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.
Distribution/Withdrawl Rules
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