Get Free Money By Using Your Retirement Accounts

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“If there is one single habit you can have in your life to build financial security for yourself, and frankly, to get free money that’s on the table, it is to max out your tax-advantaged accounts every single year.”

— Hannah Cole

In this episode of the Sunlight Tax Podcast, I revisit why tax-advantaged accounts are one of the most powerful tools for self-employed individuals. I break down how these accounts can help you save more money, lower your tax bill, and build long-term financial security. I also share practical examples, real numbers, and details about my upcoming class so you can make the most of the tax benefits available to you as a freelancer or business owner.

Also mentioned in today’s episode:

00:10 Embracing Summer and Financial Reflection

02:50 Understanding Tax-Advantaged Accounts

06:05 Maximizing Retirement Savings with SEP IRAs

08:50 The Power of Productive Friction in Learning

11:58 The Power Triangle for Financial Growth

15:10 Strategies for Effective Tax-Advantaged Saving

17:55 Upcoming Class: Save Like A Millionaire

If you enjoyed this episode, please rate, review and share it! Every review makes a difference by telling Apple or Spotify to show the Sunlight Tax podcast to new audiences.

Episode Links:

Join the Workshop:Save Like a Millionaire: Using Tax-Smart Accounts

Get my Tax Help on Substack

Get your FREE visual guide to tax deductions

Order my book: Taxes for Humans: Simplify Your Taxes and Change the World When You’re Self-Employed

Watch YouTube video version

Transcript:

Hannah Cole (00:07)

Hello, beautiful. Happy summer. So I have been taking a little time. I hope you have too. I hope you're enjoying the summer wherever you are. but today I want come to you with something that I like to revisit every summer because the summer is sort of a non urgent time when it comes to taxes, and you can

Put some thought into the things you want in life, the things you want to do. And ultimately, the point of saving money, the point of investing, is to be able to enjoy your life, to be able to spend time doing the things that you value and want to do. And that's all to the good, right? So I don't think enough of us, especially in creative fields, think about the power that our money gives us and our ability to show up.

Fully in our values when we have money and it being important for that reason. But it is, and your work is important. And so that's why I want to talk to you today about the incredible power of tax advantaged accounts. So let's get into it.

So, what are tax advantaged accounts? what I'm talking about here is things like a 401k, a SEP IRA, a traditional IRA, Roth IRA.

But there are also tax advantaged accounts for healthcare, childcare. and HSA is a secretly incredibly powerful health savings account, which gives you a tax benefit. And the point of tax advantaged accounts really is to give you a big boost of tax savings to literally and actually put dollars in your pocket that you can then put into those savings. So these are not some corrupt.

Bad tax scammy thing. They are, in fact, a deliberate incentive put into the U.S. tax code to encourage taxpayers like you and me to invest in ourselves, to save for retirement, to save for health care, to save for education. All right. So they're really good. You are doing something positive civically when you use tax-advantaged accounts. and

Not only that, but you get this tremendous financial benefit when you do. So it really helps to know what the rules are. But here's the problem when you work for yourself, when you are self employed, you get busy, right? It becomes a thing so often that just falls to the bottom of your to do list. And I know what an awful problem that is. It's happened to me. And so I really want to come to you today with some good information that's going to help you and also tell you about a class I'm teaching.

Actually, today at noon, if you want to sign up, there's a link in my show notes, or you can go to sunlighttax.com/workshops You want to get in on it before noon Eastern today, the day the podcast drops, June 23rd, or you can get the class after it's happened in recorded on-demand format. and that's fine too. So I want to take a minute to help you understand these accounts and how much benefit they give you because

If you're not using them, you are really leaving money on the table and missing out on a lot of money that you could have for free. A lot of money you could be squeezing out of every dollar you have without working harder, right? Just by taking an hour this summer to set some stuff up. Okay? So let's get into it. The problem is when you're self-employed, you get really busy. You have too much on your plate. So it's a little hard to know.

Where to go for good information and you don't want to wade through so much technical detail. Am I right? Also, there's no employer setting these accounts up for you, which is another, you know, that's a big deal. That's a real problem. it's really nice when this is just given to you, handed to you by your workplace. And it's not when you're self-employed.

I think it's also hard when you have really uneven income, like I do. Good years, bad years, you know, income goes up, income goes down. That can also make it feel difficult to maintain a habit of putting as much money as you can into these accounts because it can feel like, well, this year's very different from last year. You can't just set it and forget it in the same way you could if you were working off of

the same salary coming in every two weeks. Okay. So I'm here to help. Okay. do you handle that, right? So tax advantage accounts give you a bunch of extra money in the form of tax savings, which you can literally take directly from that tax savings and put into investments. Or you can, you know, use it to pay off debt, use it to pay for other things. Doesn't matter, but it's money in your pocket.

