How Do I Decide Between a SIMPLE IRA, a SEP IRA, and an Individual 401(k)?

A SEP IRA may be your best bet if you are a one-person show and plan to keep it that way. You can open one at virtually any bank, mutual fund company or brokerage firm, and pay low or no annual account fees.

If you're a small business owner, SEP IRAs are appealing because they are easy and inexpensive to set up, and contributions are tax deductible. A SEP IRA's funding flexibility is also a draw. If you have a tough year financially, you can choose not to contribute to the plan. If you have a great year, you can fund the plan with a larger contribution than you'd originally intended.

Individual 401(k)s are only for sole proprietors, and they are ideal if you intend to sock away large sums. An individual 401(k) allows you to save for retirement both as an employer and an employee, often enabling you to contribute more than would be possible with other retirement plans.

If you are a small business owner or a self-employed person and you haven't set up any other type of work-related retirement plan, consider the SIMPLE IRA. Unlike profit-sharing or 401(k) plans, SIMPLE IRAs are easy to set up and easy to administer.

This is especially true if you work alone but aspire to run a bigger business. Adding even one full-time employee to other plans, like a SEP IRA, can be a big hassle. Not so with a SIMPLE IRA. Keep in mind that the SIMPLE IRA's contribution limits are much lower than those for an SEP IRA ($12,000 for the SIMPLE in 2014, versus a maximum of $52,000 for the SEP), which can affect your ability to save enough for a comfortable retirement.