Overview of Keogh Plans
A Keogh plan, a retirement gem often overshadowed by its younger siblings like the 401(k) and IRA, is specifically crafted for the enterprising souls who venture into the realms of self-employment. Named after U.S. Representative Eugene Keogh, these plans stand as a testament to legislative affection towards hardworking non-corporate moguls. Whether you’re a lone wolf or leading a small troop of employees, understanding Keogh can mean the difference between retiring in style or continuing to hustle well past your prime.
Types of Keogh Plans
Keogh plans come in two delectable flavors: the defined-contribution plan and the defined-benefit plan. Both are tax-advantaged, which is the IRS’s way of giving entrepreneurs a high-five.
Qualified Defined-Contribution Plans
Diving into the defined-contribution pool, we encounter profit-sharing and money purchase plans. These allow contributions that can make your tax accountant mildly giddy, with limits stretching up to $66,000 as of 2023. These plans are like financial pizzas, where you decide how much you want to ’top up’ annually, depending on your year’s earnings.
Qualified Defined-Benefit Plans
If predictability is more your spice, a defined-benefit plan promises a fixed banquet at retirement, dictated by your earnings and tenure seasoning. In these plans, contributions might resemble a see-saw, heavily depending on age and expected investment returns, with a cap at $265,000 annually for 2023.
Advantages and Disadvantages of Keogh Plans
While Keogh plans may pack more paperwork than a novelist’s draft bin, they extend contribution limits that can make any high-earning self-employed professional swoon. However, like a high-maintenance sports car, they do require more upkeep and administrative attention.
Comparisons and Eligibility
Keogh vs. IRA
Where an IRA is like a savings account, a Keogh is akin to a sophisticated investment portfolio. They’re both meant for retirement, but Keoghs are exclusively for the self-employed titans.
Keogh vs. Solo 401(k)
Mulling over a Keogh or a solo 401(k)? If your pockets and ambitions are deeper, Keogh might be your financial soulmate. Think of a solo 401(k) as your practical sedan - gets the job done efficiently but without the flair.
Who Should Consider a Keogh?
If you’re piloting your own commercial enterprise, a Keogh plan is your financial co-pilot. Whether you sell crafted brews or consult from your home office, if the IRS nods along with your self-employed status, Keogh plans are yours to command.
Conclusion
For the dauntless self-employed hoping to retire before the next century, a Keogh plan might just be the silver bullet. With higher contribution limits than many of its peers, this path offers a sturdy bridge to a comfortable retirement, albeit with some paperwork hurdles along the way.
Related Terms
- Profit-Sharing Plan: A flexible retirement plan allowing contributions to vary based on annual profits.
- Money Purchase Plan: A pension plan with fixed annual contributions, not tied to profits.
- Defined-Benefit Plan: Provides a fixed, pre-established benefit for employees at retirement.
- Defined-Contribution Plan: Offers an individual account for each participant with benefits solely based on the amount contributed and gains or losses of said account.
Further Reading
- “Retirement Plans for Small Business” by Doris Dobkins.
- “The Retirement Savings Time Bomb” by Ed Slott.
Explore these resources if you’re considering a Keogh or simply wish to armor-up your financial future!
