'Keogh Plan' A tax deferred pension plan available to self-employed individuals or unincorporated businesses for retirement purposes. A Keogh plan can be set up as either a defined-benefit or defined-contribution plan, although most plans are defined contribution.
There are no longer any
meaningful distinctions between Keogh plans and other qualified plans.
The Tax Equity and Fiscal
Responsibility Act of 1982 removed these distinctions.
This term refers to
Congressman Keogh, who introduced the legislation that made qualified plans available
to self-employed individuals. That legislation became effective in 1962. Keogh
plans are sometimes called “H.R. 10" plans, which refers to the number of
the bill originally introduced in the House of Representatives.
The most popular self-employed
plan now is the self-directed solo 401k plan
which allows for both profit sharing and employee contributions, resulting in
being more advantageous than a SEP
A Keogh Plan is a retirement plan for self employed individuals named after the Congressman that originally proposed the enabling legislation.They come either as defined benefit or defined contribution plans. The Defined Contribution (DC) plan is the lesser expensive or complicated. Contributions to the plan are based on a set percentage of profits from your corporation. the investment options for these plans are limited only by the custodian you select.Defined Benefit (DB) Keogh plans take your current cost of living and ask how much do you need to invest given your current age and the length of time to retirement, taking into account an agreed to return on your saved tax dollars to maintain your desired lifestyle. Defined Benefit plans are more expensive to operate as they entail the services of an actuary to determine the annual contributions needed to fund you retirement. You can have both plans side by side if you have the cash flow to afford them. If you opt to open a Defined Benefit Keogh, look closely at the 412(i) form of Keogh. Because of the low return assumptions used in the life insurance products used to fund the plan, the contribution amounts can be very high. You will need a plan administrator for a 412(i) rather than an actuary. The number of administrators qualified to do this calculation is small, thus their costs (deductible) may be higher than an actuary. But the tax savings and benefits can be much higher than a plain vanilla DB Keogh.
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