Keogh, it’s not a fruit, it’s a way for you to sock away money while you’re working to make ends meet.
We all have obligations that nibble and sometimes bite into our earnings.
The taxes alone that we pay take a big chunk from what we earn.
How about doing some earning for yourself, rather than the tax man?
Eugene Keogh was the United States representative that brought about the legislation that bears his name; the Keogh Plan. It’s been around since 1962, but most people aren’t even aware of it’s existence.
The people who can benefit from a Keogh Plan include those that own their own business, are a partner in a business, a corporate board member… and most importantly, perhaps someone like you; who works as a freelancer or find yourself earning extra income (self-employed) while you’re working full-time at your normal job.
An example would be; operating a home-based business while you’re working as a route driver during the day.
To simplify; if you are making money with photography, the internet, plowing snow, or whatever, you probably qualify for a Keogh. In addition, if you are self-employed, you may also have a Keogh.
What if you already have a defined benefits plan from your current employer, can you still have a Keogh?
YES.
The good news is; no matter how you’re making your extra income, you can have a Keogh. It is a terrific way to put money aside for your retirement by deferring taxes on what your Keogh money earns. Think of it as a more sophisticated form of Individual Retirement Account.
Banks, brokerage firms, other types of financial institutions, along with lawyers and accountants who specialize in creating Keogh accounts can tell you if a Keogh is right for you.
However, you are free to control your own Keogh if you feel you are capable. It’s your choice as to whether or not you want someone else serving as the administrator.
A couple of points worth mentioning about a Keogh Plan;
1) they are flexible when it comes to what you can invest the money in
2) you can borrow money from your own Keogh.
People who qualify for a Keogh, also are able to have a Simplified Employee Pension, which is commonly referred to as a SEP. However, you can’t open a Keogh and a SEP based on the same earning stream.
Which one is best if you are self-employed?
This probably isn’t the answer you want to read, but… it depends.
Like everything else in this world, there are upsides to each and also constraints. Let’s take a look at Keogh Plans first.
You can shelter more money with a Keogh than you can with a SEP. As I mentioned, a Keogh has flexibility, not only in what you invest in, but how you format the plan.
You can also make the rules about whether or not one of your employees qualifies for participation in your Keogh.
Looking at Keogh constraints; Keogh plans tend to be a bit pricey when it comes to setting them up and having an administrator.
There is lots of paperwork that you will be filling out for Uncle Sam or paying your accountant to fill out. The toughest constraint is your commitment as to how much you contribute, because in tough earning years… you still have to come up with the contributions.
A SEP, on the other hand, doesn’t lock you into a specific contribution each year, but you can’t contribute as much as you would if you had a Keogh.
The good news is that if you have a bad year and you have a SEP plan, you don’t have to contribute to it at all.
It’s less expensive to initiate a SEP plan and usually less expensive to administer and the paperwork is easier. However, if you have a SEP plan and you have employees, the plan must cover them too.
I would suggest that you seek professional help in your decision as to whether or not to open a Keogh or a SEP.
Take a competent accountant to lunch and bring a list of questions with you. You never know what you can learn over a sandwich and a soda.
Now that there are nearly a million people making a living from ebay and who knows how many people making an extra income from the internet, it’s time to preserve your hard earned dollars with tax planning.
Lazz Laszlo is a former Investment Executive and Radio & Television Financial Reporter with many entrepreneurial endeavors to his credit. He spends his time as an emcee, public speaker, enjoying life and writing about business, travel, retirement, strategy, and pleasure. To learn more, please visit Lazz’s website; http://www.925-wage-slave-alternatives.com
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