A SEP is easiest to set up, but a solo 401(k) might let you set aside more money. By Kimberly Lankford, Contributing Editor September 14, 2012 I earned some money on freelance writing projects this year. Can I use that money to set up a retirement savings plan?QUIZ: Are You Saving Enough for Retirement? Yes. You have several retirement-savings options if you’re self-employed or have freelance income on the side. The two best choices are a Simplified Employee Pension (SEP) and a solo 401(k). Contributions to either type of account are tax-deductible and grow tax-deferred for retirement. The easiest to set up is the SEP, which works a lot like an IRA and is available through most brokerage firms, mutual fund companies and banks. You can usually invest in any mutual funds, stocks, bonds or other investments available in the firm’s IRAs. You can contribute up to 20% of your net self-employment income (which is your business income minus half of your self-employment tax), up to a maximum of $50,000 in 2012. But you may be able to contribute more money to a solo 401(k) because you fund a solo 401(k) as both an employee and an employer. You can contribute up to $17,000 plus up to 20% of your net self-employment income, up to a maximum contribution of $50,000 in 2012. (Your total contributions cannot exceed your self-employment income for the year.) And if you are 50 or older by the end of the year, you can make catch-up contributions to a solo 401(k) -- but not to a SEP -- of up to $5,500, for a maximum contribution of $55,500 in 2012. Advertisement The solo 401(k) can be a particularly good option if you have just a little freelance income for the year. If you earned $17,000 of net self-employment income from a sideline job, for example, you could contribute the full $17,000 to a solo 401(k). In contrast, you could only contribute $3,400 to a SEP (20% of your net self-employment income). You do need to be careful with solo 401(k) limits if you have a 401(k) through an employer and also have some freelance earnings. In that case, your total employee deferrals to your employer plan and your solo 401(k) are limited to the $17,000 for the year. But you can still contribute up to 20% of your net self-employment income to a solo 401(k), as long as the total amount of your solo 401(k) contributions doesn’t exceed your total self-employment earnings for the year. More firms offer SEPs than offer solo 401(k)s. You can get a list of solo 401(k) administrators and other information at 401khelpcenter.com. Fidelity’s Self-Employed 401(k) plan charges no setup or annual account fees, sets no minimum-investment requirement, and lets you invest in Fidelity and non-Fidelity mutual funds, as well as stocks, bonds and other investments available to Fidelity’s brokerage customers. Charles Schwab’s Individual 401(k) also has no set-up or maintenance fees and does not require a minimum initial investment. Its solo 401(k) provides almost all of the same investment choices as are available to regular brokerage accounts. The deadline for opening a solo 401(k) is earlier than it is for SEPs. You must open a solo 401(k) by December 31 to qualify to make 2012 contributions, even though you have until April 15, 2013, to contribute the money. The deadline to open and fund a SEP for 2012 is April 15, 2013. For more information about choosing a self-employed retirement plan, see Build a Nest Egg When You Work For Yourself. Got a question? Ask Kim at firstname.lastname@example.org.