A Keogh plan (also called an H.R.-10 plan) is a type of qualified retirement plan available to self‑employed individuals and unincorporated small‑business owners. The name stems from legislation in the 1960s that extended qualified retirement plan rules to the self‑employed. Keogh plans can be structured as either defined‑contribution plans (profit‑sharing or money‑purchase plans) or defined‑benefit plans. The plans follow the same tax and distribution rules as other qualified plans: contributions are generally tax‑deductible, investment earnings grow tax‑deferred, and distributions are taxed as ordinary income when withdrawn. (Sources: Investopedia; IRS Publication 560)
Key takeaways
– Keogh plans are retirement plans for the self‑employed and unincorporated businesses.
– They can be either defined‑contribution (profit‑sharing, money‑purchase) or defined‑benefit plans.
– Keogh plans historically allowed higher contribution limits than traditional IRAs; contribution and benefit limits are set annually by the IRS.
– Keoghs have heavier administrative and compliance requirements than SEP IRAs or SIMPLE IRAs and can be more complex than a solo 401(k).
– Consult a tax advisor or retirement‑plan professional before establishing a Keogh because of the calculation and reporting complexity. (Sources: Investopedia; IRS Publication 560)
Understanding the two main types
1) Qualified defined‑contribution Keogh plans
– Profit‑sharing plans: Employer contributions may vary year to year and can be up to the plan limit. For 2024 the overall defined‑contribution limit is $69,000 (for 2023 it was $66,000). A business does not need to be profitable in a given year to make a discretionary contribution if the plan permits it.
– Money‑purchase plans: Require a fixed annual employer contribution (a percentage of compensation) specified in the plan document. Inflexible—if you commit to a percentage and then fail to contribute, penalties may apply. For 2024 the contribution limit is 25% of compensation up to $69,000 (2023: 25% up to $66,000).
2) Qualified defined‑benefit Keogh plans
– Promise a specific annual retirement benefit (often based on salary and years of service). Employer contributions are actuarially determined each year to fund the promised benefit. For 2024 the maximum annual benefit is $275,000 or 100% of the employee’s compensation, whichever is lower (2023: $265,000 cap). (Sources: Investopedia; IRS 2023/2024 limits pages)
Who is eligible?
– Self‑employed individuals (sole proprietors), partners in partnerships, and owners of unincorporated businesses can establish Keogh plans. If the business has employees, the plan must generally cover eligible employees under nondiscrimination rules and plan terms (subject to statutory minimums). Keogh plans are intended for self‑employed situations—if you are an employee of another company, that company’s retirement plan rules apply. (Source: Investopedia; IRS Publication 560)
Keogh vs. IRA vs. Solo 401(k)
– Keogh vs IRA: Keogh plans generally allow much larger annual pre‑tax contributions than traditional or Roth IRAs. IRAs have much lower contribution limits (IRA contribution limits are far below the Keogh/defined‑contribution caps). For many self‑employed taxpayers, a Keogh historically allowed higher tax‑deferred savings.
– Keogh vs solo 401(k): A solo (one‑participant) 401(k) is a 401(k) established for a self‑employed owner with no employees (other than a spouse). A solo 401(k) generally combines employee deferral and employer profit‑sharing contributions and can achieve contribution levels similar to defined‑contribution Keogh plans. Keoghs can be complex and are less commonly used today because simpler vehicles (solo 401(k)s, SEP IRAs) often deliver similar tax results with lower administrative burden. (Sources: Investopedia)
Contribution and benefit limits (high‑level)
– Defined‑contribution overall limit: $69,000 for 2024 ($66,000 for 2023).
– Money‑purchase plan limit: 25% of compensation or the defined‑contribution cap, whichever is lower (note: calculating the allowable percentage for a self‑employed owner uses a special “net earnings” formula—see IRS guidance).
– Defined‑benefit maximum annual payout: $275,000 for 2024 ($265,000 for 2023) or 100% of compensation, whichever is lower.
– Required minimum distributions (RMDs): Subject to the same RMD rules as other qualified plans—RMD start age has shifted under recent law changes; check current IRS guidance (RMD age moved from 72 to 73 and later to 75 for some birth years under SECURE Act changes). (Sources: IRS limitations notifications; IRS RMD FAQs)
Pros and cons
Pros
– High potential contribution/benefit limits for high earners.
– Tax‑deductible employer contributions; tax‑deferred growth.
– Flexible options (profit‑sharing or defined‑benefit) that can match retirement‑saving goals.
Cons
– Administrative complexity (written plan document, actuarial calculations for defined‑benefit plans, nondiscrimination testing, possible annual filings).
– Higher setup and ongoing costs than SEP IRAs or solo 401(k)s.
