The best choice for you depends on your self-employment income for the year. By Kimberly Lankford, Contributing Editor December 17, 2007 I earned some extra money this year by doing freelance software development, and I would like to open up a self-employed retirement plan, such as a SEP or a solo 401(k). Do I need to make my contribution by the end of the year, or do I have until April 15?It depends on the type of plan you open. You have until April 15, 2008, to open a Simplified Employee Pension and make your 2007 contribution to the plan. If you're interested in a solo 401(k), you need to open up the plan by December 31, 2007, even though you don't need to make your 2007 contribution until April 15, 2008. The best choice for you depends on your self-employment income for the year. It's easier to set up a SEP -- most brokers and mutual fund companies offer them, generally with the same range of investment choices as their IRAs. But you may be able to contribute more money by opening a solo 401(k). Your contributions are tax-deductible with both plans. Sponsored Content Contributions to a SEP are limited to 20% of your business income (which is business income minus half of your self-employment tax), up to a maximum of $45,000 for 2007. So if you earned $15,500 from self-employed freelancing, for example, you could contribute about $2,863. Advertisement The maximum contribution for a solo 401(k) also is $45,000 in 2007. However, you can contribute up to $15,500 plus 20% of your business income (defined the same way). Because the first $15,500 in a solo 401(k) is not based on a percentage of your income, you'll generally be able to contribute a lot more to a solo 401(k) than you can to a SEP, especially if you earn just a little extra money from a freelance job. You can't contribute more than your business income for the year, but if you earn just $15,500 from self-employed freelancing, then you can contribute the whole amount to a solo 401(k). If you have a regular 401(k) through an employer and have some freelance earnings on the side, then your solo 401(k) limits will be reduced by any contributions you've made to a regular 401(k). But that only affects the first $15,500 of contributions, not the 20% of business income. For a list of companies offering solo 401(k)s, see the 401(k)helpcenter. Also see Do-It-Yourself Retirement Plans for details about other self-employed retirement plan choices. And don't forget to write off your business expenses on Schedule C when you file your taxes by April 15, 2008. For details, see Tax Filing for Freelancers: An Introduction to Schedule C. Got a question? Ask Kim at email@example.com.