The Under 40 Financial Planning Guide: Open a SEP

Another benefit for the self-employed person is a Simplified Employee Pension, or SEP. A SEP works like an IRA, allowing you a tax deduction equal to your contribution, and any money you earn is tax-free while your money remains in the SEP. The difference is that you can put in up to 13 percent of your income (capped at $20,000 per year). A SEP is easy to set up at most banks and brokerage firms. You can invest your SEP money in stocks, bonds, mutual funds and other investments.

I recommend using a brokerage firm to get the greatest number of investment options.

Keep in mind that you can open a SEP until the April 15 tax deadline for filing your taxes. If you file for an extension, you will have until August 15 to fund your SEP, but I recommend opening it by April 15 anyway -- to guard against any changes in the tax law for that year.