(DailyAnswer.org) – Leaving a corporate job to pursue your own business gives you flexibility and the opportunity to develop your career in the ways that matter most to you. However, with all that freedom comes the responsibility to put together your own benefits package. You should start with benefits plan staples like health insurance, retirement planning, and paid time off, but you may need to look into other types of coverage like life and disability insurance as well.
Health Insurance
The three major options freelancers have for health insurance are COBRA, getting coverage as a dependent on someone else’s plan, and signing up on the health insurance marketplace. If you’re leaving a job with a healthcare plan, you may be able to get COBRA coverage for up to 18 months. This can a good option if you want to keep your existing plan as long as possible, but it’s often far more expensive than shopping for coverage on the marketplace.
If you have a spouse, or a parent if you’re under 26, with a plan that can cover you as a dependent, this can be a great option. Group plans can be less expensive than individual marketplace plans, but this can vary based on factors like your income and the size of the employer. It’s a good idea to compare specific policy quotes to find the best option for you.
Losing your employer-based coverage is a qualifying event that allows you to sign up for a marketplace plan at any time of the year. Depending on your state, you’ll either shop and sign up for a plan on healthcare.gov or your state’s marketplace. These plans can be more expensive than an employer’s group plan, but you can deduct your premiums when you file your taxes and you may qualify for income-based tax credits that lower your premiums. You’ll usually need to enroll in a separate dental plan, so make sure to factor that into your budget.
Retirement Savings
While you won’t have an employer match, you do have several ways to continue saving for retirement. A traditional IRA lets you deduct your contributions on your tax return, but you’ll need to pay taxes on the money you withdraw in retirement. A Roth IRA is the opposite – you can’t deduct your contributions, but your withdrawals will be tax-free later on.
You can also opt for a solo 401(k). These work similarly to an employer-based 401(k) and let you contribute as both the employer and employee. A solo 401(k) has a higher contribution limit than either type of IRA, which is important if you have a higher retirement savings target.
Self-employed people can also use SEP (simplified employee pension)-IRAs. These are a type of traditional IRA that are specifically designed for freelancers and small business owners. If you have employees, you’ll need to allow them to save with an SEP-IRA, and you’ll usually need to make employer contributions.
Time Off
While you’ll usually have more control over your schedule because you’re self-employed, you also won’t earn money if you’re not working. Time off is important for your health and happiness, so make sure to factor it into your business plans. There are a few ways to do this. First, set aside savings that you can use to cover your expenses on days or weeks you’re not working. When you make financial plans and set income goals, assume that’ll you be working 48 weeks a year instead of every week.
Designing your own benefits plan can be overwhelming when you’ve first become self-employed, but it’s certainly possible to get healthcare coverage, save for retirement, and take time off on your own.
Copyright 2023, DailyAnswer.org
