The Details
Now that we have given you a brief overview, let�s get into some specifics about your Defined Contribution options.  (Remember, we are leaving the Defined Benefit type of plans out of our discussion.)

• 401K � Surprise�you as an owner can now set up your own 401K plan!  The best part of the 401K plan is that you can contribute varying amounts each year, up to a $10,500 level for the year 2000.   And, like the other plans, the allowed contributions are all tax-deferred (ah, there are fewer more beautiful terms in the English language that that one!)�you don�t have to pay any tax on it until your golden years.  However, now the rub�you can�t contribute to this plan unless you are a partnership, LCC, C Corporation or S Corporation.  If you are a sole proprietorship (or husband-wife team), you aren�t eligible.  Further, you have to have the plan formally administered...and the IRS is involved annually.  See our table for more info.

• �Simple� 401K � Congress recently made the �Simple� 401K available as an option to business owners.  The main benefit to this plan (over the regular 401K plan) is that employees don�t have to be vested to participate.  Unfortunately, there�s still nothing �simple� about it.  You still have to have the plan formally administered (translate that more time, money and hassle), along with annual IRS reporting, issuing of participant statements of accounts�and more.  (And isn�t this just what the small business person needs more of?)

• Profit Sharing � This is a plan in which  you share your business profits with your employees (including just YOU).  But you have a lot of leeway�there is no set IRS formula for determining what �profits� are.  Also, you decide each year if you want to contribute to the plan.  Further, if you don�t have profits, you don�t have to contribute (i.e., variable contributions).  Finally, it�s more flexible than a money-purchase plan (see below).  However, there are some limitations that make this plan not as popular (see our chart below)�such as a lower maximum deductible contribution.

• Money Purchase � A Money Purchase pension plan is similar to a profit sharing plan, except that the employer must contribute a certain fixed percentage of the employee�s compensation each year, no matter if you make money or lose money.  So, if you can�t make the contribution one year, you must involve the IRS as far as asking their permission to postpone it and catch up in a later year.  However, the maximum deductible is higher in this plan than in a profit sharing plan.

• Simple IRA � Although the name �simple� is still somewhat deceptive, it really is a much simpler alternative than the �Simple 401K.�  The Simple IRA allows you (and your employee) to contribute up to $12,000 a year ($6,000 from the employee and $6,000 from the employer).  You have a lot of flexibility on what amounts to contribute�but you must contribute to this every year once you start it.  Further, the administration is very easy and doesn�t require any IRS filings.  This is reason enough to consider this!  (Again, more facts below.)

• SEP IRA � This plan was very popular with small business owners until the Simple IRA came into existence.  Basically, the SEP IRA is similar to the Simple IRA, except that contribution limits are much higher with this type of plan.  For example, you can contribute up to $30,000 a year (or about 13% of earned income, whichever is lower).  It still also avoids IRS filings.  However, you are required to make contributions to this plan every year.  Also, only the employer (you) contributes to this plan.

Sum It Up
OK, there you have some basic facts about all plans.  We realize that you may have some questions about these plans�we just didn�t want to blow you away with all the details.  So, what we�re going to do is give you a quick comparison of all plans using the table on the next page.  This table should give you the knowledge you need to narrow down your alternatives�but you will still need to do your own research to make the final decisions.