Keogh Plan
A Keogh Plan is a tax-deferred retirement savings vehicle for self-employed individuals and unincorporated businesses, authorized under IRC Section 401. Named after Congressman Eugene Keogh who sponsored the legislation in 1962, Keogh plans encompass both defined contribution structures (profit-sharing and money purchase plans) and defined benefit structures, and can allow substantially higher contributions than IRAs, making them an important tool for sole proprietors, partners, and independent contractors.
The term Keogh plan does not refer to a single IRS plan type but rather to any qualified retirement plan established by a self-employed individual. In contemporary usage, the term has become somewhat anachronistic — the IRS now uses the phrase self-employed retirement plan or simply refers to the underlying plan type (profit-sharing 401(k), money purchase plan, defined benefit plan) without the Keogh label. However, practitioners and financial institutions still use Keogh informally to describe owner-only qualified plans.
Self-employed individuals are treated as both employer and employee for retirement plan contribution purposes, which requires an adjustment to the contribution calculation. A sole proprietor computes the deductible employer contribution to a Keogh plan based on net self-employment income, which is reduced by the self-employment tax deduction and by the plan contribution itself — creating a circular calculation that is solved using a modified contribution percentage. For a stated contribution rate of 25%, the effective contribution rate on gross self-employment income is approximately 20%.
The maximum deductible contribution to a self-employed profit-sharing Keogh for 2025 is the lesser of 25% of net self-employment income (using the adjusted calculation) or the annual additions limit of $70,000. A money purchase Keogh has the same ceiling but requires a fixed, mandatory annual contribution. A defined benefit Keogh can in some cases allow even higher contributions, particularly for older sole proprietors with high income, because the benefit formula and funding actuarial calculations can support contributions well above the defined contribution ceiling.
Keogh plans offer substantially higher contribution limits than SEP-IRAs or SIMPLE IRAs in many scenarios. However, they require more administrative overhead: a formal written plan document must be adopted, a plan administrator (typically the business owner) must maintain records, and Form 5500 must generally be filed annually with the IRS and Department of Labor once plan assets exceed $250,000. Solo 401(k) plans, which combine employee deferrals with employer profit-sharing contributions and can sometimes achieve similar or higher contribution levels with somewhat simpler administration, have largely displaced the Keogh label in current practice.
Funds held in a Keogh plan are protected from creditors under federal bankruptcy law (ERISA preemption) and often under state law as well, which is a meaningful asset protection consideration for self-employed professionals such as physicians, attorneys, and consultants operating in industries with liability exposure. Distributions are taxed as ordinary income, early withdrawals before age 59-1/2 are subject to the 10% penalty, and RMDs apply beginning at age 73.