Pros and Cons of Side Hustles for 403(b) Plan Participants
August 16, 2025
By Barbara O'Neill, CFP®, AFC®
The statistics are noteworthy! According to a recent Wall Street Journal article describing research by Deloitte, roughly 4 in 10 millennials and Gen Zers have side jobs and the share of millennials working two jobs has been virtually unchanged for several years. In addition, a substantial number of older workers are also freelancing.
A “side hustle” provides a way to earn extra income outside of a primary job such as teaching or work as a school nurse or librarian. Side hustles typically involve freelance work, part-time gigs, or small businesses that are pursued during evenings, weekends, or extended breaks such as summers off for many public school employees. They can help people pay off debt, save for financial goals, test out new career paths, build skills, accumulate Social Security credits, and turn their passions into profit.
Full disclosure and “street cred”: I personally walked in this world before the phrase “side hustle” was even invented. My financial education company, Money Talk, was a side hustle for 27 years while I worked full time for Rutgers University. When I left Rutgers in 2020, I scaled it up to become a full time “encore” enterprise.
This post describes pros and cons of side hustles from the “lens” of 403(b) participants. It also discusses tax implications and SEP plans, which are a commonly used retirement savings plan for freelancers and solopreneurs. Also included is a summary of research studies about side hustle frequency, motivations, and impact on full-time jobs. The post concludes with three “need to know” facts, and six take-away action steps.
Advantages of Side Hustles
Extra Income — Side hustles provide an additional stream of income to improve cash flow, help cover living expenses, and/or increase savings for emergencies, retirement, and other financial goals (e.g., “big ticket” purchases and vacations). Extra earnings can also be used to pay off outstanding debt (e.g., credit cards and student loans) more quickly. Most importantly, extra income from side hustles provides a safety net in the event of job loss (or another financial crisis) and reduces the risk of relying solely on one employer for financial security.
Skill-Building and Experience — I know this first hand. Side hustles can help people develop new skills outside their day job which makes them more productive and marketable in the labor market. In addition, a side hustle can build skills in marketing, time management, project management, and work-life balance, which are transferrable to a day job. Side hustles can also provide valuable insights and networking opportunities that may enhance someone’s primary career.
Social Security Benefits — As noted in a previous post, many 403(b) participants are not covered by Social Security through their primary career. Their employer does not deduct FICA tax from their paycheck and, unless they qualify for benefits through an alternative route, they have no Social Security to fall back on in later life. Side hustle earnings contribute to workers’ Social Security record so they can qualify for benefits and/or increase future benefits. In 2025, it takes $1,810 of income to earn a quarter of coverage ($7,240 for four quarters) toward the 40 required for benefits. Freelancing now seems more worthwhile following passage of the Social Security Fairness Act.
Bridge to Retirement — Side hustles can provide a gradual transition to encore careers in later life instead of abruptly leaving the workforce. A side hustle might even evolve into a full-time business, as it did for me. Side hustles provide income to supplement pensions and retirement savings in a 403(b) and/or IRA, especially for people who are worried about inflation eroding their purchasing power and/or outliving their savings.
Networking and Career Opportunities — Side hustles open opportunities to network with people in different work settings, which could lead to new career opportunities or collaborations. In addition, gaining experience and building a reputation from a side hustle may make workers more attractive to potential employers and open doors for higher-paying work.
Disadvantages of Side Hustles
Time Commitment — Balancing a full-time job with side hustles results in a increased workload. Full stop. This can leave people with less time for relaxation, socialization, and personal interests and increase the risk of stress, fatigue, and burnout. Spending significant time on side hustles can interfere with relationships and social obligations.
Conflicts of Interest — I was always careful about this. Some employers have conflict-of-interest clauses in their contracts or employee manuals that prohibit employees from working on side hustles within their same industry sector, a certain geographic location, or with competitors. Violations can result in disciplinary action or loss of a day job.
Possible Impacts on Day Job — A demanding side hustle might cause some workers to lose focus at their day job, leading to decreased performance or productivity. Employers who learn about their workers’ side hustles will likely be concerned that sideline work is distracting from their job responsibilities or impacting their availability.
Limited Scalability — Many side hustles are limited by the amount of time that people can devote to them and are difficult to scale. Freelancers can only take on so many projects, depending on their available hours. This certainly was the case for me as I barely earned the four Social Security quarter amounts during some of my side hustle years.
Hourly Rate Mindset — Workers with side hustles often have an hourly rate they charge clients or for which they are paid. This makes it easy to fall into the trap of feeling guilty doing something that is unpaid vs. a “billable hour.” It can almost feel like you are losing [$ hourly rate x hours]. The best way to guard against this pitfall is to be aware of it.
