What is: Keogh Plan

What is: Keogh Plan

A Keogh Plan is a type of retirement savings plan designed for self-employed individuals and small business owners. It allows participants to make tax-deductible contributions to their retirement accounts, similar to a 401(k) or IRA.

How does a Keogh Plan work?

Participants in a Keogh Plan can contribute a percentage of their income each year, up to a certain limit set by the IRS. These contributions are tax-deductible, meaning that participants can reduce their taxable income by the amount they contribute to the plan.

Types of Keogh Plans

There are two main types of Keogh Plans: defined contribution plans and defined benefit plans. In a defined contribution plan, the amount of money a participant receives in retirement depends on how much they contribute and how well their investments perform. In a defined benefit plan, the participant is guaranteed a certain amount of money in retirement, based on a formula set by the plan.

Who can participate in a Keogh Plan?

Keogh Plans are typically used by self-employed individuals, such as freelancers, consultants, and small business owners. However, employees of a business can also participate in a Keogh Plan if they meet certain eligibility requirements set by the plan.

Benefits of a Keogh Plan

One of the main benefits of a Keogh Plan is the ability to make tax-deductible contributions, which can help participants save money on their taxes each year. Additionally, Keogh Plans offer a way for self-employed individuals to save for retirement and ensure financial security in their later years.

Considerations for a Keogh Plan

Participants in a Keogh Plan should be aware of the contribution limits set by the IRS, as well as any restrictions on withdrawals or distributions from the plan. It is important to carefully consider the investment options available within the plan and choose investments that align with long-term financial goals.

Conclusion

In conclusion, a Keogh Plan can be a valuable retirement savings tool for self-employed individuals and small business owners. By taking advantage of the tax benefits and carefully managing contributions and investments, participants can build a secure financial future for themselves and their families.