In this day and age of few defined benefit pension plans and a lot of questions about the solvency of our nation's social security system, we all face the challenge of saving enough to support ourselves during our non-working years.

Those of us, including yours truly, who work for themselves, have the additional responsibility of starting a tax friendly retirement savings plan for themselves. Fortunately, there are a number of plan options available to the self-employed. I will limit our discussion to those who are self-employed and do not currently have any employees.

A Simplified Employee Pension (SEP or SEP-IRA) is well named. Administration of a SEP is straightforward and inexpensive with no special governmental reporting requirements. Your company can contribute up to 25% of your salary each year not to exceed $50,000 in 2012. SEPs also give you the flexibility to choose what percentage of compensation you would like to contribute each year. You, as an employee, can contribute to the SEP or separate Traditional or Roth IRA up to the IRS limits ($5,000 in 2012).

A Savings Incentive Match Program for Employees (SIMPLE IRA) is another retirement plan option for the self-employed that is straightforward, low cost, and easy to administrate. For 2012, you can contribute up to $11,500 (or $14,000 if over 50 years old) as an employee. The company must match up to an additional 3% of your contribution or make a non-elective contribution of 2% of your compensation. A SIMPLE plan may be a good option if you have a limited salary but would like to contribute most of it to your retirement savings plan.

A Solo or Self-Employed 401(k) is yet another option. Under a Solo 401(k), you can contribute up to $17,000 in 2012 ($22,500 if over 50) as an employee and the company can also contribute an additional 25% of your compensation. All contributions combined cannot exceed $50,000 ($55,500 if 50 or over.) You may be able to maximize your contributions under a Solo 401(k) versus a SEP or a SIMPLE, but the added benefit comes with more administrative responsibility including annual reporting.

Which type of the plan is the best for you? It depends on your particular circumstances such as how much you earn and whether or not you expect to add staff in the future. Professional advice is especially important if you do plan to add employees because plan requirements become much more complicated.

If you want additional information, there are on-line resources that can help you determine the right plan for you. Vanguard's website is an excellent resource for the do-it-yourselfer. It has an interactive tool that will recommend a plan for you based on your particular circumstances.