How to Contribute to a Keogh Plan

A Keogh plan allows for self-employed individuals to put away a fraction of their incomes for retirement. You must exercise care in the way that you establish a Keogh plan, though, since it will affect the amount that you are able to contribute each year. Since contributions to a Keogh plan are tax-deductible, all the money that you contribute to a Keogh plan will not be taxed, in addition to growing tax-free until you withdraw it.

Instructions

Difficulty: Easy

Things You’ll Need:

• Keogh plan
• Funds to contribute quarterly

1. Recall the type of Keogh plan that you previously set up to assess the maximum that you can contribute each year. You can also consult the IRS for current limits. The contribution limit for defined benefit Keogh plans is set annually by the IRS and is subject to change.
2. Determine the amount that you need to contribute each year. Defined benefit plans are based on actuarial calculations based on your age and income level. Money-purchase defined contribution plans require that a specified percentage be contributed each year, while profit-sharing defined contribution plans have no required amount.
3. Determine when you need to make your contributions. Defined benefit Keogh plans require that you contribute to your retirement plan each quarter.
4. Submit payment to your Keogh plan. If you are not making an electronic funds transfer into your Keogh plan, you may want to check the balance of your Keogh plan to ensure that payment has been received.
5. File the appropriate tax forms. In addition to claiming the contribution to the Keogh plan as a tax deduction, you may also need to file an annual report for the Keogh plan with the IRS. Self-employed individuals must file Form 5500-EZ.

Tips & Warnings

• Make your annual contribution to the Keogh plan before the tax filing deadline if you want to claim the tax deduction.
• If you have an extension for filing your taxes, you have until that date to contribute to your Keogh plan.
• If you are self-employed and have any employees, you are also required to make contributions to the Keogh plan for them.
• If you contribute to another type of retirement plan, you may not be able to contribute the maximum amount to your Keogh plan.
• If you have any questions or concerns about making contributions to your Keogh plan, they are best addressed by a financial professional.