77. Which one of the following statements about Keogh plans is true?
Answer: A
They were designed originally to provide retirement plans for self-employed individuals
Keogh plans, also known as HR10 plans, were specifically established to provide retirement savings options for self-employed individuals and small business owners, allowing them to set aside money for retirement.
A) They were designed originally to provide retirement plans for self-employed individuals
This statement is accurate as Keogh plans were indeed created to cater to the retirement needs of self-employed individuals. They offer tax-deferred growth and flexible contribution limits, making them suitable for those without access to traditional employer-sponsored retirement plans.
B) The maximum annual deductible contribution to a Keogh plan is $15,000
This statement is incorrect. The maximum annual deductible contribution to a Keogh plan varies based on the type of plan and the individual's net earnings, and can exceed $15,000 depending on the circumstances, especially for those who are older or have higher earnings.
C) An employee must wait to participate in a Keogh plan until the fifth year of employment
This statement is also incorrect. There is no requirement that employees must wait five years to participate in a Keogh plan. In fact, eligibility can start much sooner, depending on the specific plan provisions set by the employer.
D) Funds can be withdrawn from a Keogh plan at any time with no tax penalty
This statement is misleading. While funds can technically be withdrawn from a Keogh plan, such withdrawals typically incur tax penalties if taken before the age of 59½, unless certain exceptions apply. Therefore, this option does not accurately describe the plan's rules.
Conclusion
Option A is definitively correct as it accurately reflects the original purpose of Keogh plans for self-employed individuals. All other options either misstate the rules and limits associated with Keogh plans or present inaccurate information regarding participation and withdrawals, thus failing to capture the essential characteristics of these retirement plans.