We are independent & ad-supported. We may earn a commission for purchases made through our links.
Advertiser Disclosure
Our website is an independent, advertising-supported platform. We provide our content free of charge to our readers, and to keep it that way, we rely on revenue generated through advertisements and affiliate partnerships. This means that when you click on certain links on our site and make a purchase, we may earn a commission. Learn more.
How We Make Money
We sustain our operations through affiliate commissions and advertising. If you click on an affiliate link and make a purchase, we may receive a commission from the merchant at no additional cost to you. We also display advertisements on our website, which help generate revenue to support our work and keep our content free for readers. Our editorial team operates independently of our advertising and affiliate partnerships to ensure that our content remains unbiased and focused on providing you with the best information and recommendations based on thorough research and honest evaluations. To remain transparent, we’ve provided a list of our current affiliate partners here.
Finance

Our Promise to you

Founded in 2002, our company has been a trusted resource for readers seeking informative and engaging content. Our dedication to quality remains unwavering—and will never change. We follow a strict editorial policy, ensuring that our content is authored by highly qualified professionals and edited by subject matter experts. This guarantees that everything we publish is objective, accurate, and trustworthy.

Over the years, we've refined our approach to cover a wide range of topics, providing readers with reliable and practical advice to enhance their knowledge and skills. That's why millions of readers turn to us each year. Join us in celebrating the joy of learning, guided by standards you can trust.

What is a Keogh Plan?

By O. Wallace
Updated: May 17, 2024

With all the talk of 401ks and IRAs, many small business owners are left in the dark when it comes to setting up a retirement savings fund for themselves andor their employees. A Keogh plan, sometimes known as a HR10 plan, was designed with the small business owner in mind. First enacted in 1963, this tax deferred retirement savings fund is available for the owner or owners of an unincorporated business and its employees. Since the contributions are deducted from the gross income, one benefit of the plan is a reduction in pre-tax income. Other benefits of the Keogh plan include contributions that are tax deferred until withdrawn, deferred interest income, certain lump sum benefits which are eligible for 10-year averaging, and contribution limits higher than those of IRAs.

As with all retirement savings plans, the Keogh plan has early withdrawal penalties if the participant is more than 5% owner, and payments must begin by April 1 of the year the participant turns 70. Withdrawals from the plan cannot begin until the participant is 59 years of age and retired.

Within the Keogh plan, there are two types of saving plans: the defined benefit plan and the defined contribution plan. With the defined benefit plan, the participant defines how much he or she wishes to withdraw upon retirement. Using this number, an actuarial formula is employed to calculate the percentage contributed based on life expectancy of the participant, amount desired, and number of years left to contribute before retirement. With the defined contribution, the participant chooses how much he or she wishes to contribute on a yearly basis to the Keogh plan.

In a Keogh plan's defined contribution plan, there are two ways in which an employer may contribute to the plan: a profit sharing plan and a money purchase plan. With the profit sharing plan, the contribution is dependent upon the profits of the business. One advantage of this type of plan for owners is that the law allows for skipping contributions during lean years. In the money purchase plan, a set amount is contributed every year, with no allowances for profits or losses. With both types of defined contribution plans, the maximum deduction limit is 25%.

The Keogh plan requires that the contributions be made in cash, but they can be invested in a variety of ways. Vested assets are held in trust for employees and can be rolled over into an IRA if they leave the business. A large benefit for the owner of the business is that he or she can deduct the entire yearly Keogh contribution for himself as well as those made for his employees.

WiseGeek is dedicated to providing accurate and trustworthy information. We carefully select reputable sources and employ a rigorous fact-checking process to maintain the highest standards. To learn more about our commitment to accuracy, read our editorial process.
Discussion Comments
By anon58677 — On Jan 03, 2010

kee-o

By anon46587 — On Sep 27, 2009

Your pronunciation guide is incorrect. Keogh is pronounce as 'cue' but with an 'o' sound at the end rather than a 'u' sound.

By rjohnson — On Feb 06, 2008

Because I mispronounced Keogh and was called to task for it ;), let me help spread the word on how to properly pronounce Keogh.... Don't let the spelling deceive you. It's pronounced key-oh, as in "where is my _key_?" "_oh_ there it is!"

Share
WiseGeek, in your inbox

Our latest articles, guides, and more, delivered daily.

WiseGeek, in your inbox

Our latest articles, guides, and more, delivered daily.