What Is A Retirement Plan For Self Employed People? 
The most common retirement accounts for the self-employed are SEP IRAs , Simple IRAs and individual 401 -LRB- k -RRB- s . These plans have two factors in common : up-front tax breaks and tax-deferred saving , meaning you do n't pay taxes until you withdraw the money in retirement . The Roth version of the individual 401 -LRB- k -RRB- is slightly different : you do n't get an up-front tax break , but your money not only grows tax free , withdrawals in retirement are also tax-free . The Simplified Employee Pension -LRB- SEP -RRB- IRA is probably your best bet.You can open one at virtually any bank , mutual fund sponsor or brokerage firm . Annual account fees are low - or non-existent . Your contribution limit is based on a simple formula : You can put away as much as 25 % of your net income , up to a cap that increases periodically to keep pace with inflation - $ 49,000 in 2010 . Money stays sheltered from taxes during your savings years , and what 's additionally appealing is a SEP 's funding flexibility . You can wait to fund the plan until you file your taxes . So if your income turns out to be higher than expected , you can make a large contribution and cut your tax bill . If you have a tough year , you can scale your contribution back . If you work alone now , but aspire to bigger things . Then a Savings Incentive Match Plan for Employees -LRB- SIMPLE -RRB- IRA may be better for you . With a SIMPLE IRA , you can keep investing in the same plan after you hire someone . Though do n't forget what the plan name stands for : you have to match your employees ' contributions , up to 3 % of pay . The main problem with a SIMPLE IRA is that you can stash away no more than $ 11,500 a year -LRB- $ 14,000 if you 're 50 or over -RRB- , which may not be enough to meet your retirement goals . Also , if you need to make a withdrawal from a SIMPLE IRA plan within two years of its inception , the 25 % penalty is significantly higher than the 10 % fee you 'd be charged for early withdrawal from a SEP IRA . Both the SEP IRA and individual 401 -LRB- k -RRB- make it tough on sole proprietors who try to hire even one full-time employee . SEP rules can lock you into expensive contributions . With an individual 401 -LRB- k -RRB- , unless that employee is married to you , you 'll have to stop funding your plan or convert it to the more complex and cumbersome employer version . For that , you 'll surely need professional help , and you may even have to hire a third-party plan administrator . That does n't come cheap . The Individual 401 -LRB- k -RRB- is an especially good choice if you are scrambling to build up your retirement savings and can afford to sock away a considerable portion of your earnings . The generous contribution formula lets you put aside more money at a lower income level than you can with a SEP IRA . As an employee , you can stash away as much as $ 16,500 . As the boss , you can contribute an additional 25 % of compensation , up to a maximum of $ 49,000 , including your employee contribution . These contributions are discretionary , so you can save the maximum in flush years and nothing in tougher times . If you and your spouse are both in the plan and enjoy a banner year , you could save a total of $ 98,000 . And if you are both 50 or older and eligible for catch-up contributions of $ 5,500 each , the total climbs to $ 109,000 . It 's also possible to take out a loan against an individual 401 -LRB- k -RRB- . That can be useful if you need funds during a business crunch . You can borrow half the account 's balance , up to $ 50,000 , and typically take up to five years to pay it back -LRB- provider rules vary -RRB- . That said , borrowing from a retirement plan should be a last resort , since it could seriously undermine your long-term goals . Individual 401 -LRB- k -RRB- s come with a bit of bureaucratic hassle . Once your balance exceeds a certain level - $ 250,000 in 2010 - you have to fill out an IRS form -LRB- form 5500 -RRB- every year , which adds a bit to your accountant 's bill . Before a tax law change in 2001 , Keogh plans were a popular choice for high-income self-employed people . These days , they 've been largely replaced by SEP IRAs , which have the same contribution limits but much less paperwork . Keogh plans come in two varieties : Defined-contribution . These plans have two variations : profit-sharing and money-purchase . The profit-sharing version of the Keogh is most like the SEP ; there 's a ceiling on contributions - 25 % of compensation , up to a maximum contribution of $ 49,000 in 2010 - and below that limit you can put in whatever you can spare . You also can change your contribution each year . With the money-purchase plan , you pick a percentage of income you 'll contribute every year , and stick with it . If you do n't , you 'll owe the IRS a penalty . Defined-benefit . This type of Keogh acts as a traditional pension plan , but for one key fact : you fund it yourself . You pick the annual pension you want , then contribute -LRB- and deduct from your taxes -RRB- whatever amount is needed to reach that goal . If you 're self employed and have a high income - say you 're a doctor or lawyer - this type of plan may allow you to save more for retirement than many other plans . Keoghs can be complicated to set up , and the paperwork required if you own one is considerable . If you 're interested in establishing a Keogh , consult a financial adviser . 