A group of qualified retirement plans, including profit sharing and money purchase defined contribution plans and a defined benefit plan, is available to self-employed people, small-business owners, and partners in companies that file an IRS Schedule K, among others.
Together these plans are sometimes described as Keogh plans in honor of Eugene Keogh, a US representative from Brooklyn, NY, who was a force behind their creation in 1963.
The employer, not the employee, makes the contributions to Keogh plans, but the employee typically chooses the way the contributions are invested.
Like other qualified plans, there are contribution limits, though they are substantially higher than with either 401(k)s or individual retirement plans, and on a par with contribution limits to SEP-IRAs.
Any earnings in an employee's account accumulate tax deferred, and withdrawals from the account are taxed at regular income tax rates.
If you participate in a Keogh plan, a 10% federal tax penalty applies to withdrawals you take before you turn 59 1/2, and minimum required distributions (MRD) must begin by April 1 of the year following the year that you turn 70 1/2 unless you're still working. In that case, you can postpone MRDs until April 1 of the year following the year you actually retire.
The only exception - and it is more common here than in other retirement plans - is if you own more than 5% of the company. If you leave your job or retire, you can roll over your account value to an individual retirement account (IRA).
If you're eligible to establish a qualified retirement plan, a Keogh may be attractive because there are several ways to structure the plan, you may be able to shelter more money than with other plans by electing the defined benefit alternative, and you have more control in establishing which employees qualify for the plan.
But the reporting requirements can be complex, making it wise to have professional help in setting up and administering a plan.
- Browse Related Terms: 401(k), 401(k) Plan, 403(b), 457, After-tax contribution, After-tax income, Automatic enrollment, CAP, Catch-up contribution, earned income, Employee stock ownership plan (ESOP), Excess contribution, Health Savings Account (HSA), High deductible health plan (HDHP), Highly compensated employees, Independent 401(k), Individual retirement account (IRA), Individual retirement annuity, individual retirement arrangement (IRA), Keogh plan, Matching contribution, Money purchase plan, Pretax contribution, Pretax income, Profit sharing, Recharacterization, Required beginning date (RBD), Roth 401(k), Roth IRA, Salary reduction plan, SIMPLE, Simplified employee pension plan (SEP), Tax-Deferred
Writing a check in an amount that will overdraw the account but making up the deficiency by depositing another check on another financial institution. For example, mailing a check for the mortgage when your checking account has insufficient funds to cover the check, but counting on receiving and depositing your paycheck before the mortgage company presents the check for payment.
- Browse Related Terms: affidavit, Asset management account (AMA), Charge-off, ChexSystems, Credit line, Drawer, Insufficient funds, Kiting, Lifeline account, Local check, money-market account, Negotiable-order-of-withdrawal account, Overdraft, Overdraw, Payee, Stale-Dated Check
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