If you have income from freelance work or a sideline business, you probably can set up a retirement account, funded by income from your part-time job. One possibility to consider is a Savings Incentive Match Plan for Employees (SIMPLE) IRA. You can contribute up to 100 percent of your self-employment income, to a maximum of $7,000 this year, plus another $500 if you’re at least 50 years old.
You also have to make an employer matching contribution. Typically, that will be 3 percent of compensation. Thus, if you earn $10,000 as an independent contractor, the employer match would be $300, in addition to your employee contribution of up to $7,500.
Another option is to set up a one-person 401(k). You can defer up to $11,000 this year, so you can shelter up to $11,000 worth of self-employment income. In addition, you can make a 25 percent employer contribution. Thus, you could contribute a deductible $10,000 if you earn $10,000 moonlighting; the maximum would be $16,000 ($11,000 plus $5,000) if you earn $20,000.
However, your total deferral this year can be no more than $11,000 (or $12,000, if you’re at least 50). Thus, if you defer $8,000 at your regular job, your sideline deferral would be limited to $3,000 or $4,000.
