Which retirement plan allows self-employed individuals to set aside money while deferring taxes?

The Keogh Plan is specifically designed for self-employed individuals and small business owners, allowing them to save for retirement while deferring taxes on the contributions and any earnings until withdrawals are made. This plan provides a significant retirement savings opportunity, enabling self-employed individuals to contribute a higher amount compared to regular IRAs. Under a Keogh Plan, contributions can be deducted from taxable income, which reduces the tax burden in the year those contributions are made. This tax-deferred growth is crucial for long-term retirement planning, as it allows the investments to compound without immediately impacting the individual’s taxable income.

In contrast, while a 401(k) can also allow for tax-deferred contributions, it is primarily tailored for employees of companies and not specifically for self-employed people. A Traditional IRA also offers tax-deferred growth but has lower contribution limits compared to a Keogh Plan and is generally available to all individuals, not just those who are self-employed. A pension plan, while providing retirement benefits, is typically funded by an employer and does not provide the same flexibility or tax deferral for self-employed individuals. Therefore, the Keogh Plan stands out as the most suitable option for self-employed individuals looking to set aside money for retirement while benefiting from tax deferral.