One-Person 401(k)s Make a Lot of Sense for Self-Employed USA Today (05/21/02) p.3B; Block, Sandra
One-person, or owner-only 401(k) plans have become more attractive for some self-employed workers since last year's tax-cut bill. The individual plans can be less costly and more advantageous for the self-employed than Keogh plans, SEP individual retirement accounts, or Simple IRAs. With owner-only 401(k)s, contributions are based on income, but workers who are self-employed can contribute up to $40,000 annually, and those over age 50 can contribute even more. All contributions are tax free, and the individual 401(k) can be borrowed from, just like a regular employer-provided plan. New rules and technology have made the self-employed 401(k) less costly than other retirement plans, and these 401(k)s are protected from creditors by the federal Employee Retirement Income Security Act. Self-employed workers who are planning to expand their business and hire new employees should stay away from owner-only 401(k)s, though, or they will be forced to make the plan available to all employees and could face Internal Revenue Service penalties. Experts forecast that the future will see more financial services companies offering individual 401(k) plans.