Do You Have a Side Hustle? Here's the Smartest Financial Move You Can Make

More people are picking up side hustles than ever before. According to several different surveys, more than one-third of Americans currently have a side hustle, and many more plan to get one in the future.

Not only is it nice to have an additional income stream, but there are more opportunities to start a small business or otherwise earn money in your spare time. There are ride-hailing and delivery services that allow you to make money by simply driving or running errands for other people. And there are freelance marketplaces where you can sell your services, such as writing, graphic design, and much more.

It might not completely feel like it, but if you have a side hustle (not a second W-2 job), you technically have self-employment income. As a general rule, any type of earned income that is reported on a 1099 form at the end of the year is considered to be from self-employment.

And while there are plenty of smart ways to use the additional income you generate from your side hustle(s), there's one excellent financial tool that's only available to self-employed workers and small business owners.

Self-employed retirement accounts

Anyone with earned income can invest for retirement through an individual retirement account, or IRA. However, full-time employees are limited to two account types. There's the traditional IRA, which can provide a tax deduction for contributions for those who qualify. And there's the Roth IRA, which can provide tax-free retirement income -- but the ability to contribute is restricted for higher-income individuals.

If you're relatively new to the world of self-employment income, you might not be aware that there are special types of IRAs that are only available to self-employed individuals and small business owners and their employees. There's a SEP-IRA, which stands for "Simplified Employee Pension," and there's the SIMPLE IRA, which stands for "Savings Incentive Matching Plan for Employees."

Advantages of self-employed IRAs

First, there are no income restrictions to be able to take advantage of their tax benefits. Everyone with self-employment income can contribute to a SEP-IRA or SIMPLE IRA and get a tax deduction, and both can be structured as Roth IRAs with no income limitations.

Second, the contribution limits are much higher than for traditional and Roth IRAs. With SIMPLE IRAs, self-employed people can contribute as much as $16,000 of their earnings for 2024, with an additional $3,500 catch-up contribution if they're over age 50, plus another 3% of earnings (up to a certain maximum) as an "employer" contribution.

With the SEP-IRA, participants can contribute 25% of their compensation or $69,000 in 2024, whichever is less.

For comparison, the contribution limit to a traditional or Roth IRA for the 2024 tax year is $7,000, plus a $1,000 catch-up contribution if you're 50 or older.

SIMPLE IRA and SEP-IRA accounts are available through many top brokers. Click here to see our updated list and determine which could be the best fit for you.

Supercharge your financial future

Saving and investing through a tax-advantaged retirement account can be an excellent way to build wealth over time. And that's especially true of SIMPLE IRA and SEP-IRA accounts, which can allow you to save far more aggressively for retirement than the alternatives.

Not only can a self-employed retirement account help secure your financial future, but it can also get you an extremely valuable tax break today.