Keogh Pensions

Discussion in 'Business Operations' started by Mrs. H, Oct 31, 2007.

  1. Mrs. H

    Mrs. H LawnSite Senior Member
    Posts: 708

    I recently read a book about saving your buisness money and it mentioned setting up a Keogh pension.

    The book made it sound like you set this up with your accountant and it somehow worked through your tax return like Social Security. Only our accountant told me yesterday that you have to set it up through an investment broker like a 401K.

    Anyone have any experience with this plan or have one themselves?
     
  2. IA_James

    IA_James LawnSite Silver Member
    from Iowa
    Posts: 2,592

    Never heard of them. If they aren't offered by one of the "name brand" financial companies, I'd be very leery of it. Vanguard, American Express(can't remember what they changed their name to), Pacific Life, John Hancock, Allianz, The Hartford, just to name a few reputable outfits.
     
  3. IA_James

    IA_James LawnSite Silver Member
    from Iowa
    Posts: 2,592

    Found this on a subsidiary of Hancock's site.

    Quote:

    What Is a Keogh Plan?

    A Keogh (HR 10) plan is a tax-deferred retirement savings program for self-employed individuals. It is named for Eugene Keogh, the congressman who first came up with the idea in 1962.

    Keoghs can be established by any individual who is self-employed on a part-time or full-time basis, as well as by sole proprietorships and partnerships (who are considered “employees” for the purpose of participating in these plans).

    Unlike IRAs, which limit tax-deductible contributions to $4,000 per year (in 2007), Keoghs allow you to save as much as $45,000 of your net self-employment income, depending on the type of Keogh plan you adopt.

    Contributions to a Keogh plan may be tax deductible up to certain limits. These contributions, along with any gains made on the investments within the fund, will accumulate tax deferred until you withdraw them.

    Withdrawal rules mirror those of other qualified retirement plans. Distributions are taxed as ordinary income and may be subject to an additional 10% federal income tax penalty if taken prior to age 59½. Keoghs can typically be rolled over to another qualified retirement plan or to an IRA. Annual minimum distributions are required after the age of 70½. Unlike the case with other qualified retirement plans, hardship distributions are not permitted with a Keogh plan.

    You can open a Keogh account through banks, brokerage houses, insurance companies, mutual fund companies, and credit unions. Although the federal government sets no minimum opening balance, most institutions set their own, usually between $250 and $1,000.

    The deadline for setting up a Keogh plan is earlier than it is for an IRA. You must open a Keogh by December 31 of the year for which you wish to claim a deduction. However, you don’t have to come up with your entire contribution by then. As with an IRA, you have until the day you file your tax return to make your contribution. That gives most taxpayers until April 15 to deposit their annual retirement savings into a Keogh account.

    Each tax year, plan holders are required to fill out Form 5500, for which they may need the assistance of an accountant or tax advisor, incurring extra costs.

    If you earn self-employment income, a Keogh plan could be a valuable addition to your retirement strategy. And the potential payoff — a comfortable retirement — may far outweigh any extra costs or paperwork.


    © 2007 Emerald Publications

    End quote.

    I also found some tools on Vanguard's site for retirement planning. It helps you decide which plan you want to use, and how much you need to be putting into it to achieve your retirement goals.

    https://personal.vanguard.com/VGApp/hnw/planningeducation/retirement/PEdRetSaveOVContent.jsp

    Pacific Life's tools http://www.pacificlife.com/Channel/Financial+Planning/Retirement+Planning/Retirement+Planning
     
  4. Mrs. H

    Mrs. H LawnSite Senior Member
    Posts: 708


    I guess this is the info that I was missing. Thanks.
     
  5. causalitist

    causalitist LawnSite Senior Member
    Posts: 610

    basically sounds like a traditional IRA with higher contribution limits ... but it said its tax deductable only up to a point... who knows what point.

    honestly, it's 99% likely you'll do much better with a roth ira. 4k /yr is fine unless you really need to catch up bad... but i guess it all depends on what the limits on deductable contributions is
     
  6. bcg

    bcg LawnSite Bronze Member
    from Tx
    Posts: 1,835

    SEP IRA's are generally easier to setup and administer. At some point you max the allowed contributions on those though, and that's when you setup a Keogh. Since it's a different vehicle, you can start contributing to it tax free after you've maxed your SEP IRA each year.
     
  7. causalitist

    causalitist LawnSite Senior Member
    Posts: 610

    really? is that how it works? are you saying that if i max out my traditional ira, i can still contribute to my roth ira? ....or is that different? seems too good to be true.
     
  8. bcg

    bcg LawnSite Bronze Member
    from Tx
    Posts: 1,835

    I don't actually know the answer to that. A Keogh is sort of like a 401K though. So it would be the same as working somewhere that offers 401K, in which case you can max out contributions in both an IRA and the 401K independant of each other. Since a Roth is funded by money that's already been taxed, the same may apply there, I don't know. I'd ask an accountant that one.
     

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