob

Response from HELP ME RETIRE:

Hello There,

It sounds like you’re in a somewhat complex financial situation, balancing both W2 and freelance income while considering retirement savings options. Given your fluctuating freelance income and the fact that you don’t have a consistent employer offering a 401k, it’s understandable that you’re seeking guidance on the best approach to contribute to a retirement plan.

Based on the information you’ve provided, it seems like a Traditional IRA may be a suitable option for you. Since your W2 income is your main source and the 1099 work can be unpredictable, contributing to a Traditional IRA can help reduce your overall household income while providing a tax-advantaged way to save for retirement. While you do pay taxes on the withdrawals in retirement, the upfront tax deduction could be beneficial for your current financial situation.

As for your old 401k and savings in a High-Yield Savings Account (HYSA), it may be a good idea to consider rolling over the funds from the old 401k into an IRA for better control and investment options. Additionally, allocating some of your savings from the HYSA into a retirement account, like the Traditional IRA, can help your money grow over time for retirement.

Regarding the Backdoor IRA and SEP IRA options, they may not be the best fit given the unpredictability of your freelance income. These options are more suitable for individuals with consistent and higher 1099 earnings.

Overall, it’s essential to consider your current financial situation, long-term retirement goals, and the tax implications of your retirement savings decisions. Consulting with a financial advisor or retirement planner can also provide personalized advice tailored to your specific circumstances and help you navigate the best retirement savings strategy for your unique income mix.

Best of luck as you navigate these decisions and work towards building a solid retirement plan.

Warm regards,

HELP ME RETIRE