Chapter 22
HR 10 (KEOGH) PLAN
LEARNING OBJECTIVES:
A. Have a basic understanding of HR 10 (Keogh) plans
REVIEW:
This chapter discusses Keogh plans. The focus here is on self-employed
individuals. After looking at when such a plan may be indicated, the chapter
reviews advantages and disadvantages. Following this, the types of Keogh plans
– profit sharing and money purchase – including the possibility of a defined
benefit or age-weighted plans for partnerships and proprietorships. Next, there is
some discussion of how Keoghs are different from other qualified plans, focusing
on the non-employee status of self-employed individuals. Tax and ERISA
implications are covered next, followed by some suggestions for alternatives. For
information on how to install a plan, the usual reference back to Chapter 10 is
augmented by inclusion of information on use of a prototype plan. Several
references are included on where to learn more, and there is a brief question and
answer section.
CHAPTER OUTLINE:
A.
B.
C.
D.
E.
F.
What Is It?
When Is It Indicated?
Advantages
Disadvantages
Types of Keogh Plans
How Are Keoghs Different From Other Qualified Plans?
1. Earned Income
2. Life Insurance
G. Tax And ERISA Implications
H. Alternatives
I. How To Install A Plan
1
Chapter 22
J. Where Can I Find Out More About It?
K. Questions And Answers
L. Chapter Endnotes
FEATURED TOPICS:
HR-10 (Keogh) Plans
CFP® CERTIFICATION EXAMINATION TOPIC:
Topic 61: Types of retirement plans
B. Types of qualified plans
Topic 62: Qualified plan rules and options
A. Nondiscrimination and eligibility requirements
C. Factors affecting qualified plan contribution of benefits
COMPETENCY:
Upon completion of this chapter, the student should be able to:
1.
Have a basic understanding of HR 10 (Keogh) plans
KEY WORDS:
HR 10 (Keogh) plan, earned income
DISCUSSION:
1. Discuss ways in which Keogh plans are different from other qualified
plans. Include any implications of a plan covering non-employee selfemployed individuals.
2. Discuss alternatives to using a Keogh plan.
QUESTIONS:
1. Which of the following are requirements related to having a Keogh plan?
(1) participants must be self-employed
Chapter 22
(2) business must be unincorporated
(3) more than 5% owners may not contribute to a plan
(4) employment income can be contributed, but only accompanied by selfemployment income
a.
b.
c.
d.
(1) only
(1) and (2) only
(1) (2) and (3) only
(2) (3) and (4) only
Chapter 22, p. 193
2. In a defined contribution plan Keogh, what is the maximum percentage of
participant income allowable for annual deductible plan contributions?
a.
b.
c.
d.
10
15
25
30
Chapter 22, p. 194
3. As used with Keogh plans, which one of the following best represents the
definition of earned income?
a. net income after all deductions including the deduction for Keogh plan
contributions
b. net income after all deductions but not including the deduction for Keogh
plan contributions
c. gross income, but Keogh plan contributions must be deducted
d. gross income without deducting for Keogh plan contributions
Chapter 22, p. 195
4. Which of the following is true about the use of life insurance in a Keogh plan?
(1) the entire cost of life insurance is deductible as a plan contribution
(2) the pure life insurance element of an insurance premium is not deductible
(3) the portion of the premium that exceed the pure protection value of the
insurance is deductible (using Table2001)
(4) the nondeductible life insurance element essentially becomes additional
taxable income
a. (1) and (2) only
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b. (2) and (4) only
c. (1) (2) and (3) only
d. (2) (3) and (4) only
Chapter 22, pp. 195-96
ANSWERS:
1. b
2. c
3. a
4. d