The most popular way to save for retirement is through an employer’s 401(k) program. Full time employees should take advantage of this because employers match the funds saved up to a certain percentage. However, as a self-employed worker, you do not have the option of contributing to an employer sponsored 401(k). You still need to plan for retirement though. Experts suggest having ten to twelve times your annual salary in your retirement fund before you start to draw from it. For that dedicated amount of savings, you want to have a retirement plan that works for you and makes your money grow.

As opposed to a 401(k), where you money goes into the fund established by your employer, you get to make all the decisions about investing when you establish a retirement fund on your own. Understanding your options will help you made the best decision for the future you have planned. Don’t be afraid to recruit the help of a professional investor or broker to understand the nuances of creating a viable retirement plan.

Traditional or Roth IRA

An Individual Retirement Account (IRA) is very easy to set up with a broker either in person or online. If you are leaving a permanent job where you had a 401(k) for a new self-employment venture, you can roll your current retirement savings into a new IRA. You are limited to saving $6,000 per year in an IRA.

Because an IRA is not tied to a particular employer, you can contribute to it no matter your employment status. You can have an IRA in addition to your employer’s 401(k) or use it as your only retirement savings plan.

When you are self-employed, you can make the decisions about where your investments are held. With an IRA, you can choose from stocks, bonds, mutual funds, and other investments that will help you meet your savings goals.

In a Roth IRA, your contributions to the fund are made after your income is taxed. In this way, you avoid paying taxes when you withdraw from the account after retirement. There is also no penalty for dipping into this account before age 59 1/2, which is appealing to many self-employed people whose work can vary from year to year.

Solo/ One Participant 401(k)

You can only use this kind of 401 (k) if you have no other employees besides your spouse. This plan is flexible and will allow you to save a larger amount of money in years that business is good (up to $57,000) and less in years that you need liquid funds. These plans will provide the self-employed and sole proprietors with a retirement plan that is similar to those they could fund when working as an employee for a larger company.

You will be contributing as both the employee and the employer, resulting in a higher total savings. The tax regulations are the same as with a standard 401(k) plan if you are already familiar with that set-up. You will need to work with a financial institution to establish and administer the account, which will add fees to the cost of the plan. However, any broker who works with 401(k) plans can help you with this at a lower cost than multi-employee companies pay.

There is administrative paperwork to deal with when using a solo 401(k). Once you have $250,000 in the account, you will be required to file yearly paperwork with the IRS.

Defined Benefit Plan

This is the modern version of a pension plan. Not all brokers offer this kind of plan, but those who do can help you set up a constant stream of income well into your retirement years. This plan does require a commitment of a predefined amount of money contributed to the plan each year, which can be difficult for the self-employed whose income fluctuates. If your income is high and steady though, there are very high limits on contributions, allowing you to pad your savings for future years.

This plan does have higher administrative costs and can be expensive to set up with a brokerage firm.

Simplified Employee Pension (SEP)

Traditional employers and self-employed individuals can all contribute to SEP plans. They are easy to set up and have a low administrative burden. The contribution can be changed to accommodate the cyclical nature of business. There are no minimum annual requirements, and you can contribute in a lump sum or smaller portions over time.

Only the business owner can contribute to the plan and, if you have employees, you must contribute equally to each. If you plan to have employees in the future, this is a great benefit to be able to offer.

For almost any retirement plan, you can not withdraw funds from the account until you are 59 1/2. For additional investing information, a retirement broker can help you make decision on the diversity of your portfolio and how much money you need to invest annually to comfortably retire at your goal age. Spending some time and money now to establish a reliable retirement fund will secure a future where you will be able to take care of your needs.