It doesn’t matter what plan you decide to go with – what matters is that you start saving. Here are a few ways that freelancers can plan for retirement.

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With great freedom comes great responsibility. Or, at least that’s the case when it comes to freelancing. The flexibility working as a freelancer offers is an incredible benefit. You can set your own hours, choose your own projects, and work where you are most comfortable. On the flip side, you are responsible for all of the accounting and business-management that comes with entrepreneurship. These are manageable responsibilities, but they are important ones.

One of the most important things a freelancer is responsible for is choosing a plan to save for retirement. While most employees do whatever their employer offers, a freelancer has a few different choices. It doesn’t matter what plan you decide to go with, what matters is that you start saving. Even a little bit at a time will eventually add up and having a nest egg will make retirement much more comfortable. You should set aside at least a small percentage of your monthly income for retirement, but the way that those contributions grow depends on the plan you choose.

Here are a few ways that freelancers can plan for retirement:

Traditional IRA

You’ve probably heard the term IRA thrown about in regards to retirement, but what does it really mean? IRA stands for “Individual Retirement Account.” This is a way to accumulate savings in a tax-smart way. The most basic, or traditional, IRA allows you to put money aside for retirement and claim it as a deductible on your taxes. If you are able to deduct these funds from your taxes, then you can grow the fund as a tax-deferred sum. Later, when you retire, you will be taxed on the money that you withdraw. An IRA allows you to choose the level of “risk” that you are comfortable with which will also have an affect on the growth of the fund.

One disadvantage of the traditional IRA for a freelancer is that you are limited in how much you can contribute to the same level as any other employee anywhere. This means that while others may have a retirement plan that their employer also contributes to, you will be capped at the general maximum contribution and won’t have any other streams of income to your retirement plan.

Roth IRA

A Roth IRA is very similar to a traditional IRA. You are still capped at the same level as any employee at any company, and can choose your level of preferred risk. The key difference with a Roth IRA is that these contributions are not tax deductible. However, the longer-term benefit is that once you do withdraw money, those funds will not be taxed.

SEP-IRA

An SEP is by far the most common retirement savings plan recommended to freelancers. SEP stands for Simplified Employee Pension. The main benefit for freelancers is that you can contribute a much higher percentage than with other IRAs. This fund offers a lot of flexibility, and you can choose whether to have automatic monthly payments or to contribute a lump sum yearly. This is a great option for freelancers who may have vastly different incomes in different months, for example those who work in a very seasonal business might prefer to contribute once a year. While you still have to pay your own account fees, this is one of the easier plans to set up and manage.

Solo 401(k)

A Solo 401(k) is basically exactly what it sounds like – a 401(k) without any employer contribution. One main advantage is that you can contribute an even higher percentage than with an SEP-IRA, which is great if you are having a particularly good year or two, or you know you will have some lean years in the near future. A Solo 401(k) also allows you to diversify, since you can have both a Roth IRA and a 401(k). There are additional reporting requirements with a Solo 401(k) so it is recommended to work more closely with a financial advisor if you plan to go this route.

The choice of retirement plan is extremely personal, and will depend on your specific goals and income. However, it’s also flexible and you can decide to start with one fund and adjust as you grow. Freelancing is becoming a more and more common way to make a living, but it’s important to secure your future too. Some people think freelancing isn’t viable for the long term, but with good planning it certainly is!