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Keogh Plans

H.P. 10 Plans

Keogh plans are retirement plans for self-employed individuals e.g. sole proprietors, partners in a partnership, and employees of either. The differences between Keogh plans and corporate sponsored plans are small, and are limited to different treatment of life insurance and participant loans.

The Basics Of Keogh Plans

Plan Type: A Keogh plan may be either a defined contribution plan or a defined benefit plan.

Contribution Limits: For defined contribution plans, 25% of earned income or $30,000, whichever is less. For defined benefit plans, the plan actuary determines the contributions. The deduction for contributions to a defined benefit plan may not exceed 4~bet~' self-employment income.

Benefit Limits: Defined benefit Keogh plans are subject to the same percentage of average compensation and dollar limits that apply to all defined benefit plans. For 1999, the maximum dollar limit is $130,000.

Funding: May use a trust, a custodial account or an Insurance company annuity.

Evidence of Plan: The plan must be in writing and meet certain coverage and non-discrimination requirements for present and future employees.

Distributions: Distributions prior to age 59 1/2 (other than for disability at death) are subject to both a 10% penalty and current income tax. However, if an employee terminates service on or after age 55 or receives a series of substantially equal periodic payments based on his or her life expectancy (or joint life expectancy with a designated beneficiary), the penalty is avoided. For more than 5% owners, distributions must begin when the participant reaches age 70 ½.

Payment Plans Available:

  • 1. Lump-Sum Distribution

  • 2. Lifetime of the participant (and spouse if desired).

  • 3. A Fixed Period of Years not to exceed the participants life expectancy, or the joint life expectancy of the participant and a designated beneficiary. IRC Sec. 40 l(a)(9)

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    Other Plans: A participant in a Keogh plan may also have a traditional, deductible IRA, or a Roth IRA, subject to certain income level limitations based on filing status.

    Taxation: Special 5-year income averaging is available.1

    401(k) Feature: A 401(k) feature may be added, if desired, to a profit sharing plan.

    Allocation Methods: The same kind of allocation methods available under a corporate sponsored defined contribution plan is also available. These can be integrated with Social Security; age weighted, or tiered.

     Participant Loans: Not available to those who are self-employed.