Finxpd
    Facebook Twitter Instagram
    Finxpd
    • Home
    • Education
      • Cryptocurrencies
      • Stocks
      • Forex
      • Commodities
      • Economies
      • Investing
      • Technologies
      • Career Planning
    • Financial
      • Credit cards
      • Banking
      • Insurances
      • Retirement Planning
      • Taxes
      • Brokers
      • Regulations
      • Funds & Loans
    • Reviews
      • Popular Brokers
      • Popular Savings Accounts
      • Popular Credit Cards
      • Popular Personal Loans
      • Popular Student Loans
      • Popular Stocks
      • Popular Low Spread Brokers
      • Popular Insurances
    • Comparison
      • Broker
      • Stock Investment
      • Cryptocurrency Exchanges
      • Financial Advisors
    • About us
    • Contact
    Finxpd
    Home » Keogh Plan: A Very Popular Retirement Plan for Single Owners
    Keogh plan
    Financial

    Keogh Plan: A Very Popular Retirement Plan for Single Owners

    December 14, 2022Updated:December 14, 20224 Mins Read13 Views
    Share
    Twitter LinkedIn

    As we know, there are a variety of retirement plans available to self-employed persons. The Keogh plan is among them. A Keogh plan is pronounced KEE-oh. It was previously a popular retirement savings plan for single owners and employees of unincorporated enterprises. However, the Economic Growth and Tax Relief Reconciliation Act of 2001 brought about significant modifications to this tax-favored retirement plan. Therefore, it is very interesting to deeply understand it.

    List of Contents

    • What Exactly Is the Keogh Plan
    • Working Principles of the Keogh Plan
      • Defined Contribution Plans
      • Defined Benefit Plans
    • The Keogh Plan vs. 401(k)
    • Conclusion

    What Exactly Is the Keogh Plan

    What Exactly Is the Keogh Plan

    A Keogh plan is a tax-deferred retirement plan for independent contractors and sole proprietorships. It is named after New York State Representative Eugene Keogh, who was instrumental in the passage of the Self-Employed Individuals Tax Retirement Act in 1962. The law became known as the Keogh Act due to his efforts. 

    The Economic Growth and Tax Relief Reconciliation Act (EGTRRA) of 2001 eliminated the distinction between the Keogh plans and other types of retirement plans. Therefore, these plans are no longer referred to as “Keoghs” under the Internal Revenue Code. Keoghs are now referred to as HR-10s or qualified retirement plans. A Keogh is comparable to a 401(k), with larger yearly contribution limits. The administration of these schemes is also more complex than those of other types. Significantly, small businesses organized as limited liability organizations (LLCs), sole proprietorships, or partnerships can use Keoghs.

    A solo entrepreneur can set up a Keogh or HR-10 retirement plan in which an amount is deposited each year to the business owner’s retirement funds. Assume the owner decides to contribute a fixed amount of $20,000 to the plan each year. In turn, the money is invested in mutual funds that hold a portfolio of equities or bonds. The owner can withdraw cash as needed during retirement.


    Working Principles of the Keogh Plan

    Working Principles of the Keogh Plan

    The Keogh plans are classified into two types: defined contribution plans and defined benefit plans.

    Defined Contribution Plans

    In a defined contribution plan, you determine the annual contribution amount. There are two ways to determine the amount: profit-sharing or money purchasing. Using a profit-sharing option, you can contribute up to $61,000 in 2022 or 100% of your pay, whichever is less, to your retirement plan. The amount you select to contribute to a profit-sharing plan is subject to annual modification. Importantly,  a money-purchase plan enables you to determine from the beginning how much of your profits can be contributed to a Keogh. The maximum donation amount is set and cannot be altered. Money-purchase plan limits are identical to profit-sharing plan limits: $61,000 in 2022 or 100% of remuneration, whichever is less. Notably, If you are self-employed, you can deduct 25% of the contributions you make for your workers or yourself.


    Defined Benefit Plans

    Genuinely, defined benefit plans operate similarly to traditional pension plans in that you select a retirement goal for yourself and finance it. Your annual benefit cannot exceed 100% of your average salary for the previous three calendar years, or $245,000 in 2022, whichever is less. Contributions to each type of plan are made pre-tax. You also pay taxes on less each pay period and can take an upfront reduction on your income tax return.


    The Keogh Plan vs. 401(k)

    The Keogh Plan vs. 401(k)

    Conclusion

    In conclusion, the structure of the Keogh plan is flexible, allowing for the selection of a defined benefit plan or one of many types of defined contribution plans, such as a profit-sharing plan or money purchase plan. Additionally, it permits larger tax-deductible donations. Thus, highly wealthy persons may favor them over other options.

    However, the principal disadvantage of a Keogh plan is the enormous administrative load, including the necessity to submit an annual Form 5500 with the IRS and the greater costs associated with creating and maintaining a plan. Thus, before deciding whether a Keogh plan is best for you, you should evaluate a SEP-IRA, SIMPLE-IRA, Solo 401(k), regular or Roth IRA, a Simplified Employee Pension, a Simplified Individual Retirement Account, and a Solo 401(k).


    Related Articles:

    • Types of Pension Plans: The Best Old-Age Financial Assistance
    • 401(k) Vesting: The Vested Balance You Should Know
    • Perpetuity: The Ultimate Starter’s Guide
    • Living Trust vs Will: Which One Is the Right Fit for You?

    Read more: Retirement Planning

    Source: The Balance

    Retirement Planning
    Share. Twitter LinkedIn

    Related Posts

    Form 10-Q: An Important Quarterly Financial Performance Report

    February 1, 2023

    Form 10-K: An Important Financial Report about a Public Corporation

    February 1, 2023

    Good APR for a Credit Card: The Important Thing to Know before Applying

    January 31, 2023

    Top 5 Best Jewelry Insurance Companies in 2023

    January 12, 2023

    POPULAR

    Yield Farming VS Staking: Which Is the Better Long-Term Investment?

    June 23, 2022

    The Differences between Investment and Speculation Investors Must Know

    June 8, 2022

    What is Cryptocurrency? (New Edition 2022)

    June 7, 2022
    Risk Disclaimer: Finxpd will not be held liable for any loss or damage resulting from reliance on the information contained within this website including market news, analysis, trading signals and Forex broker reviews. The data contained in this website is not necessarily real-time nor accurate, and analyses are the opinions of the author and do not represent the recommendations of Finxpd or its employees.

    Currency trading on margin involves high risk, and is not suitable for all investors. As a leveraged product losses are able to exceed initial deposits and capital is at risk. Before deciding to trade Forex or any other financial instrument you should carefully consider your investment objectives, level of experience, and risk appetite. We work hard to offer you valuable information about all of the brokers that we review.

    Menu
    • Home
    • Education
    • Financial
    • Reviews
    • About us
    Top Insights
    5 Best Investing Blogs in Vietnam You Should Know
    February 3, 2023
    Scarcity: A Powerful Marketing Tool
    February 2, 2023
    Twitter LinkedIn YouTube TikTok
    • Home
    • Education
    • Financial
    • Reviews
    • About us
    Copyright © Finxpd 2023. All Rights Reserved

    Type above and press Enter to search. Press Esc to cancel.