11th Hour

In looking for tax savings, don't neglect your retirement program. Putting money into a Keogh, 401(k) or an Individual Retirement Account (IRA) is one of the best ways business owners can lower their taxable income. Money contributed to a retirement plan is generally tax-deductible and grows tax-free until withdrawn.

Keogh plans, designed for self-employed individuals, must be established by December 31 for contributions to be deductible in 1997. The maximum amount you can contribute varies depending on the type of Keogh you set up. With a 401(k) plan, you can set aside a tax-free portion of your salary each year. The maximum limit this year is $9,500.

The new tax law has created several new types of IRAs, making these investments more attractive than they were in the past. One of the most significant new retirement accounts is the Roth IRA, named after its principal sponsor, Sen. William V. Roth Jr. (R-DE). Roth IRAs will not be available until next year, however. While contributions made to these IRAs will not be tax-deductible, the funds can grow tax-free. You'll also be able to withdraw money from this IRA without paying taxes if certain qualifications are met.

Contributions of up to $2,000 per year ($4,000 if filing jointly) will be allowed for all IRAs. However, the ability to make the full contribution "phases out" if your AGI is between $95,000 and $110,000 for single filers and between $150,000 and $160,000 for joint returns. The lower your AGI within these ranges, the greater your maximum allowable contribution. If you earn more than $110,000 (single) or $160,000 (joint), you cannot contribute at all.

This article was originally published in the December 1997 print edition of Entrepreneur with the headline: 11th Hour.