A Keogh retirement plan is a plan which can be set up by self-employed people. Also called the HR 10 plans, these plans are mostly set up people with higher levels of income. This is because unlike other retirement plans such as IRAs , the limit of the money which can be contributed is high.
A Keogh retirement plan is a plan which can be set up by self-employed people.
Whereas in IRAs you can contribute $10000 if you file for it individually, in Keogh plan , you can contribute around $53000.
Though, contributing in Keogh plans have their disadvantages as well. One of the biggest one being more administrative paperwork.
Most other people with small businesses can manage to do their calculations themselves, but you may need professional help to perform the complex calculations involved in setting up a Keogh retirement plan. Also, Keogh retirement plans can be set up only by people who own their own business be it in sole proprietorship, partnership or even LLC, meaning that if you are working as an independent contractor, you will not be eligible to set up the Keogh. Contributions must be pre-tax, that is, they can be deducted from the current year’s tax, but you will have to pay tax when you will be withdrawing your money after the period of the plan is over. Also you cannot withdraw money before you turn 59.5. If you do penalties may be applied.
But if you have large incomes and want to go ahead with setting up a Keogh retirement plan for yourself, then you can choose from the two options available:
1. The first type is the defined-contribution plan. Here a certain percentage of the sum you earn is made during the pay period. You can basically draw out the amount you had invested in the years, at the end.
2. The second option is the defined-benefits plan, which is more complex than the defined-contribution plan. An IRS formula is required to calculate the amount of contributions you can make.
You can choose any of the one, as the funds collected in both the kinds of plan can be used to invest in other financial products such as stocks, mutual funds, bonds.
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