Keogh vs. IRA: What's the Difference?

A Keogh is employer-funded and allows higher contributions than an IRA

Keogh vs. IRA: An Overview

A Keogh plan (pronounced KEE-oh), or HR10, is an employer-funded, tax-deferred retirement plan designed for unincorporated businesses or self-employed persons. Contributions to it must come from net earnings from self-employment. The term itself is outdated. The Internal Revenue Service (IRS) now calls them “qualified plans.”

An individual retirement account (IRA), in general terms, is a tax-advantaged account that individuals use to save and invest for retirement. 

Key Takeaways

  • Keogh plans are designed for use by unincorporated businesses and the self-employed.
  • Contributions to Keogh plans are made with pretax dollars, and their earnings grow tax-deferred.
  • Keogh plans can invest in securities similar to those used by IRAs and 401(k)s.
  • Keogh contribution plans are popular among sole proprietors and small businesses and feature relatively high contribution limits.

Keogh Plans

There are two types of Keoghs: defined-contribution plans, which are also called HR(10) plans, and defined-benefit plans. The latter includes money-purchase plans and profit-sharing plans. Both types of Keogh plans permit investing in securities, such as bonds, stocks, or annuities, similar to an IRA or a 401(k) plan.

Keogh contribution plans are popular among sole proprietors and small businesses and feature relatively high contribution limits at the smaller of 25% of salary or $58,000 in 2021 and $61,000 in 2022. A defined-benefit plan is set up similar to a pension. The IRS allows you to contribute up to $230,000 for 2021 and $245,000 for 2022.

Contributions to Keoghs are made pretax, which reduces the taxable income of the contributor. Self-employed individuals generally can deduct the entire yearly Keogh contribution amount, including contributions made on behalf of employees. The interest, dividends, and capital gains earned in Keoghs grow tax-deferred until the beginning of withdrawals.

The History of the Keogh

The Keogh plan, named after U.S. Representative Eugene James Keogh of New York, was established by Congress in 1962, expanded into the Economic Recovery Tax Act of 1981, and reworked again in the Economic Growth and Tax Relief Reconciliation Act of 2001. Contribution maximums vary among Keogh plans.

Before 2001 Keoghs were the go-to retirement plans for the self-employed, but since the law changed and “no longer distinguishes between corporate and other plan sponsors, the term is seldom used,” according to the IRS.

Thanks to legislation enacted by Congress in 2001, Keogh plans are now called “qualified plans” by the IRS.


An individual retirement account (IRA) can be established by any individual saving for retirement, as long as they have earned income that qualifies under IRS rules.

For both 2021 and 2022, the maximum contribution is $6,000 per year. For those aged 50 or older, an additional $1,000 catch-up contribution can be made per year by the end of the tax year. Employers are not permitted to make contributions on behalf of employees.

Similarities and Differences

Both Keoghs and IRAs require distributions at age 72, and you can access funds as early as 59½ years of age. You can also convert a Keogh into an IRA (traditional or Roth), but you must roll over the funds you remove from a Keogh within a 60-day window to avoid being hit with taxes and potential penalties for early withdrawal. It's best to do this with a direct transfer, trustee-to-trustee. If you're moving Keogh money to a Roth, there may also be taxes due—check with a tax advisor before making any changes, and to be sure that all relevant tax forms are properly filed for the Keogh.

The primary differences between the two plans are contribution limits and individual versus employer contributions. Post-tax contributions can be made to IRA accounts, but Keogh contributions offer higher tax deductions. In addition, Keoghs offer plan choices geared toward self-employed individuals or small business owners, whereas IRAs are restricted to individuals.

There's another choice as well. When trying to decide between a Simplified Employee Pension (SEP) plan and a Keogh, bear in mind that a Keogh costs more to maintain and comes with more paperwork. However, a Keogh's contribution limits are much higher, providing the potential to supply more of a cushion in retirement, depending on annual contributions.

The Bottom Line

Retirement plans are an essential piece of any portfolio, and this just as true for the self-employed. After all, securing your future financial freedom is one way to relieve stress in your later years. To view some of the best places to start one of these accounts, you can check out Investopedia’s lists of the best brokers for IRAs and the best brokers for Roth IRAs.

Article Sources

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  3. Internal Revenue Service. “A Guide to Common Qualified Plan Requirements." Accessed Nov. 25, 2021.

  4. Corporate Finance Institute. "Keogh Plan." Accessed Nov. 25, 2021.

  5. "Economic Recovery Tax Act of 1981." Accessed Nov. 25, 2021.

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  7. Internal Revenue Service. "About Publication 560, Retirement Plans for Small Business (SEP, SIMPLE and Qualified Plans)." Accessed Nov. 25, 2021.

  8. Internal Revenue Service. "IRS Announces 401(k) Limit Increases to $20,500." Accessed Nov. 25, 2021.

  9. Internal Revenue Service. "Retirement Topics — Required Minimum Distributions (RMDs)." Accessed Nov. 25, 2021.

  10. Internal Revenue Service. "Rollovers of Retirement Plan and IRA Distributions." Accessed Nov. 25, 2021.