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1 TAX BREAK SURVIVES INTACT: KEOGHS FOR SELF-EMPLOYED

With all the savings and investment tax breaks that have been curtailed or rearranged in the past couple of years, it's nice to contemplate one that came through largely intact - Keogh plans for the self-employed.

Keoghs are sometimes thought of as the province of professionals on the upper rungs of the income ladder.But in fact, they can play a useful role in tax and retirement planning for anyone who has self-employment income - including moonlighters who are covered by a separate pension plan at their primary job.

The Tax Reform Act of 1986 put limits on deductions for contributions to individual retirement accounts if you are covered by a pension plan. But it set no such constraints for Keoghs.

In many ways, Keoghs are very similar to IRAs. Both are accounts set up with a custodian that allow you to make annual contributions.

As the money grows, the interest, dividends or capital gains it earns can compound tax-free until withdrawals begin, at age 591/2 or later if you want to avoid a 10 percent penalty tax.

But while IRA contributions are limited to $2,000 a year per person, the maximum for Keoghs can run as high as $30,000.

Keoghs originated in the early 1960s (they are named for Vincent Keogh, a New York congressman who sponsored the bill that created them).

Nowadays, they come in several forms. One, known as a "money purchase" plan, permits you to contribute as much as 20 percent of your self-employment income annually, up to the $30,000 ceiling.

For a second type, known as a "profit-sharing" plan, the maximum percentage is 13.043, again with the $30,000 cap.

The difference in percentage limits naturally prompts many people to opt for a money-purchase plan.

But there is another point to be considered in making the choice. Once you have set a given percentage contribution to a money-purchase plan, you are required to keep making that contribution each year.

"Your profit-sharing contribution, on the other hand, is optional," notes Albert Ellentuck at the accounting firm of Laventhol & Horwath. "If you need your money for other purposes, you're not obliged to contribute it."

Adds Michael Leonetti, a Buffalo Grove, Ill., financial planner, writing in the current edition of the American Association of Individual Investors' AAII Journal: "This is a dramatic advantage over the money purchase arrangement, because of its flexibility."

Ellentuck notes that a compromise option, known as a "paired plan," can be set up that is part money purchase and part profit-sharing.