There are many ways to make extra money and secure your retirement years. You can earn interest on your savings, invest in stocks and bonds, or start a side business. If you have a passion for something and have time on your hands, it's easy to start a side hustle that can help you boost your savings. Retirement side hustles are also a great way to build wealth because they allow you to invest more, diversify your investment portfolio and earn an extra income while doing something you enjoy. Consult with a professional financial advisor who can help suggest some ideas for side hustles to boost your savings and income in retirement.
Below we've outlined some of the most popular retirement accounts that are worth considering if you plan on starting a side hustle. Read on to know more.
A side hustle refers to a hobby or interest such as gardening, writing poetry or articles, miniature pottery, collecting coins or stamps, teaching a foreign language, painting, etc., through which you can earn an income with a bit of research and commitment.
Side hustling has become a popular way for people to earn extra income. If you're thinking about starting a side hustle, you're not alone. In fact, according to a recent study, 41% of Americans plan some kind of side hustle. Another report stated that nearly half of Americans would like to start or expand their business in retirement.
Most people are familiar with the idea of side hustling, but how does one actually go about doing this? Typically, the first step is to determine what your goals are. Are you saving for retirement? Do you want to pay off a loan? Or do you want to make extra money to buy a house?
If you're looking for a way to supplement your income, then it's important to find something that works for you and your lifestyle. Once you've determined what product or service will work best for your situation, it's time to devise a plan. Think about how much time and energy you will be spending on the side hustle and if it's viable with your current job and lifestyle (If there's not enough time after work or during free time, then it's likely not going to be sustainable over the long term).
Side hustling is always a choice. However, they have recently become an increasingly popular way to earn extra money. They allow you to build wealth, save more, and can be a great way to boost your retirement corpus. Not to mention, they can be an invaluable source of income during your retirement.
Here are a few reasons why it's important to have a side hustle:
Lastly, one of the biggest benefits of a retirement side hustle is that it can be a great way to keep your mind engaged when you're not working full-time. For example, if you're retired and want to take an interest in something new or different — like investing or starting a business — then being able to do that in your spare time is invaluable.
While these traditional accounts and plans are ideal, certain retirement accounts are specifically designed to aid passive income. Some of them are mentioned below:
The money you earn from a side hustle is generally considered passive income, and if you generate enough income through the same, then it may be eligible for tax deductions and tax-advantaged investment accounts like IRAs or 401(k)s.
401(k)s, IRAs, and other retirement plans are great places to put money aside for retirement, as they offer tax-deferred growth if you are able to contribute enough money each year. Moreover, if your employer matches your contributions up to a certain amount, you have an additional way to increase your savings without paying taxes on the earnings (until you withdraw them in retirement). These retirement accounts can be ideal for saving and investing your side hustle money.
Solo 401(k)s are a great way to save when side hustling. They are also a good fit if you want more control over your investments or if you're retiring soon and don't want to use a traditional IRA (due to restrictions on contributions)
Solo 401(k)s are an improvised version of a 401(k) plan that allows you to make contributions even if you are self-employed. It is similar to a traditional 401(k), except here, you can make both employee and employer contributions.
There is no age or income limit for opening a solo 401(k). You can contribute up to $61,000 in 2022 and make a catch-up contribution of $6,500 if you are 50 or older, which is way higher than the traditional 401(k) individual contribution limit of $20,500. This sits well with individuals that earn significant amounts through part-time gigs or side hustles. An employee and employer's total combined contribution to a 401(k) is set at $61,000 for 2022.
The SEP-IRA is an IRA for self-employed individuals or small business owners.
A SEP-IRA is often considered a blend of traditional IRAs and 401(k)s and has higher contribution limits than other plans. It is also an excellent choice for self-employed individuals and side hustlers to contribute to their own retirement.
You can set up a SEP-IRA and make contributions to it each year, up to the stated IRS limits. The SEP-IRAs contributions cannot exceed the lesser of 25% of employee's contributions or $61,000 for 2022.
With a SEP-IRA, your contributions are considered employer contributions and, as such, are excluded from taxable income at the time they're made. Additionally, any contribution made to SEP-IRA grows tax deferred. Keep in mind a SEP-IRA has the same roll-over and taxation rules as any other traditional IRA.
A cash balance plan is comparable to a 401(k) and is often categorized as a qualified retirement plan. A cash balance plan can be set up along with a regular 401(k) to reap maximum benefits. It allows participants to make much higher contributions than a traditional 401(k) plan. Typically, contributions are age specific – the older you are, the more you can contribute. Some plans even allow for contributions as high as $60,000. Moreover, contributions made by employees are tax deductible.
However, setting up a cash balance plan can be expensive, with an annual fee touching nearly $3,000. The IRS may also want such plans to remain open for at least 3-5 years, which may not work if you expect your side hustle to last only for a few months.
Besides the above-mentioned retirement accounts, you can directly deposit your additional income in instruments such as stocks, mutual funds, ETFs, real estate, and more. These instruments can help generate good returns while diversifying your investment portfolio and mitigating your risk. However, be mindful of the tax implications that each of them carries.
In today's fast-moving world, it is common to see individuals consider side hustles. This can help retirees accumulate additional income and provide greater financial stability to them during retirement. You can choose to invest your hard-earned side hustle money in other investment instruments apart from retirement accounts as well such as stocks, mutual funds, real estate, collectibles, cryptocurrency, and more. But remember, each account and instrument has its own pros and cons. Consult with your financial advisor before investing in any such accounts.
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The blog articles on this website are provided for general educational and informational purposes only, and no content included is intended to be used as financial or legal advice.
A professional financial advisor should be consulted prior to making any investment decisions. Each person's financial situation is unique, and your advisor would be able to provide you with the financial information and advice related to your financial situation.