Question

1 Are Keogh plans better for single self employed businesses? Why or why not?

Answer 1

Are Keogh plan is a tax-deferred retirement plan for self-employed individuals, non-corporate small businesses, and their employees. A defined benefit Keogh plan works like a self-funded pension plan. In a defined contribution Keogh plan, the business owner decides how much to contribute.

Why?

We’ll explain more about the Keogh plan, the options for saving, and how to start one. Are Keogh is employer-funded and allows higher contributions than an IRA. Are Keogh plan (pronounced KEE-oh), or HR10, is an employer-funded, tax-deferred retirement plan designed for unincorporated businesses or self-employed persons. Contributions to it must come from net earnings from self-employment. Keogh plans, more often called HR 10 or qualified plans, offer an alternative way for self-employed individuals to invest in their retirement. This can be a great option for higher-income small business owners, such as doctors and lawyers. It puts you more in control of your retirement savings and potentially allows you to save more than you could with other retirement vehicles.

An actuary uses variables like your age and expected a return on investments to calculate this figure. Are Keogh plan, the business owner selects the benefit they wish to receive upon retirement and works backward to determine the annual contribution required to achieve that amount. The contribution required and the deduction allowed to reach your benefit goal are complex to compute.

Why not?

The disadvantage of this type of plan is that you will not have access to your money until you reach retirement age. If you are an employee and you have another source of self-employment income, you could still open a Keogh plan. According to the laws, you cannot get the money out of your account until you reach the age of 59 1/2. If you try to take out your money before the age of 59 1/2, you are going to have to pay an early distribution penalty of 10 percent of the amount that you withdraw. In addition to paying an early distribution penalty, you will have to count the money as if it were regular income. This means that you will also have to pay taxes on the amount that you take out at your regular marginal tax rate. If you are in the highest tax bracket, this could mean that you are going to pay taxes of 35 percent on the amount that you withdraw.