What Is a Keogh Plan?

Financial advisor explaining a Keogh retirement plan with client in the client's home.
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A Keogh plan is a type of retirement plan for the self-employed or unincorporated businesses. This type of plan is now called an "HR-10" or "qualified retirement plan."

Key Takeaways

  • A Keogh plan is a type of retirement savings option for self-employed people.
  • Keogh plans were created in 1962 but are now called HR-10s or qualified plans by the IRS.
  • Keoghs can be defined benefit or defined contribution plans.

How a Keogh Plan Works

A Keogh (KEY-oh) plan is a tax-deferred retirement plan for self-employed people and unincorporated businesses. Keogh plans get their name from U.S. Representative Eugene Keogh of New York State, who was key in enacting the Self-Employed Individuals Tax Retirement Act of 1962. Because of his efforts, the legislation became known as the Keogh Act.

In 2001, the Economic Growth and Tax Relief Reconciliation Act (EGTRRA) removed the distinction between Keoghs and other plans. Therefore, the Internal Revenue Code no longer refers to these plans as "Keoghs." Instead, Keoghs are now known as "HR-10s" or "qualified retirement plans."

A Keogh is similar to a 401(k), but the annual contribution limits are higher. There is also much more to administering these plans than other types.

Self-employed people have other options that can be used that are not as costly to maintain. Some examples are the Simplified Employee Pensions (SEP-IRAs) or individual or solo 401(k)s. You could also choose a Savings Incentive Match Plan for Employees (SIMPLE) for your business.


Keoghs can be used by small businesses set up as limited liability companies (LLCs), sole proprietorships, or partnerships.

Example of a Keogh Plan

For example, a sole proprietor can establish a Keogh or HR-10 retirement plan in which an amount is contributed each year toward the business owner's retirement savings. Suppose the owner decides to contribute a fixed amount of $20,000 per year to the plan. In turn, the funds are invested in mutual funds containing a basket of stocks or bonds. In retirement, the owner can withdraw funds as needed.

Types of Keogh Plans

There are two types of Keogh plans available: a defined contribution plan and a defined benefit plan.

Defined Contribution Plans

In a defined contribution plan, you define how much you'll place into the fund each year. There are two ways to define the amount: profit-sharing (your business is the only one that pays into it) or money purchasing (you contribute a fixed amount of your income every year into the plan).

Using a profit-sharing option, you can contribute up to $66,000 in 2023 (up from $61,000 in 2022) or up to 100% of your compensation to your plan, whichever is less. The amount you choose to contribute to a profit-sharing plan can change each year.


You can deduct 25% of the contributions you make for your employees or yourself if you're self-employed.

A money-purchase plan lets you decide at the outset how much of your profits you can place in a Keogh. The contribution limit is fixed and can't be changed. Limits for the money-purchase plan are the same as for profit-sharing: $66,000 in 2023 ($61,000 in 2022) or 100% of compensation, whichever is less.

Defined Benefit Plans

Defined benefit plans work like normal pension plans: you set a pension goal for yourself, and you fund it. Your annual benefit cannot exceed 100% of your average compensation over your three highest consecutive calendar years or $265,000 for 2023 ($245,000 for 2022), whichever is less.

You make contributions to each type of plan on a pre-tax basis. You also pay taxes each pay period on less and have the option of taking an upfront deduction on your income tax return.

Investing in a Keogh

As with a 401(k), you can defer taxes on the money you invest in a Keogh until retirement. You can begin taking distributions at age 59 1/2 but no later than April 1 of the year after you reach 72.

Withdrawals made before that time are taxed federally. They may even be taxed by the state you live in. You might pay a 10% penalty for early distributions unless certain exceptions apply.


You can invest the money in a Keogh plan in stocks, bonds, mutual funds, or other investments.

You have to establish your qualified retirement plan before the end of the year you wish to receive the deduction, but you can make contributions for the prior year before you file your tax return by mid-April. If you file a tax extension, you have until mid-October.

Keogh Plan vs. 401(k)

Keogh vs. 401(k)
Keogh 401(k)
Contributions can be made any time before filing taxes Contributions must be made by December 31
Contributions based on actuarial assumptions; annual benefit up to $265,000 in 2023 ($245,000 in 2022) or 100% of highest annual income, whichever less Can contribute up to $22,500 in 2023 ($20,500 in 2022) and an additional $7,500 per year if over age 50 ($6,500 for 2022)
Rigorous reporting Simplified reporting
Taxes deferred on earnings until distributions are taken Post-tax (Roth) contributions allowed
No loans allowed Can take out a loan on the balance
Employer and employee contributions Employer and employee contributions

Frequently Asked Questions (FAQs)

Who can establish a Keogh retirement plan?

Keogh plans, or HR-10 plans, are retirement plans for the self-employed. You'll need to be a sole proprietor, partnership, or LLC to use this kind of retirement plan. If you've incorporated your business, you'll need to choose a different kind of plan.

How much can I contribute to a Keogh plan?

It depends. If you're using a defined contribution plan, you can contribute a maximum of $66,000 in 2023 (up from $61,000 for tax year 2022). If your plan is a defined benefit plan, you can contribute a maximum of $265,000 for 2023 (up from $245,000 for tax year 2022). For defined benefit plans, your annual benefit cannot exceed 100% of your average compensation over your three highest consecutive calendar years.

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