4.2 - Keogh (HR-10) Plans
If an employer installs a Keogh plan, it must include all full-time employees:
C) age 21, with at least one year of service. Keogh plans must have eligibility requirements that cover all employees who are full- time, are at least 21 years of age, and have one or more years of service.
A 61-year-old wanting to take a lump-sum distribution from his Keogh will:
D) be taxed at ordinary income rates. The distribution described here would be taxed as ordinary income. A 10% penalty would apply if the individual were under age 59-½.
A nonqualified, single-premium variable annuity differs from a Keogh plan in that:
D) all payouts are fully taxable in a Keogh plan. Earnings on investments made in both a Keogh plan and nonqualified annuity grow on a tax-deferred basis; they are not taxed until withdrawn. The cost basis in a Keogh plan is zero because contributions are tax deductible but distributions are fully taxable upon receipt. However, in a nonqualified annuity, the cost basis is equal to the amount invested because the contributions are nondeductible; only the earnings portion of the distributions is taxable.
When operating a Keogh plan, a self-employed individual must make contributions for:
D) full-time employees who are at least 21 years old and have worked for the company for one or more years. Employees must be covered under a Keogh plan if they are at least 21 years old, have been employed a minimum of one year, and work full-time (at least 1,000 hours per year). Keogh plans do not include employees who are under 21 or have just started working with the employer.
An individual works for an accounting firm that does not have a retirement fund. She is paid $18,000 per year. During her spare time, she is a commercial artist and earned $16,000 doing this work last year. What is the basis for her contribution under a Keogh plan (HR-10)?
D) $16,000.00 Contributions to a Keogh must be based on self-employment income.
Under Keogh plan provisions, a full-time employee is defined as one working at least how many hours per year?
B) 1000 Full time employment is defined as 1,000 hours or more per year, regardless of the number of days, weeks, or months worked.
IRAs and Keogh plans are similar in each of the following ways EXCEPT:
B) the maximum allowable cash contribution is the same. Both IRAs and Keogh plans have maximum annual allowable contribution limits but they are significantly higher in a Keogh Plan.
Which of the following could NOT participate in a Keogh plan?
A) Limited partner who does not contribute any personal services to the partnership but has invested money. Keogh plan participants must work for the business. This may include a sole proprietor, a partner who works in the business, or an employee, but not a limited partner who contributes no personal services (meaning there is no compensation paid).
Each of the following individuals is eligible to participate in a Keogh plan
A) an engineer employed by a corporation who earns $5,000 making public speeches in her spare time. C) a self-employed doctor in private practice. D) a securities analyst employed by a major research organization who makes $2,000 giving lectures in his spare time. Individuals with income from self-employment may participate in Keogh plans. Stock options, capital gains, dividends, and interest are not considered income earned from self-employment.
A self-employed CPA has earned $38,000 from his practice; he also earned $2,300 interest on his savings. What is the basis for his deposit into his defined contribution Keogh (HR-10) account this year?
B) $38,000. Only earned income may be included in determining the income eligible for Keogh contributions. Dividends and interest are classed as portfolio income and are not included.