What is a Keogh Plan? A Comprehensive Guide for Self-Employed Individuals

Q: Can I withdraw funds from my Keogh plan before retirement?

Withdrawals before age 59 are subject to penalties and regular income taxes.

Q: How do I set up a Keogh plan?

You can set up a Keogh plan by consulting with a financial advisor or using legal templates from services like US Legal Forms.

Definition & Meaning

A Keogh plan is a type of retirement account specifically designed for self-employed individuals and unincorporated businesses. It allows these individuals to save for retirement while benefiting from tax-deferred growth on their investments. Named after the congressman Eugene Keogh, this plan was established under the Self-Employed Individuals Tax Retirement Act of 1962. Unlike Individual Retirement Accounts (IRAs), Keogh plans generally permit higher contribution limits, making them an attractive option for those with fluctuating incomes.

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Legal Use & context

Keogh plans are primarily used in the context of retirement planning for self-employed individuals and small business owners. They fall under the category of employee benefits and are governed by the Employee Retirement Income Security Act (ERISA). Users can manage their retirement savings through Keogh plans by utilizing legal templates provided by services like US Legal Forms, which can help simplify the setup and administration of these plans.

Key legal elements

Real-world examples

Here are a couple of examples of abatement:

(hypothetical example) A freelance graphic designer decides to open a Keogh plan to save for retirement. They contribute $30,000 in a year when their income is high, benefiting from the tax deductions. In a lean year, they can choose to contribute less or skip contributions altogether, thanks to the flexibility of the profit-sharing option.

Relevant laws & statutes

The Keogh plan is governed by the Internal Revenue Code, specifically Section 401(c), which outlines the regulations for self-employed retirement plans. Additionally, the Employee Retirement Income Security Act (ERISA) sets standards for plan management and fiduciary responsibilities.

Comparison with related terms

Term	Description	Key Differences
Keogh Plan	Retirement plan for self-employed individuals.	Higher contribution limits, requires IRS filing.
SEP IRA	Simplified Employee Pension for small businesses.	Less administrative burden, lower contribution limits.
Solo 401(k)	Retirement plan for self-employed individuals without employees.	Higher contribution limits and loan options.

Common misunderstandings

What to do if this term applies to you

If you are self-employed or own a small business, consider establishing a Keogh plan to maximize your retirement savings. Consult with a financial advisor or accountant to understand the best structure for your business. You can also explore US Legal Forms for templates that can help you set up and manage your Keogh plan efficiently. If your situation is complex, seeking professional legal assistance may be beneficial.

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Quick facts

Typical contribution limit: Up to $42,000 annually (as of 2006).
Tax benefits: Contributions are tax-deductible for the employer.
Withdrawal age: Funds cannot be accessed until age 59 ½ without penalties.
Administrative requirements: Requires annual IRS Form 5500 filing.

Key takeaways

Frequently asked questions

What is the main benefit of a Keogh plan?

The main benefit is the ability to contribute significantly more to your retirement savings compared to traditional IRAs.