What Is an HR-10 Plan? Keogh Limits, Withdrawals, and Rollovers

An HR 10 plan, better known today as a Keogh plan, is a tax-qualified retirement plan for self-employed people and unincorporated business owners. You deduct contributions from current taxable income, investments grow tax-deferred, and you pay ordinary income tax when you take the money out in retirement. The IRS no longer formally distinguishes between corporate and noncorporate plan sponsors, so “Keogh” is really a nickname at this point, but these plans remain fully available to sole proprietors, partners, and LLC owners taxed as self-employed.¹ For 2026, a defined contribution Keogh accepts annual additions up to $72,000, and a defined benefit version can fund a retirement benefit as high as $290,000 per year.²

The Two Types of Keogh Plans

Every HR 10 plan is either a defined contribution plan or a defined benefit plan, and that single choice shapes everything else: how much you can put in, whether contributions are optional, and how much professional help you need to run it.

Defined Contribution Keoghs

A defined contribution Keogh works the way most people picture a retirement account. Money goes in, it gets invested, and your eventual income depends on how the investments perform. Nothing is promised. Within this category you pick between two structures.

A profit-sharing Keogh gives you year-by-year flexibility. You decide each year whether to contribute and how much, up to the annual ceiling. If business income drops, you can skip a year entirely. That flexibility is why profit-sharing is the most common Keogh structure for self-employed professionals.

A money purchase Keogh locks you into a fixed contribution percentage every year, regardless of how the business performs. You commit to a specific rate when you set the plan up, and you owe that percentage in lean years too.³ Miss a required contribution and the IRS imposes a 10% excise tax on the shortfall, climbing to 100% if you don’t correct it inside the taxable period.⁴ Most self-employed owners avoid this structure for that reason.

Defined Benefit Keoghs

A defined benefit Keogh flips the design. Instead of capping what goes in, you target a specific annual retirement benefit and work backward to figure out what you need to contribute today. An enrolled actuary runs the numbers each year based on your age, assumed investment returns, and the benefit you want at retirement.

The 2026 ceiling on the annual benefit is $290,000.² Funding that benefit often requires contributions well above what a defined contribution plan would allow, which is exactly why this version appeals to high-income professionals in their 50s or 60s trying to shelter large amounts of income in a short runway. Some contribute $150,000 or more a year this way. The tradeoff is cost: you need an actuary every year, and that pushes professional fees into the thousands.

Who Can Set One Up

Any individual with net earnings from self-employment can establish a Keogh. Sole proprietors, partners, and LLC owners taxed as self-employed all qualify. If your business is a C-corp or S-corp, you set up a standard corporate plan instead; the Keogh label specifically covers plans sponsored by unincorporated businesses.¹

Your contribution capacity rides on “earned income” from the business, which is not the same thing as the net profit on your Schedule C. You first subtract the deductible half of your self-employment tax, and then apply the plan’s contribution formula to the reduced figure.⁵

If You Have Employees

You cannot open a Keogh for yourself and quietly leave your employees out. Any employee age 21 or older who has completed a year of service (at least 1,000 hours over a 12-month period) must be included.⁶⁷ Those employees receive contributions under the same formula that applies to you. A plan giving the owner 20% of compensation while giving employees 5% fails nondiscrimination rules, and a violation can disqualify the entire plan, making all deferred income immediately taxable.

2026 Contribution Limits and the Math That Trips People Up

The limits break along the same defined contribution vs defined benefit split, and the calculations work differently for each.

Defined Contribution

Total annual additions to a defined contribution Keogh for 2026 cannot exceed the lesser of 100% of compensation or $72,000.² “Annual additions” covers everything flowing into the account: employer contributions, employee contributions, and any forfeitures.⁸ Only compensation up to $360,000 per participant counts; earnings above that are disregarded.⁹

The percentage rate confuses people. Employees of a company can receive employer contributions of up to 25% of their compensation. But when you are both the employer and the employee, the contribution itself reduces the compensation base the calculation runs against. The IRS resolves the circular math with a reduced rate: 25% applied to the post-contribution figure works out to 20% of the pre-contribution figure.¹⁰¹¹

Here is how it plays out on $100,000 of net profit. Subtract the deductible half of self-employment tax (roughly $7,065), leaving adjusted net income of $92,935. Apply the 20% rate: $92,935 × 20% = $18,587. That’s your maximum deductible contribution for the year.

Defined Benefit

Defined benefit Keoghs ignore the 20% and 25% percentage limits. The constraint sits on the output instead: the maximum annual benefit the plan can pay at retirement, capped at $290,000 for 2026.¹² The required annual contribution depends on how old you are, how long you have until retirement, and the actuary’s assumptions. Starting a plan later in your career usually means much larger annual contributions, because fewer years of growth are available to reach the funding target.

Deadlines

Contributions for either plan type must be made by the due date of your tax return, including extensions, to deduct them for that year. A calendar-year business with an extension generally has until October 15 to fund the plan for the prior year.

Getting Money Out

Keogh assets grow tax-deferred, and every dollar you take out counts as ordinary income the year you receive it. Timing matters in both directions.

Early Withdrawals

Distributions before age 59½ carry a 10% additional tax on top of ordinary income tax, unless an exception applies.¹³ The common exceptions include death, total and permanent disability, separation from service in or after the year you turn 55, substantially equal periodic payments based on life expectancy, unreimbursed medical expenses that would be deductible, and distributions ordered under a qualified domestic relations order. Even where an exception kills the 10% penalty, the distribution itself is still taxable as ordinary income.