Deliberately when you save. Okay. When you save through tax advantaged accounts. Mostly I want to talk today about retirement accounts because those are kind of the big guns. The other kinds of tax advantaged accounts exist. They're great. I want you to use them, but the biggest one, the most money on the table is from retirement accounts. So let's focus there. right. So I just want to give you a little bit of a sense of the numbers, like how much you can actually save.

With these accounts. I know it's really helpful to me to see real numbers to make you feel concrete. Okay. So I want to give you an example. This is very rough and simplified, right? To keep you away from tons of tiny tax details, but a very simplified example of someone who's self-employed and has a profit of $100,000. I'm using a nice, even, round number on purpose. Okay. So if you had.

If you were single without any other types of income and your income is $100,000 in profit from your self-employment, what would the tax savings be of putting the maximum into a SEP IRA? I'm using a SEP IRA here because it's frankly one of my very favorite retirement accounts for self-employed people.

It has a maximum amount of flexibility. You can contribute the max one year and contribute nothing the next year. And that kind of lack of paperwork and maximum flexibility, that is the reason I love it so much for freelancers. So quick little takeaway for you today is a SEP IRA is like gold. Okay. It's my favorite one. If you have self-employment income over about $40,000.

Why do I say that? Because below that threshold, you've got a bigger allowance, contribution allowance in a Roth or traditional IRA than in a SEP IRA. And so there is sort of an income limit breakdown where one is better than the other. Okay. But if you're making $100,000, your contribution limit in a SEP IRA is higher than a traditional or Roth IRA. All right.

So if I have $100,000 in self-employment income, I'm single, nothing else happening in my tax return. And I put the maximum into my SEP for 2026, it's about 20% of your freelance income. There's a little bit of details, noodly details that make it not exactly 20%. So the actual amount I can put in, according to the math I did, is about $18,587. Okay.

We can call it 20%. It's a little less than that. Okay. So putting in that max, I would pay $19,474 in taxes. Now, without a SEP IRA, just the taxes I would owe on $100,000 in freelance income would be $22,365 in taxes. So in other words, for putting the max close to $20,000, actually.

$18,500 into a SEP IRA in 2026, my tax savings, just federal tax savings, is $2,891. Okay? So almost $3,000 that I just get as free money for maxing out my SEP IRA. The other important thing to note here is that the SEP IRA, when I max out that money, I put the $18,000 in, I'm putting it in for myself. It stays mine.

The the deal is I'm just putting it on a high shelf and saying this is money I will use for financial security, right? You can call it retirement, let's call it financial security. We all know we need that. So it's still my money. I'm not giving it to the government. I am keeping it for myself. So that is the benefit. And I get $3,000 bonus money for doing that. This is a pretty great deal. Now if you add in your state.

States vary. Not all states give you a tax benefit for retirement savings, but some do. I live in North Carolina, which does give me a benefit. And I would get about $750 extra dollars for that contribution on top of the $2,800 I would get in a federal tax benefit. So that would give me about $3,600 of tax savings of money I'd get directly back from taxes. So it's a really

Really big deal, right? I really want you to kind of clock what a big savings that is. So there's this term I heard recently called productive friction. it's apparently a term they use in education to describe the kind of struggle that makes information stick.

This is something I'm thinking a lot about in the age of AI because I think you know, when AI makes everything easy for you, then no information is gonna really lodge in your brain when you always know you can go look up the answer. And to me, as someone who has struggled, I mean really struggled for 25 years as a working person, I have set up and had almost every kind of retirement account that exists.

You know, I had a day job, my first job out of college, there was I had a 403B, which is like a 401k, but for a nonprofit institution. And after that, when I went freelance, I had a traditional IRA, I had a Roth IRA, I had a SEP IRA, and now years later, I have a solo 401k. So I've had just about every kind of account you can have. and yeah, that productive friction that like

Difficulty of having to figure each one of those out and experiencing some mistakes and trips along the way. This has really taught me. So I feel like I know this like the back of my hand, frankly, because I've struggled with every piece of it. So I got some opinions and I also, from working with a lot of clients through tax season,

This was maybe the number one thing that I would slow everyone down on and force every client to have a conversation about retirement savings. I would sit there and do the math and say, Did you know that if you max out your IRA this year, you'll save this amount of money? And doing that actually got a lot of my clients who would not have put money into savings for themselves and investment for themselves. It got a lot of them to do it. So I'm really proud of how pushy I've been.

Frankly, in getting people to save money for their financial security and invest it. It's something that I love teaching and talking about. It's something I don't think is common enough. And so this is kind of my passion.

