How to Put Together a Benefits Package When You’re Self-Employed

You’ve finally decided to be your own boss. You won’t miss your overbearing manager, endless meetings that should have been emails, or white-knuckled commute.

But you certainly will miss some of the perks that came with the job, like health insurance or a retirement savings plan employer match.

Fortunately, it is possible to put together a robust benefits package when you’re self-employed. We’ll show you how.

Chat with Human Resources

The first thing you should do is chat with your soon-to-be (or already) former employer’s human resources department. A representative from there can go over what will happen to your benefits after you leave the company.

Be sure to get answers to all of your questions and discuss things like:

• When will your medical insurance coverage end?
• How much does COBRA coverage cost?

• Will you get your unused paid time off in a lump sum in your last paycheck?
• Is your employer-sponsored life insurance policy portable (meaning you can keep the policy and pay for it on your own)?

• Will you get your full pension?
• What’s the contact information for your retirement savings plan provider?

Pro Tip: Now’s also a great time to determine if you’re eligible to get on someone else’s insurance coverage, like a spouse’s or parent’s.

Prioritize Your Perks

Once you know what your previous organization will do for you, list all the benefits you want to replace. Then, rank them in order of importance. That way, you have a plan to keep you organized.

For example, if your spouse can add you to their health insurance, you can shift your focus to rolling over the funds in your 401k into a new retirement savings account or getting a new life insurance policy.

Pro Tip: Don’t forget to double-check your list. You probably included the major benefits, such as health insurance, life insurance, and retirement savings. But did you account for perks like long-term care, pet, or disability insurance?

Determine Your Budget

As an employee, your employer might have covered a high percentage of your insurance premiums, matched a portion of your retirement savings plan contributions, and paid for other perks.

But now, that responsibility falls solely on you. So, before you start assembling your self-employed benefits package, you must determine how much you can afford to spend.

To do this, review your existing budget and your new income level.

Do you have any wiggle room? Will you need to cut other spending to free up funds to pay for your benefits?

Make sure you set a monthly limit that you can comfortably sustain. That way, you won’t find yourself scrambling to cover your insurance premiums during a lean period in your business. 

Shop for Insurance

Now that you have a budget in place, you can shop for insurance. Many freelancers, contractors, and solo business owners visit the Healthcare Marketplace.

From there, you can review your options and enroll in the right coverage for you and your family (if applicable).

Depending on your income, you might qualify for a plan premium subsidy, reducing your monthly cost. Even if you’re not eligible for a subsidy, a comparable marketplace plan will likely be cheaper than COBRA coverage.

Note: Since your loss of employer coverage is considered a qualifying event, you don’t need to wait until open enrollment to obtain a new policy.

If you don’t find a policy you like or can afford on the marketplace website, you may want to check out a Health Care Sharing Ministry. It’s not health insurance. Instead, it’s a program where group members help to pay for each other’s medical expenses.

You need to be religious to qualify, and there’s no guarantee a particular claim will get covered. However, your monthly financial responsibility will likely be far less than if you opted for a traditional health insurance plan.

Need dental and vision coverage? Your health insurance policy may offer some benefits. If not, you can compare quotes from the major carriers.

Pro Tip: If you need to replace other insurance policies, like life or disability, you can obtain quotes from multiple insurers on websites like Policygenius.

Compare Your Retirement Plan Options

You may wonder: what's the best retirement plan for self-employed folks? While we can’t make that decision for you, we can introduce you to some popular options:

• Solo 401k: Great for solopreneurs and freelancers and functions similarly to your workplace 401k. You can contribute as both the employee and employer.

• Traditional or Roth IRA: IRA stands for “Individual Retirement Arrangement.” Traditional IRAs give you a tax benefit upfront, while Roth IRAs give you one when you withdraw funds.

• SEP-IRA: SEP stands for “Simplified Employee Pension.” This investment vehicle is an IRA explicitly designed for the self-employed.

Additional reading: Learn about the Self-Directed IRA.

Remember PTO

When you’re self-employed, you don’t earn if you don’t work. But you still need to take time off regularly. You can cover your sick and vacation days by setting aside a portion of your income each month. That way, you can tap into those funds to cover your expenses when you’re out of the office.

Try to Cut Costs

At this point, you’ve probably realized how much your employee benefits package was worth.

Fortunately, there are some ways you can reduce the expenses that you now have to shoulder alone. Explore these tips on how to save money on:

• Dental care
• Vision care
• Child care
• Prescription drugs

Bonus read: Want to get lean and toned on a budget? Check out the best free and inexpensive health fitness apps.

Go Self-Insured or Uninsured?

If you have a healthy cash reserve, you may decide to self-insure. That means you don’t purchase insurance but instead cover all your expenses – including what an insurance company would.

Essentially, you’re betting that your out-of-pocket cost will be less to cover those expenses than to pay insurance plan premiums. But it’s a gamble, so you must be comfortable with that risk.

Pro Tip: You can save money on treatment if you get sick or hurt while uninsured.

Take That Deduction

You can often deduct health insurance premiums and retirement savings plan contributions on your taxes.

Taking advantage of these tax breaks can improve your budding business’ bottom line. But remember, it’s wise to consult a qualified accountant or financial professional to help you lawfully maximize your deductions (and profits!).

Final Thoughts

Transitioning from traditional employment to self-employment doesn’t negate your need for a healthy and secure future.

Fortunately, you can assemble a benefits package that gives you the insurance coverage and financial tools you need to thrive for years to come. 

Tell us: Have you created your own self-employment suite of perks? If so, what did you include and why?

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