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 Popular Retirement Plan for Single Owners
    Keogh plan
    Financial

    Keogh Plan: A Popular Retirement Plan for Single Owners

    December 14, 2022Updated:May 19, 20235 Mins Read14 Views
    Share
    Twitter LinkedIn Facebook Reddit Telegram WhatsApp Email

    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
    • FAQs

    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. It is 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 table presented below provides a detailed comparison between The Keogh Plan and 401(k) retirement savings plans.

    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 the 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 it 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).


    FAQs

    1. What is a Keogh Plan?

    A Keogh Plan is a type of retirement savings plan for self-employed individuals and small business owners.

    2. Who can set up a Keogh Plan?

    Self-employed individuals and small business owners who are not eligible for other retirement plans can set up a Keogh Plan.

    3. What are common mistakes to avoid with Keogh Plans?

    While using Keogh plans, common mistakes to avoid include making the maximum amount of contributions, improperly diversifying investments, and having  inadequate knowledge of the rules or conditions.

    4. Can I roll over funds from another retirement plan into a Keogh Plan?

    It is possible to roll over funds from other retirement plans to the Keogh plan without tax or penalty, depending on the conditions of each plan.


    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 Facebook Reddit Telegram WhatsApp Email

    Related Posts

    How to Check SBI Balance: Everything You Need to Know

    May 29, 2023

    How to Improve Your CIBIL Score: Secure Your Future

    May 26, 2023

    The Ultimate Net Banking Guide: Everything You Need to Know

    May 18, 2023

    5 Best Health Insurance Companies for Parents in India

    April 26, 2023
    • Twitter
    • YouTube
    • LinkedIn
    • TikTok
    POPULAR
    Top 5 Indian Stock Market Movies to Watch in 2023
    March 30, 2023
    8 Best Mutual Funds to Invest in India in 2023
    April 24, 2023
    Top 10 In-Demand Careers You Need to Know in 2023
    November 30, 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.

    Terms and Conditions

    Menu
    • Home
    • Education
    • Financial
    • Reviews
    • About us
    Top Insights
    How to Check SBI Balance: Everything You Need to Know
    May 29, 2023
    How to Improve Your CIBIL Score: Secure Your Future
    May 26, 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.