Since the self-employed don't have a company pension to fall back on, they must rely on their own personal retirement savings, like a Keogh Plan. It's a tax-deferred retirement plan created for unincorporated businesses and self-employed individuals. Creating a Keogh savings can be the key to a secure retirement.

Prior to setting up a Keogh plan, you'll need to make some decisions regarding what type of Keogh is best suited to your business needs. Before selecting a Keogh plan, review these Keogh basics:

1. Keogh plans come in two varieties including defined-benefit or defined-contribution.

2. The two types of defined-contribution plans are profit-sharing plans and money-purchase plans.

3. The money-purchase Keogh plan is highly restrictive with respect to annual contributions.

4. The profit-sharing Keogh plan offers more flexibility with respect to annual contributions.

5. Some people opt for the Keogh combination plan, which blends attributes of money purchase Keoghs with profit-sharing Keoghs.

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Choose a defined-contribution plan or a defined-benefit Keogh plan

Defined-benefit plans tend to benefit people who are older and make more money. They can be dangerous for a young business, since you still must contribute even if profits are down.

I recommend: Go through the defined-benefit flow chart offered by db65.com to evaluate whether you're eligible for the defined-benefit Keogh plan. Examine the comparison offered by Advanced Corporate Planning. You can do a side-by-side comparison of defined-benefit and defined-contribution plans.

Select a profit-sharing Keogh account or a money-purchase account

Money purchase Keoghs mandate that you, as an employer, make yearly contributions that reflect a predetermined percentage of compensation. Profit-sharing Keoghs offer flexibility with respect to annual contributions. For example, if your business is experiencing a slow year with low profits, you can skip Keogh contributions; however, during good financial years, you can contribute more.

I recommend: Determine eligibility and deadlines for establishing profit-sharing or money-purchase accounts at Union Bank of California. Use the Fidelity Investments profit-sharing plan and money-purchase plan worksheets to help you decide which plan is best for you.

Contact a firm capable of helping you with Keogh planning

There are consulting firms that focus specifically on designing and administering retirement plans. You'll want to consult with one of these firms to guide you through the paperwork and calculations necessary to start up a Keogh.

I recommend: Sheffler & Martin is a consulting and administration firm that offers assistance with retirement plan set-up and maintenance. E.I.P. is another company involved in the creation and maintenance of Keogh plans. Contact them to get information about setting up your plan.

Tips & Tactics

Helpful advice for making the most of this Guide

• •  Sit down with a financial planner or accountant to discuss the benefits of a Keogh for your business.

Back in 1962, when there were limited alternatives for self-employed individuals interested in starting their own pension funds, Congress created the Keogh plan as a new type of self-directed retirement program. A lot has changed in the world of retirement plans since then, but the Keogh is still around.

The Keogh provided greater flexibility for small businesses than other types of plans and was later expanded to include employees as well as owners. While recent expansion of 401(k) programs for small business have in some ways made the old Keogh plans less attractive, they still carry a great retirement saving kick.

A Keogh plan for your business can:

1. Give you and your employees a way to set aside pre-tax dollars for retirement
2. Shelter retirement plan income from taxes
3. Give you tax deductions for making contributions
4. Help you attract and keep employees by providing a retirement benefit.

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Determine your retirement needs

Before setting up any retirement plan, take a look at your financial situation. Key information includes the number of years until you expect to retire, your income and other retirement plans and investments you might have.

I recommend: Get help figuring out your retirement needs with retirement and savings planning calculators at FinancialPlanningToolkit.com.

Get to know the Keogh

If your business is a sole proprietorship or a partnership, you can participate in a Keogh plan. In most cases, you'll want to set up a qualified plan, which means your plan must comply with IRS rules for pension plans.

I recommend: Discover who can have a Keogh plan and find a comparison of small business retirement plan options, including Keogh plans, at InvestSafe.com.

Choose a defined contribution or defined benefit plan

Your Keogh plan needs to use one of two methods: defined contributions or defined benefits. A defined benefit plan, which is generally more complex to set up, provides for a predetermined retirement benefit amount. The retirement benefit in a defined contribution plan depends on how much is contributed and how well the investment performs.

I recommend: Review a list of benefits and drawbacks for each type of plan and find your contribution limits using a Keogh contribution calculator at TIAA-CREF.org.

Choose a money purchase or profit-sharing plan

If you choose a defined contribution plan, your Keogh can be either a money purchase plan or a profit-sharing plan, or a combination of both. With a money purchase plan, you must make the same contribution each year regardless of your profits or losses. The contribution to a profit-sharing plan can change each year.

