If a business falls into that category, this is very important news. The so-called individual or solo 401 k means that one may shelter thousands more dollars per year than in other kinds of non-corporate retirement accounts.

Congress authorized the solo 401 k in 2001 to become effective in 2002. However, it is still relatively unknown. This new retirement plan not only allows one to shelter much higher amounts of income from current taxes, it also allows one to invest the money in an account in a wider range of investment alternatives, including real estate. You may even borrow money from your 401 k without a penalty.

"The solo 401 k is a gift to the self-employed from Congress. This is the greatest invention since sliced bread," says Eva Rosenberg, enrolled agent, sole proprietor, and publisher of the Web site, www.TaxMama.com.

With a solo 401 k, you may participate to the same extent as someone who is a participant in a corporate-sponsored plan. Here's how it works:

• As an employee (even though you are the only employee in the business), you may contribute up to 100 percent of the first $12,000 of your annual net income. As with the more familiar corporate 401 k plans, this is a deferred-salary contribution. That means that you will not owe income taxes on the money you contribute until you begin making withdrawals when you retire. Understand, however, that if you're incorporated, you must calculate your contributions on your wages, not your business's profit.

This is a double-barreled benefit. You defer income taxes until retirement when you will probably be in a lower tax bracket, and the money in your account grows tax-deferred.

The contribution limit will increase $1,000 per year until it reaches $15,000 in 2006. In yet another benefit, participants who are age 50 or older may contribute an additional $2,000. This amount will increase by $1,000 per year until 2006.

• Now, let's add the "company" component. As your own employer, you may contribute up to an additional 20 percent of your net self-employment income. (If a business is incorporated, one may contribute up to 25 percent of his or her corporate compensation.)

Currently, the maximum total contribution allowable in a solo 401 k is $40,000-$42,000 if aged 50 or older. If a spouse provides some services to a sole proprietorship for which he or she is paid, or if a spouse is employed by an incorporated business, each may open an individual 401 k.

For some participants, one of the most important benefits of the 401 k is the expanded list of investment alternatives for money in the account. Real estate is one of the most popular 401 k investment alternatives and just about any form of real estate investment is permitted under the law-condominiums, single-family rentals, mobile homes, undeveloped land and second mortgages all qualify. Note, however, that neither the sole proprietor, the spouse, the children nor the parents may live on the property. Treat real estate purchased as an investment within a 401 k strictly as a business investment. Pay all operating costs from the account and all profits must revert to the account.

Of course, not everyone will have enough money in a 401 k to support real estate investments. If this is the goal, one may roll over other retirement accounts into the individual 401 k. This includes, SEP accounts, IRAs, Keoghs, even the money in other 401 k s from former employers.

And the benefits don't stop with alternative investments. Unlike other self-employed retirement accounts, the 401 k allows one to borrow money from the plan. One may borrow up to 50 percent of the total value of the account (with a maximum dollar limit of $50,000). While federal law permits this option, not all account management companies permit it.

One must repay any loans made from his or her 401 k within five years, with interest determined by the applicable federal rate (currently 4.65 percent). Interest payments, as well as principal loan repayments, must all be deposited in the account.

If unable to repay a loan from a 401 k, the IRS will treat it as an early distribution (unless you reach age 59 before the loan comes due) and you'll be assessed taxes and penalties.

Whether incorporated or self-employed, there is plenty of time-until December 31-to set up a 401 k plan for your business. The application is relatively easy to fill out, but to take advantage of the alternative investment option it's a good idea to work with an accountant and the company that will manage your account. The account may be set up any time during 2004, but you don't have to fund it until tax filing time in 2005.

Individual 401 k plans have so many advantages over other self-employment plans that they are destined to become one of the most popular. In recognition of this, virtually all mutual find and investment management companies, including the major brokerage houses, are either already offering the plans or will be in the near future.

Additional information and a list of 401 k retirement plan providers can be found at www.401khelpcenter.com. Another helpful Web site is www.pioneerfunds.com where you'll find a handy chart that will help you to estimate how much you may contribute.

Whether you are incorporated or self-employed, you owe it to yourself to investigate the advantages of a 401 k retirement plan.