Yes, Keogh plans are tax deductible. A self-employed person can deduct up to $72,000 in a defined contribution Keogh for 2026, and potentially far more through a defined benefit Keogh.1Internal Revenue Service. 2026 Amounts Relating to Retirement Plans and IRAs The deduction is taken as an adjustment to income on your personal return, so you get the benefit whether or not you itemize, and the money grows tax-deferred inside the plan until you withdraw it.
How Much You Can Deduct
The ceiling depends on which flavor of Keogh you use. Most plans are defined contribution; a smaller number are defined benefit, and those allow much larger deductions for older owners with high income.
Defined Contribution Keoghs
For 2026, the maximum deductible contribution to a defined contribution Keogh is the lesser of $72,000 or 25% of a participant’s compensation.1Internal Revenue Service. 2026 Amounts Relating to Retirement Plans and IRAs For an employee, “compensation” just means W-2 pay. For you as the owner, it’s more involved.
Your own contribution is based on “net adjusted self-employment income”: net profit reduced by the deductible portion of self-employment tax and by the Keogh contribution itself. Because the contribution and deduction depend on each other, the effective ceiling for the owner works out to about 20% of net earnings rather than 25%.2Internal Revenue Service. Publication 560 – Retirement Plans for Small Business The Rate Table and Deduction Worksheet in Publication 560 walk you through the circular math.
A quick illustration. Say your Schedule C shows $150,000 in net profit and you deduct roughly $10,600 for half of self-employment tax. Your adjusted net earnings are about $139,400. Twenty percent of that gives you a deductible contribution of roughly $27,880. The exact figure shifts with your actual self-employment tax, but 20% is the practical ceiling for the owner’s share.
One more cap: the plan can only consider compensation up to $360,000 per participant in 2026.1Internal Revenue Service. 2026 Amounts Relating to Retirement Plans and IRAs Earnings above that are ignored when the contribution is calculated.
Defined Benefit Keoghs
A defined benefit Keogh works like a private pension. Rather than capping what goes in, it caps what comes out. For 2026, the maximum annual benefit a participant can receive is $290,000.1Internal Revenue Service. 2026 Amounts Relating to Retirement Plans and IRAs An actuary calculates the yearly contribution needed to fund that benefit based on your age, expected returns, and years until retirement. For someone in their mid-50s or older with high self-employment income, the required deposit can be well over $100,000 a year. The cost is real: actuarial certification runs several thousand dollars annually, and you must fund the required amount every year regardless of how the business does.
Catch-Up Contributions
If your Keogh allows elective deferrals, participants aged 50 and older can add another $8,000 in 2026. Under the SECURE 2.0 Act, participants who turn 60, 61, 62, or 63 during the year get a larger catch-up of $11,250.3Internal Revenue Service. 401(k) Limit Increases to $24,500 for 2026, IRA Limit Increases to $7,500 Those amounts sit on top of the $72,000 ceiling, so a 62-year-old could shelter over $83,000 in a single year.
Where the Deduction Goes on Your Return
Your own Keogh contribution is deducted on Form 1040, Schedule 1, on the line for self-employed retirement plans. It is not a Schedule C business expense. The IRS is explicit: if you mistakenly put your own contribution on Schedule C, you need to amend the return.4Internal Revenue Service. Self-Employed Individuals – Calculating Your Own Retirement Plan Contribution and Deduction The placement matters because Schedule 1 adjustments reduce adjusted gross income directly, which then affects other tax breaks that phase out at higher income.
Contributions made on behalf of eligible employees are different. Those are a genuine business expense, reported on Schedule C or the partnership return, and they reduce your self-employment tax base.
Your own Keogh contribution does not. Self-employment tax is calculated on Schedule SE using net earnings before the retirement plan deduction. The contribution lowers your income tax only.
Deadlines That Control the Deduction
To claim a Keogh deduction for a tax year, the plan must be formally adopted by December 31 of that year. This is stricter than the SEP IRA rule, which lets you establish and fund the plan as late as your tax return due date.5Internal Revenue Service. Retirement Plans for Self-Employed People If it’s already March and you haven’t signed a plan document for the prior year, a Keogh for that year is off the table.
Adoption means signing a written plan document, usually a pre-approved prototype from a bank or brokerage, or a custom document drafted by a benefits attorney. Funding is more forgiving. You can deposit the money any time up to the due date of your return, including extensions, which for most sole proprietors means as late as October 15 of the following year.
Who Can Take the Deduction
Keogh plans are available to anyone with self-employment income from a trade or business: sole proprietors, partners, and independent contractors. The IRS historically called these HR-10 plans and now notes that the term “Keogh” is seldom used because the tax code no longer separates corporate and non-corporate plan sponsors, though financial institutions and tax professionals still use the name freely.5Internal Revenue Service. Retirement Plans for Self-Employed People
The deduction is tied to earned income from the business that sponsors the plan. Wages from a separate full-time job at someone else’s company don’t count toward the contribution base.
If your business has employees, you cannot limit the plan to yourself. Any common-law employee who is at least 21 and has completed one year of service generally must be included, and you must contribute for them at the same percentage rate you use for yourself.6Internal Revenue Service. Retirement Topics – Eligibility and Participation Skipping that step violates the nondiscrimination rules and can disqualify the entire plan, wiping out the deduction along with it.
What Happens to the Deduction Later
The Keogh deduction is a deferral, not a permanent exclusion. Every dollar you eventually withdraw is taxed as ordinary income at your marginal rate for the year of the distribution. There is no capital gains treatment on the way out, regardless of how the money was invested inside the plan.
Distributions taken before age 59½ are hit with an additional 10% early withdrawal tax on top of ordinary income tax.7Internal Revenue Service. Topic No. 558 – Additional Tax on Early Distributions From Retirement Plans Other Than IRAs The IRS recognizes several exceptions, including total and permanent disability and a series of substantially equal periodic payments.8Internal Revenue Service. Retirement Topics – Exceptions to Tax on Early Distributions
You can’t leave the money there forever, either. Once you reach the applicable age, required minimum distributions begin. Under the SECURE 2.0 Act, that age is 73 if you were born between 1951 and 1959, and 75 if you were born in 1960 or later.9Congressional Research Service. Required Minimum Distribution (RMD) Rules for Original Owners The first RMD is due by April 1 of the year after you reach the applicable age; every subsequent RMD is due by December 31.10Internal Revenue Service. Retirement Plan and IRA Required Minimum Distributions FAQs Missing an RMD triggers a 25% excise tax on the shortfall, dropping to 10% if you correct the mistake within two years.11Office of the Law Revision Counsel. 26 USC 4974 – Excise Tax on Certain Accumulations in Qualified Retirement Plans
If you want the Keogh deduction now but expect to leave the business or move to a simpler plan later, the balance can be rolled to a traditional IRA or another qualified plan without immediate tax, provided you use a direct trustee-to-trustee transfer.12Internal Revenue Service. Rollover Chart The deferred taxes travel with the money.