"Only? Are you kidding? That's great!" Cathy ex-claimed. "I can solve all my retirement-savings problems with one plan—a Keogh."
"That's right," James Murray agreed. "These really are great opportunities. One problem with money-purchase plans, though, that doesn't affect you 'employee-less' self-employed is that you must contribute your established percentage to your employees' accounts even if you show a loss.
"I'd forgotten that, James," Roy admitted, "but it's an important point and it's the reason why, for some self-employed people, the second type of defined-contribution plan may make more sense: the profit-sharing plan. As the name indicates, that type of plan's contributions are based on a percentage of profits, with the advantage of allowing you to alter the percentage each year or, if need be, of not contributing at all. This flexibility is attractive to a lot of self-employed people, especially those with employees.
"Of course, everything has its drawbacks, and the major one for profit-sharing plans is that your maximum contribution is limited to fifteen percent of net income rather than twenty-five. Again, because of the manner in which net income is defined for purposes of deductions, that fifteen percent is more accurately stated as just above thirteen percent of actual net income."
"If it's your desire to put aside more than thirteen percent, but you're apprehensive about committing to higher contributions, you can set up two plans—one of each type—as long as the combined contributions don't cross the twenty-percent-of-your-net-self-employment-income
threshold," James advised us.
"Or thirty thousand dollars," Cathy recalled.