Think your business is too small for corporate retirement plan? Think again. Don't let the size of your business deter you from making the best financial move you've ever made-starting your own retirement plan. A corporate retirement plan can provide your business with tax advantages, employee recruiting and retention as well as ensuring that you and your employees are on track to secure your financial future. According to the IRS, just 5 percent, or 8 million of the 40 million U.S. residents employed by small firms, are covered by retirement plans. That is an underwhelming number by anyone's standards!

Costs, complexity and burdensome administration have previously created obstacles for small business owners from setting up plans. That was yesterday. Today's small business plans are much easier to establish and administer, plus there are a multitude to choose from. Here are some you may wish to consider:

Solo (k) or Individual 401(k) Plans

The Solo(k) is aimed at Sole Proprietorships, enabling them to set-up and contribute to a 401k plan. Employee contributions are limited to $15,500 for 2007 or 100% of compensation (whichever is less). The sole proprietor must have no additional employees other than the spouse of the proprietor or partnerships whose only employees are self-employed partners and their spouses. Catch up contributions for individuals over 50 are $5,000/year. The employer's profit sharing contributions are discretionary and may include the 25% of eligible payroll. Total contributions on employee's behalf (including employer/employee contributions) should be the lesser of 100% of compensation (defined as W-2 income of incorporated or self employment income as sole proprietor) or $45,000. The administrator of the plan is simply the business owner, their spouse or a partner. However, a designated third party works as well too since annual tax compliance filing is necessary via Form 5500-EZ when plan assets reach $100,000. Solo(k)'s must be established by the last day of the plan year and must be funded by the time the corporate tax returns are filed if the business is unincorporated. Otherwise, employer contributions should be submitted by the tax filing date plus any extensions. Employee contributions should be completed as soon as administratively possible as but no later than 15 business days after the deferral from the paycheck was made.

What makes the individual 401k unique is that compared to other self employed retirement plans greater contributions are possible for identical income levels, therefore maximizing retirement contributions and valuable tax deductions. If you are a self employed business owner who would like to make a retirement plan contribution but were previously limited by the rules of other self employed retirement plans the individual 401k plan may be ideally suited for you.

SEP IRA

The Simplified Employee Pension (SEP IRA) is an IRA based plan type available for sole proprietors, partnerships, and small businesses. Through a SEP, the business owner opens an IRA for each eligible employee and makes contributions to the accounts. Unlike with a 401k, employees are not allowed to contribute to their SEP IRAs, while the company contributing to the plan is allowed to deduct the amount of contributions from taxable income.

This is a great choice for self employed business owners who would like to contribute 25% or less of compensation, but, it's probably not as good as the individual 401k in terms of contribution maximization. To clarify, compensation is defined as W-2 wages if incorporated or self employment income as a sole proprietorship. In the case of self-employed people, the contribution is based on the net profit from the business (not the gross income). Calculating the maximum allowed requires you to compute the self-employment tax first. This is illustrated as follows.

Whereby "CR" is the contribution rate, for example .15 for a 15 percent rate, the formula would be:

CR * ( ( Schedule C profit - ( 0.5 * Schedule Self Employment tax )) / ( 1 + CR ) )

Because the self employment tax is considered, the contribution rates are often reduced to 20% of compensation.

Employees are able to exclude from current income the entire SEP contribution. However, the money contributed to a SEP-IRA belongs to the employee immediately and always. If the employee leaves the company, all retirement contributions go with the employee (this is known as portability). SEP IRA's must be established by the time the corporate tax returns are filed for the tax year and funded by the time the corporate tax return (plus any extensions) are filed for the tax year in which the deductions are taken. A SEP IRA plan does not require any annual reporting to the IRS.

SIMPLE IRA

The Simple IRA is a plan that, as implied in the name, is quite simple and cost effective to administer. However, I'm not a big fan of this plan given it's limited ability to sock away funds. The SIMPLE IRA is available to sole proprietorships, partnerships, LLC's and corporations with 100 employees or less. Both employees and employers can make contributions. Unfortunately, those contribution limits are pretty low. Employees are capped at $10,500 for 2007 or 100% of compensation, whichever is lower. If you are over 50, you can play catch up by adding another $2,500. Employers have a required match of 100% up to 3% of the employee's compensation or 2% of compensation to all eligible employees.

SIMPLE IRA's must be established between January 1 and October 1 of the plan year. Employee contributions must be deposited within 30 days after the end of the month in which the amounts would have been payable to the employee as pay. Employer contributions must be deposited by the time the business files it's corporate tax returns (plus extensions). Like the SEP, the SIMPLE plan does not require any annual reporting to the IRS.

This plan would be a good choice for someone that doesn't have a high income, but would like to contribute beyond the limits of an IRA and would like to contribute a large percentage of their income. A good candidate for this plan doesn't mind the relatively low contribution limits of a Simple IRA compared to a SEP or Individual 401k.

SIMPLE 401(k)

While a SIMPLE-IRA plan requires the employer to open an individual retirement account for each eligible employee, a SIMPLE 401(k) avoids some of the administrative fees and paperwork of regular 401(k) plans. A SIMPLE 401(k) plan is a blend between a SIMPLE IRA and traditional 401(k) plan, offering the best of both plans. Employers benefit from the tax-deductible contributions made to the plan, and employees may elect to have salary deferrals in order to contribute to the plan.

Unlike with traditional 401k plans, SIMPLE 401k's do not require the annual compliance testing, which can dramatically increase administrative costs for the plan sponsor. Contributions to a SIMPLE 401k are immediately 100% vested, meaning that an employee who meets the requirements to receive distributions from the plan may withdraw his/her entire account balance at any time once they separate from service. By comparison, a traditional 401k may have vesting schedules apply to employer contributions or matches.

Finally, the contribution limits for a SIMPLE 401k plan are lower than the limits for the traditional 401k plan. For 2007, the SIMPLE 401k deferral limit is $10,500, just like the SIMPLE IRA. In contrast, the 401k limit is $15,500. Employer contributions to an employee's SIMPLE 401k account are limited to 3% of the employee's compensation, while for the traditional 401k), the employer may contribute up to 25% of the employee's compensation. SIMPLE 401k plans require annual reporting by the employer to the IRS via Form 5500 and are subject to the same start up deadlines as the SIMPLE IRA.

The benefits of having a retirement plan should be quite clear:

• Tax deductibility of employer contributions

• Employee contributions lower the employee's tax base

• Your money grows either tax deferred

Furthermore, as a small business owner, it can be tough to compete for high quality employees. Good benefits and pay coupled with a positive working environment can help lure away top talent from larger corporations to help you grow your firm. More importantly, the long term financial benefits to both the business owners and employees are imperative. Remember, a successful retirement requires in enormous amount of capital. The sooner you start the better.