However, with this independence comes the responsibility of managing your funds wisely and planning for the future. Choosing the best investment options for self-employed professionals like you is a critical component.

These investments can significantly impact your financial journey, allowing you to develop your money, safeguard your future, and achieve your long-term objectives. Read on if you want to secure your future along with doing what you like to do.

5 Best Investing Options for Self-employed Professionals

Let's explore the top 5 investment options perfect for self-employed individuals like yourself. Whether you are a freelancer, entrepreneur, or gig worker, these alternatives can help you grow your wealth. So, let's dive right in!

1.     Solo 401(k) or Individual 401(k)

A Solo 401(k), also known as an Individual 401(k), is a retirement plan established exclusively for self-employed persons who do not hire anyone else or for those who only employ their spouse. So if you come under any of these categories, this is “the plan” for you.

When compared to other retirement plans, it has more significant contribution limits and allows you to make both company and employee contributions. Also, contributions to a Solo 401(k) are tax-deductible, and gains accumulate tax-free until retirement. So, you can save more for retirement, especially if your income is on the higher side.

The 401k withdrawal rules after age 59 are also beneficial. For instance, one of them allows you to withdraw from your old accounts without penalties once you are 59 ½.

2.     Health Savings Account (HSA)

A Health Savings Account (HSA) is a tax-advantaged savings account for those with high-deductible health insurance coverage. Eligible medical withdrawals from your HSA account and the growth of your HSA funds are tax-free. Moreover, your contributions are tax-deductible.

While an HSA is mainly intended to pay medical bills, it may also be used as an investment vehicle. How? Well, you can withdraw your money from HSA for any purpose after you are 65 years old. Although it is not tax-free, the tax rate for withdrawal for non-medical purposes is ordinary.

This makes it an appealing retirement investment option for self-employed persons like you looking to save for healthcare expenses while benefiting from possible investment gains.

3.     Simplified Employee Pension (SEP) IRA

A Simplified Employee Pension (SEP) IRA is a type of retirement plan for self-employed people and small company owners. There is no minimum number of employees required to invest in ESP IRA.

You can invest in this option even if you are a sole proprietor with no employees, as the employer only contributes to the SEP IRA. You can contribute up to 25% of your net self-employment income or a maximum of $66,000 (for 2023).

SEP IRAs are an excellent solution for entrepreneurs who wish to maximize their retirement savings while minimizing administrative responsibilities. Contributions to a SEP IRA are tax deductible, and gains accumulate tax-free until retirement.

4.     Taxable Investment Accounts

While retirement accounts provide tax benefits, you can also consider investing in taxable investment accounts. These funds do not give the same tax advantages as other retirement investment options for self-employed do. But they offer greater flexibility and accessibility.

That means although your investment returns will be subject to capital gains taxes, taxable accounts will give liquidity and the opportunity to withdraw cash without fines or limits. Also, the interest earned can compensate for your tax expenses. However, you must invest in these options with utmost caution and after gaining considerable market knowledge.

Taxable investment accounts enable you to invest in a variety of assets, such as mutual funds, exchange-traded funds, stocks, bonds, etc.

5.     Individual Retirement Accounts (IRAs)

Individual Retirement Accounts (IRAs) are another popular investing vehicle for self-employed people. Traditional IRAs and Roth IRAs are the two primary forms of IRAs.

IRAs (Traditional IRAs): Traditional IRA contributions are tax-deductible, which means you may lower your taxable income in the year you contribute. Retirement withdrawals, on the other hand, are taxed like regular income. Traditional IRAs are a good option if you expect to be at a lower tax rate when you retire.

Roth IRAs: On the other hand, Roth IRAs provide for tax-free retirement withdrawals. While Roth IRA donations are not tax-deductible, gains grow tax-free, and eligible withdrawals are not taxed. If you anticipate being in a higher tax rate during retirement, Roth IRAs are favourable.

The good thing is that as long as the funds remain in your account, you don’t need to pay any taxes on the interest you earn on your funds in both types of IRAs.

As a self-employed person, you must take charge of your financial future. Consider these best investing options for self-employed people like you to secure your financial goals and prepare for a comfortable retirement. (Source: Trending Impact)

Remember that each investment choice has its own set of benefits and drawbacks. It's critical to assess your situation and talk with a financial counsellor to identify the best investment strategy for your unique requirements. Begin today to lay the groundwork for a financially secure tomorrow.