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How to Retire Without a 401(k)

Ryan Derousseau

When it comes to retirement planning, fear of the unknown can lead to poor choices and anxious nights.

Options are key for retirement. The more you have, the more you can ensure your savings are invested in low-fee vehicles that will build your nest egg over decades. For those with fewer options, retirement planning becomes much more of a fearful endeavor.

A recent survey by the Employee Benefit Research Institute (EBRI) found the percentage of American workers that are very confident or somewhat confident about their retirement has leveled off at 63 percent. That has stabilized following the years in which confidence was suppressed due to the recession and subsequent recovery.

A major factor. However, almost 20 percent of workers are not at all confident about having enough money for their plans. The biggest differences between the two groups: A 401(k) account or pension. When the worker, or the worker's spouse, has no company-funded retirement plan, the number of those being not at all confident or not too confident is 57 percent. Meanwhile, that sentiment was reported by only 26 percent rate of those with a company funded plan.

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This leaves the potential for a large -- and growing -- group that also lacks confidence for retirement: the self-employed. Whether you're an entrepreneur, consultant or freelancer, not having the 401(k) through work shouldn't set your retirement plans back.

An entrepreneur's strategies are influenced by the size of the business. But they have several options when picking a retirement strategy. It depends on "whether you have employees or not," says Gordon Bernhardt, CEO of Bernhardt Wealth Management in McLean, Virginia.

Here is a look at some options.

SIMPLE IRA. For an owner that doesn't want to have employees and isn't making big bucks yet, then the SIMPLE IRA may work best. It allows for up to $12,500 in contributions a year, which far exceeds the typical limit of $5,500 that one can place in an IRA or Roth IRA per year.

A SIMPLE IRA can also grow with your business, to a point. If you're ready to hire employees, then you can add them to the plan, and provide them with the perk of up to a 3 percent match. The downside is you have to contribute, even if you have a poor year.

Simplified Employee Pension. For entrepreneurs that begin to pull in more money, then a Simplified Employee Pension (SEP) IRA may make the most sense because you "can put much more in than with the SIMPLE IRA," Bernhardt says. That's because with a SEP IRA, you can contribute up to $53,000 a year. Plus, there are no tax returns to file and no discrimination rules.

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But there are downsides because of the requirements that follow SEPs. Particularly noteworthy, if you decide to add employees, you have to match your contribution to theirs. This can get expensive if, say, you have a 10 percent contribution level. You can't keep yours high, and then have employees contribute at a 5 percent level, for instance.

Solo 401(k). Consultants or freelancers should look at the Solo 401(k). For consultants and freelancers, pay can vary by the year, depending on the clients and the projects available. This can create headaches when saving for retirement.

Often plans have a set amount that you have to pay. But with the Solo 401(k), that is a limitation that you can avoid. "You don't have to contribute to it every single year," says Pearce Landry-Wegener, an advisor for Summit Place Financial Advisors in Summit, New Jersey. "If you have a bad year, then you don't have to."

This gives a level of flexibility. But it still allows a $53,000 contribution limit, giving the chance to add a good amount of money during a strong year.

"As a consultant, there's never enough time," Landry-Wegener says, "but it's important to make some time for retirement."

IRA or Roth IRA. Of course, with all these plans, it's also about ensuring the funds you're investing in have low fees. If you go it alone, without the help of an advisor, then you will have to set up the IRAs or 401(k)s yourself through a brokerage firm.

For employees that don't have a 401(k), there are fewer options. For many workers, they have a job, but the business doesn't offer a company retirement plan. This impacts more than you think, as more than 50 percent of U.S. employees, according to data based on 2012 Census figures. But the options are limited in terms of what you can do.

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"They can't do anything but save into an IRA or Roth IRA," Bernhardt says. Of course, you can still save a good amount using them. They both have a $5,500 savings limit. But for Roth IRAs, if you're making more than $132,000 as a single person or $194,000 as a married couple, then you're not eligible.

Assuming you're below those numbers, then you can max out an IRA or a Roth IRA, as can your spouse.

One thing to avoid, in most cases, is annuities. While annuities may seem appealing to those with fewer retirement options, the "fees typically overrule any benefit," Landry-Wegener says.

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