| Being one's own boss offers a sort of freedom and | | | | percentage is allowed to change each year, so if cash |
| independence that working for someone else can | | | | flow is a problem in a given period, less money can be |
| never provide. For many, the ability to determine the | | | | allocated for retirement if necessary. Another benefit is |
| time, place, manner and conditions under which a living | | | | that SEPs may be established as late as the date of |
| will be earned is not a luxury, but a necessity. | | | | an income tax return extension. These plans are |
| Independent entrepreneurs often pour heart and soul | | | | simple and inexpensive to open, and no yearly |
| into the details of planning and operating a business, | | | | reporting is required by the government. |
| yet will neglect to fully contemplate and prepare for | | | | Functionally quite similar to corporate retirement plans, |
| retirement. Therefore, the earlier an independent | | | | Keogh plans take the form of either a profit-sharing |
| business owner educates his or herself about self | | | | plan or a defined benefit plan. One of the more popular |
| employed retirement plans, the better off they will be. | | | | self employed retirement plans, Keogh plans can yield |
| One of the drawbacks to working independently can | | | | a tax deduction if established prior to the tax year's |
| be the large amounts that must be paid in self | | | | end. Once established, contributions may be deferred |
| employment taxes over the course of a career. | | | | for that tax year up until the date of any filing |
| However, the rules relating to self employed retirement | | | | extension for that year's tax return. For the |
| plans serve to counterbalance that impact, in that there | | | | profit-sharing variety of the Keogh plan, contributions |
| are a number of tax-advantaged ways that help an | | | | are based on a portion of self employment income or |
| independent business owner set aside greater | | | | income earned as an employee of one's own |
| amounts of income than a typical wager earner might | | | | company, up to $49,000. During the first year of the |
| find possible. Among the most common and most | | | | plan, documentation must be drafted, and the Internal |
| beneficial plans for the self employed are simplified | | | | Revenue Service requires annual reporting. Defined |
| employee pensions (SEPs or SEP-IRAs), Keogh plans, | | | | benefit Keogh plans are intended to generate a |
| solo 401(k) plans, and Roth IRAs. | | | | predetermined yearly benefit in retirement, up to |
| A relatively uncomplicated and flexible option among | | | | $195,000. |
| self employed retirement plans is the simplified | | | | An actuary will be needed to determine each year's |
| employee pension (SEP). These basic plans permit the | | | | allocation, which will depend on income level, benefit |
| self employed individual to allocate and deduct | | | | amount desired, time until retirement age, and projected |
| anywhere up to 20% of income generated through | | | | investment income. Actuarial costs and the IRS |
| self employment (or up to 25% for one who is an | | | | required reporting may total a few thousand dollars. |
| employee of a corporation he or she owns). The SEP | | | | This type of plan allows larger contributions than any |
| account is a tax-deferred account, so no taxes are | | | | other self employed retirement plan, and therefore |
| paid until funds are actually withdrawn. The contribution | | | | may make sense for an older business owner. |