The type of investments you can make with your IRA dollars depends on the custodian, but you generally have many more investment options with an IRA than you do with any of the employer sponsored investment plans.
The Keough plan is available to individuals who work for an unincorporated business or are self-employed. You can contribute up to 25% of your earned income up to a maximum of $30,000. All contributions are tax deductible and your earnings accrue tax deferred. You can contribute
much more per year with a Keough than with an IRA. You can elect to contribute a fixed percentage annually, a different percentage annually, or a fixed amount which you decide on. There are three types of Keough plans available and a lawyer can assist you in setting one up.
A SEP, or a Simplified Employee Plan is easier to set up than a Keough allows you to deduct 15% of your self-employment income, to a maximum of $30,000. As an employee, you can contribute up to $7000 per year to your SEP, and your employer can contribute the rest. SEP plans are only
available to companies with 25 or fewer employees, and at least half of those employees must participate in the plan.
All of these investment vehicles fall into one of two categories: qualified plans or non-qualified plans.
The 401 (k) and 403 (b) plans are qualified plans. Qualified plans are employer-sponsored plans that provide good benefits but that are restricted to the types of investment options offered by the employer. As we already mentioned, 403 (b) plans often require you to invest your money in tax sheltered annuities. 401 (k) plans generally offer a broader range of conventional investment options, but still seem very limited when compared to non-qualified plans. You usually get to select from a preset choice of investment options such as fixed interest annuities, money market funds, stock in your company, and other traditional investments.
The second category of retirement plans is nonqualified plans. Nonqualified plans generally allow more freedom as to when, or if, a contribution has to be made, and they also offer more latitude in the type of investments that can be made. All IRAs fall into this category. Generally, investors have more control over their investments in a nonqualified plan than with a qualified one. Usually they are easier to work with, have less regulation, and require less reporting. Often, contributions to these plans can be deducted as a business expense.
Most investments made with the vehicles we have been discussing fall into one of two asset categories: The first is debt and the second is equity. As an investor, you are either an owner or a creditor. Equity owners are entitled to all free cash flows that exceed the debt payment obligations of the underlying economic entity. Creditors receive priority in agreed-upon future interest and principal payments.
When choosing a retirement plan, you want to be certain of the types of investments permitted with your plan. Do not open an account that does not give you the freedom to choose your own investment options, whether they are debt or equity investments.
Author Resource:-
Don Burnham is an entrepreneur, author, real estate investor, teacher and speaker. He is CEO of the International Association of Seminar Professionals (IASP) and CEO and co-founder of the Wealth Restoration Institute, LLC, at http://www.weknowthewayback.com
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