Keogh Plan
Keogh Plan
Quick Definition
A Keogh plan (also called an HR-10 plan) is a tax-deferred retirement savings plan available to self-employed individuals and unincorporated businesses — sole proprietors and partnerships. Named after Representative Eugene Keogh who sponsored the 1962 legislation, Keogh plans were the first retirement vehicles specifically designed for the self-employed.
What It Means
Before 1962, self-employed Americans had no tax-advantaged retirement vehicle comparable to the corporate pension plans available to salaried employees. The Self-Employed Individuals Tax Retirement Act of 1962 (the Keogh Act) created the first parity.
While Keogh plans still technically exist, they have largely been superseded by simpler, more flexible alternatives — particularly SEP IRAs and Solo 401(k)s — which offer comparable or better contribution limits with far less administrative complexity. Many financial advisors today steer self-employed clients toward these modern alternatives rather than Keogh plans.
Types of Keogh Plans
| Type | How It Works | Contribution | Best For |
|---|---|---|---|
| Defined Contribution - Profit Sharing | Employer contributes percentage of compensation | Up to 25% of net self-employment income, max $69,000 (2024) | Variable income; want flexible contributions |
| Defined Contribution - Money Purchase | Fixed percentage of compensation required annually | Fixed % of net SE income, max $69,000 (2024) | Steady income; want predictable contributions |
| Defined Benefit | Promises a specific benefit at retirement; actuarially funded | Potentially well above $69,000; based on actuarial calculation | High earners late in career wanting maximum contributions |
Keogh vs. Modern Alternatives
| Feature | Keogh (Profit Sharing) | SEP IRA | Solo 401(k) |
|---|---|---|---|
| Max contribution (2024) | $69,000 | $69,000 | $69,000 + $7,500 catch-up if over 50 |
| Participant contributions | No | No | Yes (up to $23,500) |
| Administrative complexity | High (Form 5500 required over $250k) | Very low | Moderate |
| Employees covered | Can include employees | Can include employees | Owner and spouse only |
| Roth option | No | No | Yes (Roth Solo 401k) |
| Loan provision | Possible | No | Yes |
| Setup deadline | Tax year end | Tax filing deadline + extension | Dec 31 of tax year |
The Solo 401(k) has effectively replaced the Keogh for most self-employed individuals without employees because it:
- Allows both employer AND employee contributions (higher total)
- Offers a Roth option
- Allows loans
- Requires less paperwork (no Form 5500 until assets exceed $250,000)
Who Still Uses Keogh Plans
Keogh plans are still maintained by:
- Self-employed individuals who established them before Solo 401(k)s became widely available
- Those with specific defined benefit needs requiring contributions above the $69,000 defined contribution limit
- Partnerships (Solo 401(k)s are not available to partnerships)
Tax Benefits
Like all qualified retirement plans, Keogh plans offer:
- Employer contributions are tax-deductible (reduces self-employment income)
- Tax-deferred growth within the account
- Roth contributions not available (traditional tax treatment only for most Keogh structures)
Contribution calculation for Profit-Sharing Keogh:
- Net self-employment income: $150,000
- Contribution rate: 20% (effectively 25% before the SE income calculation adjustment)
- Maximum contribution: $150,000 × 0.20 = $30,000
Key Points to Remember
- Keogh plans were the first tax-advantaged retirement plans for the self-employed (1962)
- They are effectively superseded by SEP IRAs and Solo 401(k)s for most situations
- Defined benefit Keogh plans can allow contributions above the standard $69,000 limit
- Partnerships cannot use Solo 401(k)s — Keogh plans remain relevant for multi-partner businesses
- Existing Keogh plans can continue but most self-employed individuals starting fresh should use SEP IRA or Solo 401(k)
- Form 5500 must be filed annually when Keogh plan assets exceed $250,000
Frequently Asked Questions
Q: Should I open a new Keogh plan today? A: For most self-employed individuals, a Solo 401(k) or SEP IRA is simpler and offers equivalent or better benefits. A Keogh defined benefit plan may still make sense for high earners over 50 who want to maximize tax-deductible contributions above the $69,000 defined contribution limit.
Q: Can I contribute to both a Keogh and an IRA? A: Yes, subject to income limits on IRA deductibility. Having an active Keogh plan makes you a "covered by a workplace retirement plan" participant, which phases out the deductibility of traditional IRA contributions above certain income thresholds. Roth IRA contributions are not deductible anyway and are subject to their own income limits.
Q: What happens to my existing Keogh plan if I want to switch to a Solo 401(k)? A: You can roll existing Keogh assets into a Solo 401(k) or IRA. Consult a tax advisor before doing so, as there can be complexities depending on the type of Keogh and whether you have employees.
Related Terms
SEP IRA
A SEP IRA (Simplified Employee Pension) is a high-contribution retirement account for self-employed individuals and small business owners, allowing contributions up to 25% of compensation or $70,000 per year.
401(k)
A 401(k) is an employer-sponsored retirement savings plan that lets you invest pre-tax dollars, reducing your taxable income while building long-term wealth with potential employer matching.
403(b)
A 403(b) is a tax-advantaged retirement savings plan for employees of public schools, nonprofits, and certain tax-exempt organizations, similar to a 401(k) but with unique rules and investment options.
457 Plan
A 457 plan is a tax-deferred retirement savings plan for state and local government employees and certain nonprofit workers, offering unique early withdrawal flexibility with no 10% penalty.
IRA
An IRA is a personal tax-advantaged retirement savings account that lets individuals invest independently of their employer, with traditional IRAs offering tax-deferred growth and Roth IRAs offering tax-free growth.
Roth IRA
A Roth IRA is a tax-advantaged retirement account where contributions are made with after-tax dollars, allowing all future growth and qualified withdrawals to be completely tax-free.
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