Keogh plan


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Related to Keogh plan: 401k Plan

Keogh plan

A type of pension account in which taxes are deferred. Available to those who are self-employed.

Keogh Plan

An account into which a self-employed person makes contributions up to a certain limit throughout his/her working life, and from which he/she begins to take distributions following retirement. Under a Keogh plan, contributions are tax deductible and withdrawals are taxed. The limit on annual contributions to a Keogh plan varies each year and is indexed to inflation, but in any case, it is higher than the limit for an IRA or a 401(k). Contributions to Keogh plans are invested in securities and usually own common stock and certificates of deposit.

Keogh plan

A federally approved retirement program that permits self-employed individuals to set aside for savings up to a specified amount. All contributions and income earned by the account are tax deferred until withdrawals are made during retirement. Investment opportunities include certificates of deposit, mutual funds, and self-directed brokerage accounts.

Keogh plan.

A group of qualified retirement plans, including profit sharing plans, money purchase defined contribution plans, and a defined benefit plan, is available to self-employed people, small-business owners, and partners in companies that file an IRS Schedule K, among others.

Together these plans are sometimes described as Keogh plans in honor of Eugene Keogh, a US representative from Brooklyn, NY, who was a force behind their creation in 1963.

The employer, not the employee, makes the contributions to Keogh plans, but the employee typically chooses the way the contributions are invested.

Like other qualified plans, there are contribution limits, though they are substantially higher than with either 401(k)s or individual retirement plans, and on a par with contribution limits for a simplified employee pension plan (SEP).

Any earnings in an employee's account accumulate tax deferred, and withdrawals from the account are taxed at regular income tax rates.

If you participate in a Keogh plan, a 10% federal tax penalty applies to withdrawals you take before you turn 59 1/2, and minimum required distributions (MRD) must begin by April 1 of the year following the year that you turn 70 1/2 unless you're still working. In that case, you can postpone MRDs until April 1 of the year following the year you actually retire.

The only exception -- and it is more common here than in other retirement plans -- is if you own more than 5% of the company. If you leave your job or retire, you can roll over your account value to an individual retirement account (IRA).

If you're eligible to establish a qualified retirement plan, a Keogh may be attractive because there are several ways to structure the plan, you may be able to shelter more money than with other plans by electing the defined benefit alternative, and you have more control in establishing which employees qualify for the plan.

But the reporting requirements can be complex, making it wise to have professional help in setting up and administering a plan.

Keogh Plan

Under prior law, a Keogh plan was a retirement plan set up for a self-employed taxpayer. The rules that applied to self-employed taxpayers differed from those that applied to common-law employees. Under current law, self-employed individuals are subject to the same rules as common-law employees.
References in periodicals archive ?
The rate of return on the Keogh plan, SEP, or IRA investment is no less favorable than the rate of return on an identical investment that could have been made at the same time at the same branch of the bank by a customer who is not eligible for (or who does not receive) reduced or no cost services.
For example, the following table shows the results of investing $7,500 annually in a Keogh plan where the rate of return is 8%:
The judgment debtor was 57 years old, had various health problems, substantial debts, and no retirement income other than the funds in the Keogh plan, which were approximately $127,000.
Keogh plan: Such plans are commonly used by sole proprietors and partners to defer current taxation of income from their wade or business activities and by employees who also generate earned income from SE activities (e.g., a member of a corporate board of directors).
Under an exception to the rule requiring periodic payments, distributions from IRAs or Keogh plans maintained by self-employed individuals qualify for the exclusion regardless of whether the distributions are periodic payments or lump-sum distributions.
However, the "annuity" exception does not apply to IRA or Keogh plan distributions.
Example 2: G, a 65-year-old single physician in the 45% combined Federal and state income tax bracket, had a $2 million balance in his Keogh plan at the end of 2000.
For example, a self-employed taxpayer with preliminary form 1040 adjusted gross income of $150,000 might decrease taxable income by $15,000 when adding a Keogh plan deduction of $10,000 (that is, the $10,000 Keogh contribution reduces AGI so as to allow 50% or $5,000 of a rental loss to become deductible).
Distributions from Keogh Plans. When there is a distribution from a Keogh plan to a self-employed individual or a common-law employee of the entire balance in an account, the distribution can be rolled over into another Keogh plan, a qualified plan or an individual retirement account (other than an endowment contract).
Using a defined contribution Keogh plan, an individual can contribute and deduct up to 15% of net SE income (maybe more if a defined benefit Keogh plan is used), but Keogh plans must be in existence before the end of this year to take a deduction.
In Durando,(47) a taxpayer argued that allocated S corporation income was self-employment (SE) income for Keogh plan purposes.
The Ninth Circuit recently ruled in Durando, 70 F3d 548 (1995), that shareholders' pro rata share of S income is not self-employment income for Keogh plan deduction purposes.