Should a sole proprietor open a 401(k)?

NEW YORK (Money Magazine)

That depends mostly on how much you make and how much you want to save.

Is your self-employment income less than roughly a quarter million? You can probably put more into the solo 401(k) -- a retirement plan for a one-person business -- says Adam Bergman, a tax attorney at IRA Financial Group in New York City.

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Your contributions to a simplified employee pension IRA, also used at small firms, are capped at 20% of income after a reduction for self-employment taxes; with a solo 401(k), you can sock away up to $17,500 more. Either way, your 2013 limit is $51,000 or, if you're 50 or older, $56,500 in a solo 401(k).

Related: Trick yourself into boosting 401(k) contributions

Higher limits aren't the only perk of a solo 401(k): You can also use it to make Roth 401(k) deferrals of after-tax money that you can withdraw tax-free in retirement.

Maxing out a retirement account

A sole proprietor can save more for retirement in a solo 401(k) than in a SEP-IRA -- up to a point.

$125,000	$23,300	$40,800
$250,000	$47,900	$51,000

Note: Limits are 2013 figures for sole proprietor under the age of 50.
Source: Fidelity