Being a self-employed or solo proprietor, it is not that difficult to save up for the future. Why? Well, it is because you do not have employees to think about when it comes to compensation and benefits, plus, there would be less tasks to handle and bills to pay. But why is it that you still find it challenging to find the right one out of the choices of small business retirement plans laid on your table? One reason might be your lack of knowledge and understanding about such plans. Now, in order to make your decision making a lot easier, you need to do your homework and research on the different retirement plans for small businesses or self-employed individuals. You can start with the Keogh plans.
What is a Keogh Plan?
This is considered to be one of the most popular retirement plans for self-employed individuals who belong to the higher income bracket. Established back in the 60’s, Keogh Plans are designed to help the self-employed, sole proprietors and small business, as well as unincorporated business owners to save up and establish a more plausible retirement plan. The contributions are tax deductible with as much as 25% as contributions. The term is now seldom used and most people are now looking into setting up a Solo 401k plan for self employed individuals.
Types of Keogh Plans
There are basically two types that you can choose from:
- Defined Benefit – this type works like your traditional pension plans, but of course, you have to remember that you have the sole responsibility when it comes to funding the plan. This can help you save a lot of money since you are self-employed.
- Defined Contribution – this category has two options as well:
- Profit sharing – which works like SEP, which means that there is a maximum limit in contributions – 25% of your compensation after tax. The contributions can also change depending on the changes on your monthly and annual income. The most common form of profit sharing Keogh now is the Solo 401k plan, which offers great flexibility and control to plan owners.
- Money Purchase – you have the chance to decide on how much of your income you would like to contribute every single year. Penalties apply if you fail to follow through with your commitment.
Is this Plan for You?
To set things straight, this type of retirement plan can require you accomplish more paper works, which means that it can be burdensome, especially if you do not have the time to really spend filling out forms and submitting them for approval. In reality, there are simpler measures to take such as opening an SEP or choosing the best 401k for small business. However, if you are after higher contributions and do not mind the extra tasks, then Keogh Plans can surely work for you.
Related Keywords:
- Small business 401k
- Solo 401 k plan
- Sep retirement plan
- Sep account
- Self employed ira