What in the world is a Keogh Plan?
According to Investopedia. A Keogh plan is a tax-deferred pension plan available to self-employed individuals or unincorporated businesses for retirement purposes.
A Keogh plan can be set up as a defined-benefit plan or defined-contribution plan, although most plans are set-up as a defined-contribution plan.
More on this later. The Keogh plan was initiated in 1962 and was the invention of a New York congressman named Eugene Keogh. Prior to 2001, they were very popular but due to changes in the tax system they were replaced by the SEP IRA, which has the same contribution limits and much less paperwork. Always a good thing.
So, how can this plan help me?
So who can set up a Keogh plan? Any self-employed individuals or any small business that is a sole proprietorship, partnership, or LLC.
This type of plan is a perfect choice for high-income earners.
Typically the Keogh is funded by the employer.
The Keogh comes in two kinds of flavors.
Defined contribution: these types of plans have two variations. Profit sharing and money purchase. The profit sharing version is most like a SEP, there is a ceiling on contributions. 25% of contributions or $53,000 in 2016. Below these limits you can contribute up to. With the money purchase plan, you can choose the percent you would like to contribute each year. And stick with it, if you don’t the IRS will become your best buddy. Not! Penalty for you.