Transcripts

"Money File"-Reviewing Retirement Plans

SUSIE GHARIB: As the end of the year gets closer, there are probably a lot of things you're thinking about: Thanksgiving and Christmas and holiday spending, for example. In the money file tonight, some other things to think about. Here's Kathy Kristof, business writer for the "Los Angeles Times."

KATHY KRISTOF, BUSINESS WRITER, THE LOS ANGELES TIMES: If you are self- employed, even if you just moonlight to earn some extra income, this is the time of year to think about retirement plans. Self-employed individuals have a lot more options than everyone else when it comes to socking away money for their golden years. Better yet, they have more time to sock that money away and still get tax deductions for it on their 2006 returns.

In most cases, they can claim 2006 tax deductions even if they don't fund the accounts until sometime in 2007. But to get the deductions, the plans generally have to be set up by year end. What are your options? The best two are so-called sep-IRA's and individual 401(k) plans. Each of these plans allow you to set aside up to 25 percent of your self-employment income or $44,000, whichever is less. The benefit of the sep plan is that it's extremely simple. You can set it up at almost any bank, brokerage firm or mutual fund company, and chances are the only cost will be a small annual fee.

The 401(k) plan is a little more complicated and would probably require the help of a tax specialist to set up and administer. That makes the 401(k) a touch more costly to operate, but it may still be worth it. With most plans, once you put money in, you can't get it out until retirement. The 401(k) is the one exception. IRS rules allow you to borrow up to 50 percent of your account value or $50,000, whichever is less. Most experts discourage borrowing from a retirement account, but it's nice to know you can if you need to. I'm Kathy Kristof.