Keogh Plan

A Keogh Plan, also known as an HR10 plan, is a type of retirement plan designed for self-employed individuals and unincorporated businesses. Named after U.S. Representative Eugene Keogh, who was instrumental in its creation, the plan allows for tax-deferred contributions, meaning the money invested in the plan is not subject to taxes until it is withdrawn, typically during retirement. There are two main types of Keogh Plans: defined-benefit plans and defined-contribution plans. Defined-benefit plans promise a specific benefit at retirement, while defined-contribution plans, such as profit-sharing or money purchase plans, depend on the amount contributed and the performance of the investments. Contributions to a Keogh Plan can be made by both the employer and the employee, and the annual contribution limits are generally higher than those for other retirement plans like IRAs.

What is a Keogh Plan?

A Keogh Plan is a retirement plan specifically designed for self-employed individuals and unincorporated businesses. It allows for tax-deferred contributions, which means the money invested in the plan is not taxed until it is withdrawn during retirement.

Types of Keogh Plans

There are two main types of Keogh Plans: defined-benefit plans and defined-contribution plans. Defined-benefit plans promise a specific benefit at retirement, while defined-contribution plans depend on the amount contributed and the performance of the investments.

Contributions and Limits

Contributions to a Keogh Plan can be made by both the employer and the employee. The annual contribution limits for Keogh Plans are generally higher than those for other retirement plans like IRAs, making them an attractive option for self-employed individuals looking to maximize their retirement savings.

Tax Advantages

One of the key benefits of a Keogh Plan is the tax-deferred growth of the investments. This means that the money invested in the plan grows without being subject to taxes until it is withdrawn, typically during retirement, potentially resulting in significant tax savings.

Eligibility and Setup

To be eligible for a Keogh Plan, you must be self-employed or own an unincorporated business. Setting up a Keogh Plan involves choosing the type of plan that best suits your needs, establishing the plan with a financial institution, and adhering to specific IRS requirements for contributions and reporting.