Keogh plan (HR-10)

A Keogh plan is a qualified retirement plan designed for self-employed individuals and unincorporated businesses — sole proprietorships and partnerships — and their employees. The plan takes its name from Representative Eugene Keogh, who sponsored the Self-Employed Individuals Tax Retirement Act of 1962, introduced in Congress as bill H.R. 10.

Contributions to a Keogh plan are tax-deductible, and the invested funds grow tax-deferred until withdrawal, when distributions are taxed as ordinary income. Only earned income from self-employment can fund a Keogh — a person with a salaried job and a freelance side business could contribute only the side-business earnings. Keoghs can be structured as defined contribution plans (profit-sharing or money purchase) or, less commonly, as defined benefit plans.

Because a Keogh is a qualified plan, it must follow the usual qualified-plan rules: eligible employees must be covered on a nondiscriminatory basis, withdrawals before age 59½ generally trigger an early withdrawal penalty on top of ordinary income tax, and required minimum distributions apply in retirement. In practice, simpler vehicles like SEP-IRAs and solo 401(k)s have largely replaced new Keogh plans, but the structure still appears regularly on licensing exams.

The SIE exam tests Keogh plans in the context of qualified versus non-qualified workplace retirement plans — know who can establish one, that contributions are pre-tax, and that distributions are fully taxable as ordinary income.