Definition§
A Keogh plan is a type of tax-deferred pension plan specifically designed for self-employed individuals and unincorporated businesses. It encompasses both defined-benefit and defined-contribution plans, although most are set as defined-contribution plans. Contributions are generally tax-deductible up to a certain percentage of annual income, with annual absolute limits subject to change by the IRS.
| Feature | Keogh Plan | SEP or 401(k) Plan |
|---|---|---|
| Contribution Limits | Higher | Lower |
| Administrative Burden | Higher | Lower |
| Tax Deductibility | Yes | Yes |
| Setup Complexity | High | Low |
| Suitable For | Self-employed individuals | Small business with employees |
Examples:§
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Defined-Benefit Keogh Plan: Guarantees a specific retirement benefit based on a formula that includes factors like salary history and tenure.
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Defined-Contribution Keogh Plan: Allows the owner to make contributions based on profit, with defined limits.
Related Terms:§
- IRA (Individual Retirement Account): A savings plan that offers tax advantages for retirement savings.
- 401(k) Plan: A tax-advantaged savings plan offered by employers to their employees.
Diagram Illustration:§
Humorous Insight§
“Invest in your retirement like you invest in your morning coffee—because early savings brew plenty of benefits later on!” ☕😄
Fun Facts§
- The Keogh plan is named after Earl P. Keogh, a former U.S. Congressman who was quite generous in his time, providing the self-employed a way to save effectively for their retirement back in 1962! 🎉
Frequently Asked Questions§
Q1: Who can set up a Keogh Plan?
A1: Self-employed individuals and unincorporated business owners can establish a Keogh plan.
Q2: What are the contribution limits for a Keogh Plan?
A2: Contribution limits vary. Check the IRS guidelines because they shift like a mood ring in a disco! 💃✨
Q3: Are there penalties for early withdrawal from a Keogh Plan?
A3: Yes, like a surprising text from your ex, early withdrawals can ding you with penalties if taken before 59½.
References to Online Resources:§
Suggested Books for Further Study:§
- “The Bogleheads’ Retirement Portfolio: How to Plan and Invest for Your 401(k) or IRA” by Taylor Larimore.
- “Retirement Planning for Dummies” by Dominic Covey.
Test Your Knowledge: Keogh Plan Quiz§
Thank you for exploring the world of the Keogh Plan! May your retirement savings flourish like a plant in the sun! 🌱
