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Retirement income or pensions for the self-employed requires a slightly different approach. A Solo 401(k) is a 401 retirement plan for the self-employed. With a Solo 401(k) you can contribute up to 100% of the first $14,000 of your 2005 compensation or self-employment income ($18,000 if you'll be 50 or older at year-end). (This figure rises in 2006 and beyond.) On top of that, you can contribute and deduct an additional amount of up to 25% of your compensation income, or 20% of your self-employment income. You must establish your plan by Dec. 31, 2005, if you want to claim a 2005 tax deduction.
|Jennifer Mathes, Ph.D.|