New Proprietors Retirement Plan

July 8, 2002
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A new amendment to federal tax statutes that took effect this year enables single proprietors to invest more heavily for retirement through the 401(k).

In the Economic Growth and Tax Relief Reconciliation Act (EGTRRA), Congress opened the door for sole proprietors to establish 401(k) plans while substantially increasing plan funding limits.

Last month, Victory Capital Management, a subsidiary of Cleveland-based KeyCorp, came to the market with Individual(k), a product it has designed under the new provision.

Victory says the product is ideal for independent contractors and practitioners ranging from insurance sales people to physicians and lawyers. It enables a proprietor to set aside $11,000 as a pre-tax salary deferral contribution — beyond the ordinary 25 percent — to a combined annual maximum of $40,000.

Participants in the Individual(k) plan also can borrow from their account, an option not found in other IRA-style plans.

For individuals who have accumulated retirement plan assets in a previous job, starting a business and establishing an Individual(k) allows the proprietor to consolidate assets and

then borrow against them tax-free. Moreover, funding is flexible so that one need not make contributions annually.

Information about the Individual(k) is available through any McDonald Investments office. 

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