Q: HOW DOES THE NEW 401(K) PLAN FOR SELF-EMPLOYED PEOPLE WORK?
A:
“A sole proprietor who pays self-employment tax and can’t deduct full health insurance coverage wins big by getting to put away more money,” says Nan Andrews Amish, chief operating officer and vice president of sales and marketing at Positive Return Inc., a financial planning company based in San Francisco.

Under current rules, there is a 15 percent-of-pay cap on the combined employee/employer contribution, but starting in January 2002 the combined employee/employer contribution is subject to a flat cap of $40,000. A new 25 percent salary cap is for employer deferrals only; employee deferrals no longer will count toward this cap. A sole proprietor, as both employer and employee, could then make an employer contribution of up to 25 percent and then add up to the new maximum employee contribution of $11,000.

Boston’s Pioneer Investment Management is one of the first to launch a 401(k) plan for self-employed people, the Uni-K.