Creditor protection. Retirement assets held in a 401(k) plan are generally protected from claims of creditors. Creditor protection provides peace of mind that your wealth will continue to build despite any potential hazards on way to retirement.

(To learn more about some aspects of these advantages of a 401(k) plan, see "Borrowing from Your Retirement Account" please visit http://www.marcjlane.com/LaneReport/0304lr.htm and see "Exactly What Does Marc J. Lane & Company do?" please visit http://www.marcjlane.com/investment/index.html

Comparison of Contributions: Solo 401(k) vs. Other Plans

Recent legislation increased maximum deductible contribution under many retirement plans to 25% of compensation, up to a maximum contribution of $40,000. Since a 401(k) plan, uniquely, has two methods of contribution (i.e., an employee salary deferral and an employer contribution), it is able to take advantage of these new limits and defer retirement contributions at a very rapid rate.

For 2003, maximum salary deferral generally allowed is $12,000 per participant (unless participant is at least 50 years old, as noted earlier). Additional contributions may be made by employer; however, employer contributions must be made for each eligible participant and at same rate (i.e., 25% of compensation). Salary deferrals are ignored when determining "compensation" for purposes of computing employer contribution. Therefore, contribution rate (i.e., 25%) is applied toward participant's compensation before salary deferral. However, "compensation" amount used in calculation is less for unincorporated businesses than for corporations because of a reduction for self-employment taxes.

The chart below compares maximum contributions available in 2003 for several popular retirement plans. The chart presumes that business is incorporated, and reflects both maximum employee and employer contribution components.

Comparison of Retirement Plans: Maximum Contributions (2003)

Business Owner Wages for 2003 SIMPLE IRA SEP IRA SOLO 401(k) $ 20,000 $ 8,600 $ 5,000 $17,000 $ 40,000 $ 9,200 $10,000 $22,000 $ 60,000 $ 9,800 $15,000 $27,000 $ 80,000 $10,400 $20,000 $32,000 $100,000 $11,000 $25,000 $37,000 *$112,000 * $11,360 $28,000 * $40,000 * $120,000 $11,600 $30,000 $40,000 $140,000 $12,200 $35,000 $40,000 $160,000 $12,800 $40,000 $40,000

Maximizing Your Solo 401(k): A "Side Business" Example

Bill is an employee of a corporation at which he has been contributing maximum amount to that company's 401(k) plan (currently, $12,000). With stock market's bear market from 2000 to 2002, he knows he either needs to contribute more toward retirement savings or get by with less income in his retirement years. (Note: Bill will probably opt to contribute more toward retirement savings since he is not a $20 million lottery winner) (To see "Case Studies," please visit http://www.marcjlane.com/Studies/casestudies.html)

Bill is also sole shareholder of a corporation that he created five years ago for a side business. That business currently generates $40,000 of income, and since it is a side business, Bill doesn't need income to support his family's routine expenses. If Bill establishes a solo 401(k) for corporation, he can contribute $22,000 toward his retirement in 2003:

Salary deferral (maximum) $12,000 Employer contribution (25% of $40,000) $10,000 TOTAL solo 401(k) contributions $22,000

With these additional contributions, Bill can nearly triple total amount he contributed to retirement plans in 2002 (i.e., $12,000 in 2002 with his primary corporate job, and $34,000 in 2003 with both his primary job and his side business). Bill will only pay income taxes on remaining $18,000 of $40,000 of income earned from his side business.

However, Bill can do better. If Bill's wife, Betty, is involved with business and earns a salary of $10,000, she can contribute her full compensation as salary deferral. The total contributions for Bill and Betty would be calculated as follows:

Salary deferral (Bill) $12,000 Salary deferral (Betty) $10,000 Employer contribution - Bill (25% of $30,000) $ 7,500 Employer contribution - Betty (25% of $10,000) $ 2,500 TOTAL solo 401(k) contributions $32,000

Bill and Betty will now pay income taxes only on remaining $8,000 (20%) of income generated from their side business and they'll avoid current income taxes on $32,000 (80%) of business income. Combined, they will contribute $44,000 toward retirement in 2003 ($32,000 from side business and $12,000 from Bill's primary job)!

Conclusion

A solo 401(k) plan now offers small business owners a practical way to rapidly contribute toward retirement, reduce taxes, consolidate retirement plans, and provide liquidity via 401(k) plan loans, if necessary. While everyone may not qualify for a solo 401(k), those that do enjoy benefits of plan for years to come. If you have questions, or if we can install a solo 401(k) plan for your business, please let us know and we'll be happy to help you. ____________________________

Retirement planning is an important part of your overall financial plan. How often should you review your financial goals? To learn more see "Start 2003 With a Review of Your Financial Goals and Strategies." please visit http://www.marcjlane.com/LaneReport/0301LR.htm

Interested in tax-focused planning? We can help. To learn more see "Wealth Retention Through Tax-Focused Planning: The Next Financial Challenge." please visit http://www.marcjlane.com/LaneReport/0207LR.htm

When should someone consider professional money management for a retirement - - or other investment - - account? To learn more see "A Case For Professional Money Management." please visit http://www.marcjlane.com/LaneReport/0204LR.htm

For additional information, please call (800) 372-1040 or send an e-mail to success@marcjlane.com

Jeffrey A. Miller is an Associate Attorney with The Law Offices of Marc J. Lane, a Professional Corporation. Mr. Miller is a graduate of IIT Chicago Kent College of Law (J.D. and an LLM in Taxation) and the University of Illinois at Urbana (B.S.). Mr. Miller is also a Certified Public Accountant.

At first, John thought he should form a C Corporation so that he could protect he and his wife’s assets while also reducing their taxes. After learning he could be construed to be a Personal Service Corporation by IRS because his product sales were less than 50% of his overall sales, John decided on an S Corporation for business and a Limited Liability Company for his real estate. By separating his business into one entity and his rental properties into another, John and his wife accomplished a number of positive things:

1.They moved rental properties out of their name reducing possibility that some overzealous lawyer might come after them personally because on county records they were showing a great deal of wealth. 2.They protected themselves personally from a potential lawsuit generated against one of rental properties. Any lawsuit filed against properties would stop at LLC and would not put their other personal assets at risk. 3.If they did have a personal judgment declared against them, properties would be protected through a charging order. 4.They have protected their real estate and other personal assets from any lawsuits against business. Since business was set up as an S corp. all of income flows through to John and his wife personally. Therefore, only assets in company would be those needed to maintain day to day business. In other words, John can move profits out of company, and protect them from litigation at same time. 5.They saved money on taxes by taking all of their fringe benefits right off top by having things like automobile expenses, health insurance, travel, business entertainment, etc. paid for as legitimate business expenses by new legal “entities.” They also increased their options on certain retirement plans. 6.They saved an additional $6120 on self employment taxes by splitting $80,000 in half and taking $40,000 as salary and $40,000 in distributions. The 15.3% self-employment tax for Social Security and Medicare (FICA) is “not” applicable on distributions.

In addition to all of protection they received, total tax savings for John and his wife should be well over $8,000 per year. The total “one time” cost to set up both entities was approximately $1500!

If you would like to find out more about how to protect your personal assets, and have government pay you to do it, call American Business Development toll free at 1-866-249-2472 for a free consultation. We would also love to have you visit our web site at www.abd2win.com where you can learn a little more about us, or send your questions by e-mail.