What Was Form 1040-SB and What Should You Use Now?

Form 1040-SB is an obsolete Internal Revenue Service (IRS) document that is no longer used. It was the application submitted to the IRS to request an official approval, known as a determination letter, for a Keogh retirement plan. This approval ensured the plan complied with the tax code, allowing for tax-deductible contributions. The form and the approval process it represented have since been replaced by more streamlined methods for establishing modern retirement plans.

Understanding Keogh Plans

Keogh plans, also known as H.R. 10 plans, were retirement savings vehicles for self-employed individuals and unincorporated businesses like sole proprietorships and partnerships. To be eligible, an individual had to have self-employment income from a business they owned or co-owned. This structure provided a way for business owners who were not incorporated to set up retirement plans with tax advantages similar to those offered by corporate-sponsored plans.

These plans fell into two main categories. The first was the defined-contribution plan, where contributions were made to an individual’s account, but the final retirement benefit was not predetermined. Examples included profit-sharing plans, with flexible annual contributions from business profits, and money purchase pension plans, which required a fixed percentage contribution annually. The second category was the defined-benefit plan, which provided a specific, predetermined monthly benefit to the retiree based on formulas that considered salary and years of service.

Modern Options for Self-Employed Retirement Plans

Several modern retirement plans have replaced the traditional Keogh, offering simpler administration and flexible contribution options. The Simplified Employee Pension, or SEP IRA, is an option for freelancers and business owners with few or no employees. With a SEP IRA, only the employer (which can be the self-employed individual) makes contributions of up to 25% of compensation, not to exceed $70,000 for 2025. This plan has a low administrative burden and the flexibility to decide how much to contribute each year.

Another option is the Savings Incentive Match Plan for Employees, or SIMPLE IRA. This plan is for small businesses with 100 or fewer employees and allows both employee and employer contributions. For 2025, employees can contribute up to $16,500. Those age 50 and over can make an additional catch-up contribution of $3,500, while participants aged 60 through 63 can contribute an even higher catch-up amount of $5,250. Employers are required to make either a matching contribution or a non-elective contribution for participating employees.

The Solo 401(k) is for self-employed individuals with no employees other than a spouse. It features a dual contribution structure, which allows the individual to contribute as both the “employee” and the “employer.” As the employee, they can contribute up to $23,500 in 2025. If age 50 or over, they can also make a catch-up contribution of $7,500, which increases to $11,250 for those aged 60 through 63. As the employer, they can contribute an additional amount up to 25% of their compensation, with the total combined contributions capped at $70,000 for 2025.

Establishing a Modern Plan

The process for setting up a modern self-employed retirement plan is simpler than the formal application that Form 1040-SB represented. A business owner adopts a prototype plan document provided by a financial institution like a bank, brokerage, or mutual fund company. This is done by completing a simple agreement, such as the IRS model Form 5305-SEP. This form is a written agreement that establishes the plan’s terms and is kept for the business’s records; it is not filed with the IRS.

The use of IRS-approved model forms like the 5305-SEP provides assurance that the plan document meets tax law requirements without a lengthy review process. For more complex or customized plans, such as an individually designed Solo 401(k), a formal IRS approval process still exists. In these cases, the modern equivalent of the old application process involves filing a request for a determination letter using the Form 5300 series. This process is for non-standard plans that do not use a pre-approved prototype document.