Ch. 22 Keogh Plan

Question 1

Keogh Plan

Answer 1

covers a sole proprietor or partner who works in their own business

Question 2

When is it indicated?

Answer 2

1. self-employed
2. owner of unicorporated business
3. shelter self-employment income from tax
4. has self-employment income and salary

Question 3

Prototype plans

Answer 3

designed by banks, insurance companies, mutual funds or other institutions

Question 4

6 advantages

Answer 4

1. contributions deducted from gross income and tax deferred
2. investment income tax deferred
3. 10 year averaging
4. more liberal than IRA contributions
5. non-owner employees must participate
6. possible business tax credit of $500

Question 5

4 disadvantages

Answer 5

1. cost and complexity of qualified plans
2. cost related to nondiscrimination rules
3. penalty and tax on early withdrawals
4. follow the qualified plan distribution rules

Question 6

Types of Keogh plans

Answer 6

1. defined contribution plan
2. 401k plan
3. money purchase plan
4. defined benefit plan

Question 7

How are Keogh plans different from other qualified plans?

Answer 7

Special rules regarding earned income and life insurance

Question 8

for self-employed, what does earned income take the place of?

Answer 8

compensation

Question 9

What is earned income?

Answer 9

the net income from the business after all deductions

Question 10

How is life insurance treated?

Answer 10

can be used as an incidental benefit that covers a self-employed person

Question 11

What portion of life insurance premium is tax deductible for self employed

Answer 11

amount that exceeds the pure protection value

Question 12

How much of life insurance for regular employees is deductible

Answer 12

entire cost