Tennessee Insurance Practice Exam

Which retirement plan can a sole proprietor utilize if their employees are included?

1. 401(k) Plan

2. Traditional IRA

3. Keogh Pension Plan

4. Simple IRA

The correct answer is: Keogh Pension Plan

A Keogh Pension Plan, also known as an HR-10 plan, is a retirement plan specifically designed for self-employed individuals such as sole proprietors and their employees. This type of plan allows self-employed individuals to contribute a percentage of their income to the plan, with the potential for higher contribution limits compared to other individual retirement accounts. The flexibility of a Keogh plan allows sole proprietors to include their employees in the retirement plan, making it a suitable choice for business owners who want to extend retirement benefits to their workforce. This approach not only helps in attracting and retaining employees but also provides tax advantages for the business owner, as contributions made to the plan are tax-deductible. In contrast, other options like a 401(k) plan are more commonly associated with larger businesses, while traditional IRAs and SIMPLE IRAs may not provide the same level of contribution potential or employer-funded benefits to employees as a Keogh plan does. The Keogh Pension Plan stands out as the most appropriate choice for a sole proprietor looking to include employees in their retirement planning strategy.