own a small decorating business and Ill be the first to admit that I dont know

anything about taxes or retirement plans. Id like to set up a 401(k) or an IRA

or some other kind of retirement plan for me and my three employees. What are

the various retirement plan options available for a small business owner and in

your opinion Carlos

Rivas Jersey , which would work best for me?
-- Wanda

S.

A: Wanda, I appreciate your confidence in my humble opinion, but

asking me for financial advice is like asking Donald Trump for a recommendation

on hair care products. I can tell you what works best for me and my business,

but youll need to do your homework and seek professional advice to figure out

what would work best for you. As a side note Bryan

Rochez Jersey , I hear that Donald Trump is coming out with his own

line of hair care product soon to be called Big Head. The formula is 1% mousse,

1% liquid nails, and 98% hot air. It should be a big seller among the high brow,

comb-over crowd.

Heres my best advice on retirement plans: find yourself

a financial advisor (or financial planner) who is has experience working with

small businesses and have him or her explain the options available and make a

recommendation as to the type of plan best suited for you and your business.

When I say financial advisor Im not talking about your know-it-all

brother-in-law or your accountant. Im talking about a broker or financial

planner (or other licensed professional) who has a proven track record of making

his clients money and is an expert on IRAs Brek Shea

Jersey , 401(k)s, mutual funds, etc.

The best way to find a

good financial advisor is to ask for referrals from your most successful friends

and associates. Find the richest, stingiest man in town and ask who his advisor

is. Meet with several advisors Blank

Jersey , explain your situation, and ask for their recommendations.

You should also make sure the advisor is a good fit for your personality and

your business. If all goes well you will be doing business with this person for

many years to come, so make sure the relationship feels comfortable to you and

that you are confident in the advisors ability to manage your money.

Let

me give you a quick overview of a few of the retirement plans available to small

businesses so you at least have an idea of whats out there before you start your

search for a good financial advisor.

As a small business you basically

have three types of retirement plans that you can take advantage of: the

Self-Employed 401(k); the Simplified Employee Pension Plan or SEP IRA, and the

Savings Incentive Match Plan for Employees or SIMPLE IRA. Each allows you to

make pre-tax contributions to the plan Aurelien

Collin Jersey , which lets you save for retirement and lessen your

taxable income by the amount of the contribution. Your investments also grow

tax-deferred until withdrawal.

A Self-Employed 401(k) is an option for

self-employed individuals or business owners with no employees other than a

spouse. The business can be a sole proprietorship, a partnership, or a

corporation, including S corps. You can make salary deferrals to this type of

plan of up to $14 Adrian

Winter Jersey ,000 for 2005.

Next is the Simplified

Employee Pension Plan or SEP IRA. A SEP is an option if you earn a self-employed

income from a full or part time business, even if you are covered by a

retirement plan at your fulltime job. A SEP allows you to contribute up to 25%

of earned income, up to $41,000 for 2004 and $42 Adam

Bedell Jersey ,000 for 2005.

My preferred type of

retirement plan is the Savings Incentive Match Plan for Employees or SIMPLE IRA.

The SIMPLE IRA was created to make it easier for small businesses with 100 or

fewer employees to offer a tax-advantaged, company sponsored retirement

plan.

With a SIMPLE IRA you and your eligible employees may contribute up

to 3% of earned income (with a maximum contribution of $10,000) on a pre-tax

basis to individual SIMPLE IRAs. You must deduct Social Security and Medicaid

from your gross income, but you can then make your SIMPLE IRA contribution

before other taxes are levied Orlando City SC Jersey ,

effectively lowering your taxable income.

As the employer you must make

matching or non-elective contributions into your employees SIMPLE IRA accounts.

Matching contributions means that the business matches the elective deferral

contributions made by employees. For example, if the employee opts to contribute

3% of his salary to the plan, the employer must match the 3% contribution.

At first you might cringe at matching your employees contributions, but

as the business owner and an employee yourself this can be great news. As an

employee of your own business you can contribute up to $10 Tyler

Turner Orlando City Jersey ,000 to your SIMPLE IRA and the business

can then match your contribution dollar-for-dollar, which means that you can put

up to $20,000 in tax free dollars into the plan per year. The cost of the

contributions is also deductible as a business expense.

The non-elective

contribution option requires that the company contribute 2% of every employees

earned income to the plan on the employees behalf regardless of whether or not

the employee contributes to the plan himself. For 2005 the maximum contribution

you would be required to make is $4,200.

Like a traditional

IRA Tony

Cascio Orlando City Jersey , you can withdraw money from a SIMPLE

IRA at any time; however distributions within the first two years of

participation are subject to higher early withdrawal penalties than traditional

IRAs or Roth IRAs. Withdrawals within the first two years are subject to a 25%

early withdrawal penalty. Withdrawals taken after the first two years are

subject to a 10% early withdrawal penalty.

As the employer, the

advantages of a SIMPLE IRA include: company contributions to the plan are tax

deductible as a business expense; plan documents are simple and easy to

administer; administration costs are low; and there