Financial Planning

Becoming A Consultant – Financial Considerations for Your Transition

The US “gig economy” has grown by the millions in the last two years. According to a study done by the Statista Research Department in 2021, the number of independent workers has increased by over 12.9 million since 2017.**

Your industry may be thirsty for your expertise, presenting opportunity for self-employment. Benefits including flexibility, career growth, and financial opportunity have driven many professionals to be self-employed business owners.

Before leaving a corporate career, think through your financial plan first. These financials elements may be crucial to your success.

Taxes: 1099 vs. W2 Employee

1099 employees are self-employed independent contractors. Since you will be self-employed, you will be subject to self-employment taxes. As a W2 employee, your employer covers half of your FICA tax, meaning they pay a total of 7.65% of your pay up to certain dollar limits into Social Security and Medicare Trust Funds. As a consultant being self-employed, you must cover the entire self-employment tax obligation yourself (up to 15.3% up to certain dollar amounts).***

It is important to speak with your accountant on the impact this will have on your taxes. Be prepared to estimate your net pay for the fiscal year and pay quarterly tax estimates to cover your projected tax obligations. *

Cash Reserves

Starting your own business comes with risk. Your friends and family may tell you that an emergency savings recommendation is 3 to 6 months of living expenses. However, the riskier your venture, the more cash reserves you will need. You will want to tailor to your situation.

Insurance Benefits

Health insurance holds many people back from pursuing a consultant role. An independent health insurance agent will guide you through the decision tree of health insurance solutions such as COBRA, spousal coverage, marketplace options, and feasibility of a small group policies for your consulting firm.

Health comes first and making sure you have the right coverage in place is central to protect your future success from the unexpected.

Just as important as health insurance is disability insurance, an often-overlooked benefit frequent for W2 employees. Disability insurance is income protection. Without work benefits, we rely on a social security check (often a meager amount compared to the wages we are accustomed to). As part of your transition, we will explore individual disability insurance policies needed to address a loss of income risk.


Transitioning to a consultant roll will mean giving up the ability to contribute to an employer’s 401(k) plan. However, as a small-business owner there are multiple options to continue saving for your future. Traditional and Roth IRAs, SEP IRAs, and SIMPLE IRAs are options to continue contributions.

Individual 401(k) Plans can be attractive for small business owners due to the ability to contribute a maximum employee contribution as well as a profit-sharing contribution from the business. In 2022, this could mean up to $61,000 ($67,500 for those 50 and older)**** in tax deductions and savings for your future

For higher income earners, and especially those closer to retirement, Solo Cash Balance Plans can also be a way to save significant assets. Often these plans will work in tandem with an Individual 401(k) Plan.*

Having a Team

As collaborative retirement advisors, we believe that working closely with your insurance agents, accountants, and attorneys is essential in holistic financial success. As you move into a consultant roll, making sure your business is structured properly and you are prepared for the unknowns can help put you and your family in a position for success.

At LW Advisors, we are enthusiastic about helping you put your best financial foot forward for all of life’s transitions and opportunities. We maintain a close relationship with you throughout your retirement journey. We understand how business changes, how markets change, and what opportunities or threats new retirement regulations present. Schedule an introductory call today at

*This is not intended to be specific tax or legal advice. Please talk with your accountant and attorney regarding the tax and legal implications regarding your employment.




Investment advisory services offered through LW Advisors L.L.C., a Registered Investment Advisor in the state of Iowa. Insurance products and services are offered through Insureyourplan LLC.

Leave a Reply