Will Tax Reform Help the “Gig” Economy?

July 27, 2017 4:52 PM
By Brian Dobbis

Any freelancer will tell you nothing concentrates the mind like living on the edge. But many remain ill prepared for retirement.


Lost in the debate over healthcare reform is the growing conundrum of retirement planning, especially when it comes to the so-called gig economy—a term that wasn’t even in the lexicon the last time Congress passed major tax reform in 1986.  Sure, globalization, automation, and suboptimal trade policies have cost America millions of jobs. But factor in industry consolidation, financial engineering, and downsizing, and the gig economy now has 40 million part-time, contingent, or freelance workers (or 25% of the labor force), according to the U.S. Bureau of Labor Statistics.

Working part-time (i.e., less than 35 hours per week at any one employer) may lend itself to greater flexibility than a steady job, but only about half have a retirement savings plan, according to The Guardian Life Insurance Company of America, in its fourth annual workplace benefits study.  That should set off alarms among policy makers, Guardian said.

The American Retirement Association (ARA) has voiced similar concerns. In a recent letter to Senator Orrin Hatch (R-UT), chairman of the Senate Committee on Finance, the ARA said it supports proposals that would expand retirement-plan access to temporary or self-employed contract workers that make up an ever greater share of the gig economy.

“The tax code should be changed to encourage retirement plan sponsors to open their plans to these workers who would otherwise not be eligible to participate in the retirement plan without jeopardizing the tax-qualified status of their plan,” said Brian H. Graff, ARA’s executive director/CEO. “It should also be made clear that voluntary participation in the retirement plan by contract workers should not, by itself, change the employment classification of the contract worker.”

Graff reiterated the ARA position that increasing the availability of workplace savings plans is the way to increase the financial and retirement security of American families. Under the proposed Retirement Enhancement and Savings Act (RESA), a number of changes to the tax code would both enhance the incentives for and simplify the administration of workplace-based retirement savings plans.

While it’s too early to tell whether tax reform will help or hurt tax-advantaged retirement accounts, there should be no question that retirement policy has not kept up with the gig economy.

With minimal options available at work, part-timers of all stripes would be wise to avail themselves of the available options to save for a financially secure retirement, such that:

  • Part-time employees can fund an IRA (traditional or Roth).
  • The MyRA  program offered through the U.S. Department of the Treasury allows part-time workers to fund a Roth IRA with a low minimum investment—for the time being, at least.  The program is reportedly being wound down.
  • SEP IRAs offer self-employed workers a low-cost option to save and invest for retirement
  • SIMPLE IRAs offer both self-employed workers and eligible employees of small businesses to contribute pretax dollars to the plan.
  • Solo 401(k)s allow self-employed workers or small businesses with no eligible employees other than a spouse to contribute additional funds with minimal administration, compared to other small-business plans.

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