RETIREMENT BENEFIT PLANS

A financially secure retirement is a goal of all Americans. Since

many of us will spend one-fourth to one-fifth of our lives in

retirement, it is more essential than ever to begin preparations

at an early age. Most financial planners report that an

individual requires about 75 percent of his or her pre-retirement

income to maintain the same standard of living enjoyed during

one's working years.

Social Security, employer-sponsored retirement programs and

personal savings are the three sources of postretirement income.

Social Security Benefits

Social Security provides retirement benefits for most persons

employed or self-employed for a set period of time (currently

40 quarters; about 10 years). Benefits paid at retirement,

traditionally age 65, are based on a person's earnings history.

Payments may begin at age 62 at a reduced rate or, if delayed

until age 70, at an increased rate.

For a person with earnings equal to the U.S. average, the benefit

will be about 40 percent of pay. For someone with maximum

earnings, the benefit would be about 25 percent of the portion of

pay subject to Social Security tax.

Every worker should understand Social Security retirement

benefits. By completing Form SSA-7004, "Request for Social

Security Earnings and Benefit Estimate Statement," you can receive

a projection of benefits. Forms can be obtained through local

Social Security offices or by calling 1-800-772-1213.

Employer-Sponsored Retirement Plans

A retirement plan makes good sense and can attract and reward key

employees. The benefits and tax advantages of supplementing

Social Security with a qualified retirement plan are significant.

A qualified plan is one meeting Internal Revenue Service (IRS)

specifications. Currently, such contributions are tax deductible

and earnings accumulate on a tax-deferred basis. In addition,

benefits earned are not part of the participant's taxable income

until received, and certain distributions are eligible for

special tax treatment.

Whether you are a sole proprietorship, a partnership or a

corporation (employing many people or only yourself as the

owner/employee), there are a wide range of options available.

These can range from simple plans, which you establish and

maintain, to complex versions, which require an actuary, attorney

or employee benefits consultant. Accountants, banks, insurance

and investment professionals, as well as other financial

institutions, can provide information on pension plan products. A

plan need not be complex or costly to establish. In fact, there

are several versions that you can establish without any outside

consultants.

Depending on whether you are self-employed, a partnership or a

small corporation, the following plans are available:

 * Individual retirement accounts (IRAs) -- The simplest plan; for the

   self-employed or for select employees.

 * Keogh -- A plan for partnerships or sole proprietors, offering

   greater contribution limits than other types of plans.

 * Simplified employee pension (SEP) -- A plan for sole proprietors and

   small businesses, offering flexibility and easy self-administration.

 * Defined benefit -- A retirement plan for businesses with older, more

   highly paid employees.

 * Profit sharing -- A flexible plan based on profits and contributions

   that can be discretionary from year to year.

 * Money purchase -- A method for companies employing a high percentage

   of younger workers and desiring to make steady plan contributions.

 * 401(k) -- The most popular plan today, providing employees with the

   ability to save for their retirement with pre-tax dollars. Offers

   maximum flexibility for employers at minimal cost.

Individual Retirement Accounts

The simplest of all retirement plans is the individual retirement

account (IRA), authorized by Congress in 1974. An IRA is a

tax-favored savings plan that allows eligible participants to

make contributions with pre-tax dollars and defer taxation on

earnings until retirement.

There are several limitations to IRAs:

 * Contributions cannot exceed the lesser of $2,000 per year or

   100 percent of compensation ($2,250 for a spousal IRA).

 * Contributions may be made only up to age 70 and deposits must be

   made before filing individual taxes (April 15).

 * The account holder may not use funds to purchase life insurance

   or collectibles (except gold or silver coins issued by the U.S.

   Government).

 * If a person (or his or her spouse) is an active participant in an

   employer-maintained retirement plan with income exceeding certain

   levels ($25,000 for single persons or $40,000 for married

   couples), the IRA contribution may be partially or totally

   nondeductible.

Businesses may sponsor IRA savings programs for employees.

Through payroll deduction, employees set aside small amounts for

deposit into an IRA contract. An employer can make IRA

contributions for all or select employees. In such instances, the

recipient's reported annual taxable salary will include the IRA

contribution, although this amount would then be deducted

(conditions permitting) by the employee on his or her year-end

tax filing.

Keogh Plans

A Keogh (occasionally called "H.R. 10") plan affords a

self-employed person -- either a sole proprietor or a partner -- most

of the retirement funding benefits available to the working owners

of a corporation. A self-employed person may take a tax deduction

for annual contributions to the plan on his or her behalf and on

behalf of any eligible employees.

Although the laws governing Keoghs once varied widely from the

retirement plan options for corporations, recent changes have

left only minor distinctions. Keogh plans follow rules basic to

either defined benefit or defined contribution corporate plans.

There are limits, but generous ones. For example, you cannot fund

a retirement payout that is greater than your self-employment

income or that tops a $112,221 annual cap (a figure adjusted

yearly for inflation).

You must establish plans by the end of the year (December 31) for

which you are making the contribution. Once established, you have

until the tax return filing date -- including extensions -- to make

the contribution.

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