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What is a Keogh, or HR-10 plan?

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As a self-employed person or small business owner, you're responsible for securing your own retirement funding. If you've started exploring your retirement savings options, you may be aware of SEP IRAs, SIMPLE IRAs and solo 401(k)s. Along with these alternatives, you also might want to consider Keogh plans.

A Keogh plan is a tax-advantaged retirement savings tool for self-employed people. It offers many of the same benefits as other plans, but it is particularly beneficial for higher earners who want to save more or create their own pension.

Let's dig in to find out if its features make it a smart option for you.

What is a Keogh plan?

Keogh plans are named for the congressman who sponsored the legislation creating them. The IRS no longer uses that name and instead refers to a Keogh plan as an "HR-10 plan" or simply as "qualified plans for self-employed individuals."

This tax-deferred retirement plan is similar to a 401(k) or IRA but is designed for people who are self-employed or own unincorporated businesses. With a Keogh plan, you can invest in the same types of securities, like mutual funds, stocks, bonds, annuities and certificates of deposit, that you can with other retirement savings plans.

Two types of Keogh plans: Defined contribution vs. defined benefit

You can choose to structure a Keogh plan as either a defined contribution plan or a defined benefit plan. The two differ in how contribution amounts are determined and how predictable your end-result retirement benefit will be. If the plan is set up as a defined contribution plan, employees also can contribute to the plan. 

Defined contribution plan

In a defined contribution plan, you specify the amount you'll contribute to the plan, but you won't necessarily know how much you or your employees will receive in retirement because it depends on how individual investments perform. This is the same way an IRA or 401(k) works. There are two types of defined contribution Keogh plans:

  • Profit-sharing plans. These allow you, as the employer, to adjust the amount contributed to the plan based on the company's profits and according to a formula. In years with little or no profit, the business may not end up contributing at all. This may be beneficial to you as a business owner, but it provides less certainty for your retirement savings and those of any employees who also are enrolled in the plan.
  • Money purchase plans. These require you, as the employer, to make contributions each year regardless of whether the company is profitable or not. This is good for your retirement savings and those of your employees, but it can be riskier for the business's bottom line.

Defined benefit plans

With defined benefit plans, rather than knowing exactly how much you'll contribute each year, you instead know the amount of the benefit you'll receive in retirement.

Your annual contribution is based on the amount deemed necessary to properly fund the planned future benefit. The figure is calculated each year based on actuarial data with the help of a financial professional.

Are you saving enough for retirement?

Read our ultimate guide to retirement savings by age to see if you're on the right track.

What to know about Keogh contributions & withdrawals

Keogh plans operate under rules similar to those of other tax-advantaged plans. Contributions are tax-deductible, and your contributions and earnings can grow tax-deferred.

The annual contribution limit for a Keogh plan depends on which type of plan you have:

  • The defined contribution Keogh plan annual contribution limit for 2024 is the lesser of $69,000 or 25% of your compensation. If you're 50 or older, you can make additional catch-up contributions up to $7,500.
  • The defined benefit Keogh plan annual contribution limit is the actuarially determined amount appropriate to provide the future benefit but cannot exceed the lesser of $275,000 or 100% of your compensation.

Keogh plan withdrawal rules are essentially the same as those for 401(k)s and other self-employed plans. Any withdrawals you take before you reach age 59½ are subject to a 10% early withdrawal penalty unless you qualify for an exception, and you must begin taking required minimum distributions at age 73.

How Keogh plans differ from other retirement plans

Keogh plans share more similarities than differences with other retirement plans, but certain Keogh features may be a distinct reason you do or don't want to use one. Here are the main differences to know:

  • Standard self-employed retirement saving options are defined contribution only. Keoghs can be either defined contribution or defined benefit.
  • Solo 401(k)s, SIMPLE IRAs and SEP IRAs can be set up as Roth accounts. Keogh plans cannot.
  • The paperwork required to create a Keogh is often considered more complex than other types of self-employed retirement plans. Notably, your business has to adopt a written document outlining the plan's provisions that conforms to the requirements set forth in IRS Publication 560.
  • IRA-based plans such as SEP IRAs and SIMPLE IRAs do not require annual reporting. A Keogh plan involves filing Form 5500 each year.

Pros & cons of Keogh plans

Keogh plans offer advantages, but there are some drawbacks to consider as well. It's important to factor in these pros and cons in light of your individual financial situation.

You want to consider a Keogh plan since it:

  • May have higher contribution limits than other types of retirement plans
  • Offers either a defined contribution or defined benefit structure

But some tradeoffs of a Keogh plan is that it:

  • Is typically employer contributions only (unless designed as a defined contribution plan)
  • Requires more paperwork to establish and maintain
  • Does not offer a Roth option

Should you open a Keogh plan?

As a self-employed person without an employer to provide you with retirement benefits, it's important for you to take special care and select the best plan for your circumstances.

Keogh plans can be a great option if you earn a high income and want to put as much as you can into a tax-advantaged retirement plan or if you want to establish your own self-funded pension through the defined benefit option.

To discuss Keogh plans and other retirement savings tools—and receive guidance on choosing the best plan for you—connect with a Thrivent financial advisor.