What is the ‘Keogh Strategy’

A Keogh strategy is a tax-deferred pension strategy offered to self-employed people or unincorporated organizations for retirement functions. A Keogh strategy can be established as either a defined-benefit or defined-contribution plan, although many strategies are specified as contributions. Contributions are generally tax deductible as much as a certain portion of annual income with relevant outright limitations in U.S. dollar terms, which can be changed from year to year by the U.S. Internal Revenue Service (Internal Revenue Service).

BREAKING DOWN ‘Keogh Strategy’

Keogh plans represent retirement plans for self-employed people and unincorporated services, such as sole proprietorship and partnerships. If an individual is an independent specialist, he can not set up and use a Keogh strategy for retirement.

Qualified Defined-Contribution Plans

Keogh plans can be established as certified defined-contribution strategies, in which the contributions are made regularly approximately a limit. Profit-sharing strategies are one of the two kinds of Keogh prepares that permit an organization to contribute as much as 25% of settlement or $53,000 in 2016. A company does not have to produce revenues to reserve cash for this kind of strategy.

Qualified Defined-Benefit Plans

Qualified defined-benefit plans state the yearly advantages to be gotten at retirement, and these advantages are usually based upon wage and years of employment. Contributions towards defined-benefit Keogh plans are based upon stated benefits and other aspects, such as age and anticipated returns on strategy properties. The IRS specified that in 2016, the maximum yearly benefit is set at $210,000 or 100% of the employee’s payment, whichever is lower.

Benefits and Disadvantages of Keogh Plans

Keogh strategies were established through legislation by Congress in 1962 and were spearheaded by Rep. Eugene Keogh. As with other competent pension, funds can be accessed as early as age 59.5, and withdrawals need to start by age 70.5.

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