Keogh Plan | Gold IRA Guide
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Keogh Plan

Do you own a Keogh retirement plan and are wondering how to make the most of it? Do you want to know if (and how) you can invest in recession-proof physical gold bullion (or any other precious metal) through this account? This page will have all your answers.

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What is a Keogh Plan?

Established in 1962 thanks to the efforts of Representative Eugene Keogh, a ‘Keogh Plan’ is a tax-advantaged pension plan designed for self-employed workers or unincorporated business entities.

Not all self-employed persons can establish a Keogh Plan. Independent contractors, for instance, cannot open a Keogh. Rather, they are only available to self-employed individuals that own an unincorporated business.

Keogh Plans come in both defined contribution and defined benefit varieties. The defined contribution Keogh is set up as either a profit-sharing or a money-purchase plan. The defined benefit Keogh operates much like a traditional pension plan, with the caveat that it is self-funded.

Keogh Plans are notorious for complicated paperwork, but remain a viable option for high earners who are self-employed. Establishing a Keogh Plan does not inhibit your ability to contribute to an IRA.

Keogh Plan Rollover Rules & Limitations

If you are self-employed and have a Keogh, you are considered an employee for rollover purposes. This means that you are allowed to rollover part or all of eligible rollover distributions into a self-directed IRA. This is considered a tax-free rollover between like accounts.

In other words, a Keogh Plan distribution that is subsequently rolled into a self-directed IRA is not counted as income. However, if the rollover distribution is paid directly to an IRA holder, typical withholding limits (20%) apply. You can avoid this requirement by instead choosing to execute a direct rollover.

Keogh Plan vs. SEP vs. Solo 401k vs. Other Retirement Accounts

Here is a table that illustrates how a Keogh plan compares to other retirement vehicles.

Plan TypeSponsorship2016 Contribution LimitRoth Option?Allow Gold Stocks?Allow Gold ETFs?Allow Gold Bullion
401(k)Private Employer$18,000 / $24,000YesMaybeMaybeNo
Solo 401(k)Self-employed$18,000 / $24,000YesYesYesYes
Keogh PlanSelf-employed or Unincorporated Employer$53,000NoMaybeMaybeNo
403(b)Government or Non-profit Employer$18,000 / $24,000YesMaybeMaybeNo
457(b)Government or Tax-exempt Employer$18,000 / $24,000YesMaybeMaybeNo
SIMPLE IRAPrivate Employer$12,500 / $15,500YesYesYesMaybe
SEP IRABusiness Owners & Self-employed$53,000YesYesYesMaybe
Profit Sharing PlanPrivate Employer$53,000NoMaybeNoNo
Money Purchase PlanPrivate Employer$53,000NoMaybeMaybeNo
AnnuityIndividualNoneNoMaybeMaybeNo
ESOPPrivate EmployerVariesYesMaybeNoNo
SARSEPPrivate Employer$18,000 / $24,000NoYesYesMaybe
Traditional IRAIndividual$5,500 / $6,500YesYesYesNo
Precious Metals IRAIndividual$5,500 / $6,500YesYesYesYes
Thrift Savings Plan (TSP)Government or Military$18,000 / $24,000YesNoNoNo
("Maybe" indicates that gold investment options are at the discretion of the plan provider. For instance, some 401(k)s offer gold mutual funds or ETFs, while others do not.)

Types of Gold you can Invest in Through a Keogh Plan

Keogh plans are able to invest in the same instruments as 401(k) plans and standard IRAs (traditional and Roth). This means that they are able to include:

  • individual stocks
  • individual bonds (corporate and government)
  • certificates of deposit (CDs)
  • mutual funds
  • exchange-traded funds (ETFs)

In short, this means that you cannot invest in physical gold bullion (or any other precious metal) through a Keogh Plan. The simplest way to invest in gold through a Keogh is to purchase stocks in gold mining companies, or to purchase a mutual fund that includes mining company stocks. This is referred to as buying “paper gold.” There are also gold ETFs (GLD) and mining ETFs, which provide indirect access to investing.

Investing in Physical Gold vs. ‘Paper Gold’

So-called ‘paper gold’ stocks are the shares of companies that mine, produce and explore for gold. There are literally hundreds of gold stocks to choose from, and the larger companies are listed on major gold stock indices like the Gold Miners Index (GDX) or the BUGS Index (HUI).

Gold stocks tend to be more risky than owning physical gold. This is because, historically, gold stocks will appreciate very quickly as the spot price of gold rises; if the price of gold falls, gold stocks tend to fall much faster.

Gold stocks are also exposed to additional kinds of risk. Some examples:

  • Regulatory Risk – mining and exploration companies are subject to increased regulation and taxes.
  • Cost of Production Risk – mining equipment depreciation, increased property values and labor costs can all negatively impact a mining company.
  • Management Risk – Mismanaged or overly leveraged companies can and do declare bankruptcy or close shop altogether.
  • Fiat Currency Risk – When you sell securities like gold stock or shares of a gold mutual fund, you will be paid in a fiat currency. In the event of currency collapse, that means you can be left holding worthless paper.

 

The value of physical gold has never hit zero and has retained value for thousands of years. In terms of staying power, physical gold wins hands down.

Benefits of Rolling Over a Keogh Plan to a Precious Metals IRA

The advantage of rolling over your Keogh Plan assets into a self-directed IRA is that you are able to control the designation of your retirement funds and open up new tax-free investments – like precious metals.

In an employer-funded retirement plan, such as a Keogh, your investment options are more limited than with a precious metals IRA. Additionally, Keogh plans require the account owner to establish a vesting schedule, which means that you are only entitled to your funds after a certain length of time has passed. In terms of flexibility, the IRA wins hands down.

The other major drawback to Keogh plans is that they are more complex to maintain than a rollover IRA will be, and therefore charge higher fees.

Benefits of Dedicating 5-20% of your Retirement to Precious Metals

Gold investments are simple, safe way to diversify your retirement portfolio. Gold (along with other investment metals like silver, platinum and palladium) will help protect your assets against stock market volatility and inflation.

Not only is gold a great hedge, but gold offers plenty of growth potential; in fact, many investors purchase gold for its growth prospects alone, and many analysts predict gold to continue to see gains in the future.

The total amount of precious metals in your retirement portfolio will depend on your own risk tolerance and retirement horizon. One of the best ways to set up a diversified retirement portfolio – and receive tax benefits on your precious metals investments – is to open a self-directed IRA.

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