Plans for self-employed (no employees)
- Owner-only 401(k). When you establish an "owner-only 401(k)," you can contribute more than 25 percent of your income, up to a maximum of $45,000 in 2007. If you're 50 or older, you can even put in an extra $5,000 to your 401(k). Plus, you can transfer most retirement plan assets -- such as profit sharing and money-purchase plans -- into your owner-only 401(k).
- SEP IRA. For 2007, you can put in the lesser of $45,000 or 25 percent of your compensation to your SEP IRA. Eligible compensation is capped at $225,000 for 2007. You can set up a SEP IRA for your business with a minimum of paperwork. And you won't have to file any annual reports on the plan, such as the Form 5500.
Plans for business owners with employees
- SIMPLE IRA. As you can deduce from its name, a SIMPLE IRA is easy to set up and inexpensive to administer. In 2007, employees can contribute up to $10,500 (or $13,000 for those 50 and older) to their SIMPLE IRA. Your business is generally required to match your employees' contributions up to 3 percent of their salary, unless you decide to put in 2 percent of each eligible employee's compensation. If you choose the matching option, you can reduce the match to between 1 and 3 percent in two of every five years.
- Safe Harbor 401(k). By following some specific guidelines, you can set up a Safe Harbor 401(k) -- a plan that offers the same features of a traditional 401(k), but without the burdensome non-discrimination testing required to identify excessive contributions by highly compensated employees. (Employees' contribution limits are the same as those described in the "owner only" 401(k).) The key benefit of the Safe Harbor 401(k) is that you, the business owner, can contribute up to the annual dollar amount (in 2007 that's $15,500, or $20,500 if 50 or older) regardless of how much your employees contribute.