What is a Keogh?

Self-employment offers a variety of special retirement plans that are suited for many different financial goals. One of these retirement plans is the Keogh plan, a retirement plan directed exclusively towards self-employed individuals and employees of unincorporated businesses.

A Keogh plan allows you to contribute up to 100% of your income or up to $49,000 in 2009, which is up from the previous maximum of $46,000 in 2008. Keogh plans are similar to other retirement plans in that your investments grow tax-deferred until you withdraw the money and there are tax penalties for an early withdrawal. Precious metals and collectibles excepting, Keogh plans are available for just about any form of investment, allowing great flexibility in deciding where your money goes.

One benefit of the Keogh plan is a reduction in pre-tax income since contributions are deducted from your gross income. This means that more of your money goes into your savings and stays exempt from taxation. Another main benefit is the higher contribution limit when compared to IRAs, although the penalties for early withdrawal still apply.

Keogh plans are similar to traditional IRAs in that payments must begin on April 1 of the year that the participant in the plan turns 70. Vested assets can be rolled over to a traditional IRA if the employee leaves the company and the entire yearly amount of contributions made to the Keogh plan by the employer and all the employees can be deducted, two other large benefits of the Keogh plan.

How are you saving for retirement? (Image: Flickr)