The Jacobs Company
Employee Sponsored Plans
Keogh Plans
H. R. IO Plans
Keogh Plans are retirement plans for self-employed individuals; i.e., sole proprietors, 9 I I
partners and employees of either.  The tax law differences between corporate plans and the Keogh Plan used to be a major reason for many persons incorporating their business or profession.  After 1983, most of these differences were eliminated.

Basics Of Keogh Plans

A. Contribution Limits: For defined contribution plans, 25% of earned income or
$30,000, whichever is less . Defined benefit contributions determined by plan actuary.

B. Funding: May use a trust, a custodial account or an insurance company annuity.

C. Evidence of Plan: The plan must be in writing and meet certain coverage and non-discrimination requirements for present and future employees.

D. Distributions: There is a 10% penalty for distributions before 59 V2 unless the participant dies or is permanently disabled.  However, if an employee terminates service on or after age 55 and receives a payout based on his or her life expectancy (or joint life expectancy with spouse or beneficiary, if desired), then the penalty will be waived.  Payments must begin when the participant reaches age 70 V2.

E. Payment Plans Available

1. Lump-Sum Distribution

2. Lifetime Of The Participant (and spouse, if desired)

3. A Fixed Period Of Years not to exceed the participant's life expectancy (or joint life expectancies of participant and spouse or designated beneficiary) IRC Sec. 401(a)(9)

4. Other Plans: A participant in a Keogh plan may also have a deductible IRA (subject to income level and filing status)

F. Taxation: Special 5-year averaging is available.

1 The partnerwho owns more than10% of the capital or profits of thepartnership.  Reg.  Sec.1.401-10(d)
· The 25% rate applies to net earned income of the proprietor or partner after deducting the contribution and one half of the self-employment tax.


This document was last modified on July 27, 1999

Copyright ©1999, The Jacobs Company, All Rights Reserved