Financial planning for federal contractors.
Contract risk, no TSP, clearance considerations.

Section 1 · Contractor vs direct employee

W-2 contractor (through a staffing firm)

• You are an employee of the contracting company, not the government.
• May have access to a 401(k) through the contracting firm.
• No FERS pension. No TSP.
• Employer-sponsored health insurance through the contracting firm.

1099 independent contractor

• You are self-employed. All self-employment taxself-employment taxThe 15.3% tax self-employed people pay on business income to cover both the employee and employer share of Social Security and Medicare.Full definition implications apply.
• Solo 401(k) or SEP IRAIndividual Retirement Account (IRA)A retirement account with tax advantages and eligibility rules. Traditional IRA contributions may be deductible; taxable withdrawals generally enter income. Roth contributions use after-tax money, and qualified Roth withdrawals are tax-free.Full definition for retirement.
• Health insurance from the ACA marketplace or other source.
• See gig-worker-finance.

Section 2 · Contract risk management

Emergency fund target

6 months of expenses minimum, not the standard 3. Contract gaps can last 3-6 months. Some contractors maintain a 12-month cushion.

Government shutdown exposure

If your contract is funded by annual appropriations, a government shutdown can pause contract work. Contractors typically do not receive back pay (unlike federal employees, who typically receive back pay after legislation). Budget for this possibility.

Section 3 · Clearance and financial health

Security clearances consider financial responsibility as an adjudicative guideline. Excessive debt, unpaid taxes, bankruptcy can raise adjudicative concerns. The concern is whether financial stress creates vulnerability to foreign influence verify×DON'T TRUST, VERIFYClaim: SEAD 4 financial-considerations adjudicative guideline applies to security clearance decisions.Verify at: SEAD 4 Adjudicative Guidelines ↗ Source 2 in the list belowGuideline F (financial considerations) is one of 13 adjudicative guidelines used in clearance decisions..

Bitcoin and clearances

• No explicit prohibition on Bitcoin ownership.
• Large unexplained Bitcoin holdings could raise questions during polygraph or background investigation.
• Transparency: declare Bitcoin holdings honestly on SF-86 financial disclosure.
• Foreign-exchange holdings (KYCKnow Your Customer (KYC)Identity checks that banks, brokers and regulated Bitcoin exchanges must run under anti-money-laundering rules, collecting your name, address, date of birth, an ID number and often a photo ID. Buying through a KYC exchange links your identity to the bitcoin you buy and the addresses you withdraw it to.Full definition accounts at non-US exchanges) get specific scrutiny under Guideline B (foreign influence) for some clearance levels.

Section 4 · Retirement strategy

Without TSP and FERS pension, contractors must build their own retirement infrastructure.

Priority order

1. Max employer 401(k) up to any match (contracting firms vary).
2. Max Roth IRA ($7,500 in 2026), or backdoor Roth if over income limits.
3. If 1099 self-employed: Solo 401(k) up to $72,000/year.
4. HSAHealth Savings Account (HSA)A health savings account available only when eligibility requirements are met. Federal tax benefits depend on contribution limits and qualified medical expenses. Health coverage, other coverage and Medicare enrollment can affect eligibility; state tax treatment can differ.Full definition if HDHPHigh-Deductible Health Plan (HDHP)A health-plan category with statutory deductible and out-of-pocket rules. HSA eligibility also depends on other conditions. Special 2026 rules cover qualifying bronze and catastrophic plans; verify the plan and your own eligibility rather than relying on its deductible alone.Full definition-eligible.
5. Taxable brokerage.

Target savings rateSavings rateThe share of income you save or invest, usually (income minus spending) divided by income. Saving $1,000 of $5,000 take-home pay is a 20% rate. Whether you use gross or take-home pay, and whether 401(k) contributions and an employer match count, changes the number, so compare rates only on the same definition.Full definition: at least 20% of gross given the lack of pension benefit. The pension a federal employee accrues over 30 years has real value; a contractor needs to save more than the equivalent federal employee to reach retirement parity.