Hi there !

Just wrote my check to the IRS, and then sedated myself with enough
Jack Daniels to float a battleship.

My question involves saving tax money next year.  A recent article in
the Wall Street Journal mentioned tax-advantaged plans for small
business owners.  It specifically touted a plan called UNI-DB by
Pioneer Investments.  But there were also other products from UBS,
Merrill Lynch, etc.

These plans are apparently limited to small businesses with 1-5
employees.  These defined-benefit plans seem to operate differently
from defined-contribution plans.

For starters, the small business owner can apparently put aside much
more money while also taking a gigantic tax deduction.  This could be
3 to 10 times the tax deduction for a defined contribution plan.  This
could save me a bundle on taxes.  (The article also hinted these plans
benefit the business owner more than the other 4 employees.  But I
don't know if that is true.)

Of course, there is no free lunch.  Apparently, the drawbacks of a
defined benefit plan include:

(1) cost of set-up
(2) no flexibility
(3) lock-ups which can last many years

A 5-star answer to this question would be the Top 3 advantages and Top
5 disadvantages of such plans.  My main goal is to save money on next
year's tax bill.  This question could probably be answered in 7-9
paragraphs.

All comments greatly appreciated!

Thanks.
ron

Hi again nronronronro-ga! It?s nice to have you back.

These are the  retirement tools for small business owners. I
enumerated the specific advantages and disadvantages from different
sources. However, my main source in formulating an answer is this
first link from the Bank of America website.

?Tax-advantaged plans for the small-business owner and the self-employed?
http://www.bankofamerica.com/financialtools/index.cfm?view=DETAIL&tools=retirement&product=RETFUNDS#smallbiz

The link provides an overview of what tax ?advantaged plans are used
by small business owners. I simplified this answer by just providing a
general enumeration of the advantages and disadvantages. The reason
for this is that there are intricacies in the pros and cons that must
be discussed the article links provide these at length.

I hope these would be helpful to you.


a.) Simplified Employee Pension plans (SEPs):
Advantages:
- ?uncomplicated and inexpensive to set up?
- ?easy to administer?
- ?don't commit the employer to annual contributions?
Source:http://www.bankofamerica.com/financialtools/index.cfm?view=DETAIL&tools=retirement&product=RETFUNDS#smallbiz

Disadvantages:
- ?The employer may not establish a vesting schedule.?
- ?Qualified profit sharing or money purchase plans might allow a
higher individual contribution amount.?
- ?Employer can not exclude part-time employees.?
- ?Participant loans are not permitted.?
- ?Employees can withdraw their money at any time.?
- ?Employer is responsible for all funding.?
- ?SEP funded IRAs may be subject to bankruptcy laws.?

?Comparison Projector? (Google Cache)
http://72.14.203.104/search?q=cache:eIFHYbTBF7IJ:www7.oftnet.com/MI105772/ComparisonProjector/learnAbout.jsp+%22SEP+plans%22+disadvantage+to+the+employer&hl=en&ct=clnk&cd=2

Additional Reading: http://www.investopedia.com/articles/retirement/04/020404.asp 

-----------------------------------------
b.) Savings Incentive Match Plans for Employees (SIMPLE)

Advantages:
- ?Doesn?t have the special nondiscrimination tests for 401(k) plans?
- ?Has less complicated reporting requirements than for a standard 401(k) plan?
- ?Does not require the employer to monitor vesting requirements and
company participation?
- ?Gives companies whose employment rises over the 100-employee limit
a two-year grace period to change plans?

Disadvantages:
- ?Mandatory ongoing cost?
- ?Annual limits on employee deferrals that are lower than the limits
on standard 401(k) plans.?
- ?Immediate 100% vesting requirement in all company contributions for
qualified employees, regardless of the length of employment?
- ?An early withdrawal penalty of 25% instead of a 401(k)?s usual 10%?
- ?Restrictions on introducing another retirement plan while the
SIMPLE plan is in effect.?

Source: http://www.firstcitizensbank.com/PDF/The%20Simple%20Retirement%20Plan%20for%20Small%20Businesses.pdf

------------------------------------------
c.) Defined Contribution Plans (Keogh Plans)

Advantages:
- ?contributions are deducted from the gross income?
- ?tax is deferred until the funds are withdrawn?
- ?interest income generated is tax deferred until withdrawn?
- ?certain lump sum benefits might be eligible for special 10-year averaging?
- ?contribution limits are more liberal than IRAs?

Disadvantages
- ?plan involves all the costs and complexities associated with qualified plans?
- ?the same early withdrawal penalties of other qualified plans applies?
- ?if the participant is a more then 5% owner, payments must begin by
April 1 of the year after reaching 70-1/2 whether or not the
participant has retired.?

?Keogh Plan Basics?
http://www.selfemployedweb.com/keogh-plan.htm 
 

Additional Disadvantages:
- ?If any portion of the money in a Keogh plan is withdrawn early
(before age 59½), a 10 percent penalty tax is imposed, in addition to
the normal income tax.?
- ?A 15 percent penalty tax is imposed if the contributor does not
start receiving benefits before age 70½.?

Source: http://www.answers.com/topic/keogh-plan 
  

Search terms used:  
?tax-advantaged plans? for small business
"SEP plans" ?Keogh Plans? ?SIMPLE Plans? advantages disadvantage pros
cons to the employer

I hope these links would help you in your research. Before rating this
answer, please ask for a clarification if you have a question or if
you would need further information.
                                                          
                              
Regards,                              
Easterangel-ga                              
Google Answers Researcher

Thanks, easterangel !

ron

Some Uni-DB info can be found here:

http://www.investsafe.com/dbplan.asp

http://www.employeebenefitadviser.com/article.cfm?articleid=3639&pg=

http://thephantomwriters.com/free_content/d/l/self-employed-deductions.shtml

vegasfyr,

Thank you very much.  This info was right on target.  Much appreciated!

ron

P.S.   I know fyi=for your information.
What does fyr stand for?
(I'm over 18, so don't be shy.  heh  heh  heh)