Think the Best Retirement Plans Are Only
for the “Big Guys”? Not Any More !
By Susan Pinto Keen of PIGG, KRAHL, STERN & CO. PA

Is your business just a small company, or even just a one-person shop? You would like to put away some money for your retirement, but don’t really think you have the same options as the big companies do? Well, that has all changed. veryone used to associate 401(k) plans only with large, well-established companies. These types of plans are now available for the small company, especially the one-person shop. The ‘solo’ 401(k) is a great option for a business that generates a healthy, but not huge, self-employment income. With the traditional retirement plan options for one-person shops, you can make annual maximum deductible contributions of 20% of self-employment income or 25% of compensation income (salary) if you are an employee of your own C or S Corporation. The options with a ‘solo’ 401(k) are even better. Not only can you make an ‘employer’ contribution, you can also elect to defer some of your own income, which reduces your salary for tax purposes. So, in effect, you are getting a tax deduction. An example: You are 47 and a sole proprietor with $65,000 in self-employment income. You can make a maximum deductible contribution to a ‘solo’ 401(k) of $24,082; $12,000 (the 2003 deferral limit) from your income and an employer contribution of $12,082 (20% of $65,000, reduced by ½ of self-employment tax). With the traditional SEP or Keogh plan, you could only contribute $12,082. If you were 50 or over with the same income, you could defer $2,000 more. The deferral limits will continue to increase in 2004 through 2006 for the ‘solo’ 401(k), which means its advantages over traditional plans will continue to grow. At higher income levels, the ‘solo’ 401(k)’s advantages over traditional plans begin to diminish and eventually disappear. With self-employment income up to $200,000, the total maximum deductible contribution is higher for the ‘solo’ 401(k) than for traditional retirement plans. However, the self-employment income level where it has the greatest advantage over traditional plans is at $140,000 or less. If you have a healthy income that is still below these limits, feel free to give me a call to discuss this significant tax-saving technique.

MAGGIE’S MEMO: Susan Pinto Keen, a Certified Public Accountant with PIGG, KRAHL, STERN & Co., P.A., has 15 years of accounting, audit, tax and business consulting experience. PIGG, KRAHL, STERN, & Co., P.A., with offices in Salisbury and Ocean City, helps businesses succeed. Let them help you.

MAGGIE SAYS: Susan Keen’s clients unhesitatingly recommend her. Call PKS at 410-546-5600 and ask for Susan Keen.