Hopefully by now you know that an IRA is an Individual Retirement Account and a 401(k) is also a retirement account – both have unique tax benefits compared to other forms of investing.

However, if you are a freelancer, like so many people in (and out of) the arts are, you may not have access to some traditional retirement accounts, like employer 401(k)s.

Remember, do you do still have access to personal IRAs, which you should be taking advantage of, but as someone who is self-employed, you have access to three additional ways to save for retirement.

1. SEP IRA
2. SIMPLE IRA
3. Individual 401(k)

SEP (Simplified Employee Pension) IRA

When you open a SEP IRA, you get similar benefits to other retirement accounts. Investments in it grow tax deferred until you start making withdrawals at retirement. You will also be penalized for any withdrawals made before you turn 59 1/2.

You also get to deduct any contributions from your income tax, but NOT from your self-employment tax.

A cool thing about SEP IRAs is that the contribution limit is a lot higher than on a traditional IRA. For 2014, you can contribute 25% of your earnings or $52,000 – whichever is less.

Some Tricky Math

Figuring out your earnings takes a minute. To calculate your maximum contribution, you need to first figure out your revenues minus your expenses. Piece of cake, right?

Now deduct 50% of your self-employment tax. Finally, you’ll have to deduct for your contributions to your SEP IRA.

Let’s assume you want to max that sucker out (because you should). As we went over above, the maximum amount you can contribute would be 25%.

For Example: Once you subtract your expenses and 50% of your self employment tax from your revenue, you’re left with $100,000.

Assuming you want to max out your contribution, you take 25% of that ($25,000). Now you actually have $75,000. Multiply that by 25% and you have $18,750. Take that original $100,000 and subtract $18,750. You get $81,250. Multiply that by 25%, you get $20,313. Roughly, your contribution will come out to $20,000 doing this.

This will take forever.

So here’s the shortcut: 25% of your net earnings is just 20% of your net earnings before considering your SEP contribution deduction.

$100,000 times 20%? $20,000. And whole lot less math.

Don’t forget, if you freelance on the side or have other forms of income that are not from freelancing, they can not factor into this income.

Early withdrawals suffer from a 10% penalty.

SIMPLE IRA

SIMPLE IRAs function pretty much the same as a traditional IRA, just with higher limits. As of 2014, the limit for a SIMPLE IRA is 100% of your earnings up to $13,000 ($14,5000 if you are 50 or over), plus an employer contribution of 3% of your net earnings. Since you are your own employer, you can contribute that 3% too.

Here net earnings are your revenue minus expenses minus 50% of your self-employment tax.

For Example: If you made $100,000 again after you subtract your expenses and 50% of your self-employment tax from your revenue, you could contribute the $12,000 maximum and then 3% of $100,000, so your total contributions would be $15,000.

SIMPLE IRAs also have a 25% penalty for early withdrawals.

Individual or Solo 401(k)

Like the SIMPLE IRA, the Solo 401(k) lets you be both the employee and the employer. This means you make your contributions and then you can also add the employer amount as well.

As of 2014, you can contribute up 100% of your net earnings up to $17,500 ($23,000 if you are over 50) as the employee. As the employer you can also contribute 25% of your net earnings based off that same crazy formula in the SEP IRA.

For Example: You make $100,000 after expenses and 50% of your self employment tax and contribute $17,500 as the employee. As the employer you can then use the same formula as above: $100,000 times 20% and see that you can contribute an additional $20,000 to your account for a yearly total of $37,500.

Moral of the Story: If you’re trying to get the most bang for your buck, the account to open is almost always the Individual 401(k). It will let you sock away a lot more than any of the other accounts per year.

Any freelancers out there? What accounts do you use?