I have done this in the past and if you are small you should go with a
Keough plan. It works the same as a 401K but with less onerous paperwork.

"_JP" <YamYam[at]nospamsplease.megapathdsl.net> wrote in message
news:vt732210th4i4a[at]corp.supernews.com...
- quote -

Thank you Brent.

I can see obvious advantages of 401K with 1, 3, and 4.

For 2 however, what would be the benefit of having my retirement plan own my
life insurance policy over me owning it myself? Same goes for the case
where my 401K being the beneficiary. Is it because of possible (or definite
maybe) tax advantages? I'm thinking, if my 401K owns (pays for) my life
insurance, technically I will be able to pay the premiums with pre-tax
money. In case of my 401K being the beneficiary, my heirs will not only
receive tax free death benefit at my death, but also get to roll that chunk
of money into a tax-sheltered annuity automatically. Am I right on these?

For 5, what exactly do "defined" contribution and benefit plans mean?

Also, I guess those 5 advantages you mentioned are not available with SEP
IRA regardless of the plan provider, right? In other words, even if some
financial company is willing to let their SEP IRA policy holders borrow from
their accounts, IRS won't allow that. Am I correct? If so, couldn't a SEP
IRA policy holder borrow money from the third party, using the fund in his
SEP IRA as a collateral? It would be a quite safe collateral, hence a very
low interest rate. I don't know, maybe I'm being a bit too creative here?

Lastly, what would be the advantages of SEP IRA over 401K, other than its
simplicity and low (if any) cost? Actually, this question would concern
other types of IRAs as well, such as traditional and ROTH. A lot of people
roll their 401K over to IRA after retirement or leaving the company. When
they didn't have to pay that $200 fee at all, why did they leave these
advantages behind and rolled it over?

Thank you for your reply in advance, as always.


_JP


- quote -

"_JP" <YamYam[at]nospamsplease.megapathdsl.net> wrote in message
news:vt732210th4i4a[at]corp.supernews.com...
- quote -

Round figures, a sole proprietor with no employees can get one of the new
single participant 401K for around $200 per year.

Why do it?

1. You can borrow from your plan, if you need to.
2. Your plan can purchase, own and be the beneficiary of life insurance on
the participants life.
3. You can separate from service (retire) at 55 and take a one time lump
sum distribution without penalty tax.
4. Because the plan is subject to ERISA, there may be additional
creditor/predator protection in your jurisdiction (consult an attorney for
details and clarification).
5. You can add a defined benefit plan, in addtion to your defined
contribution plan.

If you don't need or want these additional benefits, go with the SEP.

Brent D. Gardner, ChFC
Chartered Financial Consultant
http://members.cox.net/brentdgardner1378/

"Be ever questioning. Ignorance is not bliss. It is oblivion. You don't go
to heaven if you die dumb. Become better informed. Learn from other's
mistakes. You could not live long enough to make them all yourself." - Hyman
George Rickover (1900-86), Admiral, US Navy, advocated development of
nuclear subs & ships

For a self-employed person (contractor job), who already has set up a
business and everything, would there be a case in which setting up a 401K
account can make more sense than doing SEP IRA?

- quote -

takes filing a short form to IRS and buying an annuity policy. But then
again, if 401K has some extra features and benefits that SEP doesn't have,
it may justify all those overheads. Are there such advantages with 401K?
One that comes to my mind right away is that you can borrow money from your
401K account, and I not 100% sure if the same is true with SEP. Would there
be anything else?

Thank you.