Solo 401(k) for Medical Practice Owners: The Complete Guide

By Brian Giesecke, CPA/EA | Giesecke Advisory

SEP-IRA... Solo 401(k)... Cash Balance Plan... Defined Benefit...

There are a lot of retirement plan options for practice owners. And picking the wrong one can cost you tens of thousands of dollars in missed tax savings.

Today I want to go deep on one plan in particular — the Solo 401(k). Because for solo practitioners, it might be the single most underutilized retirement vehicle out there.

Why Most Solo Practitioners End Up With a SEP

Here's what usually happens.

You start your practice. You ask your accountant about retirement plans. They say "just open a SEP-IRA." It's quick. It's easy. You move on.

And the SEP is fine... for a while. It's simple to set up, no annual filings, flexible contributions.

But at some point, you're leaving serious money on the table. The SEP's contribution structure has a ceiling that kicks in earlier than most people realize. And you're missing features — like a Roth option and loan provisions — that could make a real difference.

The Solo 401(k) fixes all of this. And it's not nearly as complicated as people assume.

Who Qualifies for a Solo 401(k)?

A Solo 401(k) — also called an Individual 401(k) — is designed for self-employed individuals with no full-time employees other than themselves and their spouse.

If you run a practice and you're the only provider... you likely qualify.

If you have part-time staff who work fewer than 1,000 hours per year... you still qualify.

If you have full-time W-2 employees... you don't qualify. You'd need a traditional 401(k) with all the testing, compliance, and administrative overhead that comes with it.

This is the key requirement. Everything else flows from it.

The Dual Contribution Structure: Where It Really Shines

This is the part that surprises people. With a Solo 401(k), you contribute in two separate capacities — as both the employee and the employer.

Employee contribution (elective deferral): Up to $23,000 in 2024. If you're 50 or older, add another $7,500 for a catch-up contribution, bringing you to $30,500.

Employer contribution (profit sharing): Up to 25% of your W-2 wages if you're an S-corp. Or roughly 20% of net self-employment income if you're a sole proprietorship or partnership.

Combined maximum: $69,000 per year. Or $76,500 if you're 50+.

That dual structure is what makes the Solo 401(k) so powerful — especially at moderate income levels where SEP contributions feel limited.

Solo 401(k) vs SEP-IRA: A Side-by-Side Comparison

Let's make this concrete. Say you're an S-corp paying yourself $100,000 in W-2 wages.

With a SEP-IRA:

• Employer contribution only: 25% of $100,000 = $25,000
• Total: $25,000

With a Solo 401(k):

• Employee deferral: $23,000
• Employer contribution: 25% of $100,000 = $25,000
• Total: $48,000

Same income. Nearly double the contribution.

At $150,000 in W-2 wages:

• SEP: $37,500
• Solo 401(k): $23,000 + $37,500 = $60,500

At $200,000 in W-2 wages:

• SEP: $50,000
• Solo 401(k): $23,000 + $50,000 = $69,000 (hits the combined cap)

The gap narrows as income increases — but at the income levels where most solo practitioners operate, the Solo 401(k) contribution limit is meaningfully higher.

| Feature | SEP-IRA | Solo 401(k) | |---|---|---| | Max contribution (2024) | $69,000 | $69,000 ($76,500 w/ catch-up) | | Contribution at $100K income | $25,000 | $48,000 | | Contribution at $150K income | $37,500 | $60,500 | | Roth option | No | Yes | | Loan provision | No | Yes | | Setup deadline | Tax filing deadline | December 31 | | Annual filing | None | Form 5500-EZ (over $250K) | | Employee eligibility issue | Must contribute same % for employees | Solo/spouse only |

The Roth Option: Tax-Free Growth

This is a big differentiator that often gets overlooked.

With a Solo 401(k), your employee contributions can go into a designated Roth account. You pay taxes on that money now... but the growth is tax-free. Forever.

SEP-IRAs don't have a Roth option at all.

Why does this matter? If you expect your income to be higher in retirement — or if you think tax rates are going up — having Roth money is incredibly valuable.

Many of my clients do a split approach: employer contributions go pre-tax (immediate deduction today), employee contributions go Roth (tax-free growth for the future).

Best of both worlds.

And unlike a Roth IRA, there are no income limits on Roth contributions inside a Solo 401(k). You could be making $500,000 and still contribute $23,000 to Roth. That's a planning opportunity that high earners can't get anywhere else without a backdoor strategy.

