FOR IMMEDIATE RELEASE: November 20, 2006

SEVEN FACTS YOU NEED TO KNOW ABOUT KEOGH PLANS

Self-employed individuals are on their own when it comes to saving for retirement. One option available to them is the Keogh plan. These qualified retirement plans, although complicated, come with significant advantages. Here are seven facts the New York State Society of CPAS says you need to know about Keogh plans.

1) A KEOGH CAN BE OPENED BY ANYONE WITH SELF-EMPLOYMENT INCOME.

You qualify to open and contribute to a Keogh if you earn self-employment income as an owner or sole-proprietor of a small business, as a partner in a partnership for which the plan is established, or as a self-employed professional. You also qualify if you are employed and participate in an employer-sponsored plan at work, but earn self-employment income from a sideline business.

2) CONTRIBUTIONS ARE TAX-DEDUCTIBLE AND EARNINGS ARE TAX-DEFERRED.

When you contribute to a Keogh, you get a deduction for your contribution and you don’t pay tax on your earnings until you start taking distributions from the plan at retirement. The deduction limit for contributions to a qualified plan depends on the kind of plan you have.

3) A KEOGH PLAN MUST BE SET UP BY DECEMBER 31.

To qualify for a deduction for 2006, you must have your Keogh plan set up by the end of this year. However, you have until the due date of your tax return to fund your account.

4) THERE ARE TWO MAIN TYPES OF KEOGH PLANS.

There are two types of Keogh plans: defined contribution and defined benefit. With a defined contribution Keogh plan, the amount of your retirement benefit depends on how much you contribute to the plan and how well your investments perform. Your defined contribution plan can be set up as a profit-sharing plan or a money purchase plan. Profit-sharing plans are more flexible, since the contribution is dependent upon the profits of the business. This means you can skip making contributions during lean years. In the money purchase plan, a set amount is contributed every year, regardless of whether your business shows a profit or a loss.

A Keogh defined benefit plan is more like a traditional pension plan. It is set up based on the specific amount you want to receive from the plan at retirement. With this type of plan, each year, you contribute as much as required in order to reach your predetermined benefit upon retirement.

An actuary is generally required to calculate the amount of your annual contribution. This type of plan is less common than the defined contribution plan, as it typically is more complicated to set up and more expensive to administer.

5) A KEOGH PLAN ALLOWS FOR A MUCH HIGHER LEVEL OF CONTRIBUTION.

The most attractive feature of Keoghs is the high maximum contribution allowed. For 2006, the contribution limit for a defined-contribution qualified Keogh plan is $44,000.

For a Keogh defined benefit plan, each year, the contribution is based on the amount the actuary calculates is needed to fund the benefits promised under the plan.

6) EMPLOYEES MAY NEED TO BE INCLUDED IN THE PLAN.

You don't need to have employees to establish a Keogh plan, but if you have employees, you generally must allow them to participate in your plan as long as they meet the minimum participation requirements. These generally relate to the employee’s age, length of service and hours worked per year.

7) A CPA CAN HELP.

Keogh plans can be complicated. If the plan covers anyone other than you and your spouse, you’ll need to file Form 5500 Annual Return/Report of Employee Benefit Plan with the IRS each year. Consult with a CPA for advice on opening and administering a Keogh plan.

PUBLIC SERVICE ANNOUNCEMENT
THE BENEFITS OF KEOGH PLANS
Approximate Length: 60 seconds

If you earn self-employment income, you may qualify to open a Keogh plan and boost your retirement savings. According to the New York State Society of CPAs, you may claim a deduction for your contribution and taxes on your earnings are deferred until you start taking distributions from the plan at retirement. The deduction limit for contributions to a qualified plan depends on the kind of plan you have, but generally they have high contribution levels. For 2006, the maximum contribution is $44,000. With a defined benefit plan, you contribute as much as required in order to reach your predetermined benefit upon retirement. CPAs point out that if you have employees, you generally must allow them to participate in your plan as long as they meet the minimum participation requirements. Finally, keep in mind that if you want to claim a deduction for contributions on your 2006 tax return, you must set up a Keogh by December 31 of this year. You may, however, make contributions until the due date of your return, plus extensions.