Keogh Plans Explained: Boost Your Small Business Retirement Savings

June 14, 20236 min read
Keogh Plans Explained: Boost Your Small Business Retirement Savings
Share on facebookShare on TwitterShare on Linkedin

Key Takeaways

  • Keogh plan is a type of tax-deferred retirement plan for small or unincorporated businesses, or self-employed individuals.
  • Small businesses established as limited liability companies, partnerships, or proprietorships can use Keoghs.
  • Keogh plans are particularly popular among high-income business owners because of their relatively high contribution limits, despite their higher upkeep costs and administrative burdens.

Small business owners and others who are trying to save money outside a traditional retirement plan might want to consider a Keogh plan, a savings account that can help money grow with tax advantages. But exactly what is a Keogh plan? Here is that and more.

What is a Keogh Plan?

Also known as a qualified retirement plan, a Keogh plan is a type of tax-deferred retirement plan for small or unincorporated businesses, or the self-employed. U.S. Rep. Eugene Keogh of New York was key in shepherding the Self-Employed Individuals Tax Retirement Act of 1962, which became known as the Keogh Act

While eligible businesses must not be incorporated, small businesses established as limited liability companies, partnerships, or proprietorships can use Keoghs.

As with an individual retirement account, one’s Keogh plan can hold stocks, bonds, certificates of deposit, and mutual funds. 

As an example of such a plan, say a sole proprietor plans to contribute to the plan a fixed amount of $20,000 annually. Those funds are then invested in mutual funds containing a varied raft of stocks and bonds. The plan’s owner can withdraw funds as needed in retirement. 

Forms of Keogh Plans

There are two types of Keogh plans, defined contribution and defined benefit. For each, contributions are made on a pre-tax basis, and the owner has the option to take an upfront deduction on their income tax return.

Defined Contribution

Here, the plan owner gets to define the amount they will put into the fund annually. The amount can be defined through profit sharing, wherein one’s business is the sole one that pays into it. Or it can be defined through money purchasing, which has the owner contributing a fixed amount of their income annually.

In 2023, contributions can reach $66,000 for a profit-sharing option, or as much as 100% of one’s pay, whichever is less. One can change the amount they choose to contribute each year. 

Defined Benefit 

With these Keogh plans, the owner simply sets a pension goal and starts funding it. Their annual benefit cannot surpass 100% of their average pay over their three highest-paid years or $265,000 for 2023, whichever is less.

What are the Rules and Requirements for a Keogh Plan?

Eligibility requirements. One may only establish a Keogh plan if they own a business, or part of one, that is not incorporated. To participate in a Keogh, the individual must be operating as a sole proprietorship, partner, or limited liability company.

Plan rules. As with most other retirement plans for the self-employed, contributions are tax-deductible up to annual limits. Also, money can be invested and grow on a tax-deferred basis pending retirement. One can roll over a Keogh plan into a Roth or traditional IRA but could owe taxes on a Roth conversion.

Further, retired minimum contributions must be taken after age 72, or 73 if the person is turning 72 this year or later. Also, ordinary income tax applies to all withdrawals. 

Contribution limits. For 2023, one may contribute up to 25% of their pay or up to $66,000, whichever is less. For those with a defined plan, contributions will depend on the benefit the owner set as well as other factors. Other than that, there are no contribution ceilings.

Pros and Cons of a Keogh Plan

There are benefits and downsides to every investment, Keogh plans included. For instance, there are other retirement plan options that self-employed individuals have that are not as expensive to maintain, including Simplified Employment Pensions, solo 401(k)s, or a Savings Incentive Match Plan for Employees for one’s business. However, such plans have lower contribution limits. Thus, Keogh plans are particularly popular among high-income business owners.

Note that, under a Keogh, small business employers are allowed to deduct contributions made for their employees. Overall, Keogh plans provide small business owners tax-favored retirement savings. Keogh plans can be complicated, though, and often require multiple advisors to get through the paperwork. And as mentioned, they also require more upkeep.

Keogh Plan vs. 401(k)

While a Keogh plan is similar to a 401(k), there are differences. To wit, under a Keogh, contributions can be made any time before filing taxes. With a 401(k), though, contributions must be made by Dec. 31.

Also under a Keogh, contributions are based on actuarial assumptions, with annual benefits set at up to $265,000 in 2023 or 100% of one’s highest annual income, whichever is less. Contributions of up to $22,500 are allowed in a 401(k) plan in 2023 – an extra $7,500 annually is allowed if the owner is over age 50.

Another difference between the two types of retirement plans is that a Keogh requires rigorous reporting, while a 401(k) calls for simplified reporting. Further, with a Keogh, taxes are deferred on earnings until contributions are taken. With a 401(k), post-tax (Roth) contributions are allowed.

Moreover, while no loans are allowed with a Keogh plan, a loan on the balance is permissible with a 401(k). Both plans accept employer and employee contributions.

Investment Flexibility with Keogh Plan

Having a Keogh plan permits more investment flexibility outside of just stocks and bonds. Alternative investments such as art and real estate are increasingly popular as ways to diversify one’s holdings, protect against inflation, and reduce portfolio volatility, due to alternative assets’ lower correlation to public markets.

In fact, there are other retirement plans outside of traditional IRAs, including the one offered by alternative investment platform Yieldstreet, on which more than $3.2 billion has been invested to date. 

In addition to private market investment opportunities such as transportation, structured notes, and private credit, Yieldstreet has a private market retirement account that allows the addition of alternatives to one’s retirement portfolio. With the Yieldstreet IRA, private market investments can grow for the future with favorable tax considerations.  

Yieldstreet IRA

Strengthen your future with a private market IRA.

Such an IRA is also a way to diversify one’s investment portfolio, which is crucial to successful investing over the long term.

Alternative investments can be a good way to help accomplish this. Traditional portfolio asset allocation envisages a 60% public stock and 40% fixed income allocation. However, a more balanced 60/20/20 or 50/30/20 split, incorporating alternative assets, may make a portfolio less sensitive to public market short-term swings. 

Real estate, private equity, venture capital, digital assets, precious metals and collectibles are among the asset classes deemed “alternative investments.” Broadly speaking, such investments tend to be less connected to public equity, and thus offer potential for diversification. Of course, like traditional investments, it is important to remember that alternatives also entail a degree of risk. 

In some cases, this risk can be greater than that of traditional investments.

This is why these asset classes were traditionally accessible only to an exclusive base of wealthy individuals and institutional investors buying in at very high minimums — often between $500,000 and $1 million.  These people were considered to be more capable of weathering losses of that magnitude, should the investments underperform.

However, Yieldstreet has opened a number of carefully curated alternative investment strategies to all investors. While the risk is still there, the company offers help in capitalizing on areas such as real estate, legal finance, art finance and structured notes — as well as a wide range of other unique alternative investments. 

Learn more about the ways Yieldstreet can help diversify and grow portfolios.


Keogh plans work well for many higher-income businesses who seek the safety and security of bigger contributions while their money grows tax deferred. And remember there are other ways to save for retirement while diversifying one’s investment portfolio.