Keogh Plan

What is the Keogh Plan?

Keogh Plan is the type of retirement plan specially designed for self-employed persons, sole proprietors, professionals and unincorporated corporates like partnerships, Association of persons, etc. to give the retirement benefits to their employees by investing the funds of the plan in safe securities and by selecting the proper type of plan according to the need and requirements of business organization.


  • The Keogh plans, established in 1962 by Congress, is designed to give retirement benefits to professionals, self-employed persons, and unincorporated businesses. It is for those who want to contribute high to gain after retirement.
  • The plan is approved. But the popularity of the plan is less due to other similar types of plans like SEP – IRA, 401 (k) plans, etc. The employer can select the primary type of plan from a defined contribution plan or defined benefit plan. Each type has its benefits. The withdrawals from the plan are allowed after attaining the age of 59.5 but not after the 70.5. the withdrawals before the defined age are subject to tax and 10 percent penalty.
Keogh Plan

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History of Keogh Plan

  • Eugene Keogh developed this plan by establishing the Self-Employed Individuals Tax Retirement Act in the year 1962. Still, with the changes in the economy, the Economic Growth and Tax Relief Reconciliation Act made changes in the plan in 2001. Now this plan is recognized by the name HR 10s or qualified plans in Internal Revenue Code.
  • It is specially designed for employees who want to contribute more for their retirement and benefited to professionals like lawyers, valuers, doctors, who earn high and want to save more for their future cum retirement. Internal Revenue Service has recognized this as a qualified plan and to give the tax benefits and retirement benefits to the self-employed.

How does it Work?

Types of Keogh Plan

The following are the two basic Keogh Plan types

#1 – Defined Contribution Plan

In a defined contribution planDefined Contribution PlanA defined contribution pension plan is when the employer and the employee frequently make a significant amount of contributions to enable employees to save a decent amount of money for the retirement period and leave with the utmost dignity in their retirement more, you can contribute regularly up to limit. There are two subtypes available in the defined contribution plan, which are as under:

  1. Profit-Sharing Plan – In the Profit Sharing plan amount is to be contributed up to 25% of the profits of the business or $ 54000, whichever is lower. The amount of contribution may change every year in a profit-sharing plan.
  2. Money Purchase Plan – In a money purchase plan, the percentage of profit to be set to contribute to the plan. The percentage is fixed, and; no changes are allowed, and if changes are made in a fixed percentage, it is subject to the penalty, and like a profit-sharing plan, the amount of contribution can change every year.

#2 – Defined Benefit Plans

Under defined benefit plans, the contributor can set the limit for the contribution to get the maximum benefit at the time or after the retirement. The contribution is subject to a higher threshold of $ 2,55,000. Both the plans allow pre-tax contributions and withdrawals are subject to the rules of the plan.

Keogh vs. IRA

  • Keogh’s plan is for sole proprietors and non-incorporated businesses. In contrast, the Individual Retirement Arrangement Plan is for self-employed and small owners with a minimum number of employees, and it does not include the non-incorporated businesses.
  • The contributor decides the contribution limit under the Keogh plan or contribution can be flexible as based on a percentage of profits, whereas, under individual retirement arrangement plan, the contribution is fixed at $ 6000.
  • There is a provision for additional contribution if the age of a contributor who wants to establish an IRA is greater than 50 years. Also, under IRA, there is a double contribution provision if the contributor started contributing at the age near to the retirement, but these provisions are not available under the Keogh Scheme.
  • In the Keogh plan, legal requirements like filing of annual returns are compulsory, whereas an IRA, there are very minimum legal requirements and no provision of annual filing.


  • They have approved plans hence gives more reliance and satisfaction to the contributor.
  • The contributions are flexible one can set the limit of contribution for himself.
  • It is beneficial for professionals, and it also includes the non-incorporated businesses.
  • These are tax-advantageous plans and gives the maximum retirement benefits.


  • As the funds of the plan in risk-based securities, hence the chances of loss are more.
  • The cost involved in managing the plan is high as compared to other plans due to more legal requirements like annual filing.
  • Withdrawals before the defined age and change in the fixed percentage of contribution are subject to penalties.
  • Contributions are higher as compared to other plans; hence may not be suitable for all.


  • Keogh Plan is the type of tax-advantageous retirement plan, unlike the other retirement plans. It is specifically for self-employed professionals, non-corporate businesses, etc. to give them retirement benefits. These are approved plans hence more reliable.
  • The plan allows the higher contribution to get the maximum retirement benefits. The plan is different from an individual retirement arrangement plan in terms of rules, regulations, and contribution limits.
  • It involves the more legal requirements as compared to other plans as the annual filing is compulsory for this plan, which is done by an independent professional; hence the cost of the plan becomes high as compared to other plans.

Recommended Articles

This has been a guide to What is Keogh Plan & its Definition. Here we discuss the history of Keogh’s plan, types, and how it works along with the difference between Keogh vs. IRA, benefits, and drawbacks. You can learn more about from the following articles –