Keogh Plan Insurance

Example

“The self-employed consultant included term life insurance in her Keogh plan to provide both retirement savings and family protection while reducing her current tax burden.”

Memory Tip

Think "Keogh = Key Owner Gets Help" - it helps key business owners save for retirement while providing life insurance protection.

Why It Matters

This arrangement allows self-employed individuals to combine retirement savings with life insurance protection using pre-tax dollars, maximizing tax advantages. It's particularly valuable for business owners who need both retirement planning and family financial protection.

Common Misconception

Many people think Keogh plans are obsolete since SEP-IRAs and Solo 401(k)s became available, but they still exist and can be beneficial in certain situations. Others believe all life insurance in retirement plans receives the same tax treatment, but Keogh plan insurance has specific rules about taxable vs. non-taxable portions of death benefits.

In Practice

A self-employed architect earning $150,000 annually contributes $37,500 to her Keogh plan (25% of income). She allocates $30,000 to investments and $7,500 to purchase $500,000 in term life insurance within the plan. This reduces her taxable income by the full $37,500, saving approximately $12,000 in taxes at her 32% marginal rate. If she dies, her beneficiaries receive the $500,000 death benefit, with the portion exceeding her premium contributions being taxable as ordinary income to the beneficiaries.

Etymology

Named after Congressman Eugene Keogh of New York, who authored the Self-Employed Individuals Tax Retirement Act of 1962, creating these retirement plans for self-employed individuals and small business owners.

Common Misspellings

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