Which retirement plan for Self-Employed

[Guest shwe79]

Hi. I am a small business owner of age 34 with three small kids and stay home wife. I don't have any retirement plan at this moment. All my after-tax savings are in stocks and mutual funds. I don't pay myself high wage to avoid income tax and Social security deductions, so I don't earn enough wage to make big contribution to tax free retirement accounts. However yearly capital gain (especially short term since I trade as well) from these stocks are adding on to our income tax bill and pushing up to higher bracket.

Anyway I am thinking if there is any retirement plan that I can move our savings to so future capital gains won't be adding on to our income statement? Please suggest either retirement plan or anything tax free fund to save up for kids education that is available to me.

Also will I still be allowed to trade stocks and mutual funds in that retirement plan? If the fund's capital gain does not contribute to income tax, I assume capital loss would not also contribute to the income statement. In that case how can you harvest the loss?

Thanks for all the advise. My tax accountant is useless in answering about retirement question. Is there any professional service that I should approach?

[Calavera]

Start with reading the IRS publication 560 here http://www.irs.gov/pub/irs-pdf/p560.pdf. This will give you basic information about types of retirement plans. Based on your age and low wages from your business, take a closer look to 401k and SEP-IRA retirement plans.

For kids education I suggest receaching a 529 plan. You make contributions with post-tax money and they grow tax free. You can withdraw money for certain education expense and tuitions when time will come without penalty or taxes. I am not sure if there are self directed 529 plans. Also some State plans will have contribution deduction on State taxes. I believe currently it is $2000 deduction against income per year, so if you make $10,000 contribution you can deduct it over 5 years.

Good luck.

[Lou S.]

If you are your only employee a solo-401(k) will probably give you the most bang for your buck if your are looking for a deduction.

For your other questions consider meeting with a qualified financial planner who can go over your specify questions.

[jpod]

My suggestion is to get a new accountant, or consult with a local pension actuary with a private practice, or a tax lawyer. You're not going to get what you need through this or any other message board. If you are inclined to DIY, you may handle things correctly or you may screw things up badly.

[david rigby]

Don't overlook the practical aspects: at 34, retirement planning should not come before life insurance (very inexpensive) as well as college costs.