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With both Keogh profit-sharing and pension plans as well as 410(k) plans, employees cause lots of complications.The tax guidelines may require you to pay in money on their behalf while limiting contributions for yourself.
One more thing: You can contribute an additional $500 if you will be 50 or older at year-end.
So can your spouse if he or she passes the age test.
A plan document must be drafted in Year One (this may cost a couple hundred bucks), and the IRS demands an annual report (you can probably do this yourself).
Keogh defined benefit pension plans are designed to deliver a targeted annual retirement benefit, which can be as high as $170,000.
However, the percentage can be varied each year, so lower amounts (or nothing at all) can be contributed when you turn out to be starved for cash. SEPs are great for procrastinators because they can be opened up as late as the extended due date of your income tax return.
Finally, SEPs are much simpler to establish and administer than Keogh profit-sharing and pension plans.They come in two basic flavors: profit-sharing plans and defined benefit pension plans.To get a deduction for the current tax year, the plan must be established before year's end.(This figure rises in 2006 and beyond.) On top of that, you can contribute and deduct an additional amount of up to 25 percent of your compensation income, or 20 percent of your self-employment income.Roth IRAs--Retirement Plan Dessert OK, you've now decided to set up a SEP, Solo 401(k) or Keogh plan. Contributions are nondeductible, but earnings build up tax-free and you can eventually take out all your money--including earnings--without owing Uncle Sam a dime.If your business has employees, a SEP, Solo 401(k) or Keogh generally must cover them as well--meaning you'll probably have to make contributions that don't just benefit yourself.All employee SEP contributions are immediately 100 percent vested.The same relatively generous thresholds apply even if you have a SEP, 401(k)or Keogh plan (and even if your spouse is covered by a retirement plan through work of self-employment).So you can contribute the max to your SEP, 401(k) or Keogh and then pop an additional ,000 (or ,000) into a Roth IRA to boot.The bottom line is SEPs are just as easy as deductible IRAs, but they allow much bigger contributions.Keogh Plans Keogh plans are the self-employed equivalent of corporate retirement programs.