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Overview of Keogh Plan
Definition of
Keogh Plan
What is a Keogh Plan? A Keogh Plan (also known as an HR-10 plan or a self-employed pension plan) is a tax-deferred retirement plan available to self-employed individuals and unincorporated businesses, such as sole proprietorships and partnerships. These plans allow individuals to save for retirement with tax advantages, similar to 401(k)s or IRAs available to employees of corporations. Contributions to a Keogh plan are generally tax-deductible, and the investment earnings grow tax-deferred until withdrawal, typically during retirement.
Activities Related to
Keogh Plan
Here is a list of Keogh Plan related activities:Â
Determining eligibility as a self-employed individual or unincorporated business, Choosing between different types of Keogh plans (e.g., defined-contribution like profit-sharing or money purchase plans, or defined-benefit plans), Establishing the plan with a qualified financial institution, Making contributions within IRS limits, Claiming tax deductions for contributions on income tax returns, Managing plan investments, and Understanding withdrawal rules and tax implications upon retirement.
These activities are key to leveraging Keogh plans for retirement savings.
The Importance of
Keogh Plan
For self-employed individuals and small business owners, a Keogh Plan is important because it offers a valuable way to save for retirement with significant tax benefits. It allows for potentially higher contribution limits compared to some other self-employed retirement plans, enabling substantial retirement fund accumulation. The tax-deductible contributions can reduce current taxable income, providing immediate tax relief, while the tax-deferred growth of investments helps build a larger nest egg over time. Understanding and utilizing such plans is a key component of comprehensive financial planning for entrepreneurs.
Key Aspects of
Keogh Plan
For Self-Employed
Specifically designed for self-employed individuals and owners of unincorporated businesses.
Tax Advantages
Contributions are generally tax-deductible, and investment earnings grow tax-deferred.
Contribution Limits
Subject to IRS rules regarding maximum annual contributions, which can be substantial.
Types of Plans
Can be set up as defined-contribution plans (e.g., profit-sharing, money purchase) or, less commonly, as defined-benefit plans.
Concepts Related to
Keogh Plan
A Keogh Plan is a type of retirement savings plan, similar in purpose to other plans like SEP IRAs, SIMPLE IRAs, and 401(k)s, but tailored for the self-employed. Understanding its contribution rules and tax implications is part of comprehensive Financial Planning. Contributions can reduce current Taxable Income, making it an important tool for tax planning.
Keogh Plan
in Action:
The Adventures of Coco and Cami
As their businesses take off, Coco and Cami start thinking about saving for retirement. Professor A explains that as self-employed entrepreneurs, they have special options like the Keogh Plan.
Join Coco and Cami as they learn how a Keogh Plan can help them save a significant portion of their income for the future while also getting some tax benefits now.