Solo 401(k) vs. SEP IRA for Physicians

Locum, private-practice, and moonlighting physicians can shelter substantial 1099 income in a retirement plan. Here's how the Solo 401(k) and SEP IRA compare in 2026 — and why picking the wrong one can quietly break your backdoor Roth.

By Devin Talbot, MBA | Artham Advisors | July 2026

Quick Answer: For most self-employed physicians with no employees, the Solo 401(k) wins — it allows roughly $24,500 more per year in tax-deferred contributions than a SEP IRA, adds a Roth option and catch-up contributions, and avoids the pro-rata rule that can wreck a backdoor Roth conversion. The SEP IRA's edge is flexibility: it can be opened and funded as late as your extended tax filing deadline, which matters if you're setting up a plan after the calendar year has already closed.

This comparison applies to any physician with self-employment income — alone or on top of a hospital salary. That includes locum tenens physicians receiving 1099 income, private-practice physicians operating as a sole proprietor or S-corp, hospital-employed physicians with consulting or expert-witness income, and residents or fellows moonlighting on the side. If any of that applies to you, a Solo 401(k) or SEP IRA can shelter a meaningful slice of it from current-year taxes.

What Is a Solo 401(k)?

A Solo 401(k) — also called a one-participant or individual 401(k) — is a 401(k) built for self-employed individuals with no common-law employees other than a spouse. It's the only self-employed plan that allows both an employee elective deferral and an employer profit-sharing contribution, which is why it typically beats a SEP IRA at the same income level.

EMPLOYEE DEFERRAL: Up to $24,500 (shared across all 401(k)/403(b)/SIMPLE plans)

EMPLOYER PROFIT-SHARING: Up to 25% of W-2 comp, or ~20% of net SE income

TOTAL MAXIMUM: $72,000 (compensation capped at $360,000)

CATCH-UP: +$8,000 at 50+ ($80,000 total); +$11,250 at 60–63 ($83,250 total)

ROTH OPTION: Often available, depending on provider

FILING: Form 5500-EZ once plan assets exceed $250,000

Hiring anyone — even part-time — can trigger coverage requirements under SECURE 2.0's long-term part-time employee rules and may end your eligibility. Review plan eligibility with an advisor before adding staff. A spouse who does real work in the business for reasonable pay can also defer and receive employer contributions, potentially doubling household savings.

What Is a SEP IRA?

A SEP IRA (Simplified Employee Pension) is an employer-funded account valued mainly for its simplicity: easy to open, no annual filing, flexible funding each year.

CONTRIBUTION TYPE: Employer only — no employee deferral

CONTRIBUTION LIMIT: Up to 25% of W-2 comp or ~20% of net SE income, capped at $72,000

CATCH-UP: None — $72,000 is a hard ceiling regardless of age

ROTH OPTION: None — all contributions are pre-tax

DEADLINE: Can be opened and funded up to your tax filing deadline, including extensions

If you have employees, contributions must be made at the same percentage for every eligible employee — generally anyone 21+, who worked 3 of the last 5 years, and earned at least $800 in 2026. That can pull in part-time staff earlier than expected and meaningfully raise plan cost.

*Under SECURE 2.0, a sole proprietor establishing a first-time plan can retroactively set it up and make the employee deferral up to the original (unextended) tax filing deadline. See "Setup Deadlines" below.

Side-by-Side: How the Two Plans Compare

Feature	Solo 401(k)	SEP IRA
Early 40s	~$75K–$125K+	$72,000
Setup Deadline	Dec 31 (deferral)*	Tax filing deadline + extensions
Backdoor Roth Impact	✓ Excluded from pro-rata	✗ Included — complicates it
Employees Permitted	Owner + spouse only	Yes — must cover eligible staff
Loans	May be permitted	✗ No
Roth Option	✓ Often (plan-specific)	✗ No
Ages 60–63 Super Catch-Up	+$11,250 → $83,250	Not permitted
Age 50+ Catch-Up	+$8,000 → $80,000	Not permitted
2026 Total Maximum	$72,000	$72,000
2026 Employer / Profit-Sharing	25% W-2 / ~20% net SE	25% W-2 / ~20% net SE
2026 Employee Deferral	Up to $24,500 (shared limit)	$0 — none

Already Max Your Hospital 403(b)? Read This First

The $24,500 employee deferral is a per-person limit across every 401(k), 403(b), and SIMPLE plan you touch — not a separate limit per employer. If you already max your hospital plan's deferral, you generally can't stack another $24,500 into your Solo 401(k) the same year. Employer profit-sharing, though, is calculated independently for each business — your hospital plan and your Solo 401(k) can each reach employer contributions on their own.

Your Situation	Solo 401(k) Advantage Over SEP IRA
W-2 — hospital plan already maxed	Similar $ amount; Solo 401(k) still preferred for backdoor Roth and Roth option
W-2 — hospital plan not yet maxed	Equal to unused deferral capacity (up to $24,500)
Pure 1099 — no other workplace plan	Often up to ~$24,500 more per year

The Backdoor Roth Problem: Why a SEP IRA Complicates Things

Physicians who earn too much for a direct Roth IRA contribution — the 2026 phase-out begins at $153,000 single and $242,000 married filing jointly — typically use the backdoor Roth: a non-deductible traditional IRA contribution, immediately converted to Roth.

The IRS pro-rata rule treats all of your pre-tax IRA balances — including SEP IRA balances — as one pool when calculating the taxable portion of any conversion.

Example: A physician has $200,000 in a SEP IRA and makes a $7,500 non-deductible traditional IRA contribution. Converting that $7,500, only 3.6% ($7,500 ÷ $207,500) is tax-free — the other 96.4% is taxable, effectively eliminating the backdoor Roth benefit.

