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Greetings, BKaytor, and welcome. You asked:

I was self-employed for the first time this year and, of course, I want to reduce my taxable income. In the past I've contributed to a 401(k), but did not have access to one this year. Is an SEP my best option? If so, do I need to set it up by December 31st?

Typically, self-employed persons will set up a SEP, SIMPLE or Keogh plan for themselves. All vary in the amounts that may be set aside and the requirements for and costs of administration, so only you can determine what's "best" for your situation. A SEP may be established as late as your income tax filing date (including extensions) for the year, or April 15, 2002, for most folks. The SIMPLE must be set up no later than October 1 of the first contribution year. A Keogh, which is a qualified plan, must be set up by the end of your tax year, or by December 31 for most folks.

For a general overview of all three plans, see my Retirement Plan Primer at http://www.fool.com/Retirement/RetirementPlanPrimer.htm. You should also get and read IRS Publication 560, Retiremenet Plans for Small Business, which is available for download at http://www.irs.ustreas.gov/forms_pubs/pubs.html.

Regards..Pixy
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