The Loan Provision: Borrowing From Yourself

Solo 401(k)s allow you to take a loan from your own plan.

The rules: you can borrow up to 50% of your account balance or $50,000, whichever is less. You pay yourself back with interest over a set repayment schedule — typically five years.

Why would you use this?

Maybe you need capital for the practice but don't want to go through a bank. Maybe there's an unexpected expense. Maybe you see an opportunity that requires quick cash.

You're essentially borrowing from yourself and paying yourself back with interest. No credit check. No bank approval process.

Not everyone uses this feature. But it's nice to know it's there. SEP-IRAs don't allow loans at all. If you need that money, you're looking at a taxable distribution plus a 10% early withdrawal penalty if you're under 59 1/2.

Setting Up a Solo 401(k): Easier Than You Think

Here's the part that stops people. They assume it's complicated. It's not.

Most major custodians — Fidelity, Schwab, Vanguard — offer free Solo 401(k) plans. You fill out some paperwork, choose your investments, and you're up and running.

The critical deadline: Your plan must be established by December 31st of the year you want to contribute for.

This is different from a SEP-IRA, which you can set up as late as your tax filing deadline (including extensions). With a Solo 401(k), the plan has to exist by year-end. You can make your actual contributions later — up to your tax deadline — but the plan itself has to be in place.

If you're reading this in November and thinking about contributing for this year... act now.

Ongoing maintenance is minimal. No annual filing is required until your plan assets exceed $250,000. At that point, you file IRS Form 5500-EZ — a straightforward, one-page form.

One thing to plan for: if you hire full-time employees down the road, you'll need to convert to a traditional 401(k) or terminate the Solo plan. Keep this in mind if you're planning to grow your team.

When Solo 401(k) Is the Clear Winner

The Solo 401(k) isn't always the answer. But it's the right answer more often than most people realize.

You're solo or spouse-only. No full-time W-2 employees. This is the qualifying condition — everything else is secondary.

You want higher contributions than a SEP allows. Especially if your income is in the $100,000-$250,000 range, the dual contribution structure makes a meaningful difference.

You want Roth flexibility. If building a tax-free bucket matters to your long-term plan, this is the easiest way to do it at scale.

You want the option to borrow. The loan provision adds flexibility that other self-employed retirement plans simply don't offer.

You're not trying to shelter $150,000+. If your goal is contributing $100,000, $200,000, or more per year, you need a Cash Balance Plan or Defined Benefit Plan — potentially layered on top of a 401(k). The Solo 401(k) caps out around $69,000-$76,500.

When to Look Beyond the Solo 401(k)

The Solo 401(k) has limits. And for high earners, those limits matter.

If you're consistently making $300,000+ in profit and want to shelter as much as possible, a Cash Balance Plan combined with a Solo 401(k) can get you to $200,000-$300,000+ in annual contributions. The exact amount depends on your age — older owners can contribute more because of how the actuarial calculations work.

But for most solo practitioners in the $100,000-$300,000 profit range... the Solo 401(k) is the sweet spot. Maximum flexibility. Minimal complexity. Real tax savings.

A Quick Example

A physician I work with — solo practice, age 45, S-corp paying herself $130,000 in W-2 wages, total profit around $220,000.

She'd had a SEP-IRA for years. Annual contribution: $32,500 (25% of wages).

We switched to a Solo 401(k).

New contribution: $23,000 (employee deferral) + $32,500 (employer, 25% of wages) = $55,500.

Of that $23,000 employee portion, she chose to put it in the Roth account. Tax-free growth from here on out.

Additional tax savings from the higher pre-tax contribution alone: roughly $8,000 per year. Over a decade, that's $80,000 — plus compounding investment growth on money that would have otherwise gone to taxes.

And she has the loan provision as a safety net if something comes up with the practice.

Same complexity. Better outcome.

Your Next Step

Here's the question worth sitting with...

Do you have a retirement plan right now? If it's a SEP, have you ever compared it to a Solo 401(k)?

For most solo practitioners, the Solo 401(k) is the better choice. But a lot of people end up with a SEP just because it was the first thing their accountant mentioned.

If you're thinking about making a switch, remember: the plan needs to be established by December 31st. Contributions can wait until your tax deadline, but the plan itself can't.

Start there. Open it. Fund it. And if you want to see exactly how the numbers compare for your situation, the breakdown is in the Tax Planning Checklist.