Retirement Accounts for the Self-Employed

Below are the key points of each type of account:

Keogh

Allow you to set aside as much as 100% of your income (up to $42,000 in 2005) in fixed annual contributions or share of profits.
Maximum compensation on which contributions can be based is $210,000 for 2005.
Relatively complex to set up but offers large tax-deduction and retirement savings potential.

SEP-IRA

Lower maximum contributions: less of 25% of income to a maximum of $42,000. The paperwork, however, is much simpler; in fact, these are just a special form of IRA for the self-employed.
You can set up traditional or Roth IRAs in addition to the self-employed pension plans.
Tip for self-employed spouses: Regardless of your spouse’s earnings or retirement plan, you can contribute to your own Keogh or SEP IRA. A spouse’s 401(k) plus your own deductible SEP IRA is a powerful one-two retirement punch for couples.

SIMPLE

Can either be organized as SIMPLE IRA or a SIMPLE 401(k).
SIMPLE IRAs allow a $10,000 max contribution for 2005 (and another $2,000 catch-up amount for those over 50).
Unlike other plans, SIMPLEs allow you to contribute up to 100% of earnings (up to $10,000 max contribution for 2005; ) so it’s ideal if you own a small business.
SIMPLE 401(k) plans are becoming less common because the costs of setting up a regular 401(k) have dropped.
A new 401K for self-employed individuals that allows contributions of up to $42,000 without the 25% of income constraint (e.g. you don't have to make $208,000 to max out your contributions).