Back in 1736, Benjamin Franklin founded the first volunteer fire department in Philadelphia – and on top of running a print shop, publishing newspapers, and dabbling in electricity, the guy still found time to save buildings from burning down. Ol’ Ben knew the value of a side gig and a long-term plan. Fast forward a few centuries, and not much has changed: firefighters are still juggling second jobs and thinking about the future. But instead of printing presses and kites, today’s tools are Solo 401(k)s and SEP IRAs – powerful ways to turn that side hustle money into serious retirement gains.
Whether you’re fixing up houses, training clients, or running a small business on your days off, that extra income has the potential to do more than just pad your wallet. With the right retirement account – like a Solo 401(k) or SEP IRA – you can put those side gig earnings to work, cut your tax bill, and build a nest egg that’ll come in handy long after you’ve hung up the gear.
Structuring Your Side Hustle for Retirement Gains
Extra income isn’t just for splurging on a new fishing boat or funding the next station cookout. With the right setup, your side-job cash can fuel your retirement beyond your standard pension. Two popular tools for self-employed folks (like firefighters with a side business) are the Solo 401(k) and the SEP IRA. They let you put a chunk of that side money into investments for later – and get some sweet tax breaks now. Here’s a quick comparison:
| Retirement Plan Option | 2025 Contribution Limit (Under 50) | Catch-Up for 50+? | Key Features & Requirements |
|---|---|---|---|
| Solo 401(k) (One-Participant 401k) | Up to $70,000 total (combined employer+employee) | Yes. Additional $7,500 (age 50-59 or 64+) or $11,250 (ages 60-63) contribution allowed. Total contributions can reach up to $77,500 or $81,250, respectively. | For self-employed individuals with no full-time employees. Allows contributions as both employee and employer, enabling significant contributions even with modest side income. Roth option available for after-tax growth. |
| SEP IRA (Simplified Employee Pension) | Up to $70,000 (max 25% of net self-employment profit) | No. SEP IRAs don’t have catch-up contributions for older workers. | Easiest to set up and maintain. Suitable for solo businesses or those with a few employees (employer must contribute equally for all eligible employees). Contribution is employer-only (a percentage of profits), so higher earnings are needed to maximize contributions. |
| Traditional or Roth IRA | $7,000 per year (under 50) | Yes. $1,000 extra if 50 or older, for a total of $8,000. | Available to anyone with earned income. Much lower contribution limits than Solo 401(k) or SEP IRA. A Roth IRA won’t provide a tax deduction now but grows tax-free for retirement. Ideal if your side gig is small or you've maxed out other retirement plans. |
So which should you choose? If your side hustle earnings are on the smaller side, a Solo 401(k) often lets you contribute more than a SEP IRA1. For example, if you net $10,000 from your side business, you could potentially tuck that entire $10k into a Solo 401(k) (especially if you haven’t maxed out a workplace plan). In contrast, a SEP would only let you contribute around 20–25% of that profit1 – that’s just $2,000 on a $10k side income. The Solo 401(k) has the edge of letting you supercharge your retirement savings with even a modest side gig. On the other hand, a SEP IRA is ultra-simple and can be a solid choice if you prefer ease and have higher profits (or if you might eventually hire employees in your side business).
Now, beyond choosing the type of account, make it a habit to actually contribute. Set aside a portion of each side-hustle paycheck for retirement, just like you contribute to your pension or deferred comp at work. It’s extra important for firefighters because while you do have a pension, most pensions alone won’t cover all your retirement dreams. Your side gig can fill that gap if you invest the proceeds wisely.
As the figure above shows, compounding is the real MVP. By investing, say, $10,000 of side income every year, you could grow a nest egg that towers above what you’d have if you just stashed cash in a drawer. In other words, make your money work as hard as you do. Contribute regularly, choose investments that match your risk tolerance and time horizon, and let time and compound interest do the rest. Your future self (the retired you relaxing with a fishing pole or traveling Route 66 in an RV) will thank you profusely.
Tax Strategies to Keep Uncle Sam Out of Your Wallet
Bringing in extra income means dealing with extra taxes – not exactly anyone’s idea of fun around the firehall. The good news is, with a few savvy tax moves, you can keep more of your side-hustle money and send less of it to Uncle Sam.
Treat It Like a Business (Because It Is!): Even if it’s just you mowing lawns or doing inspections on your days off, consider your side gig a real business. That means keeping records of income and expenses. Open a separate bank account for the side hustle so you don’t mix personal and business funds. Come tax time, you’ll typically file a Schedule C (for sole proprietors) to report that income. By being organized, you won’t miss out on deductions, and you’ll have an easier time filing.
