The number of self-employed workers has increased dramatically in recent years as companies move away from hiring traditional employees. That makes it more important than ever to provide for your own retirement, and a SIMPLE IRA can be an easy and effective way to boost how much you're able to save. To take maximum advantage, though, you need to know about SIMPLE IRA contribution limits, and the other restrictions and limitations that apply to this tax-deferred retirement-savings option.

The basics of the SIMPLE IRA
The SIMPLE IRA is a special type of retirement plan with its own set of tax laws. "SIMPLE" is actually an acronym for Savings Incentive Match PLan for Employees, and it's actually available to small businesses with employees, as well as the self-employed. As the IRS notes, the purpose of the SIMPLE IRA is to act as a good start-up retirement-savings plan for those who don't want a complex, and often expensive, alternative.

In 2013 and 2014, the SIMPLE IRA contribution limits are $12,000 for those under age 50, with an additional SIMPLE IRA catch-up contribution of $2,500 for those 50 or older. In addition to that amount, the SIMPLE IRA also provides for employer matching on a dollar-for-dollar basis of up to 3% of your net self-employment earnings. If you're self-employed, you act both as employer and employee for these purposes.

The reason SIMPLE IRAs are attractive is that they can cut your tax bill. Your SIMPLE IRA contribution is excluded from your taxable income for the year in which you contribute. At the same time, though, it's easier to create and maintain a SIMPLE IRA than some of the other alternatives available to the self-employed, such as SEP IRAs and solo 401(k) plans.

When and where you can set up a SIMPLE IRA
In general, established businesses have to set up SIMPLE IRAs between Jan. 1 and Oct. 1 in order for them to be effective for a given tax year. But if you've just started your new self-employed business, then you can set up a SIMPLE IRA during the October-to-December period, so long as you establish that you created the plan as soon as was administratively feasible.

Most financial institutions will allow you to set up SIMPLE IRAs, and the types of investments available are limited only by the types of investments each institution offers. For instance, T. Rowe Price (TROW -2.91%), Franklin Templeton (BEN -1.58%), and many other mutual-fund companies offer SIMPLE IRAs to bring in new customers, allowing their participants to select from the menu of mutual funds they offer. But you can get a wider assortment of investment choices from E*Trade Financial (ETFC), Vanguard, Fidelity, or other brokers, many of which offer stocks, bonds, exchange-traded funds, mutual funds, and other investments.

For E*Trade, T. Rowe Price, Franklin Templeton, and the other financial institutions that offer SIMPLE IRAs, their hope is that you'll set increasingly large amounts aside as your business grows, eventually making your account much larger. Moreover, they also want you to open other accounts with them, especially if your business is lucrative and makes you an attractive customer from their point of view.

One thing to consider is that if you ever decide to turn your self-employment into a small business with other employees, you'll have to provide employer benefits for those new workers as well. With the SIMPLE IRA, though, the requirements for employer contributions are well-defined, making it clear what your obligations are and how much it will cost to make the plan available to them.

Learn more
For much more information on the SIMPLE IRA, the IRS website has a useful guide that runs through more of the mechanics of setting up and maintaining the plan. As an easy-to-implement retirement plan, the SIMPLE IRA is a great option for many self-employed individuals looking to save more toward their retirement.