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Greetings, osufcu, and welcome.

<<After surviving nearly 10 years of the unemployed, at-home mom life, I'm now doing a lil bookkeeping business at home for some small businesses. Though teeny, I do now have about $600 a month coming in ... I would like to put it all away for retirement under my own name. Which vehicle should I use? I would like to invest in the market (through a mutual fund), self-direct and avoid current taxes (we're in the a fed tax bracket of 28% and pay 9% state tax on income). >>

As a self-employed individual interested in setting up some sort of tax deferred retirement plan for yourself, you should get IRS Publication 560, Retirement Plans for Small Business (SEP, Keogh and SIMPLE Plans). It can be obtained online at:
http://www.irs.ustreas.gov/prod/forms_pubs/index.html

If you desire to shelter most of that income, you will probably be best served by the Savings Incentive Match Plan for Employees (SIMPLE). Established by the Small Business Protection Act of 1996, the SIMPLE is a new type of retirement plan that may be set up by employers who have no other retirement plan and who have 100 or fewer employees with at least $5,000 in compensation for the previous year. SIMPLE plans may be structured as an IRA or as a 401(k) plan. Employees (and you are an employee of yourself) may defer any percentage of compensation up to $6,000 per year to the SIMPLE, and the employer is required to make a matching contribution of up to 3% of the employee's pay based on that election. The employer may reduce the maximum matching percentage in any two years out of five. Alternatively, the employer may establish a uniform 2% of salary contribution per year for all eligible employees regardless of whether they contribute to the SIMPLE or not. Together, the employee and the employer may contribute a maximum of $12,000 annually to the SIMPLE. Contributions are immediately vested with the employee, and deposits and earnings in the account will accumulate tax free until withdrawn.

In general, distributions from a SIMPLE are taxed like those from an IRA. Withdrawals prior to age 59 1/2 are subject to the 10% early withdrawal excise tax in addition to ordinary income tax. Unlike an IRA or SEP, however, employees who withdraw money from a SIMPLE IRA within two years of their first participation in the plan will be assessed a 25% penalty tax on such withdrawals instead of 10%. This extra penalty does not apply to early withdrawals from a SIMPLE 401(k). Distributions from both types of SIMPLE may be transferred to another SIMPLE or to an IRA, but they are ineligible for transfer to a qualified retirement plan.

Regards…..Pixy


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