KEOGHS VS. SEP-IRAS
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The main reason you might choose to place your money
into a Keogh instead of a SIMPLE or simplified employee pension
plan (SEP-IRA) is the amount you can save in each plan. The amount
you can contribute to a SIMPLE or SEP-IRA is much less than that
for a Keogh.
Like all IRAs, a Keogh lets you grow your savings
free of current taxes. As with a SIMPLE or SEP-IRA, you must open
your Keogh fund before December 31 of the plan year to qualify for
tax deductions. In both accounts, contributions can be made any
time until April 15 of the following year.
However, setting up a Keogh can be much more complex
than setting up a SIMPLE or SEP-IRA.
Neither a Keogh nor SEP plan may lend any part of
the fund to an owner or employee. Nor may it buy or sell property
from another owner or employee who is in the plan.
The other major difference is that Keogh plans are
more flexible than SIMPLEs or SEP-IRAs. SIMPLEs and SEPs can be set
up only as defined contribution plans, whereas a Keogh can also be
set up as a defined benefit plan.
In general, Keoghs are used more often than SIMPLEs
and SEPs by high-income business owners.
Now let's take a look at the possible tax
benefits you can receive by opening up a Keogh fund.