Guide to Self-Employed Pension Plans

Fly solo with a 401 (k)

The Solo 401(k) is great if your business is raking it in and you need to catch up on retirement savings. A generous contribution formula lets you sock away a larger portion of earnings at a lower income level than with other plans. You can also borrow against a Solo 401(k) -- handy if you fear locking up your money long term.

I recommend: AICPA has complete Solo 401 (k) details in a great site called 360 Degrees of Financial Literacy. The IRS has a good PDF download 401 (k) Plans for Small Business. The 401 (k) Help Center is a terrific place to discover plan details and download a Directory of 401 (k) plan providers. The Small Business Channel has advice on how to choose the best plan and find plan vendors. See how much you can contribute to a Solo 401 (k) with a contribution calculator. Do it all online with The Online 401 (k) for small business.

SEP-IRAs work for one-person shows

The SEP-IRA is great if you run a one-person show and intend to keep it that way. Open one at virtually any bank, mutual fund company or brokerage firm. The contribution limit is 25 percent of net income up to $44,000 (adjusted periodically for inflation). If you hire help later, however, funding rules can make this plan costly, and loans are not allowed.

I recommend: One appealing SEP-IRA feature is funding flexibility. These plans let you wait until you file your taxes to fund the plan. So if your income turns out to be higher or lower than expected, you can adjust your contribution to fit. See how a SEP plan works and how to establish a SEP.

Get sophisticated pension power with a SIMPLE IRA

The SIMPLE IRA is good for entrepreneurs who aspire to run bigger businesses.

I recommend: Even if you add employees, you can keep the same plan. But "SIMPLE" stands for "savings incentive match plan for employees," so you will have to match employee contributions up to three percent of pay. AICPA has complete SIMPLE IRA details. Also check how a SIMPLE IRA works and how to establish a SIMPLE IRA.

See side-by-side comparisons

Plan features are different, and confusing. See how they stack up.

I recommend: The IRS publication Choosing a Retirement Plan Solution for your Small Business (PDF) has handy side-by-side comparison charts that can help you choose the best plan for your needs.