Life License Qualification Program (LLQP) Practice Exam

What type of plan may a sole proprietor establish to benefit themselves and their employees' retirement savings?

1. Flexible Premium Deferred annuity

2. Keogh Plan

3. Roth IRA

4. 401(k) Plan

The correct answer is: Keogh Plan

A sole proprietor can establish a Keogh Plan, also known as an HR10 plan, which is specifically designed for self-employed individuals and their employees to help save for retirement. This type of plan allows for higher contribution limits compared to traditional IRA accounts, making it an attractive option for sole proprietors who want to maximize their retirement savings. The Keogh Plan offers both defined contribution and defined benefit options, catering to various financial situations and retirement goals. Contributions are tax-deductible, meaning they can reduce the taxable income of the business, and the earnings grow tax-deferred until withdrawals are made during retirement. While other options like a 401(k) Plan may also serve retirement needs, they typically require a business to have multiple employees and are not directly designed for sole proprietors. A Flexible Premium Deferred Annuity and a Roth IRA serve different purposes and have different contribution structures, making them less ideal for a sole proprietor looking for comprehensive retirement solutions for themselves and any employees they may have.