A self employed person can establish a Keogh Plan, simplified
employee pension (SEP), or SIMPLE Plan
and make tax deductible contributions entered on Form 1040, Line 28. SEP's and SIMPLE's are
less complicated than Keogh's. The tax deductible contributions and any
interest or gains thereon are not taxed until withdrawn.
A self employed person can establish and
make tax deductible contributions to a
Keogh Plan even if the person additionally works as an employee and is
covered by that employers tax qualified retirement plan. You can also
establish an IRA under the same tax rules as other taxpayers.
The two types of Keogh Plans are defined contribution plans and defined
benefit plans. Retirement benefits received from a defined contribution
plan are based on the tax deductible contributions and accumulated interest and gains.
Retirement benefits received from a defined benefit plan are based on a
benefit formula. Tax deductible contributions are adjusted to provide the required
benefit.
The maximum tax deductible contribution to a defined contribution plan is
the lesser of $44,000 or 100% of compensation.
The maximum tax deductible contribution to a defined benefit plan is the
amount needed to produce the required benefits under the formula. For 2006
the maximum annual retirement benefit which may be funded may not exceed
the lesser of 100% of the participant's average compensation for the
highest three consecutive tax years as an active
participant; or, $220,000.
Provided the Keogh Plan is established by the last day of the tax year,
you can make tax deductible contributions up to the due date of your tax return.
Many other tax rules apply and you should seek the help of a qualified
professional before establishing a tax deductible Keogh Plan.
Individual Retirement Arrangements (IRAs).
Also see IRS 
