Keogh plan for directors' fees
If you serve on the board of directors for one or more corporations, you may be receiving directors' fees as compensation. As you are probably aware, these
earnings are subject to current taxation. However, it may be possible to defer current taxation on a part of this income.
Because current tax law treats directors' fees as self-employment income, these earnings can be used for making deductible contributions to a Keogh plan. A
Keogh plan is a retirement plan - either a pension plan or a profit-sharing plan for self-employed individuals. There are some special rules that apply to Keogh
plans, but essentially deductible contributions of up to 20% of this income - up to a maximum of $30,000 - may be made to one type of Keogh plan. Keogh
pension plans are funded in much the same manner as employee pension plans. The amount of income that can be set aside under these plans is substantially the
same as under regular employee pension and profit-sharing plans.
Here is another important point - participation in a Keogh plan would be in addition to any qualified pension and profit-sharing plan that you may already be
participating in as an employee. Participation in an employee plan would not limit the amount you could contribute and deduct under a Keogh plan.
You should be aware that the IRS has attempted to treat fees earned by a director who is also an employee of the corporation - an "in-house" director as opposed
to an "outside" director - as part of the compensation earned by an employee and not as self-employed income. But the IRS has pulled back from this position, at
least for the time being.
If you have questions or concerns on the above matter, please feel free to contact our offices.
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