If you’re self employed, it’s important to plan for your own financial future. One option is a tax-advantaged retirement plan called a Keogh. Get started now and give your money more time to work for you.
What is a Keogh?
A Keogh, also known as an H.R.10, lets you lower current taxable income using tax-deferred contributions. Any gains and earnings from your investment have the opportunity to grow tax-deferred over time so they compound more quickly. This gives you higher growth potential in the long run.
A Keogh offers two options for self-employed investors
There are two types of Keogh plans – defined contribution and defined benefit.
- In a defined contribution plan, each participant has an individual account. They select a specific amount to contribute now and receive their accumulated contributions, including investment returns, later.
- In a defined benefit plan, a participant’s specific retirement benefit is determined. Current contributions, generally made by the employer, are then estimated based on that future need.
How to set up a Keogh
If you decide to use a Keogh plan, you’ll decide which type to use and will need a written plan of action.
If you write a customized action plan, you’ll need to pay a fee to get it approved by the IRS. However, you may be able to take a tax deduction for setup costs.
You can also opt for a master or prototype plan. Many organizations offer these IRS-approved plans, including insurance agencies, mutual fund companies, banks and professional organizations.
Keep in mind that if you set up a benefit plan for yourself, you must also offer it to your employees, if you have any. There are some ways, however, that you can restrict access to the plan.
Finally, choose how to invest. You can invest the assets yourself or through a trust or custodial account. Your plan can use many different types of investments to help your money reach its long-term growth potential. Investing involves market risk, including possible loss of principal.
Learn about your other retirement plan options
Self-employed workers have many choices in setting up your retirement plan. The IRS has publications about these plans or you can check with your investment or tax professional for more information or for help in setting up a plan.