Keogh Plans

Keogh plan is a type of tax-qualified retirement account that's specifically designed for self-employed individuals. This guide covers what you need to know about Keogh Plans.

The Keogh Plan is a type of retirement savings plan for self-employed individuals. These plans, also called HR-10s or qualified plans by the IRS, are tax-deferred pension plans available to self-employed workers and unincorporated businesses for retirement purposes. The plan can be set up as a defined benefit or contribution plan, depending on the individual’s retirement goals. For example, a defined benefit plan may have an annual benefit calculated by age and expected returns from investments.

However, this type of plan is complex to manage, and many variables can affect its total cost. In addition, the IRS requires annual reporting. In some cases, a business owner may need to pay excise taxes on contributions they make, which can significantly increase the cost of maintaining a Keogh plan. This is why it’s important to consult a tax expert if you are considering starting one. Unlike traditional IRAs, the Keogh Plan allows high-income earners to contribute a higher percentage of their compensation and get the maximum tax break possible. This particularly appeals to those with a high salary and who want to save for retirement.

There are two types of Keogh retirement plansdefined contribution and defined benefit.

  • Defined contribution Keogh retirement plans let you define the amount you contribute to your account each year. The yearly contributions are tax-deductible, but you pay taxes on your distributions when you take them out of the account. 
  • Defined benefit Keogh retirement plans state the annual benefits you’ll receive in retirement, such as salary and years of employment. The amount of money you can contribute to these plans is based on those benefits and other factors like age and returns on investment.
Advantages KEOGH

Advantages

  1. Keogh plans offer tax-deductible contributions, which can reduce the taxable income of the plan holder.
  2. Keogh plans have higher contribution limits than traditional IRAs, allowing the plan holder to save more for retirement.
  3. Keogh plans offer various investment options, which can help the plan holder diversify their portfolio.
  4. Keogh plans offer a reliable source of retirement income for self-employed individuals and small business owners.

Disadvantages

  1. Keogh plans can be more complex and expensive to set up and administer compared to other retirement plans.
  2. Only self-employed individuals and small business owners are eligible to open Keogh plans.
  3. Keogh plans require the plan holder to start taking distributions at age 72, which can limit the flexibility of retirement income planning.
  4. Keogh plans are not portable, which means that the plan holder cannot transfer the plan to another employer or retirement account.

Difference between a 401k and a Keogh plan

401(k) plans, and Keogh plans are both retirement savings plans, but there are some key differences between them:

  • 401(k) plans are offered by employers to their employees. In contrast, Keogh plans are designed for self-employed individuals and small business owners.
  • The IRS sets the contribution limits for 401(k) plans and can change each year. For 2025, the maximum contribution limit for employees is $20,500. Keogh plan contribution limits depend on the type of plan, but generally, they have higher contribution limits than 401(k) plans.
  • 401(k) plans typically offer a limited number of investment options chosen by the employer or plan administrator. Keogh plans can offer a wider range of investment options, including stocks, bonds, mutual funds, and real estate.
  • 401(k) plans are typically easier to set up and administer than Keogh plans, which can be more complex and expensive due to the need for professional administration and recordkeeping.
  • Some employers offer matching contributions to their employees’ 401(k) plans, which can significantly boost retirement savings. Keogh plans do not have this option, as they are designed for self-employed individuals and small business owners.
Difference Between a Keogh and an IRA plan

Difference Between a Keogh and an IRA plan

Keogh plans, and Individual Retirement Accounts (IRAs) are both retirement savings plans, but there are some key differences between them:

  • Keogh plans are designed for self-employed individuals and small business owners, while IRAs are available to anyone with earned income, including employees, self-employed individuals, and unemployed spouses of workers.
  • Keogh plans generally have higher contribution limits than IRAs. For example, in 2025, the maximum contribution limit for a Keogh plan is $61,000, while the maximum contribution limit for an IRA is $6,000 for individuals under age 50.
  • Both Keogh plans and IRAs offer tax benefits, but the specific benefits depend on the type of plan. Keogh plans offer tax-deductible contributions, while contributions to IRAs may be tax-deductible or tax-free depending on the type of IRA and the individual’s income level.
  • Keogh plans typically offer a wider range of investment options than IRAs, including stocks, bonds, mutual funds, and real estate. However, some IRAs offer a wider range of investment options than others.
  • Keogh plans can be more complex and expensive to set up and administer than IRAs due to the need for professional administration and recordkeeping. IRAs can be set up and managed by individuals without the need for professional assistance.

Full Comparison Table of the Retirement Savings Plans

FeatureKeogh PlanIRA401(k) Plan
EligibilitySelf-employed and small business ownersAnyone with earned incomeEmployees of companies offering the plan
AdvantagesTax-deductible contributions, higher contribution limits, investment flexibility, reliable source of retirement incomeTax benefits, investment flexibility, portability, ease of useEmployer matching contributions, tax benefits, investment flexibility, portability
DisadvantagesComplexity, limited eligibility, required minimum distributions, not portableRequired minimum distributions, limited contribution limitsLimited investment options, lack of portability, potential fees and expenses
How to ApplyContact a financial institution or plan administrator to set up the planOpen an account with a financial institution or online brokerSign up through your employer during open enrollment or eligibility period

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