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This post is the second half of our two-author, two-part series on smart saving.

Along with the health insurance dilemma, some full-time employees can be reluctant to quit their job to freelance full-time because it means giving up such perks as a pension and company-sponsored 401(k) retirement plan.

So, in this article, we’ll examine some ways you can keep saving for your future without being backed by a company.

But first, the obligatory disclosure: I am not an accountant or a financial planner, nor I am pretending to be. I’m just a writer whose done a fair bit of research. Please consult a financial professional before placing your savings into any one place.

Also please note that while the terminology in this article is specific to the United States, many other countries have similar options available under different names.

Transitioning

You want to quit your job and freelance full-time, but you’ve been with the company you’re working at for several years and have already been making payroll contributions for a 401(k) plan. What do you about it?

Some employees just withdraw the cash from the plan…and lose a big chunk of it in penalties to the IRS.

Ideally, what you need to do is roll the money over to another qualified retirement fund like an Individual Retirement Account (IRA).

A piece of advice from the blog SoundMoneyTips: “Make sure it’s a direct trustee-to-trustee rollover,” that way you’re still not paying taxes until you withdraw the money.

Solo or Individual 401(k)

You can still have a tax-deferred 401(k) plan when you’re self-employed. It’s referred to as a solo or individual 401(k) plan. Now, the IRS is strict on the solo part, you can only obtain one if you’re running a business where you’re the only employee (though an exception is made if your spouse works for you.)

In fact, there’s an interesting feature to the solo 401(k). As with a standard 401(k) system, you can contribute up to 15 per cent of your salary to be tax-sheltered until being withdrawn. However, as the business owner, you can add an additional 25 per cent to the fund.

That said, from all the research I’ve done for this piece, it can be difficult to find an investment firm offering a solo 401(k).

Individual Retirement Account and Roth IRAs.

An Individual Retirement Account is probably one of the most popular retirement savings plans for freelancers and small businesses due to the simplicity of setting it up.

Money invested in a a traditional IRA isn’t tax-deferred like a 401(k), but it is deductible at the end of the year. Once it’s withdrawn, it’s taxed as standard income. As with the 401(k), though, there is a limit. For 2008, the contribution limit for a traditional IRA is $5000.

However, since 1998, there been another option: the Roth IRA.

It’s a similar individual plan to the traditional IRA (same contribution limit for 2008) but differs in that you’re funding it with post-tax money. As a result, money put into a Roth IRA is not deductible but it’s also not taxed once it’s withdrawn.

An important note: while you can have both a traditional IRA and Roth IRA, the contribution limit is spread among both of them. Meaning, the combined contribution to both funds cannot exceed $5000 in 2008.

Once the money is in an IRA, you can direct it to be used to buy stocks, bonds and mutual funds to keep it growing, but also keep in mind that there are the associated risks of investing in all of the above.

Simplified Employee Pension

A Simplified Employee Pension (or SEP) is another form of IRA but can also be seen as a pension plan that self-employed workers can take advantage of.

That said, it’s significantly more complicated than the other forms of IRA.

Like a traditional IRA, your contributions are tax deductible and money can be invested in the same way.

For the contribution limits and percentage that can be deducted off your taxes, well, this is where the IRS literature made me cross-eyed. There are tables and worksheets to fill out to figure out what to contribute and how much to deduct. No matter what though, you cannot contribute more than $44,00.

(the entire PDF can be viewed here)

High-interest savings account

Others may wish to keep things simple and just make regular contributions to a high-interest savings account. Obviously, returns will be much lower than in other plans but in a shaky economy, it’s not necessarily a bad idea. You aren’t going to lose your money and there are no rules imposed on how you use it or when you withdraw it.

In fact, when I met with a financial planner a few months back to discuss saving for the future, after going over plenty of complicated options, she finally said maybe a savings account is all I really need.

Though, with such easy access to the money, it’s important to remember to keep it there and not use it to splurge on luxuries.

Conclusion

There’s a multitude of options available for freelancers to save for their future, giving them the possibility to retire like any other 9-5 worker. Keep in mind, though, that employer sponsored plans are usually deducted directly from your paycheque. You don’t get that as a freelancer so remember to contribute regularly or at least set up a direct-withdrawal to ensure money keeps getting put aside.

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