I've been an employee and I've been self-employed. There are ups and downs to each, as you can probably imagine.

One big downside is Social Security (read 7 Social Security Myths). Many of us aren't able to count on it to support us in our dotage. And despite that, whereas employees only pay part of their Social Security bill with each paycheck, the self-employed must pay all of it. It's not an insignificant sum, either, and it's in addition to the usual income taxes workers face. The Social Security tax rate for 2005 is 15.3% on self-employment income up to $90,000. Make $50,000, and Social Security wants $7,650. Ouch.

Then there are all the employee benefits you don't get, such as health insurance, disability insurance, profit-sharing bonuses, holiday luncheons, and sometimes even a company car. These can represent a costly financial hit -- especially since health insurance expenses have been rising by double digits in many recent years.

Perhaps the most significant downside to working for yourself, though, is that there's no employer offering you a convenient 401(k) plan. Worse still, no employer is offering to match your contributions in some way. That would have been free money for you -- but it's not there.

Explore your options
Fortunately, you do have some options if you're self-employed (and remember -- you're not alone -- there are millions in the same boat). You just need to muster the discipline to explore them and take advantage of them. Here are a few possibilities, adapted from a Dave Braze article:

  • A good old IRA. Just like other workers, you can (probably) contribute to a traditional or Roth IRA account at your friendly brokerage or elsewhere. (Learn about some good brokerages. Did you know some charge just a few dollars per trade?) The main catch to know about is that if you're covered by some other retirement plan, you may not be able to take full (or any) advantage of a tax-deductible IRA contribution. Making tax-deductible contributions is valuable to self-employed folks who face stiff income tax rates. Whatever you contribute to a traditional IRA is deducted from your income and you avoid paying taxes on it until withdrawal. Still, the withdraw-it-all-tax-free aspect of the Roth IRA can make it compelling, too, even though its contributions are made on a post-tax basis. Learn all about IRAs in our handy IRA Center.
  • The SEP-IRA. A SEP-IRA is a written agreement by an employer to make contributions to an employee's traditional IRA. (Remember, you may be both the employer and the employee.) Depending upon whether the contribution is for you or an employee, it can total as much as about $25,000 or $30,000, depending upon certain factors. Learn more.
  • The Savings Incentive Match Plan for Employees (SIMPLE). "Established by the Small Business Protection Act of 1996, a SIMPLE may be set up by employers who have no other retirement plans and who have 100 or fewer employees with at least $5,000 in compensation for the previous year. A SIMPLE may be structured as an IRA or as a 401(k) plan." Learn more.
  • The Keogh plan. These plans may be set up as either a defined benefit or defined contribution plan. (A defined benefit plan is rather like a traditional pension that's set up to pay you a certain amount in retirement, versus the defined contribution plans that are more common today, such as 401(k)s, where the ultimate end value is uncertain.) Learn more.
  • The "Solo Defined Benefit" plan. Known by the savvy as the "Solo DB," this can be powerful, permitting you to sock away as much as $100,000 per year into a tax-deductible retirement account. If you enjoy a hefty income, this could be for you. Learn more.
  • The Self-employed (or Solo) 401(k). This is a relatively new offering. As Frank Bilovsky noted in the Rochester Democrat and Chronicle, it combines "all the best features and advantages of an SEP IRA, but it allows you to put away even a bigger chunk because you can do a profit-sharing portion into it. .. In the SEP IRA, the contribution is after-tax money and the growth is tax-deferred, Bilovsky wrote. "With a self-employed 401(k) plan, the contribution is made with pre-tax money." Learn more.

Get help!
If your head is spinning now, I don't blame it. This isn't the kind of stuff most people enjoy thinking about or dealing with. You may work on your own, but you don't need to deal with retirement planning on your own.

This is exactly the kind of stuff that a financial advisor can help you with. Learn how to find one at our Advisor Center -- and perhaps check out our TMF Money Advisor service, which features customized independent advice from a variety of objective financial experts. Try it; it's free.

Our Rule Your Retirement newsletter can also help. It offers a lot of guidance to help you set yourself up for a comfy and enjoyable retirement, as well as specific investment recommendations, practical tips on topics such as asset allocation and tax planning, and inspiration from folks who have retired early and/or successfully. Past issues have recommended stocks such as Alderwoods (NASDAQ:AWGI), which advanced some 30% in less than a year after being mentioned, and warned against the riskiness of companies such as Merck (NYSE:MRK), which later dropped in price. A more recent issue mentioned dividend payers, such as Montpelier Re (NYSE:MRH), Heinz (NYSE:HNZ), Lloyds (NYSE:LYG), and Barclays (NYSE:BCS) as worth considering. Try it free and see for yourself. It's easy to read -- and can be done in a single sitting.

This isn't meant to be a comprehensive review of all retirement options for the self-employed. If you have some other opportunities you'd like to recommend, please do so on our discussion board.

Alderwoods and Montpelier Re are Motley Fool Hidden Gems recommendations. Heinz and Merck are Motley Fool Income Investor recommendations. Lloyds is a Motley Fool Inside Value recommendation.

Longtime Fool contributor Selena Maranjian 's favorite discussion boards include Book Club, The Eclectic Library and Card & Board Games. She owns shares of no companies mentioned in this article. For more about Selena, view her bio and her profile. You might also be interested in these books she has written or co-written: The Motley Fool Money Guide and The Motley Fool Investment Guide for Teens . The Motley Fool is Fools writing for Fools.