Starting a side hustle can be a great source of income for anyone. You can save for anything you want, but one of the best things you can save for is a bigger nest egg for retirement. If you’re just getting started saving for retirement, here are a few things you can do.
Obtain an EIN
An Employee Identification Number (EIN) is a good tool to help you save some of your side hustle income for your retirement. An EIN is used by the IRS to identify your business, like a social security number. People who are self-employed should get an EIN. With one of these numbers, you can open business-related bank accounts, apply for business licenses, and also get financing.
Getting an EIN is easy and completely free. If you are based in the United States, you can apply online or fill out a form and mail it to the IRS. If your work is international, you’ll have to do some extra paperwork.
Open a Solo 401(k)
Another great thing you can do is open a solo 401(k). To qualify to do so, you just have to be a business owner without employees, and most online brokers will require you to have an EIN. With income from self-employment, you can make tax-deductible contributions to a solo 401(k), provided you do not already reach the maximum contribution amount through a full-time job. In 2020, you are allowed to contribute up to $57,000 to a solo 401(k), but you can contribute more if you are over 50 years old.
With a traditional 401(k), your contributions will be pre-tax, thus lowering your taxable income for the year. Your qualified distributions will be taxed as income. Roth 401(k) contributions are made with post-tax money and are tax-free. Consider your retirement income levels when deciding which type of 401(k) is right for you.
Invest in Stock
If you decide to invest some of your side hustle income in the stock market, make sure you do plenty of research beforehand. You’ll probably want to pick stocks that raise their dividends annually. That way, you get more money each year. Purchase stock from diverse industries and companies, and then reinvest.
Whether you decide to go one route or another, side hustle income can be a jump start for your retirement fund. Organize your money wisely, using a solo 401(k) and/or investing in the stock market, and get your own EIN. Take advantage of your side hustle income to make your life more comfortable when you retire in the future.
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