Qualified retirement plans set up by self-employed individuals are sometimes called Keogh or H.R.10 plans. The plan must be for the exclusive benefit of employees or their beneficiaries. A qualified plan can include coverage for a self-employed individual.
As an employer, you can usually deduct contributions, subject to limits, you make to a qualified plan, including those made for your own retirement. The contributions (and earnings and gains on them) are generally tax free until distributed by the plan.
What are the two types of qualified plans?
Defined Contribution Plan: Provides an individual account for participants in the plan. The plan provides benefits to a participant solely based on the amount contributed to that account. Benefits are also impacted by any income, expenses, gains, losses, and forfeitures of other accounts that may be allocated to an account. A defined contribution plan can be either a profit-sharing plan or a money purchase pension plan.
Defined Benefit Plan: A defined benefit retirement plan is a type of employer-sponsored retirement plan that promises a specific monthly benefit to employees upon retirement. The amount is typically calculated based on factors such as:
- Salary history
- Length of employment
- Age at retirement
For additional information you can go to Publication 560.