What if you're self-employed and you want to place some of your earnings in a tax-deferred retirement account, but you don't want to limit your contribution to $5,500 in an IRA in 2015 (same in 2014). You'd like to save considerably more. Do you have the same opportunity available to you as employees who are covered by corporate retirement plans? The answer is yes.
Keoghs allow unincorporated, self-employed business owners (sole proprietors and partnerships) to make tax-deductible contributions and receive the same tax advantages as corporations. Unlike IRAs, Keoghs are still tax-deductible if you're covered by an employer plan. Suppose you work as a part-time freelance writer in addition to your regular, full-time job. You can use your freelance writer income to open a Keogh. A Keogh plan lets you accumulate savings in a private retirement plan that supplements your pension and Social Security.
Opening a Keogh is a bit more complicated than opening an IRA. You must have a plan document that is approved by the IRS. The plan document describes the type of Keogh plan it is and how contributions are determined. You can have either a defined benefit or defined contribution (money purchase or profit-sharing) plan. Your maximum contributions will depend upon the type of plan you establish.
IMPORTANT NOTE: If you are covered by a qualified employer retirement plan, the total annual contributions to defined contribution plans in 2015 cannot exceed 100% of your compensation or $53,000 ($52,000 in 2014), whichever is less. If you also have a defined benefit plan, a separate limitation applies; this benefit limitation of $210,000 in 2015 (same as 2014) is the maximum annual benefit that may be paid from the plan. The actual contribution to a defined benefit plan will depend on the benefit provided under the plan, the participant's age and years of service with the employer, and the rate of return earned on plan assets.
*Non-deposit investment products and services are offered through CUSO Financial Services, L.P. ("CFS"), a Registered Broker-dealer (Member FINRA/SIPC) and SEC-registered Investment Advisor. Products offered through CFS: are not NCUA/NCUSIF or otherwise federally insured, are not guarantees or obligations of the credit union, and may involve investment risk including possible loss of principal. Investment Representatives are registered through CFS. General Electric Credit Union has contracted with CFS to make non-deposit investment products and services available to credit union members.