Legal Definitions - H.R. 10 plan

An H.R. 10 plan is another name for a Keogh Plan. It refers to a specific type of tax-deferred retirement plan designed for self-employed individuals and small business owners.

Originally established by the Self-Employed Individuals Tax Retirement Act of 1962 (which was House Resolution 10, or H.R. 10), a Keogh Plan allows eligible individuals to contribute a portion of their earnings to a retirement account. These contributions, and the investment earnings within the plan, grow tax-free until retirement, at which point withdrawals are taxed as ordinary income. Keogh Plans offer similar tax advantages to 401(k) plans but are tailored for those who are their own employers or operate small businesses.

Here are some examples:

• Example 1: A Freelance Consultant
  Maria is a highly sought-after independent marketing consultant. She operates her business as a sole proprietorship and does not have a traditional employer to offer her a 401(k). To save for her retirement and reduce her annual taxable income, Maria establishes an H.R. 10 plan. Each year, she contributes a percentage of her net earnings from her consulting work into this plan, allowing her retirement savings to grow tax-deferred.

  Explanation: This illustrates how a self-employed individual, like Maria, can use an H.R. 10 plan to create her own tax-advantaged retirement fund, similar to how an employee might use a 401(k).

• Example 2: A Small Business Owner with Employees
  John owns a small landscaping company with five full-time employees. He wants to provide a retirement benefit for himself and his team, but a complex 401(k) setup feels too daunting for his small operation. John decides to implement an H.R. 10 plan for his business. This allows him to make tax-deductible contributions for his own retirement and also for his eligible employees, offering a valuable benefit without the administrative burden of larger corporate plans.

  Explanation: This example shows that an H.R. 10 plan can be used by a small business owner not just for personal retirement savings but also to provide benefits to employees, demonstrating its versatility for small enterprises.

• Example 3: A Doctor in Private Practice
  Dr. Anya Sharma runs her own medical practice as a solo practitioner. She is focused on maximizing her retirement savings while also taking advantage of available tax deductions. Dr. Sharma sets up an H.R. 10 plan, enabling her to contribute a substantial portion of her practice's profits into a tax-deferred retirement account annually. This strategy significantly reduces her current taxable income while building a robust retirement nest egg.

  Explanation: This highlights how professionals in private practice, who are essentially self-employed business owners, can leverage an H.R. 10 plan for significant tax-advantaged retirement savings, directly benefiting from the plan's design for non-corporate entities.