Keogh plans, also known as HR-10 plans, are a type of tax-deferred retirement savings program in the United States that allows self-employed individuals and small business owners to save for retirement. Named after Eugene Keogh, a congressman who proposed the legislation in 1962, Keogh plans were designed to provide retirement benefits for those who did not have access to employer-sponsored retirement plans.
These plans are commonly utilized by self-employed individuals, such as freelancers, independent contractors, doctors, lawyers, and small business owners. Keogh plans allow these individuals to contribute a portion of their income to a qualified retirement account, which grows on a tax-deferred basis until retirement.
One of the main advantages of Keogh plans is the ability to contribute a larger amount of money compared to other retirement plans, such as Individual Retirement Accounts (IRAs). The contribution limits are dependent on factors like the individual's age and income. Keogh plans can be either defined contribution plans, where the contributions are predetermined, or defined benefit plans, which provide a specific retirement benefit based on factors such as age, income, and years of service.
Contributions made to Keogh plans are tax-deductible, helping to reduce taxable income in the year of contribution. However, withdrawals from Keogh plans are generally taxable as ordinary income and may be subject to an additional early withdrawal penalty if taken before the age of 59 ½.
In summary, Keogh plans serve as retirement savings vehicles for self-employed individuals and small business owners, offering the benefits of tax-deferred growth and higher contribution limits compared to other retirement plans.
