What is a Keogh Plan and Who is Eligible?
A Keogh plan, also known as an “HR10 plan” is a tax-deferred retirement savings plan available to unincorporated businesses and self-employed individuals. While most Keogh plans are set up as defined contribution plans (meaning the company sets aside a defined percentage of money to benefit the employee), they can also be set up as defined benefit plans (the employee benefit is determined based on a formula that incorporates duration of time employed and the salary history). Keogh plan contributions are deducted from gross income, making reduced pre-tax income one of the key benefits of the plan. Additionally, contributions and earnings grow on a tax-deferred basis until the time of withdrawal.
Keogh plan participants may contribute up to 100 percent of their income to a yearly maximum of $49,000 in 2009 (increased from $46,000 in 2008). Like other retirement savings plans, Keogh plan investors can choose almost any type of investment instrument (except precious metals or collectibles) and the plan carries early withdrawal fees for any withdrawals made before the participant turns 59 years old and is retired.
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The above information is educational and should not be interpreted as financial advice. For advice that is specific to your circumstances, you should consult a financial or tax advisor.
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