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Keogh Plans
Keogh or H.R. 10 plans
are qualified retirement plans for self-employed individuals. A
Keogh plan can take the form of a defined contribution plan, like
a profit-sharing plan or money purchase plan, or a defined benefit
plan.
When originally enacted in
1963, Keogh plans were rather limited, but they provided the only
option for a self-employed individual to save for retirement . Over
the years, the tax laws have changed to eliminate the distinctions
between corporate and Keogh plans. In addition, other plans for
the self-employed have developed, like Simplified Employee Pensions
(SEPs) and Savings Incentive Match Plans for Employees (SIMPLEs).
Setting up a Keogh plan is
fairly easy. The employer (including self-employed individuals)
can adopt a generic master or prototype plan already approved by
the IRS. The IRS-approved plans can be provided by banks, trade
or professional organizations, insurance companies, and mutual funds.
If you are a regular employee working for an employer with a Keogh
plan, you simply have to contribute to the extent allowed under
the plan.
Contributions.
The maximum amount you can contribute to a Keogh depends
on whether it is a defined contribution or a defined benefit plan.
For 2009, the annual benefit for a defined benefit plan participant
cannot exceed the lesser of 100 percent of the participant's average
compensation for his or her highest three consecutive years or $245,000.
If it is a defined contribution plan, annual contributions and other
additions in 2009 (except for earnings) to an account cannot exceed
25% percent of the compensation actually paid to the participant
or $49,000 for 2009.
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