Keogh plans (also known as HR-10 plans) are work-related retirement plans designed for self-employed people and unincorporated businesses. Keogh plans are specifically for retirement purposes, providing considerable tax benefits for those saving for retirement. For example, the money saved in a Keogh plan is not subject to taxes until it is withdrawn.

There are two categories of Keogh plans – defined-benefit and defined-contribution. Profits sharing plans are also part of the two categories. In a defined-benefit plan, the benefit to be paid upon retirement is specified, while in a defined-contribution plan, the amount of money to be contributed is predetermined, leaving the investment decisions to the account holder.

In 2021, businesses may contribute up to 100% of individual compensation, or $58,000 in total, whichever is higher. Because profit-sharing plans are the most popular option in Keogh plans, businesses are usually able to exceed the contribution limit for the employee by instituting a “non-discrimination” rule. This rule indicates that the total contributions of the business in the Keogh plan allocated to the highly-compensated employees (HCE) cannot exceed the total contributions allocated to the non-highly-compensated employees (non-HCE) by more than two to one.

Keogh plans offer more contribution opportunities than 401(k) plans or Simplified Employee Pension (SEP) plans, but they are also more costly to maintain. IRS Form 5500-EZ, which must be filed annually by Keogh plans, has more stringent filing requirements than those for employer-sponsored qualified retirement plans.

Overall, Keogh plans are a great way for self-employed people or owners of unincorporated businesses to save for retirement on a tax-deferred basis. They are more complex and costly than SEP or 401(k) plans, but they offer higher contribution limits, making them attractive to high-income business owners looking to maximize their retirement savings. And because Keogh plans are no longer distinguished from other qualified plans under tax laws, these plans have become known as qualified plans or retirement plans instead of Keogh plans.