Required Minimum Distributions

You generally must start taking required minimum distributions by April 1 of the year after you turn 73.¹⁴ If you are still working and own less than 5% of the business, some plans let you delay RMDs until you actually retire. Missing an RMD triggers an excise tax on the amount you should have withdrawn.

Rollovers

A Keogh is a qualified plan, so distributions can be rolled into a traditional IRA or another qualified plan such as a 401(k).¹⁵ A direct trustee-to-trustee transfer avoids mandatory withholding and keeps the money tax-deferred. That matters most when you close the business and need somewhere to park the assets without creating a taxable event.

Loans and Prohibited Transactions

If the plan document allows it, you can borrow from a Keogh up to the lesser of $50,000 or the greater of half your vested balance or $10,000, generally repayable within five years.¹⁶ Miss repayment and the balance becomes a deemed distribution, taxable and possibly subject to the 10% penalty.

Self-dealing between the plan and people closely connected to it is prohibited: buying property from the plan for personal use, lending plan assets to yourself outside the loan rules, or paying unreasonable fees from plan assets to a family member all qualify. The initial excise tax on a prohibited transaction is 15% of the amount involved for each year it remains uncorrected, rising to 100% if not fixed within the taxable period.¹⁷

What It Costs to Run

Keoghs carry heavier administration than simpler self-employed retirement options, and this is often where owners decide the complexity isn’t worth it.

You need a written plan document that complies with ERISA and the Internal Revenue Code before the plan can accept a dollar. Most owners adopt a pre-approved prototype from a financial institution or third-party administrator rather than paying for a custom draft.

Qualified plans generally must file Form 5500 each year with the IRS and Department of Labor.¹⁸ If the plan covers only you (or you and your spouse), you file the simpler Form 5500-EZ.¹⁹ One-participant plans with total assets at or below $250,000 at the end of the plan year are generally exempt from filing entirely, unless it is the plan’s final year.²⁰ Once assets cross that line, annual filing becomes mandatory.

Plans covering non-owner employees must pass annual nondiscrimination tests. Defined benefit plans add an actuary’s report every year. Between actuarial fees, annual filings, and testing, a defined benefit Keogh can cost several thousand dollars a year in professional services alone.

Should You Use a Keogh, a SEP IRA, or a Solo 401(k)?

Keoghs were the only retirement option for the self-employed for decades. For most owners today, a SEP IRA or Solo 401(k) delivers the same tax benefit with far less overhead.

A SEP IRA allows employer contributions of up to 25% of compensation, the same effective 20% for a self-employed owner, capped at $72,000 for 2026. Setup is trivial, there is no annual filing requirement regardless of account size, and you can open one at virtually any brokerage. The limits are that SEP IRAs have no employee deferral component, and if you have employees you must contribute the same percentage of pay for all of them.¹

A Solo 401(k) is for owners with no employees other than a spouse. It allows an employee elective deferral of up to $24,500 in 2026 plus an employer profit-sharing contribution of up to 20% of net self-employment income, subject to the same $72,000 combined ceiling.²¹ Because of the dual contribution structure, you can hit the ceiling at lower income levels than with a SEP IRA or profit-sharing Keogh. Roth contributions and participant loans are available, and Form 5500-EZ is only required once assets exceed $250,000.

The Keogh still has one area where nothing else competes: the defined benefit version. If you earn well into six figures and want to shelter far more than $72,000 a year, a defined benefit Keogh is the only self-employed retirement vehicle that can do it. For everyone else, a SEP IRA or Solo 401(k) delivers equivalent or better contribution capacity with a fraction of the administrative burden.

1
Internal Revenue Service. Retirement Plans for Self-Employed People
2
Internal Revenue Service. 2026 Amounts Relating to Retirement Plans and IRAs, as Adjusted for Changes in Cost-of-Living
3
Internal Revenue Service. Choosing a Retirement Plan: Money Purchase Plan
4
Office of the Law Revision Counsel. 26 US Code 4971 – Taxes on Failure to Meet Minimum Funding Standards
5
Internal Revenue Service. Topic No. 554, Self-Employment Tax
6
Internal Revenue Service. A Guide to Common Qualified Plan Requirements
7
Office of the Law Revision Counsel. 26 US Code 410 – Minimum Participation Standards
8
Internal Revenue Service. Fixing Common Plan Mistakes – Failure to Limit Contributions for a Participant
9
Ascensus. Understanding the 2026 Retirement Plan Contribution Limits
10
Internal Revenue Service. Publication 560 (2025), Retirement Plans for Small Business
11
Internal Revenue Service. Self-Employed Individuals: Calculating Your Own Retirement Plan Contribution and Deduction
12
Internal Revenue Service. COLA Increases for Dollar Limitations on Benefits and Contributions
13
Office of the Law Revision Counsel. 26 USC 72 – Annuities; Certain Proceeds of Endowment and Life Insurance Contracts
14
Internal Revenue Service. Retirement Topics – Required Minimum Distributions (RMDs)
15
Internal Revenue Service. Rollover Chart
16
Internal Revenue Service. Computation of Maximum Loan Amount under IRC Section 72(p)(2)(A)
17
Internal Revenue Service. Retirement Topics – Tax on Prohibited Transactions
18
U.S. Department of Labor. Form 5500 Series
19
Internal Revenue Service. About Form 5500-EZ
20
Internal Revenue Service. 2025 Instructions for Form 5500-EZ
21
Internal Revenue Service. 401(k) Limit Increases to $24,500 for 2026, IRA Limit Increases to $7,500