Let's Talk About Professional Consulting/1099 Employment

In My Humble Opinion
1

I’m almost 48 years old. I did some temp and contract work for the first five years after college, but I’ve been a full-time, salaried, exempt employee for one government contractor or another for the past 21 years. My career path has basically been technical writing/editing > proposal writing/editing > proposal management. I have a master’s degree in English; my program was called Professional Writing & Editing. The only volunteer work I currently do is helping to proofread and edit a quarterly arts magazine.

I’ve now been a proposal manager for three years, and I recently decided/realized that it isn’t the right career for me long-term. In fact, I want out before the end of this year. I could go back to proposal or technical writing, but – as you might have guessed from my opening paragraph – editing has always been my professional “bliss.” When I imagine a dream job, it’s editing. So, I want to go be a (senior) editor somewhere, but I’m also considering becoming a consultant. This idea has been in the back of my mind for years.

I’ve been doing a lot of thinking and some preliminary research (including a search here, which led to some pretty old threads), and I figured I’d see if y’all would review my list of considerations and let me know if you think I’m overlooking anything significant. :slight_smile:

Getting Work/Making Money: I’ll register with an extremely well-known proposal consulting company, and will also start my own LLC to go after non-proposal work on my own. I don’t think I’ll be able to match my current salary, but I’m OK with a small cut, and between those two things I should be able to make the minimum income I have in mind.

Time Limit: I figure if after 1 year I’m not where I want to be, I’ll go back to being an FTE somewhere. Worst case I could go back to being a proposal manager, even after a year away (I have good connections).

Health Insurance: I’ll have to pay for this myself. I’m researching both ACA coverge and individual plans from various insurers. I’m also considering a combination of something like Forward and the cheapest catastrophe insurance I can find. But even the cheapest solution won’t be cheap; this is the biggest potential hurdle I can see right now.

Taxes: I know that I’ll be responsible for paying my own taxes, and on a quarterly basis. My hourly rate will need to reflect this increased “overhead.” I’ll almost definitely engage a CPA. (another cost! yay!)

Retirement: I’ll move my corporate 401(k) to a self-employed 401(k), so I can continue to contribute to it. Fidelity offers a 401(k) for the self-employed; other large investment companies probably do, as well. I might not make the change until after the 1st year is up, though, in case I go back to corporate work.

What am I not thinking about/taking into account??

2

One thing to consider is that we’re in a bubble economy; things are going to get worse “soon,” and there’s not a lot of evidence that the current administration cares or has the skills to soften it.

This can be a positive (there’s a lot of work out there right now), but it makes all the “I’ll change back in a year if I need to” statements fairly risky. Similarly, if you’re relying on the ACA for health insurance, its future is deeply uncertain. If it goes away, it’s very unlikely there will be a comparable alternative offered, and health insurance could go from being merely astronomical to completely unaffordable.

That said, I work in a field with a lot of freelancers of various sorts, going back a few decades. The vast majority of those I’ve known are either retired or still at it, but did not go back to FTE employment. Most are happy with the decision they made. The three complaints heard most often are: not liking the sales/business promotion requirements of the job (there’s typically more of that than the actual work); the nusciance (not necessarily difficulty expense, just paperwork) of dealing with taxes and company structuring; and the cost of health insurance. You seem to have those already under consideration.

3

You probably already realize this (as you did contract work when you were younger), but you’ll need to remember that you’re responsible for paying the “self employment tax” (i.e., paying the employer’s share of your Medicare and Social Security taxes to the Feds).

Net of it is that you’ll be paying substantially more on your federal taxes than you are now, and you’ll need to take that into account. A few years ago, I wound up working as a freelancer for the first time in my life, and I found out about the self employment tax in an “oops” fashion when I went to do my tax return. :smack:

4

I wouldn’t worry too much about affording the self-employment taxes. If you’ve been working for a government contractor, they are probably billing out your time at a 2 or 3 (or more) multiplier. That is, for every dollar they pay you directly, they bill the client two or three dollars. Your overhead will be much lower than that. You can get away with charging, say, 1.5 times what you used to get in salary, and still look like a bargain to the clients.

(The old “we cut out the middle man and pass the savings on to YOU!”)

5

Good points, TimeWinder — especially about the ACA! Thanks. Ideally, I’d find an individual plan somewhere. Or talk someone into marrying me so I can use his/her benefits. :wink:

I’m kind of used to the sales/promotion part from being a musician, but I know it will be different when I need to do it to keep the lights on. I’m hoping that if I find that part to be truly distasteful, I can lean more on getting work through the consulting company (which requires zero promotion on my part).

If I do decide to go 1099 I’m not really expecting to have to go back to being an FTE, but I figure it’s good to have a “probation” timeframe in mind just in case of…something.

Yeah, that’s what I meant by “paying my own taxes.” All the stuff my employer pays for now, I’ll have to pay for myself. Sorry about your oops! :smiley:

(The contract work I did in my 20s wasn’t as a 1099: it was effectively temping, just directly for the state vs through an agency. So I’ve never actually done this before.)

I’m not worried about how much the tax stuff will cost, Tim R. Mortiss. I mean, I know it will be a “new” expense, but I figure that as long as I set aside a certain percentage of whatever I make — estimated with the help of a CPA — it’ll be covered. At this point I’m way more concerned about the cost of health insurance.

6

Disclosure: I work in advertising, but my primary client is a health insurance company, and I’ve specifically worked on ACA policies in the past.

If the ACA goes away, there will undoubtedly still be individual health insurance policies available for sale (just as there were individual policies offered before the ACA). The issue will become that the plans which feature low monthly premiums will likely not be nearly as comprehensive as ACA policies are today (i.e., not covering preventative care, not covering prescription drugs, etc., low annual maximums, etc). And, if you have a pre-existing condition (such as diabetes, high blood pressure, a history of cancer, etc.), you may not be able to find an insurer who will sell you a policy, at any price.

7

So, kenobi 65, in your opinion am I right to be thinking that the best hedge against ACA uncertainty is to just get an individual plan from the get-go?

(I’ve been a diabetic for 10 years, so I’m very aware of the “pre-existing condition” consideration…)

8

The only individual plans that are available right now in the U.S. are ACA plans*; part of the ACA law mandated that individual health insurance plans comply with the law, which prevents insurers from refusing to offer coverage to people with pre-existing conditions.

If the ACA itself goes away, insurers will revise their “individual” coverage offerings to reflect this, and even if you have an individual plan now, all bets are off as to whether that plan (and the insurance company’s willingness to insure you) will continue to be there – in other words, it’s very unlikely, IMO, that you’ll get “grandfathered in” because you already had a policy. I’m cynical enough about the industry (and I’m a diabetic, as well) that I’m pessimistic about what’ll happen to those of us with pre-existing conditions at that point.

So, my advice is, definitely get an ACA policy if you go solo, but keep in mind the reality that it’s entirely possible you may wind up uninsured (and uninsureable) in the future, and plan accordingly.

    • this isn’t actually 100% true; insurers can offer “short term” plans, which don’t need to comply with the ACA. But, those plans are usually very bare-bones, and usually aren’t available to people with pre-existing conditions. As a result, short-term plans are a very small part of the market.
9

I’ve been toying with the idea of combining something like Forward — which will apparently cover my primary care needs, including lab work, for $150/mo — with hospital indemnity insurance. I’d have to pay for any specialists on my own, and could wind up with some hefty medical bills, but at least a hospital stay wouldn’t result in bankruptcy. I still have a lot of research to do about that, though.