What Is a Keogh Plan? Types, 2026 Limits, and Alternatives

A Keogh plan is a tax-deferred qualified retirement plan designed for self-employed individuals and unincorporated businesses, funded with pre-tax dollars and governed by the same federal rules as corporate pensions and 401(k)s. The IRS rarely uses the “Keogh” label anymore, because federal law no longer separates corporate from non-corporate plan sponsors; officially, these are “qualified retirement plans” or “HR 10 plans.”¹ The name has stuck mostly in older financial writing and in the marketing of certain plans aimed at sole proprietors, partners, and independent contractors.

There are two flavors, and they behave very differently. Picking between them, or picking a simpler alternative, is really what someone asking about Keoghs is trying to decide.

The Two Types of Keogh Plans

Defined Contribution Keogh

A defined contribution Keogh puts money into an individual account for each participant. Your retirement payout depends on how much went in and how the investments performed. Within this category, you choose one of two structures.

A profit-sharing plan lets the employer decide each year how much to contribute, from nothing up to the annual limit. That flexibility makes it the most popular choice for businesses with uneven income. A money purchase plan, by contrast, locks in a fixed contribution percentage every year regardless of how the business did. Skipping a required contribution triggers penalties, so this structure only works with predictable revenue.²

Defined Benefit Keogh

A defined benefit Keogh promises a specific monthly payment at retirement, calculated from salary history, years of self-employment, and age. An enrolled actuary has to compute the required annual funding and certify the plan’s financial status on Schedule SB of Form 5500 each year.³ Those actuary fees, typically several thousand dollars annually, make this structure impractical for many small operations.

The upside is size. Because the plan must fund a guaranteed future benefit, annual contributions can run far higher than a defined contribution plan allows. A 55-year-old with strong self-employment income might contribute well over $100,000 a year. The catch is that once the plan is in place those contributions are mandatory, and the funding obligation does not shrink if business slows down.

2026 Contribution Limits

The IRS adjusts Keogh contribution ceilings each year under IRC Section 415.⁴ For 2026:

Exceeding the limits can trigger excise taxes and, in serious cases, disqualify the plan and strip its tax-advantaged status for everyone in it. Self-employed people also face a wrinkle in how “compensation” is defined: because the plan contribution itself is deductible, the IRS uses a “reduced plan contribution rate” formula that most accountants handle in minutes but that trips up first-year plan sponsors doing it themselves.⁶

Who Can Open a Keogh

Keogh plans are available to self-employed individuals and to employees of certain unincorporated businesses, including sole proprietors, partners in partnerships, and independent contractors who earn income from personal services. The critical requirement is “earned income” from the business sponsoring the plan. Passive investment income cannot be used to fund a Keogh, and neither can wages from a separate corporate job. You have to actively work in the business to participate.

Employees change the picture considerably. When the business has workers beyond the owner, those workers generally must be included in the plan once they reach age 21 and complete one year of service. Excluding eligible employees can disqualify the entire plan. This is the main reason many small business owners have moved away from Keoghs to simpler structures.

Plans covering employees also face nondiscrimination and top-heavy testing. A plan is top-heavy when more than 60% of accumulated benefits belong to key employees such as owners and officers.⁷ When that happens, the employer must make minimum contributions for non-key employees regardless of profitability. For a solo practitioner with no employees, none of this applies, but any business considering hiring should price in the compliance work first.

Setting Up and Maintaining the Plan

You need a Federal Employer Identification Number to open the account. A personal Social Security number will not work.⁸ Most people use an IRS pre-approved prototype plan document from a bank, brokerage, or plan administrator. These come pre-vetted for compliance and let you pick a vesting schedule, name a plan administrator, and choose the contribution structure.⁹ Individually designed plans exist for unusual situations but require separate IRS approval and higher legal fees.

The plan becomes effective when you sign and date the adoption agreement.⁹ For defined contribution qualified plans, IRS Publication 560 indicates the plan can be established as late as the employer’s tax-filing due date, including extensions.¹⁰ Contributions for the tax year must be deposited by that same deadline, and missing it costs you the deduction for the year entirely.

