A qualified plan for the self-employed is referred to as a Keogh plan.
Do you qualify? You are eligible to establish a Keogh plan if you own a business or part of a business that is not incorporated. In other words, you must be operating as a sole proprietorship, a partnership, or a limited liability company (LLC). Note, however, that you must actually perform personal services for the business; mere passive investment is not enough.
Should you establish a Keogh plan? If you qualify as a self-employed person and you're interested in establishing a defined benefit plan or a defined contribution plan, you should consider setting up a Keogh plan. In the early 1980s, Congress eliminated many of the distinctions between retirement plans for corporations and retirement plans for unincorporated self-employeds. The end result is that Keogh plans now offer as many options — and are every bit as complicated — as the retirement plans available to corporations.
As a consequence, if you're interested in Keogh plans, you should consult with a pension professional. The purpose of the following discussion is to help you become more familiar with Keogh plans and the terminology associated with them before you meet with your financial advisor.
Keogh plans are more flexible than simplified employee pensions (SEPs), and they allow you to save more towards your retirement. As a result, they are more often used by high-income business owners than are SEPs. Also, Keoghs can be set up as a defined benefit plans or as a defined contribution plan, whereas SEPs must be defined contribution plans.
Here are some subjects that may be of interest, if you want to learn more about Keogh plans: