# Keogh Plan Explained: Types, Advantages, and Disadvantages

![Keogh Plan: A tax-deferred retirement plan available to self-employed individuals or unincorporated businesses. ](https://www.investopedia.com/thmb/SGSvEFhqD2K3I2idUGDLU7mW3yg=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/keoghplan.asp-final-1c1018aae51a42c2aade1135e0272192.png)

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> **Definition**
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> A Keogh plan is a tax-deferred retirement savings plan that is similar to a 401(k) plan but is designed for self-employed individuals.

## What Is a Keogh Plan?

"Keogh plan" is a term used to describe qualified retirement plans that cover [self-employed](https://www.investopedia.com/terms/s/self-employed.asp) people and unincorporated businesses. This includes [defined-benefit plans and defined-contribution plans](https://www.investopedia.com/ask/answers/032415/how-does-defined-benefit-pension-plan-differ-defined-contribution-plan.asp), though most plans are set as the latter. Established in the 1960s with the Self-Employed Individuals Tax Retirement Act, Keogh plans have a long history and have evolved over time.

Contribution limits are higher compared to IRAs and 401(k)s, which is an attractive feature for high-income earners. They are also generally tax-deductible up to a certain percentage of annual income, with applicable absolute limits in U.S. dollar terms, which the [Internal Revenue Service (IRS)](https://www.investopedia.com/terms/i/irs.asp) can change from year to year.

### Key Takeaways

*   Keogh plans are tax-deferred retirement plans for self-employed individuals, allowing higher contributions than IRAs or SEP IRAs.
*   There are two main types: defined-contribution plans, like profit-sharing plans, and defined-benefit plans based on salary and tenure.
*   Keogh plans allow a wide range of investment options, similar to 401(k) plans, including stocks and bonds.
*   Despite their benefits, Keogh plans have more administrative requirements and costs compared to other retirement plans.
*   They originated from the Self-Employed Individuals Tax Retirement Act of 1962, ensuring access to retirement plans for self-employed professionals.

## Deep Dive Into Keogh Retirement Plans

Keogh plans share characteristics with other small business retirement plans, such as [defined-contribution plans](https://www.investopedia.com/terms/d/definedcontributionplan.asp) (like profit-sharing and money purchase plans) and [defined-benefit plans](https://www.investopedia.com/terms/d/definedbenefitpensionplan.asp). However, the IRS calls them Keogh plans if they cover a self-employed individual.

Keogh plans can invest in stocks, bonds, [CDs](https://www.investopedia.com/terms/c/certificateofdeposit.asp), and [annuities](https://www.investopedia.com/terms/a/annuity.asp), similar to [401(k)s](https://www.investopedia.com/terms/1/401kplan.asp) and [individual retirement accounts (IRAs)](https://www.investopedia.com/terms/i/ira.asp).

The term comes from U.S. Representative Eugene Keogh, who was instrumental in passing the Self-Employed Individuals Tax Retirement Act of 1962. Because the act was passed to ensure that self-employed people had access to retirement plans, any plans designed for them became known as Keogh plans. However, the distinction between corporate and other retirement plan sponsors was removed when the Economic Growth and Tax Relief Reconciliation Act of 2001 was passed.

> **Fast Fact**
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> As with other qualified retirement accounts, you can access Keogh plan funds starting at age 59½, with mandatory withdrawals at age 73 or 75, depending on your birth year.

## The Different Types of Keogh Plans Explained

### Exploring Qualified Defined-Contribution Keogh Plans

Keogh plans can also be qualified defined-contribution plans with regular contributions up to a set limit. [Profit-sharing plans](https://www.investopedia.com/terms/p/profitsharingplan.asp) are one of the two types of Keogh plans that allow a business to contribute up to $70,000 as of 2025 ($69,000 in 2024). A business does not have to generate profits to set aside money for this type of plan.

[Money purchase plans](https://www.investopedia.com/terms/m/moneypurchasepensionplan.asp) are less flexible than profit-sharing plans because they require a fixed percentage contribution of the business’s income yearly, as specified in the plan. If a company alters its fixed percentage, it may face penalties. The contribution limit for 2025 for money purchase plans is set at 25% of annual compensation or $70,000, whichever is lower. In 2024, it was $69,000 or 25% of annual compensation, whichever was lower.

### Understanding Qualified Defined-Benefit Keogh Plans

Qualified defined-benefit plans state the annual benefits to be received at retirement, and these benefits are typically based on salary and years of employment. Defined-benefit Keogh plan contributions depend on promised benefits, age, and expected asset returns. For 2025, the maximum annual benefit is $280,000 or 100% of the employee's compensation, whichever is lower. For 2024, it was $275,000 or 100% of the employee's compensation, whichever was lower.

## Weighing the Pros and Cons of Keogh Plans

Keogh plans are more administratively burdensome and costly to maintain than [Simplified Employee Pension](https://www.investopedia.com/terms/s/sep.asp) (SEP) IRAs or 401(k) plans.

The main advantage of Keogh plans is their higher contribution limits, appealing to high-income business owners.  

## What Is the Difference Between a Keogh and an IRA?

Keogh plans are designed for self-employed people. While self-employed people can contribute to an IRA, Keogh plans have much higher contribution limits.

## Who Is Eligible for a Keogh Plan?

Keogh plans are for self-employed people, so you can enroll in one if you're a sole proprietor, freelancer, or work for yourself.

## Is a Keogh the Same As a Solo 401(k)?

A solo 401(k)—also called a one-participant 401(k)—is a regular 401(k) with a special calculation for a sole proprietor or small business with no employees. A Keogh plan has much higher contribution limits than a solo 401(k).

## The Bottom Line

A Keogh plan is a retirement plan for self-employed people or unincorporated small businesses. They are generally defined contribution plans or defined benefit plans. Defined contribution plans are funded with contributions and include profit-sharing plans and money purchase plans. In contrast, defined benefit plans are based on salary and years of employment. Keogh plans can invest in the same instruments as other types of retirement plans, such as stocks, bonds, certificates of deposit (CDs), and annuities.

Compared to SEP IRAs and solo 401(k)s, the higher contribution limits of Keogh plans are attractive to high-income earners. However, the administrative requirements of Keogh plans may involve more complexity and cost compared to other plans. While the term "Keogh" is rooted in historical context, the plans are ideal for the self-employed.

> **Article Sources**
>
> 1.  Internal Revenue Service. "[Publication 560 | Retirement Plans for Small Business (SEP, SIMPLE, and Qualified Plans)](https://www.irs.gov/pub/irs-pdf/p560.pdf)," Page 3.
>     
> 2.  Congress.gov. "[H.R.1836 - Economic Growth and Tax Relief Reconciliation Act of 2001](https://www.congress.gov/bill/107th-congress/house-bill/1836/text)."
>     
> 3.  Internal Revenue Service. "[Retirement Plan and IRA Required Minimum Distributions FAQs](https://www.irs.gov/retirement-plans/retirement-plan-and-ira-required-minimum-distributions-faqs)."
>     
> 4.  Internal Revenue Service. "[Choosing a Retirement Plan: Profit-Sharing Plan](https://www.irs.gov/retirement-plans/choosing-a-retirement-plan-profit-sharing-plan)."
>     
> 5.  Internal Revenue Service. "[Retirement topics; 401(k) and profit-sharing plan contribution limits](https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-401k-and-profit-sharing-plan-contribution-limits#:~:text=100%25%20of%20the%20participant's%20compensation,SIMPLE%2C%20and%20Qualified%20Plans%29.)."
>     
> 6.  Internal Revenue Service. “[2025 Adjustments Relating to Retirement Plans and IRAs, as Adjusted for Changes in Cost-of-Living](https://www.irs.gov/pub/irs-drop/n-24-80.pdf).”
>     
> 7.  Internal Revenue Service. “[Choosing a Retirement Plan: Money Purchase Plan](https://www.irs.gov/retirement-plans/choosing-a-retirement-plan-money-purchase-plan).”
>     
> 8.  Internal Revenue Service. "[2025 Amounts Relating to Retirement Plans and IRAs, as Adjusted for Changes inCost-of-Living](https://www.irs.gov/pub/irs-drop/n-24-80.pdf)."
>     
> 9.  Internal Revenue Service. "[2024 Limitations Adjusted as Provided in Section 415(d), etc.](https://www.irs.gov/pub/irs-drop/n-23-75.pdf)," Page 1.