Mr Biz on DougStephan.com

LAKE WORTH, FLA. (May 20, 2003)--Sort of like the Kellogg's cereal product with a similar name, IRS has a "Special K" for the self-employed which could finally cleanse out your investment tract of bad habits, and put you back in control of your retirement goals.
The headlines have focused on tax cuts for stock dividends, or reductions in capital gains taxes, but almost unnoticed was a provision of the gigantic EGTRRA law of 2001 fondly called "The Individual "K" Plan" in the investment and financial planning community.
Okay, acronymiacs, EGGTRRA! EGGTRA! read all about it:
The Economic Growth and Tax Relief Reconciliation Act of 2001 had a provision especially meant to benefit those of you who are self-employed with just yourself as the "employee" or a spouse as your only other "employee."
Before the usual disclaimers, and my plea to consult a good CPA to determine whether this fits for you, in layman's terms, I find this particular "K" intriguing.
Let's pretend your kids were in college until a year or two ago; you did not have any money to invest in the dot-com boom, so you didn't get clobbered by the stock market fall, or perhaps, you are just now at age 48, or 58, or 62 accumulating some cash.
The last four year equity market decline in some cases has put you where you would have been in 1998 or 1999 if you had socked money away into a Roth IRA, variable annuity, 401(k), SEP, and similar "qualified" investments. So, ironically, the fact that you didn't have much money---or you were frightened to invest your money, gives you a second chance to turn back the clock as the market poises for another bull run next year (in my opinion).
The Individual IRA will allow you to take a tax deduction--yes a deduction--for an annual contribution of 25 per cent of compensation up to $40,000 no matter what your Adjusted Gross Income might be. Self-employed, S Corporations, C Corporations, Partnerships, Sole Proprietorships, all qualify.
It's true that the money comes out taxable in distributions, like a traditional IRA after age 70 1/2, but for people sitting on cash this can be a great boost to a long-delayed pension fund.
Also, the new Individual K can receive transfers from all the other bits and pieces of IRAs and virtually all tax-qualified plans, similar to the way IRA rollover accounts are handled today.
Individual K's can be "self-directed" at most brokerage firms, discount brokers, mutual fund companies, etc., and with a bit of prudent guidance it can be as aggressive or conservative as you like. Since it was the "late bloomer" feature which I liked, and I envisioned this type of account being of particular value to those with less than 20 years to go until retirement, I think most investors will favor investment grade, "total return" stocks and bonds.
Don't underestimate the value of this "consolidation" feature. As clients get older, the plethora of paper piles permeate parlors and confuses your heirs should you suddenly head for that big tax audit in the sky.
Also, the modest "annual fees" on small accounts eat up investment gains, and one, larger, Individual K account could make your retirement plan more cost effective.
Remember, consult with competent professionals for your individual case, and this is only for the self-employed, or the self-employed and spouse, but it could at least jump start a safer economic future for the procrastinators of America.
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Mark Scheinbaum is chief investment strategist for Kaplan & Co. Securities, Boca Raton, Fla., members Boston Stock Exchange, NASD, SIPC.

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