Small Business Owner with No Retirement Savings Plan?

Are you self employed or own your own business?

If you're self-employed or own a small business and you haven't established a retirement savings plan, what are you waiting for? A retirement plan can help you and your employees save for the future. And you'll be in good company--over 1 million small businesses with 100 or fewer employees currently offer workplace retirement savings plans.

Tax advantages. A retirement plan can have significant tax advantages:

• Your contributions are deductible when made

• Your contributions aren't taxed to an employee until distributed from the plan

• Money in the retirement program grows tax deferred (or,in the case of Roth accounts, potentially tax free)

• You may be able to claim a tax credit equal to 50% of the cost to set up and administer a retirement plan, up to a maximum of $500 per year for each of the first three years of the plan

• Certain low- and moderate-income employees may be entitled to a tax credit ("saver's tax credit") for a portion of their contributions to the plan

Types of Plans: Retirement plans are usually either IRA-based (like SEPs and SIMPLE IRAs) or "qualified" (like 401(k)s, profit-sharing plans, and defined benefit plans). Qualified plans are generally more complicated and expensive to maintain than IRA-based plans because they have to comply with specific Internal Revenue Code and ERISA (the Employee Retirement Income Security Act of 1974) requirements in order to qualify for their tax benefits. Also, qualified plan assets must be held either in trust or by an insurance company. With IRA-based plans, your employees own (i.e., "vest" in) your contributions immediately. With qualified plans, you can generally require that your employees work a certain numbers of years before they vest. Which plan is right for your business?

With a dizzying array of retirement plans to choose from, each with unique advantages and disadvantages, you'll need to clearly define your goals before attempting to choose a plan.

For example, do you want:

• To maximize the amount you can save for your own retirement?

• A plan funded by employer contributions? By employee contributions? Both?

• A plan that allows you and your employees to make pretax and/or Roth contributions?

• The flexibility to skip employer contributions in some years?

• A plan with the lowest cost? Easiest administration?

The answers to these questions can help guide you and your retirement professional to the plan (or combination of plans) most appropriate for you.