If you are a self-employed individual or small business owner with no full-time employees (other than your spouse), then an individual or "solo" 401(k) will allow you to maximize retirement contributions by combining 401(k) compensation deferral with profit-sharing plan contributions. Depending on the amount of self-employment or small business income you want to defer, an individual 401(k) may be an attractive option.

Highlights:

• Contributions are discretionary--you can contribute any amount (or nothing at all) up to the maximum limit in any given year
• Plan may allow loans
• Plan may allow a rollover from other types of retirement arrangements
• Plan will generally involve fees to establish and administer

*Eligible compensation in 2007 can't exceed $225,000. If the business is unincorporated, individual 401(k) plan compensation is based upon net earned income. This means that self-employed individuals must deduct one-half of their self-employment tax as well as any plan contributions to determine their compensation base. Effectively, this means that an unincorporated business with one owner-employee can deduct profit-sharing contributions of up to 20 percent of the owner-employee's earnings after the deduction for one-half of self-employment tax. Similarly, profit-sharing contributions can't exceed 50 percent of the owner-employee's earnings, reduced by the deduction for one-half of the self-employment tax and further reduced by the owner-employee's elective deferrals.