SEP (Simplified Employee Pension Plan):
Anyone with self-employment income may start a SEP plan. Contributions of up to 20% of self-employment income or $49,000 are allowed. A SEP allows employers to contribute to traditional IRAs for their benefit and employees.  A SEP can allow for greater contributions than a traditional or Roth IRAs contributions limits will allow, if self-employment income is great enough. The employer is not required to contribute every year. If the employer contributes, they must do the same for employees. The simplicity of a SEP plan results in very low administrative costs for the employer. Contributions to a SEP are generally tax deductible, and the contributions and earnings are tax deferred until withdrawn.  The Plan must be created and funded by your tax return due date, including extensions if applicable.

SIMPLE IRA (Savings Incentive Match Plan for Employees):
A SIMPLE IRA plan is available for employers with 100 or fewer employees. A SIMPLE IRA allows employees and employers to contribute to traditional IRAs. A SIMPLE IRA also allows greater contribution limits than a traditional or Roth IRA. For the year 2011, $11,500 may be set aside by those below age 50, and $14,000 by persons age 50 and over. Employers are required to make either matching contributions based on elective deferrals made by employees or non-elective contributions, which are paid to each eligible employee regardless whether elective deferrals were made. Contributions are also tax deductible, and contributions plus earnings will be tax deferred until withdrawn. Employer contributions must be made by the due date of the tax return, including extensions.

401(k):
Another small business option is starting a 401(k). For the year 2011, up to $16,500 may be contributed for individuals below age 50, and $22,000 for those ages 50 and above. Employee contributions are made by elective deferrals that can be easily deducted from their paychecks through payroll deductions. The elective deferral is contributed to the plan before tax, and the funds plus earnings will not be taxed until withdrawn. 401(k)s can also be set up to have a separate Roth account. A Roth 401(k) is funded using after tax dollars; however, the earnings on the account are completely tax-free. Employers may choose to match employee contributions, but all employer matching contributions must be pre-tax, even if the individual is contributing towards a Roth account. A 401(k) can be easier for employers because they are managed by professionals.  Another advantage is that certain tax-free borrowing from the plan is allowed, so access to retirement savings for an emergency is possible without incurring tax penalties.