What is a Keogh Plan?
A Keogh (HR 10) plan is a tax-deferred retirement savings program for self-employed individuals. It is named for Eugene Keogh, the congressman who first came up with the idea in 1962. Keoghs can be established by any individual who is self-employed on a part-time or full-time basis, as well as by sole proprietorships and partnerships (who are considered employees for the purpose of participating in these plans). Unlike IRAs, which limit tax-deductible contributions to $5,000 per year (in 2009), Keoghs allow you to save as much as $49,000 of your net self-employment income in 2009, depending on the type of Keogh plan you adopt. Contributions to a Keogh plan may be tax deductible up to certain limits. These contributions, along with any gains made on the investments within the fund, will accumulate tax deferred until you withdraw them. Withdrawal rules mirror those of other qualified retirement plans. Distributions are taxed as ordinary income and may be subject to an additional 10% fede
With all the talk of 401ks and IRAs, many small business owners are left in the dark when it comes to setting up a retirement savings fund for themselves andor their employees. A Keogh plan, sometimes known as a HR10 plan, was designed with the small business owner in mind. First enacted in 1963, this tax deferred retirement savings fund is available for the owner or owners of an unincorporated business and its employees. Since the contributions are deducted from the gross income, one benefit of the plan is a reduction in pre-tax income. Other benefits of the Keogh plan include contributions that are tax deferred until withdrawn, deferred interest income, certain lump sum benefits which are eligible for 10-year averaging, and contribution limits higher than those of IRAs. As with all retirement savings plans, the Keogh plan has early withdrawal penalties if the participant is more than 5% owner, and payments must begin by April 1 of the year the participant turns 70. Withdrawals from t
A Keogh plan is a qualified plan for self-employed individuals. The term Keogh is not a tax term, and you won’t find any reference to it in the Tax Code. It’s just a bit of retirement planning jargon that refers to the special restrictions placed on qualified plans when they are established by self-employed individuals.
In today’s world, more and more Americans are self-employed. Planning for your retirement becomes increasingly difficult without a structured company plan to guide you. If you see yourself in this situation someday, a Keogh plan is for you. A Keogh plan is a self-employment retirement plan. Keoghs offer many tax advantages for employers, but should be considered carefully before plunging in fully. There are tax deductions and tax-free income that can accumulate from Keogh plans, but there are many factors to consider. We’ll cover some of these. There are several issues that you must address before investing in a Keogh. You must be aware that you have to include your employees in the Keogh. These contributions, however, are deductible and can go towards reducing the cost of your overall contribution. You must also be aware as to whether or not there will be the availability of cash to regularly contribute to your Keogh plan. Lastly, you have to know that you cannot withdraw money out of
