There are rules that prohibit an employer from engaging in certain types of dealings with its retirement plan. The rules are designed to protect the plan participants against depletion of plan assets by the employer. For example, the rules limit an employer's right to borrow money from the plan whenever it wants to. These prohibited transaction rules also apply to Keogh plans.

In fact, the rules that apply to Keogh plans are stricter than those that apply to other types of retirement plans. Basically, your plan can't:

• lend any part of the plan's income or principal to an owner-employee
• pay any compensation to the owner-employee for services rendered to the plan
• acquire any property from an owner-employee or sell any property to an owner-employee

Under provisions of the Economic Growth and Tax Relief Reconciliation Act of 2001, plan loans to Subchapter S shareholders, partners in partnerships, and sole proprietors of unincorporated businesses are exempted from the prohibited transaction rules beginning in 2002. Congress hopes that the elimination of the loan restrictions will increase the incentive for owner-employees to establish plans and make it more likely that existing plans will offer a loan feature.