Tax Benefits and Complications — Side hustles produce both positive and negative impacts with respect to taxes. On the plus side, they offer an opportunity to write off business-related expenses (e.g., professional association dues, office supplies, travel, equipment (e.g., a laptop), and internet service). Self-employed individuals can also contribute to traditional (tax-deferred) or Roth SEP accounts (see below) to provide another stream of retirement income.
Tax disadvantages of side hustles are cost and complexity. People with side hustles are typically considered self-employed for tax purposes. This means they are responsible for paying both the employer and employee portions of Social Security and Medicare taxes, collectively known as FICA, which is 15.3% of net income after business expenses. There are also new tax forms to fill out including W-9, Schedule C, Schedule SE, and Form 8895 and perhaps the need to make quarterly estimated tax payments (unless you overwithhold on day job pay).
SEP Plans
A simplified employee pension (SEP) plan (a.k.a., SEP-IRA) provides a way for solopreneurs and those with side hustles to save for retirement. Accounts can easily be opened at major brokerage firms. SEPs must be set up and funded by the tax filing deadline for the current tax year (e.g., April 15, 2026 for 2025 taxes). Effective January 2023 as a result of the SECURE 2.0 Act, after-tax dollar Roth SEP accounts are allowed.
For self-employed individuals themselves, the maximum annual contribution allowed for a SEP is the lower of 20% of net income after business expenses or $70,000 (the 2025 maximum annual limit for retirement plan contributions). I know from experience that relatively small annual SEP deposits can add up to six-figure sums after decades of saving. It is also important to note that side hustle workers can fully fund both a SEP and a traditional or Roth IRA up to the contribution limits for each type of IRA if their income allows it.
Research Results
A 2025 study by MarketWatch Guides found that one in two Americans worked a side hustle during the past year, including 72% of Gen Z, and the typical gig economy worker earns $250 per month. The median amount of time spent on side hustles is 10 hours per week and the top three reasons to have a side hustle were to build savings (27%), afford the cost of living (24%), and pay off debt (16%).
A study of relationships between primary full-time jobs and side hustles found that full-time job performance enrichment from side hustles was stronger than performance conflict. The researchers found that psychological empowerment from side hustles enriches full time work performance. Similar results were found from another study that found people’s positive emotions about their side hustle positively impacted their full-time positions.
Three (More) Things
- Common side hustles for teachers include online tutoring, curriculum development, and instructional design. Other options are online retail (e-commerce), content creation, and delivery and driving services.
- Self-employed workers do not have to make contributions to a SEP every year. Rather, they can decide every year whether or not to make a deposit and the amount they want to save (within IRS limits).
- Side hustle income can make up for the fact that most 403(b) plan participants do not have their savings matched. Instead, they can fund a SEP or use the extra income to increase 403(b) plan contributions.
Six Smart Strategies
No. 1: Set a Schedule — Block specific hours in your calendar for side hustle work and take on bigger projects when you have more time (e.g., summer vacation).
No. 2: Understand Your Tax Obligations — Learn about quarterly estimated taxes, self-employment tax, and tax write-offs and consider working with a tax professional.
No. 3: Separate Business and Personal Finances — Open a separate bank account or use Excel spreadsheets to track business income and expenses clearly and simplify record-keeping for taxes.
No. 4: Define Your Target Audience — Identify who your side hustle product or service is for and tailor your marketing messages, including posts on social media, to their needs and pain points.
No. 5: Build a Personal or Business Website — Develop a simple website with information about yourself and your work- including contact information, work samples (e.g., articles, podcasts, videos), and testimonials- to build credibility and trust.
No. 6: Keep Learning — Sharpen your knowledge and skills as an entrepreneur by reading books, taking classes, listening to podcasts, and watching YouTube video tutorials.
In Summary
A side hustle is a balancing act. It can be extremely rewarding in terms of extra income, retirement savings, and personal growth but it is essential to carefully manage time and energy to avoid burnout and stress. With thoughtful planning, side hustles can be a great way to enhance financial security today and in the future.
Barbservations: Side hustle projects over 27 years, which now continue as an encore career, have resulted in a six-figure SEP balance and a four-figure monthly Social Security benefit, after I was unWEP-ed. Former colleagues (not covered by Social Security) without side hustles had no SEPs, no Social Security benefits (unless they now have unGPO-ed spousal or survivor benefits), no retirement bridge job, and they must pay monthly bills for Medicare premiums if they do not receive Social Security.
This post provides general personal finance information and does not address all the variables that apply to an individual’s unique situation. It should not be construed as legal or financial advice. If professional assistance is required, the services of a competent professional should be sought.
...
Dr. O'Neill is the owner/CEO of Money Talk: Financial Planning Seminars and Publications where she writes, speaks, and reviews content about personal finance. She is a Distinguished Professor Emeritus at Rutgers University and a long-time 403(b) plan participant.