I recommend: Discover the differences in money purchase and profit-sharing plans at the IRS Web site.

Create the Keogh plan document

Once you're ready to establish your Keogh plan, you'll need to draft a document that meets the IRS requirements. Be forewarned: the paperwork requirements are extensive, but you can adopt a master or prototype plan that's been pre-approved by the IRS. Financial institutions that manage Keogh plans can provide you with an IRS-approved plan. If you have employees, you must share the plan with them and give them the opportunity to participate.

I recommend: View a prototype Keogh plan and adoption agreement that can be used to open a Keogh plan at TIAA-CREF.org or download a Keogh plan prototype from Bear, Stearns.

File with the IRS

Once you've created your Keogh plan, you'll have to file statements about it with the IRS. The filing requirements vary depending on how you set up your Keogh and whether or not you have employees. Check with your accountant to make sure you file correctly.

I recommend: See the reporting requirements section of the IRS publication, Retirement Plans for Small Business for more information on forms you may have to file. Download IRS Form 5500 Annual Return/Report and other forms for your Keogh from Financial Planning Toolkit.

Tips & Tactics

Helpful advice for making the most of this Guide

• •  Get good financial advice: There may be plan options that are less hassle and offer greater flexibility, like a 401(k). Make sure you have a financial adviser and/or accountant who has dealt with retirement plans and pension plans.
• •  Be prepared for a long commitment: Closing a pension plan is not an easy task. Once you've decided on your plan, you should expect to keep it for an extended period of time.
• •  Keep good records: You should make arrangements to keep good financial records of your plan so you can answer questions that may come up years after contributions are made.
• •  Use tax benefits: Contributions to your plan can give you some nice tax breaks. Make sure you claim all that you are entitled to.

Self-employed people and those working for unincorporated businesses do not receive the benefits of a company-sponsored retirement plan, so the Congress developed a different kind of retirement program for these people. Individuals can set up a Keogh plan in order to receive retirement benefits at the appropriate age. Keogh plans have strict rules and regulations, and a basic understanding of key terms in this legislation is important to maximize benefits.

Personal financial advisers help clients prepare for retirement as part of an effective plan regardless of the age of each client. Although wise advisers urge clients to start planning for retirement once they start earning a salary, people often procrastinate when retirement seems a distant possibility. Keogh plans originated with the Self-Employment Individuals Retirement Act 1982 and continue to provide benefits individuals.

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Defined contribution plan

There are two distinct types of Keogh plans, including the defined contribution plan. Employers make 100 percent of the contributions to the owners and employees in a defined contribution plan. On retirement, the individual receives funds depending on the size of the contributions and the growth of these contributions, which depends on how managers invested the funds, which usually consist of mutual funds, stocks and bonds.

I recommend: Investopedia is a great aid for people who want to understand the best ways to invest their money.

Defined benefit plan

An astute financial planner should set up the second type of Keogh plan, a defined benefit plan. In this type of plan, the employer makes all of the contributions to the owner's plan and employees' plans. This type of plan is often better for older people nearing retirement because they can determine the amount of their retirement pay.

I recommend: Beacon Capital Management Advisers has information about financial matters, including Keogh Plans. Check out db65.com for a basic flow chart on Keogh plans.

Tax deductible

Tax benefits and liabilities can make a substantial difference to each individual. A tax deductible item represents an amount of money deducted from the adjusted gross income at tax time. Monies that are tax deductible decrease the amount of individual income that is subject to taxes.

I recommend: InvestorWords is a comprehensive glossary of terms related to investing and a helpful tool for those looking for these explanations in plain English.

Unincorporated business

Many small business owners choose to keep their organizations under the label, rules and regulations of an unincorporated business. In an unincorporated business, the owner and the business are legally the same. The owner is personally responsible for all of the actions of the business. The owner of an unincorporated business does not answer to a board of directors.

I recommend: Keytlaw explains business practices to novices starting a business on their own for the first time.

Early distribution

Government officials designed retirement plans in order to support people over a certain age. The Internal Revenue Service (IRS) levies a penalty on individuals who withdraw funds from a retirement plan before the official retirement age. Individuals who withdraw funds before they reach that official age take an early distribution and usually pay a penalty.

I recommend: The IRS maintains a website for the convenience of taxpayers. People can download necessary forms and publications from this website. Other features include frequently asked questions (FAQs) and current information on filing taxes, as well as the tax code in general.

Tax deferred

One of the many benefits of contributing to a retirement plan is the savings available on federal taxes. A Keogh plan will include tax deferred benefits so contributors do not have to pay tax on part of their income put into a retirement account. There is usually a tax advantage to deferring federal taxes since an individual's tax liability is often less after retirement.

