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Lecture Employee benefits and retirement planning - Chapter 22: HR 10 (Keogh) plans

This chapter discusses Keogh plans. The focus here is on self-employed individuals. After looking at when such a plan may be indicated, the chapter reviews advantages and disadvantages. Following this, the types of Keogh plans – profit sharing and money purchase – including the possibility of a defined benefit or age-weighted plans for partnerships and proprietorships. | What is it? a qualified retirement plan that covers a sole proprietor or partner who works in his or her own business in general, works like any qualified plan Copyright 2009, The National Underwriter Company When is it indicated? self-employed business owner needs long-term capital accumulation for retirement owner of unincorporated business wants a plan that provides retirement benefits for regular employees as well as for business owner need to shelter self-employment income from income tax Copyright 2009, The National Underwriter Company Advantages Keogh contributions are deducted from gross income and tax deferred until funds withdrawn at later date investment income in Keogh plan tax deferred plan loans to owner-employees subject to same rules as are applied to regular employees some lump-sum benefits eligible for special 10 year averaging Copyright 2009, The National Underwriter Company Advantages limits on Keogh plan contributions are more liberal than IRA contributions business employees must participate in the plan certain employers may be eligible for $500 business tax credit of up to $500 for ‘qualified startup costs’ Copyright 2009, The National Underwriter Company Disadvantages Keoghs involve cost and complexity of qualified plans; can minimize these factors if use prototype plans large number of employees may increase costs required to meet nondiscrimination rules 10% penalty plus tax on amounts withdrawn before age 59½ Copyright 2009, The National Underwriter Company Disadvantages Keogh plans follow qualified plan distribution rules; for more than 5% owner, distributions must begin by April 1 of year after attain age 70½, regardless of retirement status life insurance for self-employed person is treated less favorably than for regular employees Copyright 2009, The National Underwriter Company Types of Keogh Plans typical plan is designed as profit share without a fixed contribution formula, but other forms may be used defined | What is it? a qualified retirement plan that covers a sole proprietor or partner who works in his or her own business in general, works like any qualified plan Copyright 2009, The National Underwriter Company When is it indicated? self-employed business owner needs long-term capital accumulation for retirement owner of unincorporated business wants a plan that provides retirement benefits for regular employees as well as for business owner need to shelter self-employment income from income tax Copyright 2009, The National Underwriter Company Advantages Keogh contributions are deducted from gross income and tax deferred until funds withdrawn at later date investment income in Keogh plan tax deferred plan loans to owner-employees subject to same rules as are applied to regular employees some lump-sum benefits eligible for special 10 year averaging Copyright 2009, The National Underwriter Company Advantages limits on Keogh plan contributions are more liberal than IRA .