Keogh Plan

Moneybestpal Team

A Keogh plan, commonly referred to as an HR-10 plan, is a kind of tax-advantaged retirement plan made for independent contractors or proprietors of small businesses. The program bears Eugene Keogh's name; in 1962, he introduced legislation to establish these plans. 

Keogh plans are comparable to 401(k) plans in that they allow assets to grow tax-deferred and start requiring required payouts at age 72.

Keogh plans come in defined contribution and defined benefit varieties. Whereas under a defined contribution plan, the employer makes a fixed annual contribution to the employee's account, in a defined benefit plan, the employer guarantees a particular benefit distribution to the employee at retirement.

Small business owners and independent contractors are permitted to make annual contributions to their Keogh plans of up to $58,000 (or 25% of their income, whichever is less). The employee only pays taxes on distributions when they withdraw them in retirement because Keogh plan contributions are tax-deductible for the employer and tax-deferred for the employee.

When setting up a Keogh plan, it is advised that people consult with a financial expert because Keogh plans are governed by particular laws and standards.

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