Financial Glossary K

Keogh plan

A group of qualified retirement plans, including profit sharing and money purchase defined contribution plans and a defined benefit plan, is available to self-employed people, small-business owners, and partners in companies that file an IRS Schedule K, among others. Together these plans are sometimes described as Keogh plans in honor of Eugene Keogh, a US representative from Brooklyn, NY, who was a force behind their creation in 1963.The employer, not the employee, makes the contributions to Keogh plans, but the employee typically chooses the way the contributions are invested. Like other qualified plans, there are contribution limits, though they are substantially higher than with either 401(k)s or individual retirement plans, and on a par with contribution limits to SEP-IRAs. Any earnings in an employee’s account accumulate tax deferred, and withdrawals from the account are taxed at regular income tax rates.If you participate in a Keogh plan, a 10% federal tax penalty applies to withdrawals you take before you turn 59 1/2, and minimum required distributions (MRD) must begin by April 1 of the year following the year that you turn 70 1/2 unless you’re still working. In that case, you can postpone MRDs until April 1 of the year following the year you actually retire.The only exception — and it is more common here than in other retirement plans — is if you own more than 5% of the company. If you leave your job or retire, you can roll over your account value to an individual retirement account (IRA).If you’re eligible to establish a qualified retirement plan, a Keogh may be attractive because there are several ways to structure the plan, you may be able to shelter more money than with other plans by electing the defined benefit alternative, and you have more control in establishing which employees qualify for the plan. But the reporting requirements can be complex, making it wise to have professional help in setting up and administering a plan.

Kerb market

A kerb market is one where trading takes place outside official market hours. The expression comes from the practice in years gone by of trading on the kerb in the street.

Keynesian economics

Economic theories developed by John Maynard Keynes (1883-1946), notably about the use of government spending and low interest rates to stimulate demand during a recession.

Kicker

An added feature of a debt obligation designed to enhance its marketability to investors, such as a warrant.

Knockout option

An option that is knocked out, or nullified, if the underlying instrument reaches a certain price. They are cheaper than standard options as they offer limited opportunities for profit. For example, an option writer might sell an option on a share trading at $95 giving the option buyer the right to buy it at $100 with a knockout limit of $109. If the share price rises above $100 the buyer will exercise the option. If the price rises above $109 then the option is nullified and the option writer has removed his exposure to large losses.

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Last Updated: December 26th, 2014