Keogh Plan
What Is Keogh Plan?
A Keogh plan is a retirement savings plan designed for self-employed individuals and small business owners. The plan allows participants to contribute pre-tax income toward retirement investments.
Keogh plans were created to provide retirement savings options similar to employer-sponsored retirement plans.
Why It Matters
Keogh plans help self-employed individuals save for retirement while potentially reducing taxable income through tax-deferred contributions.
They allow higher contribution limits compared to some traditional retirement accounts.
How Keogh Plan Works
Self-employed individuals or business owners establish a Keogh plan and contribute a portion of their earnings to the account.
The funds are typically invested in securities such as stocks, bonds, or mutual funds.
Contributions may be tax-deferred, meaning taxes are paid later when funds are withdrawn during retirement.
Example
A self-employed consultant who contributes a portion of annual business income to a Keogh plan is building retirement savings through tax-deferred investments.
Keogh Plan vs SEP IRA
- Keogh plans are traditional retirement plans designed for self-employed individuals.
- SEP IRAs are simplified retirement plans with easier administrative requirements.
FAQs About Keogh Plans
Who can open a Keogh plan?
Self-employed individuals and certain small business owners.
Are contributions tax deductible?
In many cases contributions are tax-deferred.
Are Keogh plans still used today?
Some individuals still use them, though newer retirement plans are more common.
Related Terms
