Keogh plan

To establish a Keogh Plan, the individual must be a self-employed individual who has earned income from a trade or business in which he... 

In order for the contributions to be deductible, payments for both cash and accrual basis taxpayer may be made no later than the due date of the income tax return. If a contribution is made in excess of the 15% or 7500 limitations, the excess is subject to a yearly 6% excise tax penalty until such excess contribution is fully utilized. Distributions under a Keogh Plan may not commence before an individual reaches age 59%, except for reasons of disability or death. Like the individual retirement account, distributions must commence no later than the taxable year in which the individual attains age 70%. 

When distributions do commence, they may be available for capital gains and/or a special 10-year averaging. Distributions attributable to years of participation under the plan prior to Jan. 1, 1977 are subject to capital gains—for years after Dec. 31, 1973, to ordinary income rates. If certain conditions are met, however, an individual may avail himself of the special 10-year averaging method for the ordinary income portion of the distribution by filing form 4972 with his form 1040. These conditions are specified on form 4972 and should be reviewed if a distribution is received under a Keogh Plan. 

Check the beneficiary designations you have on file for your life insurance, employer retirement plan, Individual Retirement Account, or Keogh plan. Be sure the current designations are consistent with your wishes. 

Perhaps more important than state law, however, in determining one s legal rights under a pension plan is ERISA—the 1974 Employee Retirement Income Security Act. ERISA, by altering the requirements which employee retirement benefit plans must meet in order for an employers contributions to qualify for tax deductibility, has standardized private pension plans in ways most favorable to covered employees. Tax savings and protections are also available under either a qualified group retirement plan or an H.R. 10, Keogh, or I.R.A. plan wherein an individual may set up a tax-deferred retirement fund for himself. 

Setting up ones own retirement plan holds two advantages a deduction may be made against the current income, and the money appropriated under the plan remains tax-exempt for a specified period of time. Self-employed individuals may choose from two plans, an individual plan or the Keogh (HR-10) plan. Those not self-employed may only establish an individual-type retirement plan. These plans are governed by specific requirements for eligibility and certain restrictions applied when the plan is in effect. 

Designation of Beneficiary. Life insurance proceeds, U.S. savings bonds, and balances in employer retirement plans, Individual Retirement Accounts, or Keogh accounts pass directly to named beneficiaries. The asset is not subject to probate but is included in the estate for tax purposes. Also, bank accounts can have a pay-on-death person named to receive the proceeds of the accounts after your death. 

Slesnick, Twila and John C. Suttle. Creating Your Own Retirement Plan A Guide to Keoghs and IRAsfor the Self-Employed (Berkeley, CA Nolo Press, 2002). 

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