If you're earning 1099 income, you likely aren't spoiled for choice in the retirement savings department.
When it comes to earnings made from self-employment, which could be anything from locum tenens on weekends, to a private practice you built from scratch, the IRS offers two powerful retirement accounts: the Solo 401(k) and the SEP-IRA.
But which one actually belongs in your financial plan?
From the outside, they look pretty similar. Both let you stow away up to $72,000 in 2026. Both are tax-deferred. Both are designed for self-employed people. But the similarities end there, and if you're a physician in a high tax bracket (which, I mean, of course you are), the differences between them are worth tens of thousands of dollars over a career.
Let's break it down.
Key Takeaways
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In case you missed it: Backdoor Roth IRA 2026 A Step by Step Guide with Vanguard
What You're Actually Choosing Between
The SEP-IRA (Simplified Employee Pension) and the Solo 401(k) are both qualified retirement plans built for self-employed individuals and small business owners. But they aren't the same thing dressed up in different clothes.
The SEP-IRA is an employer-only plan. The IRS is clear about this: only the employer contributes, and that contribution is capped at 25% of compensation (or 20% of net self-employment income for sole proprietors) up to a maximum of $72,000 for 2026.
The Solo 401(k), aka the one-participant 401(k), individual 401(k), or uni-k, is designed for self-employed individuals with no full-time W-2 employees other than a spouse. Unlike the SEP-IRA, it lets you wear two hats, employee and employer. You contribute in both capacities. This distinction is substantial.
The Limits For 2026
Before anything else, let's put the current IRS limits on the table.
| Solo 401(k) | SEP-IRA |
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There you have it. What seems similar is passing is actually wildly different in practice.
Also read: Flexible Work, Financial Independence: Transform Your Career with Locum Tenens
The Contribution Gap
Both plans technically have a $72,000 ceiling, so it seems like a wash. But as you just saw, the minutiae early tip the scales in favor of one over the other.
The SEP-IRA is entirely income-dependent. To max it out, you need to earn enough for 25% of your compensation to hit $72,000, which amounts to roughly $288,000 in qualifying self-employment income. If you're bringing in $150,000 from locum work or a side practice, your SEP-IRA ceiling is $30,000. That's all.
However, with a Solo 401(k) at that same $150,000 income level you can contribute $24,500 as the employee plus $37,500 as the employer (25% of compensation), for a total of $62,000.
That's $32,000 more in tax-deferred savings in a single year, which is a meaningful number when you're in the 32% or 37% federal bracket.
The break-even point where both plans allow the same total contribution is somewhere around $232,000 in self-employment income, depending on how compensation is calculated for your business structure. Below that, the Solo 401(k) wins by a large margin.
| Net Self-Employment Income | SEP-IRA Max | Solo 401(k) Max (Under age 50) |
| $50,000 | $10,000 | $34,500 |
| $100,000 | $20,000 | $44,500 |
| $150,000 | $30,000 | $62,000 |
| $200,000 | $40,000 | $64,500 |
| $288,000+ | $72,000 | $72,000 |
Note: These are simplified calculations for illustrative purposes; consult a CPA for your specific business structure.
The Catch-Up Advantage at 50+
It's no secret that physicians take longer to hop on the wealth express than most other professionals. Medical school, residency, fellowship…by the time you're an attending and actually building net worth, your peers in other fields have had a decade of compounding on their side.
Catch-up contributions exist partly to address this, and the Solo 401(k) takes full advantage.
If you're 50 or older, you can contribute an extra $8,000 on top of the standard $24,500 employee deferral — that's $32,500 just in employee contributions before the employer portion is added.
Once you're in the 60–63 window, SECURE 2.0 bumps that catch-up to $11,250.
The SEP-IRA offers exactly zero in catch-up contributions. At any age.
For a 55-year-old hospitalist picking up locum shifts at $200,000 per year, the difference is striking. $48,500 in the SEP-IRA versus $78,500 in the Solo 401(k) (when including the $8,000 catch-up plus employer match). At a 37% marginal rate, that extra $30,000 of deferrals translates to $11,100 in immediate federal tax savings.
Why The Roth Option Is Especially Valuable for Physicians
A Solo 401(k) can be set up to accept Roth contributions. The SEP-IRA, for all practical purposes, cannot.
The SECURE 2.0 Act technically created a Roth SEP option, but most custodians haven't implemented it, and the mechanics remain…awkward.
For 2026, if you want Roth in your self-employment retirement account, you want a Solo 401(k).
Why does Roth matter to physicians specifically? Because you're almost certainly going to be in a high tax bracket throughout your peak earning years.
The standard calculus of contributing pre-tax now, pay tax later when you're in a lower bracket, doesn't always hold for physicians who maintain high incomes well into their 60s, or who expect ordinary income in retirement from taxable accounts, rental properties, or part-time clinical work.
