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I have a defined contribution "Keogh" plan via Vanguard. I can contribute up to $30K or 20% of my Schedule C net income up to a max of $30K. This plan is a master plan preapproved by the IRS and is very inexpensive to administer. Vanguard does most of the IRS reporting. My accountant and I file an additional form (5500 ?)annually. No big deal.

My husband has a defined benefit "Keogh" plan which is administered by a benefit management firm as a self-employed retirement plan. Because of actuarial assumptions, lenght of self-employment, compensation level, investment returns, AGE (very important - the older the individual the greater the amount which can be contributed in order to make up for "lost" years) he has been able to contribute between $20K and $43K annually to this tax deferred plan. It costs about $2,500 annually to administer but can come out of plan proceeds or out of company funds. $2,500 sounds like a lot, but the major cost is the actuary and this cost is fixed. As assets grow, the expense ratio becomes much smaller and the opportunity for significant tax savings is very attractive. Also the IRS is Very Picky about these plans and it is necessary to have highly qualified individuals monitoring the paperwork.

The downside of these plans is that you MUST make the contribution each year unlike an IRA which is optional. That said, it is great discipline and even if you have to borrow short term to fund your plan, you will be ahead of the game long term in saving for your retirment.

The other downside is that if you have employees, you must contribute to a plan for them at the same rate that you contribute for yourself. This can become VERY expensive. That is why we downsized our operation and ceased to be employers except for ourselves. We had less revenue on the top line but more net income to ourselves.

To check into this go to any search engine and research Keogh plans. Also Benefit Planning Consultants or Pension Plan Consultants in the Yellow Pages will assist you. Do Not go with an insurance company or Bank for these plans. You can self-administer yourself with the assistance of a consultant who will employ an actuary and provide the IRS preapproved master plan.

For example, my husband's plan is self-administered and assets are in Janus Funds, a brokerage firm, Fidelity, Nicholas, and Scudder, and real estate. Very flexible if you so choose.

Good Luck!
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