A qualified retirement plan for individuals who are self-employed, those who own and / or operate unincorporated businesses, own more than 10% of a special partnership or corporation of individuals, or receive a substantial portion of their income from self-employment. All allowed contributions are 100% deductible, and can be done within the fiscal year and no later than the date of filing the income tax return, including extensions, if any of the following year.
Advantages of a Keogh Plan
- Subject to certain limitations, depending on the type of plan, the plan contributions are deductible in determining taxable net income subject to income tax.
- The Trust that receives contributions is exempt from paying taxes on income from investments that are held within the trust.
- At the time of retirement, the accumulated funds can be taxed at a preferential rate of the following, only if received within a taxable year and meet the conditions that are applicable: 10% and 20%
- The participant can choose among several investment alternatives.
- The money accumulated under the plan is exempt from taxes on inheritance.
- The Trust, as a separate legal entity, provides additional protection against third party claims.
Professionals, who receive self-employed income, usually recognize them on Schedule M or K of the tax return. All gross revenues less total ordinary and necessary expenses produce the net income. That net income is eligible for the calculation of the contribution to the Keogh Plan.
The tax savings will depend on the net income of the profession. Assuming that you report more than $ 50,000 of net income from their profession and the tax rate is 25%; for every dollar contributed in taxes it would save 25 cents.