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, including 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While Keogh plans still technically exist, they have largely been superseded by simpler, more flexible alternatives, particularly SEP IRAs and Solo 401(k)s, which offer comparable or better contribution limits with far less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.
2026 Contribution Limits
The IRS announced 2026 retirement plan cost-of-living adjustments in Notice 2025-67 (October 2025). Key limits affecting Keogh plans:
| Limit Type | 2025 | 2026 | Change |
|---|---|---|---|
| Defined contribution plan limit | $70,000 | $72,000 | +$2,000 |
| Defined benefit plan annual benefit limit | $280,000 | $290,000 | +$10,000 |
| 401(k)/403(b) employee deferral | $23,500 | $24,500 | +$1,000 |
| Catch-up contribution (age 50+) | $7,500 | $8,000 | +$500 |
| Super catch-up (ages 60-63) | $11,250 | $11,250 | No change |
| Annual compensation limit | $350,000 | $360,000 | +$10,000 |
Source: IRS Notice 2025-67, IRS press release on 2026 retirement plan limits.
Types of Keogh Plans
| Type | How It Works | 2026 Contribution | Best For |
|---|---|---|---|
| Defined Contribution: Profit Sharing | Employer contributes percentage of compensation | Up to 25% of net SE income, max $72,000 | Variable income; want flexible contributions |
| Defined Contribution: Money Purchase | Fixed percentage of compensation required annually | Fixed % of net SE income, max $72,000 | Steady income; want predictable contributions |
| Defined Benefit | Promises a specific benefit at retirement; actuarially funded | Potentially well above $72,000; based on actuarial calculation up to $290,000 annual benefit | High earners late in career wanting maximum contributions |
Keogh vs. Modern Alternatives: 2026 Comparison
| Feature | Keogh (Profit Sharing) | SEP IRA | Solo 401(k) |
|---|---|---|---|
| Max contribution (2026) | $72,000 | $72,000 | $72,000 + $8,000 catch-up if 50+ |
| Employee contributions | No | No | Yes (up to $24,500) |
| Catch-up (age 50+) | No | No | Yes ($8,000) |
| Super catch-up (ages 60-63) | No | No | Yes ($11,250) |
| 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 |
| Annual compensation limit | $360,000 | $360,000 | $360,000 |
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 at lower income levels)
- Offers a Roth option
- Allows loans
- Requires less paperwork (no Form 5500 until assets exceed $250,000)
- Provides catch-up contributions for workers 50 and older ($8,000 in 2026) and super catch-up for ages 60-63 ($11,250)
Source: Fidelity, Solo 401(k) contribution limits 2025 and 2026, IRA Financial, Solo 401(k) vs. Keogh.
The Self-Employed Contribution Calculation
For all three plan types (Keogh, SEP IRA, Solo 401(k) employer portion), the self-employed face a specific calculation. You cannot simply multiply your net business income by 25%. The IRS requires a reduced rate:
Effective rate = Stated rate / (1 + Stated rate)
For a 25% profit-sharing rate: 25% / 125% = 20%
You then apply 20% to your net self-employment earnings after subtracting half of your self-employment tax.
Example calculation for 2026:
- Net self-employment income: $150,000
- Half of SE tax: ~$10,629
- Net earnings after SE tax deduction: $150,000 - $10,629 = $139,371
- Maximum profit-sharing contribution: $139,371 x 20% = $27,874
For a Solo 401(k), you would add the employee deferral of $24,500 (or $32,500 if 50+) on top of this employer contribution, for a combined total of $52,374 (or $60,374 if 50+). This is why the Solo 401(k) lets you shelter more at lower income levels than a Keogh or SEP IRA.
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 $72,000 defined contribution limit
- Partnerships (Solo 401(k)s are not available to partnerships, though partners can set up their own Solo 401(k)s if they have no employees other than partners)
The Defined Benefit Keogh: Where It Still Wins
The defined benefit Keogh is the one variant that no simpler plan can replicate. A defined benefit plan promises a specific monthly benefit at retirement, and contributions are calculated actuarially to fund that promise. For 2026, the maximum annual benefit that can be funded is $290,000.
