Smart Women Finish Rich by David Bach

Author:David Bach
Language: eng
Format: mobi
Publisher: Rosetta
Published: 1999-05-26T04:00:00+00:00

DEFINED CONTRIBUTION PLANS (KEOGH PLANS)

If you run your own business and can afford to put away more than 25 percent of your income, a Defined Contribution plan may make the most sense for you. With certain Defined Contribution plans, starting in 2002, you can make a fully tax-deductible contribution of as much as 100 percent of your income, up to a maximum of $40,000 a year! (After 2002, the maximum you will be able to contribute to a Defined Contribution plan will be adjusted annually for inflation in increments of $1,000.)

Defined Contribution plans are especially good for business owners who earn significantly more than their employees. As a result of a feature called Social Security integration, highly compensated employees (which generally means the business owner—that is, you) are allowed to contribute a bigger percentage of their compensation than other workers. This means that you can put in, say, 25 percent of your compensation without having to make an equally large contribution on behalf of your employees.

There are three main types of Defined Contribution plans: Money-Purchase plans, Profit-Sharing plans, and Defined-Benefit plans.

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