So in my program Money Bootcamp, I have this thing that I call the power triangle. And what the power triangle is, is three skills that when you use them together, grow your money, grow every single spare cent you can out of money that you're already earning, right? So in other words, the power triangle is the way to squeeze more out of every dollar you have. So the power triangle

The three parts of it are one investing, two year-end tax planning. So finding all the tax-advantaged accounts you could be using and making sure every dollar that can be in them is in them. And number three is saving like a millionaire, using and knowing the rules of tax-advantaged accounts. All right. So I really

care that you know what those rules are of tax-advantaged accounts and how much benefit they give you. I hope that that little example I gave you saving close to $3,000 when you put the maximum in to a SEP IRA for 2026, I hope that kind of crystallizes like the kinds of dollar amounts we're talking about here. Okay. Those are going to vary of course depending on what your level of income is, what your level of contribution is. But

When you do nothing, you're gonna have anxiety, you're gonna have fear, and you're not gonna be building savings, right? So it is really important to use these accounts just to build that financial security. And if there is one single habit you can have in your life to build financial security for yourself, and frankly, to get free money that's on the table, it is to max out your tax-advantaged accounts.

every single year. Okay. That is the one rule that will just get you free money and grow your savings, grow your investments faster than anything else. Okay. So if that is the big takeaway for today. if you take only one thing.

The second thing that I want to say as a takeaway is that when you put the maximum amount of money or any money into a tax-advantaged account, you're putting that money in it into an account that is yours. In other words, you're not paying it to some other entity. You're not paying it in taxes. It's not leaving you. It stays with you. It grows. It becomes wealth, right? And so I think.

What people see is, I'm putting $18,000 into a SEP IRA. I can't access that now. Well, that's true. You are agreeing with the government that you're gonna let it sit in that account and grow for a while, right? For a long while potentially. But it is your money ultimately that you have control of, you have access to, you make all the investment decisions on. And it's growing so that it is there for you, right? you're just moving it from the

money owed to the government column into the money going to me column. Okay. So that is the second takeaway I want you to have. Yes, it does mean cash you're not accessing today, but what it means is this is cash that's going to build and grow for you tomorrow.

If you're curious, when you take that money that's in your SEP IRA, traditional IRA, you also need to make sure that you have that money, you have to make some investment decisions. The second step here is investing. And that's really an important element of this equation. But when you invest that money, and let's just say at 8% annual compounded interest rate, which is kind of a generally accepted.

rate of return when you have money invested in, you know, stocks, right? diversified stocks. When you have money returning compound annual interest of 8%, $18,500 from the sample scenario that I gave you before becomes $1 million in 20 years. That's pretty amazing. And in 40 years becomes five million dollars. That's enough money to feel secure.

In your life to be fully retired, to not have to work anymore, right? This really is the path to building wealth, to building security. So it's exciting, I hope. To me, it's exciting. I hope it's exciting to you. And I want to give you just a couple of tidbits that I think are kind of interesting strategies that have been things that I've advised clients through the year and just things I want you to know. So, did you know you can have both

A Roth IRA and a traditional IRA? you don't have to make a decision one or the other, and that's it. You can actually split your contribution between two accounts in a single year, right? Or you can toggle back and forth between using a Roth this year and a traditional IRA next year, right? So there's a lot of flexibility that you can use and have.

which is really helpful to know about when you're self-employed and your income goes up and goes down, and you need to make pivots year to year, depending on what your income situation looks like that year, right? So there is actually quite a bit of flexibility that you are allowed within this system, but you have to know the rules. That's the key. Another thing I want you to know is that a SEP IRA.

Is a fantastic option for people who are self-employed and can potentially have a higher contribution limit for you than a traditional or Roth IRA, depending on how much income you make. If you make more income, a SEP IRA starts to become a better option. Okay. So I totally understand the overwhelm of feeling like you don't have the help of an employer who's gonna set all this stuff up for you.

And that is why you need some guidance. Here's what's out there. Here's what's good for a freelancer. Here's how those rules work. Here's what it does. Here's to what what to watch out for. And guess what? I'm teaching a class on that. All right. So if you're catching this podcast right when it drops, on Tuesday, June 23rd, today at noon Eastern, I'm teaching a class on saving like a millionaire, which is all about these tax advantaged accounts, how they work.

what the savings are, what the best options are for you. And I'm going to be answering questions, plus giving you a really awesome outline and a bunch of resources that will be helpful so that you walk away with next steps. Okay. So that class is today. If you are listening to this and it's afternoon on the 23rd, you can go to that same link and you can buy the class and just watch it on demand. It will not it'll be the recording in that case.

