Retirement and College Savings Plans - Keogh Plans
Keogh plans, originally called HR 10 plans, were introduced in 1962 to give tax-deductible retirement benefits to self-employed individuals and owner-employees of unincorporated businesses or professional practices for the first time. As with all qualified plans, only earned income can be considered for contribution eligibility. Moreover, if a business is not profitable, no contribution is allowed.
A self-employed individual is able to contribute to a Keogh even if he or she is also an employee of a corporation with a qualified employer-sponsored retirement plan. However, the investor can only base contributions to the Keogh plan on the income from self-employment activities.
Employees of a self-employed person may participate in a Keogh plan subject to the following eligibility rules:
Full-time employees must receive compensation for at least 1,000 hours of work per year.
All employees who contribute to the Keogh plan must be 21 years old or older.
All employees who contribute to the Keogh must have completed one or more years of continuous employment or have been employed on a continual basis from the Keogh plan's start date if less than three years has elapsed.
An employee who has provided five years of employment must be fully vested in employer contributions.
- The maximum contribution to a Keogh plan is the lesser of 25% of self-employment earned income or $51,000 for 2013.