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Nowadays retirement doesn’t have to mean the same thing for everyone, there are lots of options out there. In the old days when people retire they depend entirely on their pension from the company they’ve been working for. These days companies still offer pension benefits to the employees, but employees also have other options for pension. The Keogh is a perfect option for the self-employed person.

In a nut shell, a Keogh is a tax-deferred way of saving for retirement if you’re self-employed. This is similar to an employer’s retirement plan. The money you put in is invested in the way you specify. There are two types of Keogh plans out there: defined contribution and defined benefit.

A defined benefit plan is similar to your regular employer plan. You take a percentage of your paycheck monthly or bi monthly, depending on how often you get paid. This money is then put into your pension plan. The amount of pension you receive when you retire is based on how much you have contributed.

For defined contribution plan, the money that’s put into the pension account does not depend on your salary but some other factors. For example you could have the money paid in based on company profit, or it can be a set amount regardless of company profit. This is also be called money-purchase pension.

There is a limit to how much money you can contribute to a defined contribution plan, which stands at $30,000. However for defined benefit plan, the limit is set around $100,000 based on a retirement age of sixty-five.

Like other conventional retirement plans, there are penalties if you wish to withdraw the money before your retirement age. And if you cease to be active in your business, then you can not set up a Keogh retirement plan.

The benefits of owning a Keogh plan are numerous. For example, the funds that are put into a Keogh plan are tax deferred until withdrawal. This money is deducted form the gross income rather than the net. Contributing early on in the year means that the money will have time to accumulate. Although some business owners can’t access how much money they made until the end of the year, but you can still contribute.

A Keogh can be set-up for each business that a person owns, and hence if you have multiple businesses or if you have a regular job and a business, you can go for more than one option.

It’s important to review our retirement plan to see what other possibilities are out there. Take up more than one plan if you can afford to, is better than putting all your eggs in one basket.