Keogh vs SEP
Gordon O. Perkins
Does anyone know of any articles, books, or have experience
regarding a self-employed person setting up their own
Keogh (as opposed to a SEP). What I'd like to know is
how difficult the extra paperwork is - for a non-accountant -
and whether any of the popular tax software (Turbo-Tax, etc.)
helps out in this area. Is there really that much
extra work for a Keogh? Is the extra money (20% vs 13%)
worth it?
Rich JBJT
writes:
The main advantage of a keogh is that you can be your own trustee. If you
properly set up a keogh, you can invest in virtually anything (real
estate, mortgages, etc.). SEP setups require an independent trustee and
usually limit you to savings deposits, mutual funds, etc. The cost of
setting up a defined contribution plan should be less than $500 . Defined
benefit plans are significantly more expensive and also require an actuary
to sign off on computations. Richard Lowenthal
BrianFrmTx
:Does anyone know of any articles, books, or have experience
One participant Keoghs are practically no different than SEP's as far as
paperwork goes. If you have any employees the paperwork will be more
complicated. If you have one participant and less than 100K in assets,
there is not an annual filing requirement for a Keogh, so it is similar to
SEP paperwork. With employees you must file form 5500 and individual
participant allocation statements. If you have employees you can make
them wait for several years to fully vest in the Keogh contribution, while
in SEP they vest immediately. Keogh balances are ultimately eligible for
5 year averaging while SEP's are not. Down the road if you want to roll
over Keogh to a future employer 401k, profit sharing, pension, etc. you
can do so. With SEP you cannot. Keogh can be integrated with social
security to skew benefits to the owner if you have employees, SEP cannot.
Once year's of service test is met a SEP must cover everyone making over
about $400/yr, but Keogh can exclude everyone working less than 1,000
hrs/yr (about 1/2 time). Keogh has most flexibility. If you have no
employees, use it, rather than SEP. If you have employees, it will
usually cost upwards of $500/year for adminstration. You have to compare
that to the tax savings of the extra contribution.
Paul Maffia
invest in in a Keogh.
The limiting factor in a SEP is that the trustee may limit what you can
invest in , not the law.
And please let us clarify. The only possibility in a SEP is a defined
contribution plan. Only a Keogh can be a defined benfit plan with its
attendent higher costs.
Even a defined contribution Keogh is higher cost because aidited
financials are required periodically by the IRS. NO auditing is
necessary in a SEP.
Paul M.