And of course, you can't ask me questions live, but you'll still get all the resources, you'll get the recording, you get it on demand. This is a one-hour class, it's a $97 investment. So yes, it's a paid class. That also means it's a really small class. There are only a handful of people who are registered currently. So I do think there will be some ability for some real one-on-one attention. and you'll be able to ask your questions. So I do encourage you to come to the class if you can.

Or get the recording because I don't know about you. Sometimes I feel a little more leisure in the summer. These tax decisions feel a little more distant, but I encourage you to use this time to learn a skill that will get you free money that's sitting on the table and make sure it's going in your pocket and into your investments and building wealth while you sleep rather than just going out the door in the tax bill you pay every year.

Okay, so let me help you save a ton of money if you're interested in this class. You can go to sunlighttax.com/workshops to join the class or click in the show notes. I have a little quick like link to the checkout if you want to just have a one-click option. All right. So I hope this episode has given you some tidbits about the tax savings you get from tax advantaged accounts. And if you want the deep dive, then come to the class today or get the class recording.

I cannot wait to help you get more money.

The One Habit That Gets You to Financial Security

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In this episode of the Sunlight Tax podcast, I reveal the #1 habit that sets successful freelancers apart: consistent saving. Discover why saving is like a muscle you need to train, how small, steady contributions to retirement accounts can snowball into long-term financial security, and why waiting for the "perfect" moment to save holds you back.

I share my personal journey, real success stories from my community, and practical tips to overcome the psychological barriers that keep many creatives and freelancers from building wealth. Whether you’re just starting out or have been self-employed for years, you’ll learn how to take imperfect but powerful action toward your financial goals and harness the power of compound interest to create a more secure future.

If you’ve ever felt behind on saving, this episode will give you the motivation and strategy you need to start today.

Also mentioned in this episode:

01:11 The Key Habit of Successful Freelancers

03:40 Overcoming Perfectionism in Saving

06:37 The Power of Consistent Savings

09:12 Building a Safety Net with Small Contributions

11:51 The Psychology of Financial Habits

14:54 Real Success Stories from the Community

18:26 The Importance of Habits Over Windfalls

21:10 Encouragement and Resources for Financial Security

If you enjoyed this episode, please rate, review and share it!
Every review makes a difference by telling Apple or Spotify to show the Sunlight Tax podcast to new audiences.

Links:

Join my free class: Make Taxes Easier and Stash an Extra $152k in Your Savings

Check out my program, Money Bootcamp

Link to pre-order my book, Taxes for Humans: Simplify Your Taxes and Change the World When You’re Self-Employed.

Link to pre-order my workbook, Taxes for Humans: The Workbook

Get your free visual guide to tax deductions

Check out my program, Money Bootcamp

Watch YouTube video version

Your January Checklist for Easier Taxes

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Today, I’m giving you a comprehensive January checklist to help organize your taxes if you’re self-employed so that you can have a headstart on your taxes for 2025.  

Tune in to this episode to get a strong start to the tax year and put systems in place to simplify your tax preparation process.

Also mentioned in today’s episode:  

• Why you should check your odometer now 2:11

• Issuing 1099’s and estimated tax payments 6:48

• Maintaining business bank accounts and receipts 10:45

If you enjoyed this episode, please rate, review and share it! 

Links:

Check out my program, Money Bootcamp.

Watch YouTube video version.

Year-End Savings: Business Expenses

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Today, I’m continuing my series about year-end tax saving tips and giving you some strategies on how you can maximize your tax deductions as an entrepreneur using business expenses. 

Join me in this informative episode to learn how you can prioritize your bookkeeping and accelerate your expenses to make sure you get the most out of your tax deductions this upcoming year. 

Also mentioned in today’s episode: 

• The importance of bookkeeping 2:25

• Expense acceleration tips 14:14

• Year end spending recommendations 21:46

If you enjoyed this episode, please rate, review and share it! 

Links:

Free mini-course on the new LLC report

Watch YouTube video version

Year-End Savings: IRA vs 401k: Fund the 401k First

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Today, I’m continuing my series about year-end tax tips and discussing why it’s so important to contribute to tax-advantaged retirement accounts. I’m diving into the differences between 401k’s, traditional and Roth IRAs, as well as the SEP IRA option for self-employed individuals.

Join me in this important episode to learn how you can maximize your tax savings and retirement contributions.

Also mentioned in today’s episode: 

• 401k and 403b accounts 4:43

• IRA contribution limits and tax benefits 7:13

• Deadlines and contribution strategies 9:38

If you enjoyed this episode, please rate, review and share it! 

Links:

IRA income caps

Free Class: https://go.sunlighttax.com/free

Watch YouTube video version