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We are often surprised when we meet with attorneys who are either self-employed or sole proprietors and have not set up retirement plans. Many complain about the lack of flexibility in various plans or how much it would cost in employee contributions. Others are concerned about the commitments they would have to make, without knowing how profitable their businesses would be. Regardless of the reasons, retirement planning is needed — and the sooner the better. As more new investment plans become available, there can be confusion about what options are available. Although the details on these plans vary, they all allow employees to put in more than the $2,000 per year for a traditional or Roth IRA. The information that follows lists some of the advantages and disadvantages of the most common available plans. SIMPLIFIED EMPLOYEE PENSION (SEP): � It’s easy to administer; there are no complicated reporting requirements. � The amount employers contribute is determined each year. You can even decide to make no contribution in a given year. � Employer contributions are discretionary — up to 15 percent of eligible payroll. � Employees are immediately 100 percent vested and can access this money at any time, but early withdrawals are subject to the premature distribution penalty rules for IRAs. � The limit? Fifteen percent of the first $170,000 of compensation, the 2001 limit is $25,500. Sole proprietors must do a netting calculation when determining their contributions and may not be able to put away the full $25,500. SAVINGS INCENTIVE MATCH PLAN FOR EMPLOYEES (SIMPLE IRA): � It’s easy to administer; there are no complicated reporting requirements. � Employees decide how much they wish to contribute; there’s 100 percent of compensation up to $6,500. � Employees are immediately 100 percent vested and can access this money at any time, but early withdrawals are subject to the premature distribution penalty rules for IRAs. � Unlike most other retirement plans, employers cannot combine this type of plan with any other retirement plan. � The employer must make dollar-for-dollar matching contributions up to 3 percent of an employee’s compensation or contribute 2 percent of total eligible employee compensation. � The limit? Employer match is limited to $6,500 per year. Employees can defer up to $6,500 per year. PROFIT-SHARING PLAN: � Employers determine each year if and how much the company will contribute. � There are various vesting schedules, from immediate to as long as seven years. � The plan can be integrated with Social Security, called Age-Weighted or Cross Tested PSP, so a larger percentage of contributions may be directed to highly compensated employees. � Employer contributions are discretionary — up to 15 percent of eligible payroll. � The limit? Whichever is less: 25 percent of first $170,000 of compensation or the limit, which is $35,000 for 2001. Once employers or employees have “maxed out” their contributions to retirement plans and/or IRAs, they might want to consider other opportunities. Annuities offer tax-deferred earnings growth, plus high contribution limits. Individuals can choose between fixed-rate annuities and variable annuities, which offer a range of individual risk tolerance, time horizon and long-term goals. Annuities offer a great deal of flexibility in choosing payout options. (Note: Taxes are payable upon withdrawal of funds. An additional 10 percent IRS penalty may apply to withdrawals prior to age 59 and six months. Annuities are sold by prospectus only. Contact your investment executive to obtain a current prospectus, which explains all fees and expenses. Read it carefully before investing.) Individuals also can build their retirement savings through certain life insurance policies, such as universal life or variable universal life. Like annuities, these policies offer either a fixed rate of return or a series of underlying investments with values that will fluctuate. In addition to providing life insurance protection, variable universal life insurance policies offer living benefits such as the tax-deferred accumulation of cash value. This money can be accessed for a variety of purposes, including paying college tuition or funding a retirement dream home. Regardless of which vehicle lawyers choose to begin their retirement nest egg, starting early is the easiest way to get the best results. Jim Lacamp and Pat Reddell are senior vice president investment officers at Dain Rauscher in Fort Worth.

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