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Retirement Planning
Keoghs and Their Distribution Options
by InvestorGuide Staff (Write for us!)
(Click on the links within the article to get definition of that word)
If the employeroffers a Keogh Plan, employees working over 1,000 hours or more each year or employees that have worked for three years at the company must be covered. The employer can only take up to 25% of his or her income or $40,000.
For a Money Purchase plan, the contribution is mandatory; the employer has to contribute the same percentage every year, regardless of the company's profits. Contributions have a limit of 25% of the participant's income, not to exceed $40,000.
The Profit Sharing plan allows for changing contributions each year. Contributions are determined by a formula to allocate the
overall contribution and distribution of accumulated funds after the retirement age. Employees can contribute to both plans in the same year and the amounts can vary each year. This plan has a limit of 25% of the participant's income or $40,000, whichever is less.
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