This is the first part of a series of articles intended to help readers understand a business owner’s options to the common 401(k), a plan that is often very expensive and time consuming to administer for small-businesses.

Once upon a time, there was a lonely retirement account for small business owners called 401(k). It had cousins like the Keogh and the SEP, but far too few knew of his kin. Most had some idea about 401(k), but many didn’t realize much about its features, benefits and restrictions. 401(k) is a retirement account for business owners and their loyal workers, regardless of how many workers there were.

You see, 401(k) was born and raised in a time (back in the 70s) when we Americans were still under the illusion that our government was this benevolent crew of honest and intelligent businessmen (sorry, ladies, but men did make up almost all of congress back then) who would take care of us when we’re old. In a way, maybe they were thinking long term-as they probably noticed how there was nothing Social Security could do to help all of us out in the long-term, so presto! 401(k) ‘“ a ‘œone-size-fits-all’ retirement vehicle.

But later on, when our fearless leaders decided that more had to be done to encourage savings for retirement, we were offered a plethora of new options that abound years later. This column and its followers will be devoted to the exploration of the ‘œRetirement Plan Family Tree.’ Our first chapter, Single-K, will delve into the short life (but soon to be stable member of the family) of the individual business owners’ new friend.

Along came Single-K

Single-K (or Solo-401(k), or Uni-K, et al) was born in the early part of this millennium. It was conceived last millennium with the understanding that cousin Keogh (a retirement plan made popular in the 1980s) was just too complex for the average Joe to grasp. Not to mention, a lot of people abused Keogh and she didn’t want to play anymore. Cousin SEP (who we’ll cover in this series of articles), or ‘œSimplified Employer Pension’ was a great alternative for employers who had employees, but what about the sole-proprietor? What about that single-person’s corporation for which they hire no one to work? As a business owner who understands that 401(k) offered me a high contribution limit as an employee (today, deductible contributions cap out at over $15,000 and more, depending on your age), I don’t like the income and contribution limitations of SEP. But, as a business owner, I also don’t like 401(k)’s price tag (some can get into the $1,000 range) when I am working with and for myself.

Historically, 401(k)s weren’t an option for owner-only business owners because salary deferrals were considered employer contributions that applied towards the employer’s maximum deductible contribution. Not any more’¦

So along come Single-K, 401(k)’s little brother. Single-K has many o’ the same features of 401(k) like deduction and contribution limits, multiple investment options, loan capabilities and employer-match incentives, without the major cost in most cases. I have used this plan for years now and while not a ‘œone-size-fits-all,’ many of my clients who are business owners with no employees or who hire only their spouse, child or domestic partner (yes!) have found this to be a terrific alternative to the aforementioned retirement plans for many reasons.

Contribution Limit

While the SEP limits you to a percentage of your earnings (capped out at just under $200K), the Single-K gives eligible participants the opportunity to contribute on the employee portion of the plan up to $15,500 (per 2007) or 100% of your earnings, whichever is less. Meaning, if you made $10,000 in 2007 on your business, for that year you could contribute $10,000 or 100% of your earned income to your Single-K; if you made $350,000, you could contribute the maximum of $15,500 for last year.

This is only the Employee portion. What about you, the employer? How much can you then contribute? While talking with a tax advisor, accountant or consultant is always the prudent decision in determining what your income tax-deductibility, the standard information given by most mutual fund families is that if you are a business owner and you hire yourself, you may be able to participate as both the employer and the employee (equating to more deductions.)

Loans

What I love most about Single-K is the opportunity to borrow your contributions and, when applicable, earnings. Often times, you pay yourself back with interest. Loans can be used for business operating expenses, working capital, marketing and advertising, you name it! Most likely there will be a small fee for exercising your loan feature (I’ve seen as low as $40 with certain plans) and should you decide to cancel the plan (or if you are fired by the owner of the plan) loans may be considered withdrawals, and hence, earned income in the year of your termination. But if you hire yourself, are you gonna fire yourself?

Here are some of the other benefits of contributing to a Single K Plan:

  • Low cost: some fund families charge a mere $15 annual maintenance fee
  • Access to a full selection of professionally-managed mutual funds
  • Most fund families will offer a hassle-free way to make online contributions
  • Traditional (pretax) 401(k) and Roth (after-tax) 401(k) features are available

So, if you are a business owner who doesn’t have employees (or is eligible to hire only your spouse, domestic partner or children), consider looking into a Single-K, Solo-K, Uni-K or the term your favorite fund family uses. Talk with a financial advisor and accountant to determine if you are eligible and if it is the best choice for your retirement needs.