Investment Company and Variable Contracts Products Representative (Series 6)Practice Exam

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Contributions to a Keogh Plan are primarily based on which type of income?

Investment income
Salaried income
Self-employment income
Passive income

The correct answer is: Self-employment income

Contributions to a Keogh Plan are primarily based on self-employment income because this type of retirement plan is specifically designed for self-employed individuals and owners of unincorporated businesses. The plan allows these individuals to make contributions based on their net earnings from self-employment, which can provide a significant tax advantage. Unlike employees who may have retirement plans through their employers based on salaried income, self-employed individuals benefit from the flexibility of contributing a percentage of their earnings, up to certain limits set by the IRS. This contribution can be a significant financial tool for self-employed individuals, enabling them to save for retirement effectively. Investment income, salaried income, and passive income do not form the basis for contributions to a Keogh Plan, as this plan is not intended for those receiving wages in the traditional employment sense or for passive investors.