Solo 401(k) assets are excluded from the pro-rata calculation, so a physician with a Solo 401(k) and no other pre-tax IRA balances can generally execute a clean backdoor Roth. Already have a SEP IRA? You can often roll it into a Solo 401(k) to zero out the balance before converting — a common, IRS-permissible move, though not every provider accepts incoming rollovers.

Two Traps to Know Before You Choose

Setup Deadlines: Where the SEP IRA Has an Edge:

A SEP IRA can be opened and funded for a prior tax year up to your filing deadline including extensions — often October 15. A Solo 401(k) generally needs the plan established and the deferral election made by December 31, though sole proprietors setting up a first-time plan can retroactively establish it and make that year's deferral up to the original, unextended filing deadline under SECURE 2.0. If you realize in March that you had 1099 income last year with no plan in place, the SEP IRA is often your only option.

The S-Corp Salary Trap:

For S-corp owners, employer contributions to either plan are based on W-2 wages — not total distributions. A physician taking a $100,000 salary and $200,000 in distributions can only base contributions on $100,000, capping the employer contribution at $25,000 regardless of the $300,000 the business actually earned. Coordinate your "reasonable compensation" salary level with a CPA who works with physician practices — don't set it in isolation.

Which Plan Is Right for You?

✓ Choose the Solo 401(k) if…

No common-law employees other than a spouse

You have employee deferral capacity remaining

You want a Roth option or are 50+ for catch-ups

You do — or plan to do — backdoor Roth conversions

You operate as an S-corp and want to coordinate salary and contributions

✗ Does Not Qualify

You missed the Dec. 31 deadline and need to shelter last year's 1099 income

You want the simplest setup with no annual filing

Your SE income is modest, variable, or you're in year one

You have eligible employees and want a simple employer plan

Bottom Line

For most self-employed physicians with no employees who plan ahead of year-end, the Solo 401(k) is the stronger long-term tool — higher contributions at most income levels, a Roth option, catch-up contributions after 50, and no backdoor Roth complication. For hospital-employed physicians with side 1099 income who already max their 403(b), the dollar advantage shrinks to remaining deferral capacity — but the Solo 401(k) can still be the right call for backdoor Roth and flexibility.

The SEP IRA isn't a bad plan — it's a simpler one, best suited to physicians who need setup-timing flexibility, minimal administration, or a low-friction start in their first year of 1099 income. The right answer depends on your full financial picture, not just the contribution ceiling.

Have 1099 income and not sure which plan to set up?

Artham Advisors helps self-employed physicians maximize retirement contributions and structure their self-employment income efficiently. No commissions. No account minimums. Just a straightforward plan.

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Backdoor Roth IRA Guide | Tax Strategies for Physicians | Retirement Planning

Frequently Asked Questions

A Solo 401(k) allows both an employee elective deferral (up to $24,500 in 2026) and an employer profit-sharing contribution, plus catch-up contributions after age 50 and a Roth option. A SEP IRA allows only an employer contribution — up to 25% of W-2 compensation or roughly 20% of net self-employment income, capped at $72,000 — with no employee deferral, no catch-up, and no Roth option. Both plans share the same $72,000 total ceiling for 2026, but the Solo 401(k) typically gets there with less income because of the added employee deferral.
For most self-employed physicians earning under roughly $360,000 in net self-employment income with their full employee deferral available, a Solo 401(k) allows about $24,500 more per year in total tax-deferred contributions than a SEP IRA. Over a 10-year career at a 7% return, that difference compounds to roughly $340,000 in additional wealth.
Not the employee deferral portion. The $24,500 employee elective deferral limit for 2026 is a per-person limit shared across all 401(k), 403(b), and SIMPLE plans — it is not a separate limit per employer. If you already max your hospital plan's employee deferral, you generally cannot make an additional employee deferral into your Solo 401(k) in the same year. However, employer profit-sharing contributions and the IRS Section 415 annual additions limit are calculated separately for each employer, so your hospital plan and your Solo 401(k) can each reach employer contributions independently.
The IRS pro-rata rule treats all of your pre-tax IRA balances — traditional, SEP, and SIMPLE — as a single pool when you convert any portion to a Roth IRA. A physician with $200,000 in a SEP IRA who makes a $7,500 non-deductible traditional IRA contribution and converts it will find only about 3.6% of that conversion is tax-free; the rest is taxable. Solo 401(k) balances are not included in this calculation, which is why physicians who do backdoor Roth conversions generally prefer the Solo 401(k), or roll an existing SEP IRA into a Solo 401(k) before converting.
A SEP IRA can be opened and funded for a prior tax year up to your tax filing deadline, including extensions — often as late as October 15 of the following year. A Solo 401(k) generally must be established by December 31 to make an employee deferral for that year, though under SECURE 2.0, a sole proprietor or single-member LLC setting up a plan for the first time can retroactively establish it and make the employee deferral up until the original, unextended tax filing deadline. Employer profit-sharing contributions to an already-established Solo 401(k) can be made until the tax filing deadline including extensions.
For physicians who operate as an S-corp, employer retirement contributions to either plan are based only on W-2 wages paid by the S-corp — not on total owner distributions or business income. A physician taking a $100,000 W-2 salary and $200,000 in distributions can only base employer contributions on the $100,000, capping the employer contribution at $25,000 (25% of W-2 wages), even though the business earned $300,000. Physicians should coordinate their W-2 salary level with a CPA to balance reasonable-compensation rules against their retirement contribution goals.
Yes, in specific situations: if you missed the Solo 401(k) setup deadline and need to shelter last year's 1099 income retroactively, if you want the simplest possible plan with no annual filing requirements, if your self-employment income is modest or irregular, if you have eligible employees and want a simple employer-funded plan, or if you're in your first year of self-employment and need a low-friction starting point.