Retirement Planning Programs

Simplified employee pension plans (SEPs) allow business owners to contribute to special IRAs for themselves and their employees. The contribution limits are 15 percent of earned income for employees and 13.04 percent for the owner. SEP contributions are a business tax deduction and can be forgone in low earning years. Required paperwork is minimal. Salaried workers with outside self-employment income can also use SEPs.

Keogh plans allow self-employed persons to contribute the lesser of 100 percent of net self-employment income, or $40,000, starting in 2002. Contributions must also be made for all eligible employees. Several types of Keoghs are available. A major disadvantage is an annual disclosure form that must be filed with the IRS.

The Savings Incentive Match Plan for Employees (SIMPLE) is available to businesses with no more than one hundred employees. Employees can contribute up to $7,000 annually in 2002 and employers can match up to 3 percent of workers’ compensation. Like SEPs, SIMPLEs have low administrative responsibility, compared to Keoghs. Contribution limits will be increasing to $8,000 in 2003, $9,000 in 2004, and $10,000 in 2005.