No. 1: Late Start on Your Retirement Savings

Rebecca Edgar has lived through some tough times recently that have left her finances in shambles. When her former husband lost his job a few years ago, they decided to sell their home in San Jose and use the $150,000 profit for living expenses. Now the money is gone and so is Edgar's ex.

A single mom with two young children at home and a son starting college, Edgar is starting over in San Diego. She receives no alimony or child support and has no savings. But she does have a plan, and she's pinning her hopes on a new business venture.

Edgar came up with the idea to publish a legal-information guide that's mailed to everyone who is arrested in San Diego and nearby counties. The guide is free, and it's a big hit with bail bondsmen and other local advertisers. Edgar expects profits of $15,000 per month.

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What should she do with this infusion of cash? We asked William Jordan, president of Sentinel Capital Management, in Laguna Hills, Cal., to come up with a financial plan for Edgar. Jordan recommended that she focus on three goals: paying off the $40,000 in credit-card debt she ran up in business expenses, creating an emergency fund, and setting up a retirement plan for her business that will let her make up for lost time while reducing her tax bill.

As a self-employed business owner, Edgar can establish a solo 401(k) plan or a SEP IRA and shelter up to $46,000 from taxes this year. Jordan also suggested that Edgar use strategies for employing her children part-time as a way of lowering her business taxes and shifting income to the kids.

For example, Edgar could hire William, 10, and Kathleen, 8, to perform age-appropriate tasks, such as cleaning the office or emptying trash. They can each earn up to $5,450 -- the standard deduction for 2008 -- tax-free. Any money their mother pays in wages reduces her taxable profit.

The strategy is even more valuable for Edgar's son Christopher, 18, a college freshman. He could conceivably earn $10,000 to $20,000 and pay little or no taxes, thanks to the $5,450 standard deduction, and up to $2,000 in educational tax credits for qualified college expenses (for which his mother's higher income might make her ineligible).

Edgar can put the money she saves toward her other goals, which include buying a house in a few years and paying for her children's college education. "I am the queen of procrastination," she says, but Jordan has "forced me to set priorities."

If Edgar follows through and invests her savings appropriately, says Jordan, "she should be on track to retire with more than $4,000 per month in spendable income by age 60."

NEXT: LACK OF FOCUSED STRATEGY

SEE ALL NEST-EGG WOES

No. 1: Late Start on Saving

No. 2: Lack of Focused Strategy

No. 3: Big Nest-Egg Losses

No. 4: Little Savings for Retirement

NO. 5: Frozen Pension Funds

No. 6: Saving in a Bear Market

HOME: Catch Up on Your Retirement Savings