Abstract This article provides a decision-making framework for the individual who is eligible to establish a tax sheltered retirement fund. Under the original legislation, the maximum amount that could be sheltered by a self-employed person was 1, 250 per year. Lump sum distributions at retirement did not qualify for capital gains treatment, but some tax relief in the form of income averaging was available. 2 Owner-employees were required to include most employees in their plans in a nondiscriminatory manner. The Employee Retirement Income Security Act (ERISA) of 1974 extended these benefits to individuals who were not self-employed and who were not participants in qualified retirement plans, government plans or Keogh plans. Up to 1, 500 per year could be set aside in a sheltered retirement fund. As with Keogh plans, neither the amount set aside in Individual Retirement Accounts (IRAs) nor the income earned by the fund was taxed until received after retirement. The withdrawal amounts are the compound values of the accounts excluding the current payments.
Burgess et al. (Tue,) studied this question.
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