A an entrepreneurial woman, it is more important than ever that you prepare for your retirement. You tend to take care of everyone else-your employees, your children, your family, and your friends before you take care of yourself.

You work day in and day out to grow your business, often infusing it with every spare dollar you have. But, when it comes to putting away dollars for your retirement, that's another story.

You never have enough "leftover" for funding a retirement plan, and you tend to put that off until another day. With the aging of America, another day is now!

The maze of retirement planning can be a tricky course.

Less than 16 percent of all small businesses have a retirement plan. The most common reason is lack of understanding of the plans available to small business owners and a belief that these plans are much to complex to adopt.

If you are a business owner or self-employed, a myriad of retirement plans exist-both the qualified and nonqualified variety.

Selecting the plan that could be the best for you and your employees may seem complicated, but in reality it is not. By understanding a few basics and consulting with your financial advisor and/or tax advisor, you can develop a plan the will give you the opportunity to provide for your retirement future now.

Qualified plans can offer significant tax advantages to you and your employees as long as you adhere to ERISA (Employee Retirement Income Savings Act) and Internal Revenue Service requirements involving participation in the plan, vesting, funding, disclosure, and fiduciary matters.

Nonqualified plans, on the other hand, generally do not impose requirements as strict as those imposed by ERISA; however, they usually are not as beneficial from a tax standpoint. To maximize the potential tax advantages a retirement plan offers you and your employees, it is likely that you will want to evaluate the qualified retirement plans first.

The Basics of Qualified Retirement Plans
Qualified plans are broken down into two forms: defined contribution and defined benefit plans. Each plan has advantages and disadvantages and is suited for use in different situations; which one is best for you often depends upon the form of your business organization.

In defined contribution plans, each participant has an individual account, and the contributions are defined on an annual basis as stated in the plan document, often in terms of a percentage of compensation.

A defined contribution plan, such as a 401(k) plan or a profit sharing plan, does not promise to pay a specific dollar amount to the participant at his or her retirement or termination. Instead, the amount paid is based upon the value of his or her individual account.

Defined benefit plans, on the other hand, are qualified plans that guarantee a specified benefit level at retirement. You will need to use the services of an actuary to determine the necessary annual contributions to the plan to meet these benefits.

Defined benefit plans allow the highest potential contribution amount of any plan and are most advantageous to corporations with stable earnings. Typically, the employer funds a defined benefits plan and can deduct its contributions to the plan in the year the contributions are made.

What's Out There
Which plans are the most appropriate for self-employed persons, sole proprietorships, and partnerships?

In general, qualified retirement plans can provide you with a number of tax and non-tax benefits that may make them the most attractive plans for you to implement.

With qualified retirement plans, the business itself gets an immediate deduction for funding the plan, and the self-employed individual can defer paying income taxes on the retirement benefits until the benefits are actually received. Also, don't forget that you can use retirement plans as a way to attract and retain qualified employees. (Be aware that if you do have employees, you generally are required to cover them or provide for them in your retirement plan.)

Let's look at four plans you should consider if you wish to establish a retirement plan for your business: a SEP-IRA; a SIMPLE-IRA; a SIMPLE 401(k); and a Keogh.

A simplified employee pension (SEP) is a basic tax-deferred retirement savings plan that allows contributions to be made according to a specific formula to special individual retirement accounts (IRAs) called SEP-IRAs.

SEP-IRAs are practically identical to traditional IRAs and can be very easy for you and your employees to maintain. The participation and contribution rules are straightforward, and you generally have no legal (fiduciary) responsibilities for your employees' investments. However, you must include most employees (including seasonal and part-time), and your employees have immediate access to their contributions.

SEPs may provide less protection from creditors than other qualified plans, and the distributions are not eligible for special averaging tax treatment.

A SIMPLE-IRA (the word "SIMPLE" is an acronym for savings incentive match plan for employees) is a retirement plan that is established in the form of employee-owned individual retirement accounts.

SIMPLE-IRA plans are specifically designed for small businesses and self-employed persons who have 100 or fewer employees (earning at least $5,000 each) employed at any time in a calendar year. Even employers who do not have employees (sole proprietorships and partnerships, for example) can establish a SIMPLE-IRA.

