Gimme a "K"! plan

Entrepreneur, Feb, 2003 by Jennifer Pellet

Thought that starting your company meant missing out on the pros of 401(k) retirement plans? Not anymore. There's now a 401(k) option for entrepreneurs. "Until now, small-business owners have had to rely on simplified employee pension plans (SEPs)," says Jim Thigpen, president of Atlanta-based Monarch Financial Services. "But last year they created a new 401(k) plan that allows people to put in more than they could through a SEP."

The new plan is also easy to administer and relatively inexpensive to open. While SEPs enable self-employed people to contribute just 13 percent of their income, the new 401(k)---sometimes referred to as a Uni-K--allows contributions up to 25 percent. Both plans have similar annual caps, which means that for individuals with incomes of more than $160,000, allowable contributions are equal, but Uni-K holders can borrow against their holdings, something you can't do with a SEP.

The catch? Only sole proprietors and husband-wife teams need apply. "But it's better than a SEP because you can put more in," Thigpen says, "and, while you may not plan to borrow against it, you never know."

JENNIFER PELLET (jpellet5@aol.com) is a New York City-based freelance writer specializing in business and finance.