Roth contributions mean you pay the tax today, and everything that grows inside the account (including decades of delicious compounding) comes out completely tax-free in retirement.
Add in no required minimum distributions on Roth 401(k) balances (under current law), no tax bite on withdrawals, and you can have your cake and eat it too. It's a powerful hedge against future rate uncertainty.
As the employee, you can designate up to $24,500 ($32,500 at 50–59 or 64+, $35,750 at 60–63) toward the Roth side of your Solo 401(k). The employer profit-sharing portion has to be pre-tax, but that's still an enormous pool of tax-free growth potential.
A Seldom Mentioned Backdoor Roth Hitch
Could the SEP-IRA actively damage your tax strategy, rather than just limiting it? Yes.
Most attending physicians earn above $168,000 as a single filer or $252,000 married filing jointly, which are the 2026 thresholds above which you can't contribute directly to a Roth IRA.
The workaround is the backdoor Roth, wherein you can contribute $7,500 to a traditional IRA (non-deductible), then immediately convert it to a Roth IRA. Clean, simple, legal.
Learn more: Backdoor Roth vs Taxable Investing for High Earners
Not if you have a SEP-IRA. The IRS's pro-rata rule treats all of your traditional IRAs, SEP-IRAs, and SIMPLE IRAs as a single aggregated account when calculating the taxable portion of a Roth conversion.
If you have $150,000 sitting in a SEP-IRA and try to do a $7,500 backdoor Roth, roughly 95% of that conversion is taxable. You've just turned a tax-free maneuver into a tax bill. And that backdoor is effectively bricked.
A Solo 401(k) has no such problem. The IRS excludes 401(k) balances from the pro-rata calculation entirely. Your Solo 401(k) sits in its own world, untouched by the backdoor Roth complications.
You can run both strategies simultaneously (maxing out your Solo 401(k) and executing a clean backdoor Roth every year) without any interference between the two.
Some physicians use the Solo 401(k) as a vehicle to escape an existing SEP-IRA problem: roll the SEP-IRA balance into the Solo 401(k), zero out the IRA balance, and the pro-rata issue disappears.
That's a legitimate move, and it's one reason some physicians who originally opened a SEP-IRA eventually transition to a Solo 401(k).
The takeaway here is that if you're doing (or ever plan to do) backdoor Roth conversions, a SEP-IRA is a liability. A Solo 401(k) is not.
Also read: The Pro-Rata Rule Explained for Doctors
Loans: The Option You Hope You Never Need
In addition to all its other benefits, a Solo 401(k) allows you to borrow against your balance: the lesser of $50,000 or 50% of the vested account value.
You repay the loan at a modest interest rate (typically prime rate plus 1–2%), and the interest goes back into your own account rather than to a bank.
The SEP-IRA has no loan provision. And any early distribution from a SEP-IRA before age 59½ triggers a 10% penalty on top of ordinary income tax.
For self-employed physicians navigating lumpy cash flow in the instance of a slow quarter, large equipment purchase, or a gap between contracts, the loan provision provides a port in the storm. It's a way to access liquidity without permanently damaging your retirement savings or triggering a tax event.
The Administrative Reality
The SEP-IRA wins on simplicity. You fill out a brief IRS Form 5305-SEP to establish it. Contributions are reported on Form 5498. No annual filing required with the IRS unless your plan has unusual features. You can open one at virtually any brokerage in about 20 minutes.
The Solo 401(k) requires more paperwork up front — plan documents, an Employer Identification Number (EIN), and designation of investment options. Once the plan's assets cross $250,000, you're required to file Form 5500-EZ annually with the IRS. While not onerous, it's actual work, and it's something to track.
That said, modern brokerage providers have simplified this considerably. Fidelity, Vanguard, and Charles Schwab all offer Solo 401(k) plans with streamlined setups.
Third-party administrators handle the Form 5500-EZ prep for a modest fee if you'd rather not DIY it. The administrative advantage of the SEP-IRA is undeniable, but it's not as significant as it used to be.
One timing detail worth knowing is that to make employee deferrals to a Solo 401(k) for 2026, the plan must be established by December 31, 2026.
The employer profit-sharing contribution can be made up until your business's tax return deadline, including extensions. The SEP-IRA can be opened and funded up until your tax filing deadline (with extensions) — which gives it some flexibility for late planners.
How Your Business Structure Changes the Equation
Your legal entity matters more than most physicians realize.
Sole proprietor or single-member LLC
Employer contributions are calculated at 20% of net self-employment income (after the SE tax deduction), not 25%. This applies to both the SEP-IRA and the Solo 401(k)'s employer portion. The employee deferral portion of the Solo 401(k) is unaffected.
S-Corporation
If you're an S-corp owner paying yourself a W-2 salary, contributions are based on that salary, not total distributions.
