Tired of the 9-to-5 grind? Ready to take control of your career and finances? Becoming a Fractional Developer could be the answer. This career path offers the freedom to work on your own terms, set your own rates, and achieve financial independence. But before you take the leap, it’s crucial to understand the financial implications of this decision.
In this post, we’ll explore the various ways a Fractional Developer role can impact your finances, from income and taxes to retirement planning and achieving your goals.
Income– A critical part of everyone’s finances. If you are planning to replace your current income, you’ll want to make sure you have resources to cover any gaps until you have consistent work.
Don’t have a ton of resources yet? Don’t be discouraged, create a plan to build up resources and better position yourself in the future. Adding a little Fractional Developer work in addition to your current salary may be a great way to speed up your timelines in achieving your goals while dipping your toe into Fractional Developer work.
Taxes- The biggest surprise with how your taxes change is that you will have to pay Social Security and Medicare taxes twice! Totaling up to 15.3% That’s because your employer normally pays half and you pay half when you’re an employee. Once you’re both the employer and employee, you pay on both sides. An S-Corp classification may be something worth exploring to avoid paying Social Security and Medicare taxes on all of your income.
You’ll also be on the hook for your normal Federal income taxes and State taxes if applicable based on your state.
You’ll also no longer have taxes withheld from a paycheck so you’ll want to make quarterly estimates payments to avoid late payment penalties.
Retirement plans- If you leave your employer you may be concerned about no longer having a 401(k) plan, but as a self-employed individual you have a variety of options available to you that you’ll want to explore. Traditional IRA, ROTH IRA, SEP IRA, Solo 401K, 401k (exactly like your employers), and Simple IRA. These all have different contribution rates, and rules that you’ll want to explore to make sure you select the best option for your situation. I’ve attached a cheat sheet to help you compare these options.
Goals- What’s the point of all of our hard work? It’s to have the ability to create the life we want. Some of the benefits of being a Fractional Developer is you’ll have more flexibility in when and how you work with potentially higher earning potential! This not only makes achieving your goals within reach but it may open up new goals that you didn’t think were possible with a traditional employee role. I always joke about how being self-employed and in a way a fractional financial planner for about 70 households while working from home allowed me to have at least the last two of our four kids. Something that wouldn’t have been possible if I was an employee. 🤣
Insurance- A lot less exciting, but a very important consideration if you are going to be leaving traditional employment is having a plan to replace your insurance. This could include health, life, and disability insurance. All of these insurance coverages are currently available for you to purchase directly with insurance companies, but the costs are no longer subsidized by your employer.
As you can see, there is a lot of financial implications of transitioning into the world of becoming a Fractional Developer. I hope this post helps provide a starting point for you to explore more and create your financial strategy guide to help you achieving all of the goals you’re excited about pursuing and maybe generate some new ideas on what’s possible. Stay tuned as I will dive into each of these topics a little more in depth in future contributions to the Fractional Developer!
Resources
To support your journey as a Fractional Developer, here are some valuable resources to help you make informed financial decisions:
- Common Retirement Plans for Small Business Owners – A guide to various retirement options available to self-employed individuals, including contribution limits and tax benefits for each plan.
- Financial Strategy Guide – Coming soon! A step-by-step guide for building a personalized financial strategy as a Fractional Developer.
This guest post was contributed by Lucas Casarez. If you have valuable insights or experiences to share with the Fractional Developer community and would like to write a guest post, we’d love to hear from you! Please reach out to discuss your ideas.
Lucas Casarez is a husband, father of four amazing kids, and a Certified Financial Planner™.
He founded Level Up Financial Planning, as well as, Power Up Tax Planning to help his clients take their financial confidence to the next level!