Provided by Jon Gerhardt

As a small-business owner, you may need to review the benefits and incentives you can provide prospective employees, particularly in the area of retirement planning.

If a 401(k) is not appropriate for your business, you can offer your workers a SIMPLE IRA (Savings Incentive Match Plan for Employees). This plan is available for any type of business with 100 or fewer eligible employees, those who earned at least $5,000 in compensation in any two previous years and are reasonably expected to receive $5,000 of compensation in the current year.

A SIMPLE IRA can truly be a "win-win" situation for you and your employees. Here are some of the key advantages:

Tax benefits. You and your eligible employees can defer up to $9,000 of salary in 2004, or $10,500 if you are age 50 or older. All contributions are tax deductible and earnings grow tax deferred until withdrawal.

Ease of administration. A SIMPLE IRA is one of the most inexpensive and easiest retirement plans to administer and maintain. You will have virtually no setup costs, no administrative fees and no discrimination tests.

Funding flexibility. You are generally required to match your employees' elective contributions on a dollar-for-dollar basis, up to 3 percent of their compensation. The 3 percent match can be reduced for two years out of a five-year period. However, you cannot reduce the match below 1 percent in those two years.

Also, instead of making a match, you can contribute 2 percent of each eligible employee's compensation, up to the indexed limit of $205,000.

Range of investment options. You can fund a SIMPLE IRA with almost any investment vehicle available.

Contributions to other IRAs allowed. If you set up a SIMPLE IRA, you cannot have another tax-qualified plan for your business. However, you and your employees can still contribute up to $3,000 a year, or $3,500 if you are 50 or older, to a traditional or Roth IRA. Although the traditional IRA contributions may not be tax deductible, they will still grow on a tax-deferred basis. (Roth IRA contributions are not tax deductible, but earnings grow tax-free, provided you meet certain conditions.)

Although a SIMPLE IRA offers many benefits, you need to make sure your employees understand that this plan is intended for retirement, not for short-term goals. In fact, anyone under age 59-1/2 who withdraws money from a SIMPLE IRA within two years of making their initial contribution will be subject to a 25 percent penalty, in addition to regular income taxes. After the first two years, distributions taken before age 59-1/2 will incur a 10 percent penalty, although there are some exceptions.

A SIMPLE solution. Before you launch a SIMPLE IRA, consult with your tax adviser. If this plan fits your business, you may be pleased with the results. Remember, happier employees are better employees.

Jon Gerhardt is a financial adviser for Edward Jones in West Seattle, 7354 35th Ave. S.W. He can be reached at Jon.Gerhardt@edwardjones.com 938-1718.