– Less commonly used today; many self‑employed people prefer SEP or solo 401(k) due to simplicity and comparable tax results. (Source: Investopedia; IRS Publication 560)
Practical steps to set up and operate a Keogh plan
1) Decide whether a Keogh is right for you
– Compare Keogh, SEP IRA, solo 401(k), and SIMPLE IRA alternatives. Consider contribution goals, administrative capacity, whether you have employees who must be covered, and cost. Consult a CPA or ERISA/retirement specialist to model contribution limits and tax impact. (Sources: Investopedia; IRS Publication 560)
2) Choose the plan type
– Pick between a defined‑contribution (profit‑sharing or money‑purchase) or a defined‑benefit plan based on desired annual contributions and predictability of commitment. Money‑purchase plans require fixed contributions; profit‑sharing plans allow flexibility; defined‑benefit plans can allow large deductible contributions for older business owners but require actuarial funding.
3) Obtain required tax and plan identification
– You’ll typically need an employer identification number (EIN) for the business and a written plan document that details eligibility, contribution formula, vesting, distribution rules, and other terms. Providers (banks, brokerages, or recordkeepers) and attorneys or third‑party administrators (TPAs) can provide plan document templates and help tailor terms. (Source: IRS Publication 560)
4) Calculate contribution limits for self‑employed owners
– Use IRS rules for calculating “compensation” and net earnings from self‑employment (which subtract half the self‑employment tax and allowable plan contribution in some calculations). Because the math can be tricky, work with a tax professional or use software that handles self‑employed retirement plan contribution computations. (Source: IRS Publication 560)
5) Adopt the plan and open accounts
– Sign the written plan, set up plan‑designated retirement accounts at a bank, brokerage, or insurance company, and start making contributions per the plan’s timing and rules.
6) Compliance, reporting, and recordkeeping
– Maintain plan records, perform required nondiscrimination testing, follow vesting and eligibility rules for employees, and file required annual returns/reports (for qualified plans this may include forms in the Form 5500 series or other reporting). Defined‑benefit plans require actuarial valuations and funding calculations each year. Get professional help for filings and testing. (Source: IRS Publication 560)
7) Distributions and RMDs
– Distributions are taxed as ordinary income when taken. Early withdrawals before age 59½ may incur a 10% additional tax (unless another exception applies). Follow RMD rules based on your birth year—check current IRS guidance for RMD age and calculation methods. (Source: IRS RMD FAQs)
Practical examples (illustrative)
– High‑earning 55‑year‑old sole proprietor who wants to maximize tax‑deferred savings: A defined‑benefit Keogh may allow large deductible contributions to fund a promised benefit, but it requires actuarial funding and annual contribution volatility.
– Freelancer with one spouse as the only employee: A solo 401(k) may offer comparable tax benefits with simpler administration and the ability to make employee deferrals plus employer profit‑sharing contributions—often simpler than a Keogh.
Recordkeeping and annual tasks checklist
– Maintain signed written plan document.
– Track participant eligibility and vesting schedules.
– Calculate and make timely employer contributions.
– Run nondiscrimination testing if required.
– Complete any required annual filings (Form 5500 series, if applicable).
– Perform required actuarial valuations for defined‑benefit plans.
– Issue participant statements and Form 1099‑R for distributions.
When to use a Keogh vs alternatives
– Keogh may make sense if you need very large deductible contributions and are prepared to handle the administrative complexity (e.g., a defined‑benefit plan for an older owner seeking a high annual funding amount).
– For many self‑employed people, SEP IRAs or solo 401(k) plans provide similar tax advantages with lower cost and simpler administration. Compare options with a financial/tax advisor before choosing.
Important sources and next steps
– For IRS rules, limits, and forms: IRS Publication 560, “Retirement Plans for Small Business (SEP, SIMPLE, and Qualified Plans)” and IRS pages on contribution limits and RMDs.
– Legislative background: Economic Growth and Tax Relief Reconciliation Act of 2001 (removed some historical distinctions).
– Practical overviews: Investopedia’s Keogh plan article for concise summary and comparisons.
Bottom line
A Keogh is a qualified retirement plan for the self‑employed that can allow high deductible contributions and can be structured as a defined‑contribution or defined‑benefit plan. It offers tax‑deferred growth and strong retirement‑saving potential, but it usually carries more administration and compliance complexity than SEP IRAs or solo 401(k)s. Before creating a Keogh plan you should model contribution and tax outcomes and consult a qualified tax or retirement‑plan professional to ensure the plan is designed, funded, and reported correctly.
Selected sources
– Investopedia: “Keogh Plan”
– IRS Publication 560, Retirement Plans for Small Business (SEP, SIMPLE, and Qualified Plans)
– IRS: 2023 and 2024 limitations (section 415(d) adjustments) /)
– IRS: Retirement Plan and IRA Required Minimum Distributions FAQs
– Congress.gov: H.R.1836 — Economic Growth and Tax Relief Reconciliation Act of 2001
– Walk through a worked numerical example (sole proprietor) to show how much you could contribute in 2024 under a Keogh versus a solo 401(k) or SEP IRA, or
– Provide a one‑page checklist/template you could give to an accountant or plan provider to start setting up a Keogh.