Keogh Plan

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:

Defined-Benefit Keogh

Promises a specific annual retirement benefit instead of 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.

Defined-Contribution Keogh

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. On a 25%-of-compensation basis a Keogh needs $288,000 of compensation to reach the $72,000 cap ($\$72,000∕0.25$), against $190,000 for a Solo 401(k), which stacks the $24,500 employee elective deferral on top of the same employer percentage ($(\$72,000-\$24,500)∕0.25$). Note that for an unincorporated sole proprietor both figures understate the required income: the employer contribution is computed on net earnings after the deduction for one-half of self-employment tax, which works out to roughly 20% of net Schedule C profit, not 25% — the same adjustment noted for the SEP in section “Individual Retirement Arrangements (IRAs)”. The ranking is unaffected; the thresholds move up by about a quarter.