Keogh Plans: Is Yours As Secure As You Think?

According to an article published in the New York Times, tens of thousands of people who expect their Keogh plans to produce financial security when they retire, might be at risk.

Many who are self-employed and thought establishing a Keogh would protect them from taxes, might actually have to pay those taxes.  And in addition, penalities and interest on the money they had thought was safely stashed in a retirement plan.  If you are one of those people, please pay close attention.  You might have failed to update your plan documents to reflect changes in the tax laws, and have put yourself at risk!

In l962 Congress established Keogh Plans, which allowed the self-employed to save their money, tax-deferred, for retirement.  Since then there has been a number of tax laws that have been passed which required new forms to be filled out by Keogh Plan owners.

Many with Keogh plans don't have other employees but the I.R.S.treats them as if they do. That causes problems. If you have an older plan that hasn't been amended to meet the requirements of the new tax laws, you are at risk. If you are audited, all returns for the years affected, must be redone and earnings for the period of the audit are treated as taxable income with interest and penalties added.

The banks and brokerage houses were required to send out letters to their account holders telling them they needed to sign the proper legal forms, but apparently many of them didn't do it. Now the I.R.S. is targeting Keogh Accounts that currently have, or at one time had, $100,000 in them.

If your Keogh is at risk here is what you do. Experts are suggesting you terminate them and roll over your assets into a SEP (Simplified Employee Pension Plan) or a SEP-IRA.  But, that's not all.  If you decide to do the rollover you still have to make your present Keogh compliant by filling out all the necessary forms.  If you don't, the rollover will still be regarded as tainted money and be at risk of penalty.

As usual, the small guy is at risk of being clobbered by the I.R.S. To be safe, please contact your accountant to make sure all of the proper forms have been filed.  If they haven't - they need to be.  It may be a royal pain in the butt now, but at least you'll know your money is safe and will be there when you need it the most.