World Education

If you have decided to break away from the rat race world of corporate slavery, or even if you earn extra income through extra work on the side from your regular job, you can set up what is called a Keogh Retirement Plan which was first introduced in 1963. What Keogh plans do is to allow entrepreneurs to set aside money for retirement the same way corporate slaves do at large corporations.

The last I knew, an entrepreneur can invest as much as $30,000 a year in a Keogh, but that figure might be higher now. You must also deposit the money by December 31 each tax year. While these contributions must be made with after-tax dollars, you can deduct your contributions on your tax return. I would love it if I could deduct my monthly contributions from my income at tax time that I put towards my company sponsored 401K plan. Not only do you get all of the benefits of tax deferral on the investment earnings in the Keogh, but you also save on taxes in the year you contribute. Another advantage, is that the contribution amount is more liberal than the IRA limits. And of course, as with all of the retirement plans out there, you have to wait until you are 59 1/2 to be able to start withdrawing.

So basically, for someone that is self employed or an entrepreneur, the Keogh Plan makes good sense. You can contribute more than what you are allowed to for an IRA, and you also get to deduct the contributions. Doesn’t get any better than that! The maximum amount a married couple can deduct from their income is $4000 with an IRA. So if you are on your own or you are earning money on the side doing something else, you might want to look into the Keogh Plan before you open up an IRA retirement fund.

On a side note, if you leave your job as a corporate slave, I would recommend rolling over the proceeds from your 401K into an IRA. I do not think you can roll over 401K proceeds into a Keogh Plan. Other than getting the company match, 401K’s generally aren’t very exciting plans. There typically isn’t a wide variety of funds to invest in. The company sponsored plan that I have through my employer only offers about 7 different funds and that is it. However, after leaving your job, instead of rolling your 401K into another 401K if you go to another company to work, definitely roll it into an IRA. For example, Fidelity offers a numerous amount of mutual funds that you can invest your 401K rollover in. They have funds that consist of 50 or more corporations combined, they have funds that consist of a group of companies involved only in energy, and they have funds that consist of companies that represent the technology sector, etc. With IRA’s, there is a much larger diverse group of funds you can invest in and take full advantage of the market trends. It’s better than only seeing your 401K grow just through the contributions you make each month out of your paycheck. But if you do go to another company, I think rolling over your old company’s 401K into and IRA and then starting a new 401K with your new employer to take advantage of matching is the best move.

So there you go. Money for entrepreneurial retirement can be achieved with a Keogh Plan. It is something you might want to check into before you decide to open up an IRA if you are self employed.

Categories: Financial