Question: I am a self-employed, single, 34-year-old editor with no debt and no mortgage. After four years, I’ve saved enough to start thinking about things like retirement and investing. I don’t have any sort of retirement plan, so have been looking into opening an IRA. I’d like to benefit from tax-deductible contributions, since I pay (what feels to me like) an arm and a leg in taxes for my meager income. What’s the difference between a SEP IRA and a traditional IRA, if any? Do you recommend one over the other? Thanks so much! Anitra, Danville, CA

Answer: I like the SEP-IRA as a retirement plan for the self-employed.

Just like a traditional IRA, the contributions into a SEP are tax deductible, the money grows tax deferred, and you have until April 15 to make your contributions (or whatever is the tax deadline for that year). You’ll pay ordinary income taxes on withdrawals in retirement. The SEP-IRA is a low-fee low-paperwork option for the self-employed.

The big difference between the two is how much you can put into the SEP. The maximum contribution into a traditional IRA at your age is $5,000 for 2011.

But for a sole proprietor with income that doesn’t run through a W-2, the maximum SEP contribution is 20% of net adjusted self employment income up to a limit of $49,000. (It’s 25% of your total income up to $49,000 if you receive W-2 income.)

Of course, you might not be able to put $5,000 into retirement right now. The SEP lets boost your contributions as your business does better and gets more profitable.

The drawback to the SEP is making the calculation on how much can actually set aside. you set aside. “Net adjusted self employment income” is a mouthful and a bit complicated. This calculator may help give you a quick indication of where you stand.