To be eligible to establish a SIMPLE-IRA, you cannot maintain-during any part of the calendar year-any other employer-sponsored retirement plan for which contributions are made or benefits accrued for the calendar year.

SIMPLE-IRA plans are funded either with voluntary employee contributions and/or mandatory employer contributions, and SIMPLE-IRAs must be maintained on a calendar year basis.

A SIMPLE 401(k) was created to offer self-employed persons and small businesses a tax-deferred retirement plan without the complexity and the expenses associated with the traditional 401(k) plan.

As in the case of a SIMPLE-IRA, any business (incorporated or not incorporated) with 100 or fewer employees (including the employees of related entities) that does not maintain another tax-qualified plan to which contributions are made can implement this plan.

Structured as a 401(k) cash or deferred arrangement, the mandatory employer contributions to a SIMPLE 401(k) are deductible to the employer and are excluded from the income for the employee. Earnings in a SIMPLE 401(k) plan grow tax-deferred.

A Keogh plan is a tax-deferred qualified retirement plan for self-employed individuals and their employees. Although it is not necessary to have employees to sponsor or set up a Keogh, once you establish a Keogh, any employees you subsequently hire must be allowed to participate in it if they meet the minimum participation requirements.

As a defined contribution plan, a Keogh can be structured as a profit-sharing plan or a money purchase plan. If it is structured as a profit sharing plan, you will have some flexibility in terms of whether you will contribute to your plan and how much you contribute. If it is structured as a money purchase plan, you will be required to make a fixed contribution every year, whether or not you made a profit.

In addition to these four plans, the Economic Growth and Tax Relief Reconciliation Act of 2001 created increased opportunities for owner-only employers by allowing an individual 401(k). This plan is actually a profit-sharing plan with a salary deferral feature and is designed for owner-only companies, sole proprietorships, self-employer individuals, common partnerships, and employed spouses. (Note: Companies with common-law employees are not able to utilize this plan.) You can contribute up to the maximum salary deferral amount into an individual 401(k) and contribute the maximum employer contribution. Additionally, there is a catch-up provision for eligible individuals who are 50 years old or older.

It's Easy, So Start Now
The steps involved with building a retirement plan for yourself and for your business are easy.

First, you need to decide exactly what you want to accomplish. Do you want to provide additional retirement savings for yourself? Do you want to attract and retain key employees? Decide exactly whom you want this plan to benefit, and how you want to have the plan funded. (Do you want it to be funded by employees only, by the employer only, or by a combination of the two?)

Once you've answered those questions, you next need to evaluate the available options, including both qualified and nonqualified plans, and discuss with your trusted tax and financial advisors the potential effects each option can have on your business.

Finally, implement the plan, which is often the hardest step to take.

The cost of waiting and putting off these decisions for yet another year can be enormous. Suppose you have decided you will retire in 30 years, and you are willing to commit $5,000 annually to invest in your plan. If your plan earned a fixed rate of 8 percent for the next 30 years, you would have $566,416 in your retirement plan.

However, if you decide to wait five years (until your business is "stable" or whatever you are waiting for occurs) before implementing a retirement plan and beginning to invest $5,000 a year, that same retirement plan would be valued at only $365,530. Amazing! (We should note that these return figures are for illustrative purposes only and do not represent the past or future performance of any specific investment. It is unlikely that the growth, if any, of an actual investment will be constant. This illustration does not include applicable fees and expenses and assumes an 8 percent return before taxes and the reinvestment of all dividends.)

There are always reasons to justify not having a retirement plan for yourself or for your business. Yet, everyone seems to be in agreement that being financially independent at retirement requires putting money aside while you are working and earning an income, even if it means making some short-term sacrifices along the way.

Building your business is critical. But, so is being able to retire when you are ready to do so. Don't make excuses. Start today!

ELIZABETH M. RUCH, CFP, CMFC, is a senior financial advisor in San Diego, CA, associated with Waddell & Reed, Inc. She is registered in more than 15 states and can be reached at 619-295-9930 or emruch21777@wradvisors.com.

Author's Note: The information in this article is general in nature and meant only to provide an overview. Before making any decisions, a careful legal and tax analysis, including ERISA, should be made with the assistance of competent legal and tax advisors. Readers are encouraged to seek advice from their own legal counsel as to the appropriateness of plan design.