Retirement Plans for the Self-Employed

There are many perks to working for yourself: No long, useless department meetings and you can leave whatever time you want.

Of course the downside is there's no one to gossip with at the water cooler and you're on your own for retirement.

Thankfully, there are plenty of retirement savings options these days. So if you don't have a plan established yet, get on it. And if you already set up a plan years ago, you may be ready for a change, thanks to some new options. Most plans have to be established by year-end to count for 2005, but there is one option that needs to be in place by Oct. 1.

The plan of your choice will ultimately be determined by how much you can save. So think about how much you can afford to sock away each year, then read on to decide which plan best fits your needs.

Defined Benefit Plan

If you've been a retirement-saving slacker and now have the ability to save large chunks, a defined benefit plan may be the perfect choice for you.

As long as you're at least 10 years away from retirement, you have the opportunity to make up for lost time. At this point, the tax code allows withdrawals of $170,000 a year from a defined benefit plan, says Dick O'Donnell, a tax analyst at RIA, a Thomson business providing information and software to tax professionals. So your goal should be to put enough money away now so that you can withdraw $170,000 in retirement. (Granted, that $170,000 amount might change by the time you retire, but it's a guideline for now.)

You'll need to sit down with an actuary to determine how much you should contribute to the plan now to hit that goal in retirement. And the upside is you'll get a deduction for your full contribution, says Bart Fooden, president of his own firm and a member of the NYSCCPA Estate Planning and Tax Committees. For instance, if it's actuarially determined that you need to put $200,000 away a year to meet your goal, then you'll get a deduction for $200,000.