A Keogh plan (historically known as an HR-10 plan) is a qualified retirement savings vehicle tailored for self-employed individuals, sole proprietors, and unincorporated businesses. While it offers substantial tax-shelter capacity, the administrative demands of Keogh plans have led many sole proprietors to favor Solo 401(k) or SEP IRA structures.
Keogh plans are established in two primary structures:
Promises a specific annual retirement benefit rather than focusing on annual contributions. For 2026, the maximum annual benefit is capped at the lesser of $290,000 or 100% of the participant’s average compensation for their highest three consecutive years. This structure is highly advantageous for older self-employed business owners with significant net profits, as it allows massive, actuarially calculated tax deductions to hit the promised benefit floor. However, it requires annual actuarial evaluations, high administrative fees, and mandatory Form 5500, “Annual Return/Report of Employee Benefit Plan” filings, making it expensive to maintain.
Prioritizes annual contributions over fixed eventual benefits, operating either as a profit-sharing plan or a money purchase plan. In 2026, the annual contribution limit is capped at the lesser of 25% of your net self-employment compensation or $72,000. The maximum compensation considered for this calculation is $360,000. Profit-sharing Keoghs offer flexible contributions, while money purchase Keoghs require you to contribute a fixed percentage of income every year, penalizing deviations.
If you are employed and also operate an unincorporated side business, you can participate in both your employer’s retirement plan and your own Keogh plan. However, your total contributions across all defined contribution plans are bound by the IRC §415(c) aggregate limit ($72,000 in 2026).
The Solo 401(k) has largely eclipsed the defined-contribution Keogh for modern sole proprietors. A traditional Keogh requires $288,000 in net self-employment earnings to hit the $72,000 maximum cap under the 25% compensation limit. In contrast, a Solo 401(k) allows you to stack an employee elective deferral ($24,500) on top of the 25% employer contribution, letting you hit the $72,000 maximum at a net business profit of only $190,000.