Retirement Plans - Keogh Plans (HR-10)

A Keogh is a qualified retirement plan set up by self-employed individuals, sole proprietors and unincorporated businesses. If the business is set up as a corporation, a Keogh may not be used.


Keogh’s may only be funded with earned income during a period when the business shows a gross profit. If the business realizes a loss, no Keogh contributions are allowed. A self-employed person may contribute the lesser of 25% of their post-contribution income or $52,000. If the business has eligible employees, the employer must make a contribution for the employees at the same rate as their own contribution. Employee contributions are based on the employee’s gross income and are limited to $52,000 per year. All money placed in a Keogh plan is allowed to grow tax-deferred and is taxed as ordinary income when distributions are made to retiring employees and plan participants. From time to time, a self-employed person may make a nonqualified contribution to their Keogh plan, however, the total of the qualified and nonqualified contributions may not exceed the maximum contribution limit. Any excess contribution may be subject to a 10% penalty tax.

An Eligible Employee is Defined As One that:

  • Works full time (at least 1,000 hours per year)
  • Is at least 21 years old
  • Has worked at least one year for the employer

Employees who participate in a Keogh plan must be vested after five years. Withdrawals from a Keogh may begin when the participant reaches 59.5. Any premature withdrawals are subject to a 10% penalty tax. Keogh’s like IRA’s may be rolled over every 12 months. In the event of a participant’s death, the assets will go to the individual’s beneficiaries.

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