.bodytext {float: left; } .floatimg-left-hort { float:left; margin-top:10px; margin-right: 10px; width:300px; clear:left;} .floatimg-left-caption-hort { float:left; margin-bottom:10px; width:300px; margin-right:10px; clear:left;} .floatimg-left-vert { float:left; margin-top:10px; margin-right:15px; width:200px;} .floatimg-left-caption-vert { float:left; margin-right:10px; margin-bottom:10px; font-size: 10px; width:200px;} .floatimg-right-hort { float:right; margin-top:10px; margin-left:10px; margin-bottom:10px; width: 300px;} .floatimg-right-caption-hort { float:left; margin-right:10px; margin-bottom:10px; width: 300px; font-size: 10px; } .floatimg-right-vert { float:right; margin-top:10px; margin-left:10px; margin-bottom:10px; width: 200px;} .floatimg-right-caption-vert { float:left; margin-right:10px; margin-bottom:10px; width: 200px; font-size: 10px; } .floatimgright-sidebar { float:right; margin-top:10px; margin-left:10px; margin-bottom:10px; width: 200px; border-top-style: double; border-top-color: black; border-bottom-style: double; border-bottom-color: black;} .floatimgright-sidebar p { line-height: 115%; text-indent: 10px; } .floatimgright-sidebar h4 { font-variant:small-caps; } .pullquote { float:right; margin-top:10px; margin-left:10px; margin-bottom:10px; width: 150px; background: url(http://www.dmbusinessdaily.com/DAILY/editorial/extras/closequote.gif) no-repeat bottom right !important ; line-height: 150%; font-size: 125%; border-top: 1px solid; border-bottom: 1px solid;} .floatvidleft { float:left; margin-bottom:10px; width:325px; margin-right:10px; clear:left;} .floatvidright { float:right; margin-bottom:10px; width:325px; margin-right:10px; clear:left;} What began as an inadvertent loophole in a 2002 revision of the federal tax code has become one of the best investment vehicles for many sole proprietors.

Using an individual 401(k), also known as a solo 401(k), many business owners and independent contractors can sock away more retirement money annually than through a Simplified Employee Pension Plan, or SEP-IRA.

Principal Financial Group Inc. last week announced that it’s launching a new version of its individual 401(k) plan that will enable it to broaden its distribution channels for the popular offering. Principal Trust Co. will serve as the directed trustee of the plan, which the company says will be an added benefit for its customers.

“We’ve offered an individual 401(k) product for a number of years, but this is a different version,” said Susan Houser, a Principal spokeswoman.

The new plan’s underlying investments are retail mutual funds and the plan will be offered through independent financial advisers such as stockbrokers, insurance brokers and third-party administrators.

In comparison with an SEP-IRA, which allows a company to contribute up to 25 percent of a business owner’s earnings with a cap of $45,000, an individual 401(k) also allows an owner to defer the same maximum amount of salary – $15,500 in 2007 – as under a regular 401(k) plan, and provides the same annual catch-up contribution ($5,000 this year) for those 50 or older. So an owner with $100,000 in income could conceivably make a total contribution of $45,500 to an individual 401(k).

The plan contributions can be adjusted from year to year to meet each participant’s needs, and may include spouses who work in the business.

Individuals who report compensation on IRS Form 1099, such as real estate agents, salespeople and consultants, may be ideal candidates for an individual 401(k) plan, said Doug Grove, vice president and national sales director for Principal Retirement and Investor Services.

Individual 401(k)s also may be less expensive to set up and administer, participants can make rollovers and transfers from many other types of retirement plans, and the plans can offer a wide range of investment options, say experts.

“Slowly but surely, I think they’re replacing the SEP plan for individuals,” said Tom Lastuvka, co-owner of Qualified Plan Consultants in Urbandale, which has set up about 100 such plans over the past several years.

The investment limits on individual 401(k) plans are adjusted upwards annually the same as regular 401(k) plans, Lastuvka noted, but don’t subject participants to the same discrimination testing a business owner would face with a traditional 401(k) plan. Also, participants are allowed to borrow from a portion of their individual 401(k) balance if needed.

In some states, including Iowa, individual 401(k) holdings are also exempt from creditors’ claims, “which for certain business owners, that’s a big, big deal,” Lastuvka said.

Individual 401(k) accounts allow for a broad range of investment vehicles, he said. One of the most popular choices right now is exchange traded funds, which offer a mix of stock offerings from various sectors of the market.

“But you don’t want to get too wild and crazy, because they’re meant for long-term investing,” he said.