Self-employed? How to save for retirement

Q: I’m a self-employed consultant. What type of retirement savings account would be best for me?

A: The two best options for most self-employed workers are a Simplified Employee Pension (SEP) and a solo 401(k). You can make tax-deductible contributions to either plan, and the money grows tax-deferred until you withdraw it in retirement. (You usually have to pay a 10 percent penalty for withdrawals before age 59 1/2.)

SEPs: You still have until April 18, 2016, to open a SEP for 2015. You can make 2016 contributions to a SEP account now, although the maximum limits are calculated based on your self-employment income, so you will need to have an idea of how much you will earn for the year.

If you’re a sole proprietor, you can contribute up to 20 percent of your net self-employment income (business income minus half of your selfemployment tax), with a maximum SEP contribution of $53,000 for 2015. The contribution limit is the same for 2016.

Solo 401(k)s: You needed to open a solo 401(k) account by December 31 for 2015, but you have until April 18, 2016, to make 2015 contributions. You can make 2016 contributions to a solo 401(k) account now, although, again, the maximum limits are calculated based on your self-employment income, so you will need to have an idea of how much you will earn for the year.

You may be able to contribute more to a solo 401(k) than to a SEP — up to $18,000 for 2015 or 2016 (or $24,000 if you’re 50 or older anytime during the year), plus up to 20 percent of your net self-employment income, with a total solo 401(k) contribution of $53,000 (or $59,000 if you’re age 50 or older). Your total contributions cannot exceed your self-employment income for the year.

Some solo 401(k)s give you the option to make Roth contributions, which are not tax-deductible now but can be withdrawn tax-free after age 59 1/2.