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Definition of Top Heavy Rule

Top heavy rule is the rule that states the maximum salary for which a Keogh contribution may be based. This is in effect to limit the disparity between high – and low-salary employees.

Applying "Top Heavy Rule" to Securities Exams:

Self employed unincorporated businesses such as a law practice or a doctor’s office often have Keogh plans set up for both the practitioner as well as the employees that support the practice. If the employer makes a contribution for themselves they must also make a contribution for their full time employees. The Top heavy rule limits the maximum amount of the dollar contribution that can be made by the highest income earners.

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