The Ultimate Keogh Retirement Plans Quiz
Estimated Completion Time
Image: Tim Boyle/Getty Images
About This Quiz
There are many retirement savings vehicles available to different types of workers, but not all retirement plans are created equal. This quiz will test your knowledge of Keogh plans, and what makes them different from 401(k), IRA and other pension plans.
What type of workers are Keogh plans designed for?
There are many different ways that individuals can save for retirement, using pre-tax dollars. Self-employed people don't have an employer to contribute for them, so Keogh plans serve that purpose for them.
If a person works for himself as well as for another employer, how can he save for retirement?
using both a Keogh and an IRA
Keogh plans also work for individuals who earn a portion, but not all of their income from self-employment.
When were Keogh plans first invented?
Keogh plans have undergone many changes over time, but they were first invented in the 1960s.
What happened to Keogh plans in 2001?
They were altered to the degree that the word Keogh is no longer in the U.S. tax code.
Keoghs were changed greatly by 2001's Economic Growth and Tax Relief Reconciliation Act. Although they are no longer officially called Keogh plans, most people still use the term in casual conversation.
They were expanded to include individuals who work for small businesses as well.
Who was Eugene Keogh?
the congressman who created the initial bill establishing these plans
Traditional pension plans only worked for those who were employed by corporations. Keogh came up with a plan to extend these benefits to many workers who were previously ineligible, including doctors, artists and other small-business owners.
the financial professional who first designed these plans
the lobbyist who pushed for these plans to be included in the U.S. tax code
At what point is the money you contribute to a Keogh plan taxable?
when the money is paid out to you
As with many other retirement plans, the major benefit of Keogh plans is that the contributions are made using pre-tax dollars. The earnings that accrue are also only taxed later.
Why do Keogh plans have higher contribution limits than traditional retirement plans have?
because those who use them contribute to them both as an employee and as an employer
For the same reason, self employed people also contribute more to FICA, the payroll tax that funds Social Security and Medicare.
because these plans are usually opened by older workers who need to make up for lost time
because self-employed people need more retirement assistance
What is the 25% contribution limit of a Keogh plan not as high as it seems?
Business expenses are removed before the limit is calculated.
After expenses, the contribution limit is typically closer to 20% of gross income.
Self-employed people earn less overall.
The contribution limit is only 25% in the first three years of self employment, and then drops to 20%.
Which of these people is ineligible to contribute to a personal Keogh plan?
someone who works for a corporation and volunteers for a small business that offers Keogh plans to its employees
In order to be able to contribute to a Keogh, you must earn at least some of your income via self-employment or a small business.
someone who is a partner in a small business and provides some business services to the business
a musician who earns some money from an album she has recorded while still being employed full time at a large corporation
If you own a small business with employees, and you set up a Keogh plan, what are your requirements?
making the plan available to your employees as well
informing your employees in writing about the details of the plan and opening it to them
There may be eligibility requirements for a Keogh plan, such as minimum age. But if your employees are eligible, you must make it available to them and provide them with the plan's details.
contributing to the plan if your employees decide to join
Approximately how much longer will life expectancy be in 2020 than it was in 1940?
By 2020, women's life expectancy will be 81.2 years and men's will be 75.3 years. That means that people need to plan for longer retirements than they did in the past.
What type of retirement plan is typically a defined contribution plan?
Keogh plans can be either defined contribution or defined benefit plans. Defined contribution plans have a 25% contribution limit and defined benefit plans must be structured by an actuary to calculate the proper amount of contributions.
What is a drawback of using a profit-sharing plan for your Keogh contributions?
You can't contribute when your business doesn't earn a profit.
Profit-sharing plans have many benefits, including varied contribution amounts from year to year and the ability to make withdrawals while you are still working.
You can only contribute based on a portion of your income.
You have a lower contribution limit than you do with a money-purchase plan.
What type of people typically should opt for a defined-benefit Keogh plan?
older workers earning a high income
If your income fluctuates a lot from year to year, this type of plan is not right for you. You must contribute each year whether you earn enough that year or not.
those who own multiple small businesses
people whose business income fluctuates greatly from year to year
At what age can you typically withdraw funds from your Keogh without paying an early withdrawal penalty?
There are exceptions, but typically you must leave your funds in your Keogh until you are at least 59 1/2. Some Keogh plans have an option for penalty-free withdrawals in cases of financial hardship.
Under what circumstances can you withdraw from your Keogh at 55 without a penalty?
if you close your business
If you are a sole-proprietor and retire early, you can get your benefits sooner. But if you still earn income from other self-employment, this may not be legal.
if the plan's funds won't cover the defined benefit
if your company has grown and become incorporated
In what form do you receive retirement benefits from a Keogh plan?
it depends on the specific plan
The plan document that is filed when the Keogh is opened will spell out exactly the terms by which the plan's funds will be distributed.
Which of these retirement plans has the highest contribution limit?
The contribution limits on these plans range from $5,000 to $15,500. The limit on a Keogh, by contrast, is 25% of earned income.
What is the latest that you can begin receiving distribution payments from your Keogh?
Although you must begin receiving distributions at 70 1/2, you can still continue contributing, if you are still working.
What must you do if your Keogh exceeds $100,000 in value?
If your Keogh is or has ever been valued at over $100,000, you have to fill out a Form 5500 or 5500-EZ. You may also want to jump for joy.
Take a distribution immediately.
Stop contributing to the plan.
Share on Facebook
Share on Facebook
Tim Boyle/Getty Images