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Many registered investment advisors have honed their practices to focus on clients from specific professions. Think practices oriented towards doctors, lawyers, teachers and entrepreneurs of various stripes.
What follows here is similar advice though not a push to focus practices on the following client groups because that would be difficult. Still, gig workers and the self-employed need high-level financial advice and planning. These are potentially fruitful clients for practices with tax planning services because, let’s be honest, there’s an array of tax complexities that come along with gig work and being self-employed.
Even if a practice doesn’t offer extensive tax planning service, gig workers and the self-employed can be growth avenues for advisors.
“As of March 2023, its estimated that 9.84 million Americans are self-employed, which is nearly 3% of the population,” according to Nationwide. “And in 2021, nearly 16% of Americans had at some point earned money from an online gig platform.”
Reconsidering Views of Self-Employed
A first step in making inroads with prospective self-employed clients is acknowledging that this is an expansive group and it includes much more than business owners. Technically, car salespeople and realtors are self-employed. Same goes for folks selling items on Amazon, eBay and the like.
Point is there’s a plethora of avenues through which clients can earn gig income or be self-employed and make good or even outstanding livings. With that in mind, advisors should be equipped with retirement savings options for gig workers and the self-employed because they lack access to employer-sponsored plans. A sound starting point is the Solo 401(k).
“A Solo 401(k), sometimes called a Solo-k, Uni-k or One-participant k, is a traditional 401(k) plan that covers a business owner (and potentially their spouse) with no employees,” adds Nationwide. “Your self-employed clients can leverage a Solo 401(k), essentially acting as the employee and the employer, and they can make contributions as both through elective deferrals and employer non-elective contributions.”
Another idea for these two client bases is the simplified employee pension plan, or SEP IRA. These are useful plans because they allow the client to contribute up 25% of net earnings into these accounts. In many cases, that can work out to be much more than the $6,500 limit on individual retirement account (IRA) contributions.
Another Healthy Idea
Another idea that is likely to be appealing to gig workers and self-employed is the health savings account (HSA). That makes perfect sense as these clients aren’t getting health insurance from an employer and footing the bill for it out of their own pockets.
Clients need high deductible insurance plans to be HSA-eligible, but there are benefits including the point that the money put into these accounts can be used for any healthcare-related expense.
“HSAs also allow you to invest funds so that the money can grow over time. For 2023, the HSA contribution limits for 2023 are $3,850 for a single person, and $7,750 for family coverage. Those 55 and older can contribute an additional $1,000 as a catch-up contribution,” concludes Nationwide. “The contribution limits for 2024 are $4,150 for a single person and $8,300 for family coverage—and for 55 and older the catch-up contribution remains at $1,000. More financial institutions are offering HSAs now, making opening one easier than ever.”