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Self-employed can choose less (or more) paper work. RETIREMENT PLANNING

PEOPLE who work for themselves usually hate paper work. But if they want a retirement plan, they will have to deal with paper work, lots of it. Exactly how much, however, depends on what type of plan the self-employed person picks, says Judith McMichael, product manager for retirement products at Fidelity Investments, in Boston. Most of the self-employed people she works with have a low tolerance for the multiple forms and difficult accounting practices required by the more complicated retirement plans.

There are basically two categories of retirement plans for the self-employed.

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``Defined contribution'' plans let you specify how much you will put into the account each year, and ``defined-benefit plans'' allow you to define how you will get out of the program when you retire.

The first would be better for someone whose business is brand-new and perhaps even struggling, says Albert Ellentuck, personal financial counselor and senior tax partner at Laventhol & Horwath. ``You can miss a contribution every once in a while, though not contributing on a regular basis could disqualify the plan.''

But this feature is important, for example, for a woman who is self-employed, and trying to supplement her income through part-time work, says Ms. McMichael, since the amount that has to be contributed each year can be fairly low.

It would also work for a consultant or free-lancer whose income is less predictable than someone who's running a store and has historical data on business cycles, she adds.

The Simplified Employee Pension Plan (SEP-IRA), the simplest of the defined contribution plans, involves the least amount of paper work. You make an annual contribution of up to 15 percent of income, or $30,000, whichever is less.

Another defined-contribution setup, best known as a Keogh plan, is a little more sophisticated; it has two advantages: You can borrow against it, and if you take the money out in a lump sum after age 64, you get a favorable tax calculation, says Edward SELF-EMPLOYEDB11B6 McCarthy, president of McManus, Auger & McCarthy Ltd., a financial planning firm in Cranston, R.I.

With a profit-sharing Keogh, you can contribute up to 15 percent of your income, up to $30,000, each year. But if your business does poorly one year, and better the next, you can vary how much you put in.

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But another type of Keogh, the money purchase plan, requires that you contribute a fixed amount to it every year, no matter how little profit your firm makes. But you can save as much as 25 percent of your income with this plan.

For someone who can and wants to make the maximum contribution, this is ideal, says Mr. Ellentuck. This might even include someone who is working part time but whose spouse is earning enough to support them both, says McMichael.

Those who want a little of both can combine the two for a paired plan. Keoghs must be set up before the end of the year.

``They are a terrific way to put money away,'' concludes Ellentuck.

The real paper work burden comes with the defined-benefit plans. The first step is to the office of an actuary, since you have to calculate how much you want to get when you retire, and how much you must contribute each year to achieve that goal. Generally, you must contribute something to the Keogh every year, no matter how small your income.

For this reason, people who can afford a defined-benefit retirement plan - typically a person with a large income and few years until retirement - can usually cover the cost of outside actuarial help.

A new retirement plan is only the beginning, planners say.

``You really have to look at everything,'' Ellentuck recommends. ``Usually, a plan is not enough, unless you're putting in substantial amounts and starting early.''

A self-employed person must integrate his or her business with personal finances, says McCarthy. ``Just as important, and often overlooked, is the role of the business itself as a retirement asset,'' he says.

A business owner has several options: She can sell the company when she retires for a lump sum, or she can use it to generate part of her retirement income.

Because a business may or may not be liquid when the time comes to sell it, however, ``self-employed people should be doing investing outside their business,'' says Malcolm Gissen, a financial planner in San Francisco.

The IRA is another way to accomplish that, though the 1986 Tax Reform Act has taken away some of its tax advantages.

Under the 1986 law, a $2,000 annual IRA contribution will not be tax deductible if you or your spouse is covered by a regular employer plan and your combined adjusted gross income is $50,000 or more.

Likewise, if you are single, are covered by a pension, and earn more than $35,000, you cannot deduct your IRA contribution.

Still, ``you have the advantage of tax deferral [of money saved in an IRA],'' says Ellentuck, ``if you are a young person or close to retirement and fairly certain you won't need that money before 65.''

But for someone who may need the money before that, or someone who has large assets that he wouldn't be able to get at in an IRA, Gissen recommends against it.

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