Maximize Your Write-Offs: One of the best perks of a side business is the ability to deduct legitimate business expenses. Did you buy a new laptop or tablet for your real estate rental business to keep track of tenants? That’s deductible. Did driving to clients or job sites rack up miles on your personal vehicle? Track it, because you can deduct mileage (the IRS standard rate is around 67¢ per mile in 20242).
Other common write-offs: tools and equipment, marketing costs (like that Facebook ad for your personal training services), certification or license fees, a portion of your home utilities if you have a home office, and even the gear or uniforms needed for the side job. Basically, anything you spend specifically for your side hustle – keep the receipt. Every dollar of expense you write off reduces your taxable profit. Just be sure to only deduct things that are truly business-related (don’t get cute and try to write off your fishing boat as a “business expense” unless you’re running fishing charters).
- 30% - Tax fund (prevents April surprises and penalties)
- 20% - Business expenses (track and claim to reduce taxable income)
- 25% - Retirement contribution (powers your future with tax-advantaged growth)
- 25% - Take-home pay (immediate benefit from your hard work)
Set Aside Money for Taxes: Unlike your fire department paycheck, no one is withholding taxes from your side hustle income. It’s on you to pay the piper. Avoid the nasty surprise of a big tax bill by setting aside roughly 25-30% of your side gig earnings3 for taxes. Why so much? Because not only will you owe regular income tax, but if you’re self-employed, you’ll owe self-employment tax – that’s Social Security and Medicare taxes totaling 15.3% of your net profit. A good rule of thumb is to take a quarter of every side-job dollar and stick it in a savings account for the IRS. If your side business is bringing in a lot, you may need to pay quarterly estimated taxes to avoid penalties. (Pro tip: some firefighters adjust the withholding on their main job’s W-2 to cover the side income, which is another way to skin the cat.) The bottom line: plan for taxes now, so they don’t ambush you later.
Defer and Conquer: Remember those retirement tools we talked about above? Contributions to a SEP IRA or Solo 401(k) are typically tax-deductible, meaning they reduce your taxable side income1 right now. It’s a one-two punch: you save for the future and cut your current tax bill. For example, if you earned $15,000 from your side business and contributed $5,000 of it into a Solo 401(k), you’ll only pay taxes on $10,000 of profit, not $15,000. That could easily save you a couple thousand in taxes, depending on your tax bracket. Tax deferral is a firefighter’s friend – it’s like pushing pause on the tax man and letting your money grow until you’re retired (at which point you might be in a lower tax bracket). Use those tools if you can.
Consider an LLC or Insurance for Protection: If your side hustle involves any significant risk or liability (say you’re inspecting roofs with your drone or training clients who could get injured), look into forming an LLC (Limited Liability Company) or getting liability insurance. An LLC can separate your business assets from personal assets4, adding a layer of protection. In fact, it’s recommended to file an LLC to protect yourself should any business debts or liabilities arise.
Translation: if something goes wrong in your side business, someone can’t come after your house or your firefighter wages/pension as easily. Similarly, adequate insurance (business liability insurance or professional liability for advice-giving roles) is a must. It’s a small cost for peace of mind. After all, you wear your bunker gear into a blaze – think of LLCs and insurance as the bunker gear for your financial life.
Bringing It All Together
Firefighters are used to being prepared – you wouldn’t head into a burning building without a plan and the right gear, right? Think of your financial life the same way. Your side hustle is like a second nozzle on the line, giving you extra water to fight the fire of financial needs. With a smart strategy, you can make sure that the second stream is aimed right where you need it.
To recap: Use retirement accounts to secure your future, use tax laws to your advantage, and always keep one eye on that pension prize. Choose side gigs that play to your strengths and schedule. And above all, take care of yourself along the way – your health, your family, and your sanity.
At the end of the day, it’s about financial freedom. It’s about having options when your knees ache too much to go on that fourth alarm call or when you want to take that dream vacation after you hang up the helmet. Your side hustle can be the driver that accelerates you toward those goals as long as you steer it right.
Sources:
- https://www.kiplinger.com/article/retirement/t047-c001-s001-saving-for-retirement-when-you-have-a-side-hustle.html
- https://protectionred.com/tax-season-prep-firefighter-tax-hacks/
- https://www.keepertax.com/self-employment-tax-rate-calculator#
- https://www.firerescue1.com/career-1/articles/7-perfect-side-jobs-for-firefighters-1gjBbFu6i6ZN228G/
