Read This and Save Big!

The chances are good you qualify for a big tax deduction you are not taking. If you are not currently covered by a pension plan, the new pension law allows you to set up one of your own. It's called a Keogh plan, and it has great advantages that have just been significantly liberalized.

Basically, the plan allows you to take money that you earn now and, without paying any taxes on it, put it away for retirement. The interest and dividends it accrues each year are tax-free, also. Then, come retirement, you do pay regular income taxes on the money you withdraw from the fund you've amassed. But by then you are likely to be in a lower tax bracket; and in the meantime, all those deferred taxes have been working for you.

It used to be that only self-employed people qualified for Keogh plans. (Ask your dentist.) Now anyone who is not already covered by a pension plan qualifies. And even people who are covered by a pension plan, if they earn extra income on the side, qualify.

Self-employed taxpayers may contribute up to 15 per cent of their income each year, up to a maximum of $7,500, to their Keogh plan. Taxpayers who are not self-employed may contribute up to $1,500.

The easiest way to set up a Keogh plan is to go to a savings bank. It is just a matter of signing a few forms and depositing your money before December 31 of each year. You get a savings-certificate passbook that looks just like any other. If you prefer a more speculative investment, such as stocks or a mutual fund, call your broker. Even the money-market funds which are currently in vogue can set up a Keogh plan for you.

You can have several different Keogh plans at different places; and, over the years, you can switch your money around from one place to another.

What you can't do is withdraw your money before age 59½. If you do, you pay an immediate 6 or 10 per cent penalty off the top (it is not yet sure which), and then regular income taxes on the amount you withdraw. This withdrawal restriction is one of the main reasons people pass up the Keogh plan. (Simply not knowing the plan exists is another.) But consider: are you planning to have any investment assets by the time you are 59½? If so, they may as well be in a Keogh plan. What's more, if you did have to liquidate your savings for some emergency, 10 per cent would not be such an awful penalty to pay, especially when you consider the extra interest your tax-free dividends have been earning along the way.
—A.T.