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Author: TMFPixy Big gold star, 5000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 81642  
Subject: Re: keogh investment Date: 5/15/2001 7:17 AM
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Greetings, Mike, and welcome. You asked:

Hi, I could use some help with a Keogh plan I am about to open. I am opting to contribute 25% of self employment income into this plan. How do I calculate the correct amount of money to contribute? I initially assumed I would multiply .25 by the amount on my paycheck, but I was subsequently told by a tax lawyer that the amount would be somewhere in the neighborhood of 20%, as the 25% contribution rule is not that simple. Does anyone know how to calculate the correct contribution amount? This will be a money purchase pension with a 25% fixed contribution.

The tax lawyer is correct. Your contribution will be about 20% of your net self-employed income. The calculation is described in IRS Publication 560 (Retirement Plans for Small Business) available for download at http://www.irs.ustreas.gov/forms_pubs/pubs.html. Pay particular attention to the discussion on deduction limits found on pages 12 and 18.

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