Sole Keogh funding requirements

[Zee]

My understanding is a sole-proprietor can contribute up to 20% of compensation, $15,000 of salary and a catch-up contribution of $5,000 if over age 50 to a Sole Keogh . If the net income from the business less one-half of SE tax is $100,000, the maximum contribution would be $40,000. Is that correct? If so, when must the contributions be made? I assume the due date of the tax return plus extensions? Is that correct?

[Bees Knees]

If the Keogh is set up as a 401(k) plan, then yes, on $100,000 of self employment earnings after the one half SE tax deduction, you would have $15,000 elective deferrals, plus $5,000 catch up contributions, plus $20,000 employer contributions for a total of $40,000.

That assumes your Keogh is a 401(k) plan.

[Zee]

What is required date of contribution?

OK. When must the contribution be funded? Can the full amount be funded by the due date of the return plus extensions?

[Bees Knees]

If the self employed person is the only participant, then in my opinion, the due date for contributions is the extended due date of the return. There is no clear answer to this, as some have the opinion the due date for the employee equivalent elective deferrals are subject to the 30 day rule, although I disagree with that opinion.

[Zee]

I like your response...anyone else?

If the self employed person is the only participant, then in my opinion, the due date for contributions is the extended due date of the return. There is no clear answer to this, as some have the opinion the due date for the employee equivalent elective deferrals are subject to the 30 day rule, although I disagree with that opinion.

Thanks for the response. That's the answer I was hoping for, but I'd like to hear from others as well?

[OldJack]

I would discourage you from setting up a Keogh Retirement Plan (aka HR-10 plan). This is an old type plan that most that had one has since converted to another plan because they were a nightmare to maintain. A Keogh plan is not a 401(k) plan. The (k) does not stand for Keogh, rather paragraph k of the code. A Keogh plan has to be setup/established before the end of the year with contributions not later than the due date of the tax return. A Keogh plan is a fully qualified retirement plan, a profit sharing plan, or defined benefit plan for the self-employed. The usual plan is many pages long (attorney) spelling out detail of how the plan will operate, thus the plan must be revised any time there are changes in the law or your plan will get terminated. The plan must file a tax return form 5500 the first year and the final year. If you have not guessed it yet, the main disadvantage is that its going to cost you a great deal to maintain the plan when something like a SEP-IRA costs you nothing. I am amazed to find that the Keogh plan is still available as I thought it was done away with years ago.

[Zee]

Sole 401K being considered not Keogh wrong terminology

I would discourage you from setting up a Keogh Retirement Plan (aka HR-10 plan). This is an old type plan that most that had one has since converted to another plan because they were a nightmare to maintain. A Keogh plan is not a 401(k) plan. The (k) does not stand for Keogh, rather paragraph k of the code. A Keogh plan has to be setup/established before the end of the year with contributions not later than the due date of the tax return. A Keogh plan is a fully qualified retirement plan, a profit sharing plan, or defined benefit plan for the self-employed. The usual plan is many pages long (attorney) spelling out detail of how the plan will operate, thus the plan must be revised any time there are changes in the law or your plan will get terminated. The plan must file a tax return form 5500 the first year and the final year. If you have not guessed it yet, the main disadvantage is that its going to cost you a great deal to maintain the plan when something like a SEP-IRA costs you nothing. I am amazed to find that the Keogh plan is still available as I thought it was done away with years ago.

I'm considering a Sole 401-K, not a Keogh. Sorry for the confusion.

[Bees Knees]

The term Keogh doesn't really have any official meaning anymore. The 1982 Tax Act made qualified plans for self-employed individuals fall under the same rules as plans sponsored by corporations. Prior to that, self-employed individuals had a different set of rules that were more restrictive and had lower contribution limits.

Today, the term Keogh simply refers to a qualified retirement plan set up for a self employed individual. A Sole-401(k) plan for a single participant self employed individual can be referred to as a Keogh, since a 401(k) is a form of profit sharing plan that has an elective deferral feature.

[Unregistered]

Actually, the term "Keogh" plan was named after the congressman that got it into law. It was always officially H.R.-10.

OldJack

[Bees Knees]

Actually, the term "Keogh" plan was named after the congressman that got it into law. It was always officially H.R.-10.

OldJack

The original law named after Congressman Keogh was for self employed individuals. The rules have since been drastically modified, so if you want to get nit picky about it, there really is no such thing as an H.R. 10 plan anymore.

[OldJack]

I believe if you would have read my post without your blurred eyes you would have noted that I said I was surprised that the retirement plan still existed. I see it advertised on the internet with various financial companies that sell such.

If it indeed does exist then why doesn't TheTaxBook refer to it giving the details and requirements. I suspect even they would be surprised. Not that it matters but at one time I had several doctor clients with the Keogh plans and thereby prepared the contributions and plan tax returns which at one time was annually, then every other year with an EZ form, etc. That was long ago and the doctors long since did away with the plans as too costly. The IRS gave the plans a black-eye by nit picking audits and terminating plans because the wording was not exactly in accordance with the ever change rules. If the plans still exist for the self-employed, as they were, I would never recommend they be used.

[Bees Knees]

I believe if you would have read my post without your blurred eyes you would have noted that I said I was surprised that the retirement plan still existed. I see it advertised on the internet with various financial companies that sell such.

If it indeed does exist then why doesn't TheTaxBook refer to it giving the details and requirements.

If you would un-blur your eyes, you would notice TTB does refer to it on page 13-18 as any qualified retirement plan set up by a self-employed individual. That is it. There is no difference between a qualified retirement plan set up by a corporation and a qualified retirement plan set up by a self employed individual, other than the name.

Show me in the code where there is any difference?

[OldJack]

Thanks for the reference Bees.. Also you need to tell the authors of TTB that they still refer to the H.R. 10 plan that you tell me no longer exists (your nit picking point).

The rules have since been drastically modified, so if you want to get nit picky about it, there really is no such thing as an H.R. 10 plan anymore.

[Zee]

Differing opinions

Geesh! I wonder what will happen if I ask a really thought-provoking, controversial question here (if I'm smart enough to think of one)?

[LTS]

felix and oscar

Geesh! I wonder what will happen if I ask a really thought-provoking, controversial question here (if I'm smart enough to think of one)?

it wouldn't matter. the lovable odd couple, OJ and BEES, would find a way to disagree over how grey a shade of gray is.