4 Great Retirement Savings Options for the Self-Employed Crowd

You get to set your own hours. You can work from home, a coffee shop, or library. And you get to do what you love.

Being self-employed is becoming more and more popular, with almost a third of the nation's workforce identifying as "independent workers." But there are some serious drawbacks, especially when you need to plan for retirement.

You're on your own
By being self-employed, you are able to take advantage of a number of tax deductions. It's great -- who doesn't like saving on their taxes? But while the deductions can save you from shelling out cash each year on tax day, they also reduce the amount of earnings you pay Social Security tax on, which in turn reduces the amount that you will be able to draw on later in life.

There's no question that as time goes by, retirees will more likely need alternative sources of income during retirement, since the burden on Social Security continues to grow. But if you work on your own, you have little access to the traditional retirement savings options. But not to worry, there are plenty of options for you to choose from.

1. Simplified Employee Pension IRA
Are you a sole proprietor or moonlight as one? A SEP IRA might be the best option for you.

Based on the tax code, you can contribute up to 25% of your net earnings from self-employment each year, with 2014's limit sitting at $52,000. Your savings are tax deductible and grow tax-deferred until you withdraw them during your golden years. Need to take out an early withdrawal? There's a 10% penalty for that, which is similar to many other retirement plans.

And one of the best aspects of the SEP IRA lies in its flexibility. You are able to make contributions up to the April 15th deadline each year. What does this mean for you? If you have a big year and want to save on some taxes, you can make a larger contribution. Not so great year for your business? Scale back your savings.

You can open a SEP IRA through most banks that offer IRAs, mutual fund sponsor, or brokerage firm, so shopping around for the lowest fees can save you some more dough.

2. Savings Incentive Match Plan for Employees IRA
Are you the head honcho and want to hire an employee? That's where a SIMPLE IRA can come in handy.

You can continue to use the same savings instrument after the hire, but don't forget what the "M" stands for -- the plan provides for a 2% fixed or 3% match for your employees' contributions. The SIMPLE IRA limits your savings much more than the SEP IRA option. Though the IRS code states that you can stash away all of your net earnings for the year, the limit sits at $12,000 or $14,500 if you're over 50.

There are a few drawbacks to the SIMPLE IRA option. Not only does the low threshold for contributions limit your ability to save enough if you have high goals, but dealing with long-term employee-contribution matches can be complicated. Need to withdraw funds within the first two years of the SIMPLE IRA's existence? You'll be hit with a hefty 25% penalty.

3. Individual 401(k)
Are you just getting started on your retirement savings and ready to sock away a big chunk of your earnings each year? An individual 401(k) may be the best choice for you.

The plan would allow you to put away $17,500 in salary deferrals as the business's "employee", plus an additional 25% of your net earnings )up to $52,000 in 2014) from the business as the employer. You can also add another $5,500 to the deferrals if you're over 50. Like the SEP IRA, the deferral contributions are discretionary, so you can manage your savings depending on whether your business had a flush or lean year.

The individual 401(k) also has the benefit of borrowing against your savings. Though terms will vary depending based on the plan's provider, you may be able to borrow up to half of your savings balance with a repayment period of five years. But before you borrow against your savings, remember that it should be a last resort since a loan would ultimately undermine your retirement savings goals.

4. Niche savings opportunities
Ever since the financial crisis, there have been new savings groups popping up to help the average American make the most of their savings.

Available to everyone, Bank of America's (NYSE: BAC  ) and Wells Fargo's (NYSE: WFC  ) debit card savings programs, where money is transferred to a savings account based on your debit card purchases, have helped to spur on savings in a very simple way. Now, a company called Acorn Grows provides a similar service, with one big difference: the money is transferred directly to an investment account managed by BlackRock (NYSE: BLK  ) , Vanguard, and PIMCO.

Freelancersunion.org

Freelancer's Union is a free group that provides resources for independent workers (from nannies to writers), including health care options (in select areas) and retirement savings help. The union's 401(k) plan is run by Charles Schwab (NYSE: SCHW  ) and allows its members to adjust contributions each month. One thing to keep in mind, if you have a SEP IRA, you can't contribute to the union's 401(k) in the same year.

For female child care workers in select areas, a new plan called the Appalachian Savings Project from the Women's Institute for a Secure Retirement takes its cues from a little-known saver's tax credit. The plan tells its members that if they save $600 in savings bonds each year, the plan will match it.

You can control your destiny
Being self-employed allows you to manage your exposure to clients, co-workers, and investment options. Instead of having to choose from a defined set of funds, you can choose the investments that best work for you. But how do you pick the right stocks?

As every savvy investor knows, Warren Buffett didn't make billions by betting on half-baked stocks. He isolated his best few ideas, bet big, and rode them to riches, hardly ever selling. You deserve the same. That's why our CEO, legendary investor Tom Gardner, has permitted us to reveal The Motley Fool's 3 Stocks to Own Forever. These picks are free today! Just click here now to uncover the three companies we love. 


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