A 55-year-old with high self-employment income might contribute well over $100,000 per year under a defined benefit Keogh, compared to the $72,000 cap on defined contribution plans. The trade-off is that those contributions are mandatory once the plan is in place. If business income drops, the funding obligation does not.
For a consultant, physician, or attorney earning $300,000 or more with stable income and a short retirement horizon, the defined benefit Keogh may justify the added complexity and actuarial costs. For everyone else, a Solo 401(k) or SEP IRA typically does the same job with far less overhead.
Source: LegalClarity, "What Is a Keogh Plan? Types, Limits, and Alternatives".
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)
The deduction is taken as an adjustment to income on your personal tax return, so you get the benefit even if you do not itemize deductions.
Key Points to Remember
- Keogh plans were the first tax-advantaged retirement plans for the self-employed (1962)
- The 2026 defined contribution limit is $72,000, up from $70,000 in 2025
- The 2026 defined benefit annual benefit limit is $290,000, up from $280,000
- Keogh plans are effectively superseded by SEP IRAs and Solo 401(k)s for most situations
- Defined benefit Keogh plans can allow contributions above the $72,000 defined contribution limit, making them relevant for high earners near retirement
- Partnerships cannot use Solo 401(k)s, so 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
- The annual compensation limit for 2026 is $360,000
Common Mistakes to Avoid
- Opening a new Keogh when a Solo 401(k) or SEP IRA would work: For most self-employed individuals without employees, a Solo 401(k) offers the same or higher contribution limits with less paperwork, Roth options, and loan provisions. A Keogh only makes sense if you need the defined benefit structure or have a partnership with employees.
- Forgetting mandatory contributions in a defined benefit Keogh: Unlike profit-sharing plans where contributions are flexible, defined benefit plans require fixed annual contributions regardless of business income. If your income drops, you still must fund the plan. This can create severe cash flow problems in a down year.
- Not filing Form 5500: If your Keogh plan assets exceed $250,000, you must file Form 5500 annually. Failing to file can result in penalties of $250 per day, up to $150,000 per plan year.
- Excluding eligible employees: If your business has employees beyond the owner, those workers must generally be included in the plan once they reach age 21 and complete one year of service. Excluding eligible employees can disqualify the entire plan, wiping out its tax-advantaged status for all participants.
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 $72,000 defined contribution limit. Consult a tax advisor or financial planner to evaluate your specific situation.
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 ($81,000-$91,000 single / $129,000-$149,000 MFJ in 2026). Roth IRA contributions are not deductible and are subject to their own income limits ($153,000-$168,000 single / $242,000-$252,000 MFJ in 2026).
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. The rollover itself is not a taxable event if done as a direct trustee-to-trustee transfer.
Q: How much can I contribute to a Keogh in 2026 if I am self-employed with $200,000 net income? A: For a profit-sharing Keogh, the effective contribution rate is 20% of net earnings after deducting half of self-employment tax. On $200,000 net SE income, half of SE tax is approximately $14,173, leaving $185,827. At 20%, your maximum contribution would be approximately $37,165. With a Solo 401(k), you could add the $24,500 employee deferral on top, for a total of $61,665. This illustrates why the Solo 401(k) is generally the better choice for self-employed individuals without 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 $72,000 per year.
401(k)
A 401(k) is an employer-sponsored retirement plan that lets you invest pre-tax dollars, reducing taxable income while building long-term wealth with potential employer matching.
403(b)
A 403(b) is a tax-advantaged retirement 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.
Actuary
An actuary is a professional who uses mathematics, statistics, and financial theory to assess and quantify risk for insurance companies and pension funds, calculating premiums, reserves, and the financial impact of uncertain future events.
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