Ongoing paperwork depends on the plan. A one-participant plan (just you, or you and your spouse) must file Form 5500-EZ once total assets exceed $250,000 at year-end. That threshold is cumulative across all one-participant plans you maintain. A plan covering common-law employees files the regular Form 5500 every year regardless of assets. One easily missed requirement: even a small plan must file Form 5500-EZ in its final year, when all assets are distributed or transferred, or face IRS and Department of Labor penalties.¹¹

Getting Money Out

Keogh assets grow tax-deferred, and every distribution is taxed as ordinary income the year you receive it. Withdrawals before age 59½ generally trigger a 10% early distribution penalty on top of income tax. Exceptions include distributions after separation from service in or after the year you turn 55, distributions due to disability, and certain substantially equal periodic payments.¹²

You cannot leave the money in forever. Required minimum distributions must begin by April 1 of the year following the year you turn 73, with each subsequent RMD due by December 31. The starting age rises to 75 for anyone who does not reach 73 before 2033.¹³ A missed RMD carries a 25% penalty on the shortfall, dropping to 10% if you correct it within two years.

Profit-sharing and money purchase Keoghs can allow participant loans if the plan document permits them. The maximum is the lesser of 50% of your vested balance or $50,000, and loans generally must be repaid within five years with at least quarterly payments; a loan that falls behind is treated as a taxable distribution.¹⁴ SEP IRAs cannot offer loans at all, which is one of the few areas where the Keogh structure retains a clear edge.

If you decide to shut down an old Keogh, the balance can roll into a traditional IRA, a Roth IRA (taxable in the rollover year), another qualified plan such as a 401(k), a 403(b), or a governmental 457(b).¹⁵ Direct custodian-to-custodian transfers avoid the 20% mandatory withholding that hits distributions paid to you first.

How Keoghs Compare to Solo 401(k)s and SEP IRAs

The Keogh label has largely faded because the same plan types are now available to any employer, not just the unincorporated businesses the original 1962 law targeted.¹ Someone shopping for a self-employed retirement plan today is really choosing among a solo 401(k), a SEP IRA, or a traditional qualified plan of the type historically called a Keogh.

Solo 401(k)

A solo 401(k) shares the $72,000 overall defined contribution limit for 2026 but adds an employee elective deferral of up to $24,500. Participants aged 50 and older can add $8,000 in catch-up contributions, and those aged 60 through 63 get an enhanced catch-up of $11,250.⁵ Solo 401(k)s are also exempt from nondiscrimination testing when only the owner and spouse participate.¹ For most solo earners, the solo 401(k) has effectively replaced the Keogh.

SEP IRA

A SEP IRA is the simplest option. There is no custom plan document, no annual Form 5500 filing, and you can establish it as late as your tax return due date including extensions.¹⁰ The contribution ceiling matches defined contribution Keoghs at $72,000 for 2026, but SEP IRAs allow no salary deferrals and no participant loans. If you want minimal paperwork and do not need to shelter more than $72,000, a SEP IRA is usually the practical pick.

Where a Keogh Still Wins

The scenario where the traditional Keogh structure still pays off is a defined benefit plan for a high earner within 10 to 15 years of retirement. Contributions can run well above $72,000 a year, generating deductions no other self-employed plan can match. The price is mandatory annual funding, actuary fees, and Form 5500 filings every year. For a consultant, physician, or attorney earning $300,000 or more with stable income and a short retirement horizon, the math often favors a defined benefit Keogh over its simpler competitors. For almost everyone else, one of the newer alternatives will get the job done with less friction.

1
Internal Revenue Service. Retirement Plans for Self-Employed People
2
Internal Revenue Service. Retirement Plans Definitions
3
Internal Revenue Service. A Guide to Common Qualified Plan Requirements
4
Office of the Law Revision Counsel. 26 USC 415 – Limitations on Benefits and Contribution Under Qualified Plans
5
Internal Revenue Service. 2026 Amounts Relating to Retirement Plans and IRAs, as Adjusted for Changes in Cost-of-Living
6
Internal Revenue Service. Calculating Your Own Retirement Plan Contribution and Deduction
7
eCFR. 26 CFR 1.416-1 – Questions and Answers on Top-Heavy Plans
8
Internal Revenue Service. Get an Employer Identification Number
9
Internal Revenue Service. Pre-Approved Plan – Adopting Employer
10
Internal Revenue Service. Publication 560 (2025), Retirement Plans for Small Business
11
Internal Revenue Service. Financial Advisors: Are Assets in Your Client’s One-Participant Plans More Than $250,000?
12
Internal Revenue Service. Retirement Topics – Exceptions to Tax on Early Distributions
13
Federal Register. Required Minimum Distributions
14
Internal Revenue Service. Retirement Topics – Plan Loans
15
Internal Revenue Service. Rollover Chart