Advisor explains retirement savings options for independent contractors

(CNN) — Independent contractors who work with multiple clients over the course of a year need to be deliberate about setting aside money for retirement and using every opportunity available to build savings.

Certified financial planner Douglas Boneparth answers a question from one self-employed worker about a savings opportunity that comes around each year.

A reader wrote: I work as a contractual employee for the state of Maryland during its 90-day legislative session and have never used the option to open a 401(k). Should I take advantage of it, or is it more trouble than it is worth? They usually erase all my information at the end of the session, so I have to start over every year. Would the 401(k) remain in place, and could I keep contributing even after the job ends?

DOUG: That is an excellent question, and I do not want you to miss out on money you could be saving.

The first thing to know is that the 401(k) remains yours. When the session ends and your employment formally stops, the account does not vanish with your personnel file. The money you put in, along with any investment growth, belongs to you. You simply cannot add new contributions until you are employed and enrolled again during the next session.

So is it worth the effort of restarting your contributions each year?

In most situations, yes. Even relatively small contributions during a short legislative session can still benefit from tax-deferred growth. If your plan includes an employer match, that is essentially free money and a return that is hard to match elsewhere. The extra administrative steps are inconvenient, but they are manageable and should not be the reason you skip the plan.

My advice is to make re-enrollment part of your annual routine. Once you know your start date, put it on your calendar right away. Save as much as you can reasonably afford while the session is active. When the session ends, you can usually either leave the money in the plan or roll it into an IRA, which can consolidate your retirement savings in one place and give you more control over investments.

The bottom line is that the benefit is likely worth it. Do not let paperwork keep you from tax-advantaged savings.

Tip of the week: Take advantage of free money

Starting in 2027, many workers may be eligible for a federal Saver’s Match.

Eligibility generally applies to people with a modified adjusted gross income below $35,500, or $71,000 for married couples, who are also eligible to contribute to a qualified retirement plan such as a 401(k), 403(b), 457(b), deductible IRA or state-run auto IRA.

The Saver’s Match can be worth as much as $1,000, or $2,000 for married couples. It is claimed on the federal income tax return for that year, which is filed the following year.

Also, if a Trump Account is opened for a child, families may receive $1,000 from the federal government for children born between January 1, 2025, and December 31, 2028. That amount could be doubled if an employer agrees to match the federal seed money. For children under 18, the account may also be eligible for contributions from philanthropies or state governments that have pledged support for Trump Accounts.