The main differences are shown below: 401(k) Keogh Plan types All 401(k)s are defin contribution plans Keoghs can be defin contribution or defin benefit plans Contributions Contributions are primarily from employees on a voluntary basis. or match employee funds but is not obligat to do so All contributions come from the company. Contribution limits Employees can contribute up to $20.500 in 2022. and up to $27.000 if over 50 years old. For 2023. the limits are $22.500 under 50. and $30.000 over 50 Keogh defin contribution limits for 2022 are $61.000. and $67.500 if over 50 years old For 2023. the limits are $66.000 under 50. and $73.500 over 50 Roth account options 401(k) plans can be set up to allow Roth account options Keogh plans do not allow Roth account options
The company may contribute
Ease of admin 401(k) plans can be easier email list to set up and administer than Keogh plans Advantages And Disadvantages Of A Keogh Plan Pros Can be either defin contribution or defin benefit plans A defin benefit Keogh allows sole proprietors to defer more of their income than any other qualifi plan Cons Keoghs do not have Roth account options Other options such as SEP plans and 401(k) plans are now available to sole proprietors and small businesses. which may be easier and cheaper to set up and administer. They may also be more widely available from financial institutions. What Are The Distribution Rules
More cumbersome set-up and administration
Withdrawals or distributions Lead Sale may begin at age 59½ without penalty but are subject to income tax. Earlier withdrawals are subject to tax plus a 10% penalty unless exempt by a hardship. Requir minimum distributions (RMDs) must begin at age 72 and a 50% excise tax may be appli if not made. All withdrawals and RMDs are subject to ordinary income tax. Keogh Plan Taxation Considerations Keogh tax considerations are essentially the same as other qualifi plans: Contributions are tax-ductible. Assets grow tax-deferr until withdrawal. All withdrawals and RMDs are subject to ordinary income tax. Tax-free rollovers can be made to another qualifi plan or IRA. but are subject to tax if rolling into a Roth IRA. This article was written by Richard Lehman profile picture Richard Lehman 719 Followers Adjunct Finance Professor at Cal Poly.