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Retirement Plan Options for Sole-Proprietors

• Profit sharing plans provide impressive contribution flexibility of 0 to 25% of eligible employee compensation or $40,000, whichever is lower. This is a solid option for any small business owner, especially for someone who earns more than $160,000 and wants a defined contribution plan. Contributions are tax deductible for the business; contributions and earnings are tax deferred for employees, including the business owner. (Note, the contribution limit is adjusted annually, and will increase to $41,000 for 2004.)

• SEP-IRAs are similar to profit sharing plans but are less expensive and less complicated. These plans allow for contributions of up to 25% of compensation, and they typically have extremely low administrative fees.

• SIMPLE-IRAs are a good choice for business owners who are taking a relatively small salary (up to $55,000). Adding employees to a SIMPLE-IRA is very affordable. For example, The Principal SIMPLE-IRA costs as little as $15 per year for each participant, and that amount is usually paid by the employee. The Principal^® also offers online processing of SIMPLE IRA contributions, which eliminates the need for paper, checks and mail time.

• Defined benefit plans are a good option for high-earning employers over the age of 45.

• Individual 401(k) plans are now very attractive for one-person businesses because of the new federal tax law. By combining new provisions in the law, owners can dramatically increase the amount of their contribution to a 401(k). The owner can contribute 25% of pay on top of making the new maximum $12,000-a-person deferral in 2003 ($13,000 in 2004). The total contribution of the plan is limited to $40,000 ($41,000 in 2004). It's important to note that if another employee is hired, the owner's contributions and the complexity of the plan change dramatically.

• E-401(k)'s are a low cost, highly convenient option for tech-savvy owners who believe they will hire employees down the road. For example, Impact401k.com^®, offered by The Principal, allows owners to build-their-own plan and add employees online. As a result, fees are lower than a traditional 401(k).

For additional information or to arrange an interview with an expert from The Principal, please contact Susan Houser, 515.248.2268, houser.susan@principal.com or Terri Hale, 515.283.8858, hale.terri@principal.com.