What is a Keogh (HR 10) Plan?
A Keogh (HR 10) Plan is a retirement savings plan specifically for self-employed individuals, independent contractors, and unincorporated businesses. It is similar to other tax-deferred retirement accounts but allows for higher contribution limits, making it an attractive option for those seeking to maximize their retirement savings. Contributions to a Keogh Plan are tax-deductible, and the investments grow tax-deferred until they are withdrawn during retirement.
There are two main types of Keogh Plans: the Defined Contribution Keogh and the Defined Benefit Keogh. A Defined Contribution Keogh, such as a profit-sharing or money purchase plan, allows for flexible annual contributions based on a percentage of income. A Defined Benefit Keogh functions like a traditional pension, where contributions are based on a target retirement benefit amount.
Keogh Plans require more administration and paperwork compared to simpler plans like SEP IRAs, but they offer greater flexibility in contribution amounts and can provide significant tax advantages for high-income earners. Withdrawals from a Keogh Plan are taxed as regular income, and early withdrawals before age 59½ may incur penalties.