Everyone, regardless of employment status, may open and contribute to a traditional IRA, whose contributions are federally tax-deductible. A traditional IRA limits the maximum annual contribution to $5,000 if you are under age 50 and $6,000 if you are over 50. If your modified adjusted gross income is less than the income limits determined by the IRS, you may open and contribute to a Roth IRA. Roth accounts have the same contribution limits as traditional IRAs, but you pay federal income taxes on your contributions.
A SEP IRA, on the other hand, is a simplified employee pension account into which only an employer may contribute funds. Because you are your own employer, the IRS qualifies you to make your own contributions to the plan. Unlike a traditional or Roth IRA, you may contribute up to 25 percent of your net self-employment income, with a maximum of $49,000 per year. Your contributions to a SEP IRA are tax-deductible.