Keogh plans are a special type of retirement plan designed for sole proprietors and partners, and their employees. Chances are that if you file a Schedule C or Schedule E (partnership income) for your tax returns, you're eligible for a Keogh.
If you own a business or if you are a partner of a business that is not incorporated, you can open a Keogh. It's not enough to just be an owner, however; you must also perform personal services for the company. If you are a limited or retired partner in a business, a Keogh is not available to you.
If you own more than one unincorporated business, you must open a Keogh for each business. You cannot have a Keogh plan in one business but not the other. If you have a regular job but you also earn self-employed income, you can still save through a Keogh plan.
Self-employed ministers, consultants, or salespersons (who work for outside vendors) are examples of professionals who could open a Keogh. Salaried persons who work for a corporation, however, would not be eligible unless they received income from self-employment.
The amount you can contribute to a Keogh depends on your earned income. Your self-employed earned income is based on your gross income, minus any deductions you file on your income taxes.
A Keogh plan allows you to do many things. It allows you to save larger sums of money than SEP IRA and SIMPLE IRA retirement plans while giving you some nice tax deductions. It also gives you control over your investment assets. However, if your self-employed business uses other employees, you will have to include them in your Keogh plan, which could prove costly.
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