I recommend: Money Chimp provides comprehensive advice on financial matters, including a clear definition of the tax deferred status on some retirement funds.

A Keogh plan is a retirement plan for self-employed workers or business owners. Because a Keogh plan doesn't have some of the advantages a typical 401k plan has, such as employer matching and group management, you will need to know your options to make the most of the plan. This is where Keogh plan education and training comes in. Whether you're looking to enter the investment management industry or are self-employed, this training and education can be invaluable.

Before you begin the search Keogh training and education resources, there are a few keys points to understand. First, you need a basic understanding of the Keogh plan. Next, it helps to find some online tutorial resources for Keogh plan training. Finally, if you want further Keogh training and education, there are courses and tools available on the Internet to help further your understanding of the financial product. All that said, there are some useful tips below to help you with this process:

1. Review the basics of the Keogh retirement plan to establish a solid knowledge base.

2. Study Keogh plan online tutorials to expand your education and training.

3. Utilize a Keogh plan education course and tools to advance your knowledge.

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Examine the online definitions and explanations of the Keogh plan

In order to understand how the Keogh plan works, you first need to establish a basis of information. The definition and uses for the Keogh plan are an excellent place to start. From here, you can then build on this knowledge to employ an effective Keogh plan initiative.

I recommend: Investopedia offers a definition of the Keogh plan. New York Life is another resource for an introduction to the Keogh plan.

Evaluate the online Keogh plan training tutorials

The next step in the education and training process is to review online tutorials that give you a detailed look at the Keogh plan. These Keogh plan training tutorials offer an excellent resource for further Keogh training and education.

I recommend: Assess the Keogh plan primer available at CNN Money. Money Zine is another website that offers a training and education guide for the Keogh plan.

Enroll in a Keogh plan training course and use online tools to help further your knowledge

Once you understand the essential elements of the Keogh, the next step is to enroll in a training course. Few courses concentrate specifically on the Keogh plan. However, you can take a general financial planning class that includes Keogh plan education as part of the overall curriculum. You can take these classes online but the most effective method is enrolling in your local university. In addition to classes, there are online resources that buttress your training.

I recommend: The Center for Financial Training has financial training courses that include the Keogh plan. The Toolkit Media Group has forums and tutorials available so you ask questions and review in-depth subject material.

Self-employed people and employees working for unincorporated businesses can take advantage of Keogh Plan laws and regulations to set up a retirement plan that other people would receive from their employer. Keogh Plan laws and regulations include a contribution limit of $49,000, but workers can contribute up to 100% of their income. The IRS allows higher contributions to a Keogh Plan because the employee also pays the usual employer portion of the contributions to a traditional retirement plan.

Keogh contributions and the earned interest to a Keogh Plan is tax deferred until it is withdrawn. Keogh basics include the benefit of choosing different investment instruments so savvy investors can grow their contributions with wise choices. Individuals may contribute to a Keogh account until they reach the age of 59 1/2.

1. Wise investors will not withdraw Keogh savings until they retire when their income is lower and tax brackets are less.

2. Keogh planning should include a written plan submitted to the IRS.

3. People should hire an adviser to ensure compliance and maximum benefits of the Keogh Plan laws and regulations.

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Investigate Keogh Plan laws and regulations

Government leaders developed Keogh Plan laws and regulations so individuals would have a program to save for their retirement. These laws and regulations are in the publications put out by the Internal Revenue Service (IRS). Experts on the laws and regulations explain the procedures and benefits in language that is clear.

I recommend: World Wide Web Tax provides more information on Keogh Plans. How Stuf Works explains the Keogh Plan rules.

Check out the benefits and hazards before beginning Keogh planning

Individuals should benefit greatly by following the laws and regulations on Keogh Plans. Contributions to a Keogh Plan are tax deferred so contributors to a plan should save much more for retirement by taking advantage of this feature. Individuals must make their contributions and take their withdrawals according to the laws and regulations for maximum benefit.

I recommend: Money-zine.com provides information on the laws and regulations to help people with their contributions and withdrawals. The New York Times business news keeps readers current on the technicalities of the laws and regulations.

Compare the benefits of a Keogh account to similar plans

People can reap many benefits through Keogh contributions, but there are variations and other plans that might be better depending on the age, income and other factors of the contributors. The plans all have advantages and disadvantages for each person, so a clear understanding of the possibilities is important. A young person who begins a steady stream of contributions will find many benefits during their retirement years.

I recommend: Wachovia has details of Keogh Plans and other products that maximize retirement benefits. Taxes Made Simple provides important information.