What is the contribution deduction benefit for a self-employed person under a Keogh (HR 10) plan?

What is the contribution deduction benefit for a self-employed person under a Keogh (HR 10) plan?

• A. Contributions are not tax deductible
• B. Contributions are taxable in the year made
• C. Contributions are tax deductible for the business
• D. Contributions are fully taxed upon withdrawal

Answer: (C)

The contribution deduction benefit for a self-employed person under a Keogh (HR 10) plan is that contributions made to the plan are tax deductible for the business. This deduction allows self-employed individuals to reduce their taxable income, which can lead to significant tax savings. Contributions can be made up to certain limits, and these amounts are subtracted from the self-employed person's income before calculating their tax liability. This tax deduction incentivizes self-employed individuals to save for retirement while simultaneously reducing their current taxable income, thereby lessening their financial burden in the year the contributions are made. The tax-deferred growth of the investment until withdrawal also adds long-term benefits to this retirement savings strategy. In contrast, the other options misrepresent how a Keogh plan functions. For instance, if contributions were not tax deductible or were taxable in the year made, they would not provide the same beneficial advantage to self-employed individuals. Similarly, if contributions were fully taxed upon withdrawal, it would negate the incentive to save in a tax-advantaged account designed specifically for retirement.

The contribution deduction benefit for a self-employed person under a Keogh (HR 10) plan is that contributions made to the plan are tax deductible for the business. This deduction allows self-employed individuals to reduce their taxable income, which can lead to significant tax savings. Contributions can be made up to certain limits, and these amounts are subtracted from the self-employed person's income before calculating their tax liability.

This tax deduction incentivizes self-employed individuals to save for retirement while simultaneously reducing their current taxable income, thereby lessening their financial burden in the year the contributions are made. The tax-deferred growth of the investment until withdrawal also adds long-term benefits to this retirement savings strategy.

In contrast, the other options misrepresent how a Keogh plan functions. For instance, if contributions were not tax deductible or were taxable in the year made, they would not provide the same beneficial advantage to self-employed individuals. Similarly, if contributions were fully taxed upon withdrawal, it would negate the incentive to save in a tax-advantaged account designed specifically for retirement.