A Keogh plan is a qualified retirement plan for self-employed individuals. It may be either a defined-benefit or defined contribution plan. Self-employed individuals for the purposes of a Keogh plan are the owners of unincorporated businesses, including sole proprietorships and partnerships.

Contributions to a Keogh plan are tax-deductible and earnings accrue on a tax-deferred basis.

The details of how a Keogh plan operates are governed by the type of qualified plan it operates as, such as a defined-benefit plan or a profit-sharing plan.

  • Deduction limit - The limit on deductible contributions to a qualified plan for self-employed individuals differs somewhat from the usual limits. The net earnings of the self-employed person is used to determine the contribution limit as opposed compensation as used with regular employees. This results in a lower contribution rate for the self-employed person compared to employees.
    • Net earnings - Gross income from trade or business minus allowable business deductions, including the deduction for retirement plan contributions.
    • Calculation of Keogh deduction ­- There are three steps:

 


Look Out!
Notice from the table above that the maximum net contribution rate for the self-employed is 20% of net earnings. That figure is a good guideline for determining contributions for self-employed individuals.



 

Regulatory considerations

Related Articles
  1. Retirement

    Hey Self-Employed, Are You Making The Most Of Your Retirement Options?

    Even if you own your own business, it is still very important to save for retirement, and to understand your options for doing so.
  2. Retirement

    Self Employed? Avoid These 3 Retirement Mistakes

    Having a strategy for retirement is particularly important when you're self-employed, as there are certain pitfalls you must watch out for along the way.
  3. Taxes

    8 Tax Benefits For The Self-Employed

    Profitability in business depends on minimizing costs and maximizing resources. Here are several tax benefits that are available for the self-employed.
  4. Retirement

    Retirement Planning for the Self-Employed

    The three retirement-savings options best suited to the entrepreneur.
  5. Taxes

    10 Tax Benefits for the Self-Employed

    Running your own business has both personal and financial perks.
  6. Retirement

    Retirement Planning For The Self-Employed

    Recent studies show that most self-employed Americans are saving little, if anything, for retirement. But making an investment in yourself is worth it.
  7. Financial Advisor

    Tips for Reducing Health Insurance Expenses

    For many self-employed people, health insurance premiums can make up a hefty percentage of their budget. Here are some tips on how to deduct them.
  8. Taxes

    How To Calculate AGI For Tax Purposes

    The first step in completing your taxes is calculating your adjusted gross income. Here’s how.
  9. Retirement

    Best Retirement Plan Options for the Self-Employed

    Self-employed business owners can choose from any of these retirement plan options.
  10. Retirement

    Top Tips For Maxing Out Your Retirement Account

    If you are behind in your retirement plan contributions for the year, this is the time to figure out how to catch up.
Frequently Asked Questions
  1. Why Do Brokers Ask for Personal Information?

    There are 3 reasons a broker needs personal information: suitability, record-keeping and the law.
  2. How to Get a Company's Prospectus

    Obtaining a company's prospectus—or other financial documents—is now a simple online task.
  3. What Is a Blank-Check Company?

    A blank-check company has a business plan based on a merger or acquisition with another company.
  4. How do central banks inject money into the economy?

    Central banks use several different methods to increase (or decrease) the amount of money in the banking system. These actions ...
Trading Center