Investing AI training income (US).

US AI training contractors at senior tier earn $80–$200k. The advantage of self-employment income (vs W-2): bigger retirement contribution caps and more flexibility on tax-advantaged investing. Here's the playbook.

The capital deployment hierarchy

1. Emergency fund — 6 months of expenses in HYSA or T-bills.
2. HSA (if HSA-eligible health plan) — triple tax advantage.
3. SEP-IRA or Solo 401(k) — biggest retirement deduction available.
4. Roth IRA backdoor — if you're above income limits.
5. Taxable brokerage — long-term equity exposure.
6. Real estate / alternatives if applicable.

Step 1: Emergency fund

For self-employed contractors: 6 months of total expenses minimum. Fluctuating income, deferred taxes, no employer benefits.

Where to park it:

• High-yield savings account — ~4–5% APY on accounts at Marcus, Ally, Discover. Liquid.
• Treasury bills via TreasuryDirect or brokerage — comparable yield, tax-free at state level.
• Short-term Treasury ETFs (BIL, SGOV) — easy management.

Step 2: HSA (the most underused account)

If you have an HSA-eligible high-deductible health plan, the HSA is the best investment vehicle in the US tax code:

• Contributions are tax-deductible (above-the-line, reduces self-employment tax too).
• Growth is tax-free.
• Withdrawals for qualified medical expenses are tax-free.
• After 65: withdrawals for any purpose taxed like Traditional IRA.

2026 contribution limits: $4,150 self / $8,300 family. Treat this as a stealth retirement account — pay current medical out of pocket if you can, save HSA receipts, and let the HSA invested funds compound.

Step 3: SEP-IRA or Solo 401(k)

The single biggest tax benefit of self-employment. Choose based on income level and complexity tolerance.

SEP-IRA (simpler):

• Contribute up to 25% of net self-employment earnings, capped at $69,000 (2026).
• Tax-deductible. Reduces taxable income directly.
• One-page setup at any major brokerage (Fidelity, Schwab, Vanguard).
• Can contribute up to tax filing deadline (with extension).

Solo 401(k) (more flexible, higher cap):

• Employee contribution: up to $23,000 (2026, regardless of income).
• Employer contribution: up to 25% of net self-employment earnings.
• Combined cap: $69,000 (2026).
• Roth option available — pay tax now, withdraw tax-free in retirement.
• Slightly more paperwork (Form 5500-EZ once balance exceeds $250k).

For an $80,000 net AI contractor: SEP-IRA contribution potential is ~$20,000 → ~$6,000 tax savings annually.

For a $150,000 net contractor: Solo 401(k) lets you contribute ~$48,000 → ~$15,000 tax savings annually. Significantly more than a W-2 401(k) cap.

Step 4: Backdoor Roth IRA (if eligible)

For 2026, Roth IRA direct contribution phases out at $146k–$161k single / $230k–$240k joint MAGI. Above those limits, the "backdoor" approach works:

1. Contribute $7,000 to a Traditional IRA (non-deductible).
2. Convert to Roth IRA (no tax owed since contribution was already taxed).
3. Repeat annually.

Watch the pro-rata rule if you have other Traditional IRA balances. If you do, roll them into your Solo 401(k) first to clear the path.

Step 5: Taxable brokerage (long-term wealth)

After tax-advantaged accounts are maxed:

• Total US stock market index (VTI, FXAIX): 50–60% of equity allocation.
• International equity (VXUS, FTIHX): 20–30%.
• Bonds / fixed income (BND or T-bills): 10–20% depending on age and risk tolerance.
• Tax-loss harvesting opportunities in taxable accounts (selling losers to offset gains).

What to avoid

• Whole life insurance. High commissions, mediocre returns. Use term insurance instead.
• Annuities sold to self-employed. Usually high-fee products. Stick to standard tax-advantaged accounts.
• Active stock-picking without conviction or time. Index funds beat most active managers.
• Crypto as primary investment. Small speculative position is fine; not a primary wealth vehicle.
• Excessive cash holding. $100k+ in HYSA earning 4% loses real purchasing power vs equities over decades.

The contractor-specific edge

Self-employed contractors have access to higher tax-advantaged contribution caps than W-2 employees:

• W-2 employee: $23,000/year 401(k) + $7,000 IRA = $30,000.
• Self-employed contractor: $69,000/year SEP-IRA or Solo 401(k) + $7,000 IRA = $76,000.

That's $46,000 more in tax-advantaged space available — at marginal rates of 30%+ that's $14,000+ extra tax savings annually. Most self-employed contractors don't fully use this.

Bottom line

US AI training contractors at senior tier should: build 6-month HYSA emergency fund, max HSA if eligible, max Solo 401(k) for biggest tax deduction, do backdoor Roth if income's high enough, then SIP into diversified taxable brokerage. The self-employed retirement contribution advantage is significant and underused.