The employer contribution is 25% of your W-2 wages. Physicians who keep W-2 wages relatively low to minimize payroll taxes may find their employer contribution capacity constrained. The Solo 401(k) employee deferral partially offsets this since it's calculated on the salary too, but structuring matters.
Partnership or multi-member LLC
Neither the SEP-IRA nor the Solo 401(k) is straightforward when there are multiple owners.
The SEP-IRA requires equal contribution percentages for all eligible employees/owners. A Solo 401(k) typically doesn't work for partners at all. At that point, you're probably looking at a SIMPLE IRA or a conventional 401(k) with a plan document designed for multiple participants.
When the SEP-IRA Actually Makes Sense
Not every physician is a Solo 401(k) candidate. There are some scenarios when the SEP-IRA actually takes the cake.
You have employees (other than a spouse)
The Solo 401(k) is strictly for single-owner businesses. The moment you have W-2 employees who aren't your spouse and who work more than 1,000 hours a year (or meet the SECURE 2.0 long-term part-time employee definition) they become eligible for your plan.
With a Solo 401(k), you'd have to convert to a conventional 401(k) or terminate the plan. With a SEP-IRA, you can continue, though you must now extend contributions to all eligible employees at the same percentage, which can be expensive.
Your income is high enough to hit $72,000 at 25%
If you're clearing $288,000+ in self-employment income, you max out the SEP-IRA at the same dollar amount as a Solo 401(k) (assuming you're under 50).
At that point, the simplicity advantage of the SEP-IRA becomes more relevant, unless you want the Roth option, the loan provision, or a clean path to backdoor Roth conversions.
You're setting up a plan last-minute
The SEP-IRA can be opened and funded up until the tax filing deadline plus extensions. If you're in late April and your accountant just reminded you that you have $80,000 in 1099 income from last year, a SEP-IRA is your only retroactive option.
The Solo 401(k) needed to be established by December 31 of the prior tax year for employee deferrals. You can still open and fund the employer portion retroactively, but you'd miss the deferral piece.
You genuinely want minimal overhead
Some physicians aren't interested in the administrative layer, even a light one. They want a simple account, a single annual contribution, and no forms to file. For this physician, especially under 50, earning well over $288,000, with no backdoor Roth concerns, the SEP-IRA does the job.
Also read: The Total Portfolio Approach That Made CalPERS Ditch $556 Billion in Old-School Investing
When the Solo 401(k) Works
For most self-employed physicians in 2026, this is the answer. Especially if:
You're not yet hitting $288,000 in self-employment income
This covers a large share of locum physicians, part-time practitioners, consultants, and early-career practice owners. Below that income threshold, the Solo 401(k) lets you contribute significantly more in the same tax year.
You're 50 or older
Catch-up contributions can add $8,000 to $11,250 per year on top of the standard limits. The SEP-IRA has no equivalent.
You're doing backdoor Roth conversions
Or you plan to. A SEP-IRA balance will complicate or kill your backdoor Roth strategy. The Solo 401(k) won't.
You want Roth exposure
By designating all or part of your employee deferrals as Roth contributions, you can tap into tax-free growth, no RMDs on the Roth balance, and maximum flexibility in retirement income planning.
You want liquidity as a fallback
The $50,000 loan provision shouldn't be a deciding factor to open a Solo 401(k), but it's a feature that has real value if you ever need it.
In case you missed it: How to Avoid These 6 Costly Roth Conversion Mistakes
The Full Comparison Table for 2026
Here's a handy TL;DR table to help you make your choice:
| Feature | Solo 401(k) | SEP-IRA |
| 2026 max (under 50) | $72,000 | $72,000 |
| 2026 max (age 50–59, 64+) | $80,000 | $72,000 |
| 2026 max (age 60–63) | $83,250 | $72,000 |
| Employee deferrals | Yes, up to $24,500 | No |
| Employer contributions | Yes, up to 25% of compensation | Yes, up to 25% (20% sole prop) |
| Catch-up contributions | Yes | No |
| Roth option | Yes (employee portion) | Technically yes; practically no |
| Loan provision | Yes, up to $50,000 | No |
| Backdoor Roth compatible | Yes | No — triggers pro-rata rule |
| Annual IRS filing | Form 5500-EZ if assets > $250K | None required |
| Eligible employees | Owner + spouse only | All eligible employees |
| Setup deadline (employee deferrals) | December 31 of the plan year | Tax filing deadline + extensions |
| Setup deadline (employer contributions) | Tax filing deadline + extensions | Tax filing deadline + extensions |
| Best suited for | Most self-employed physicians | High earners (>$288K), last-minute setup, minimal overhead preference |
The SECURE 2.0 Wrinkle: Mandatory Roth Catch-Up for High Earners
At the beginning of 2026, SECURE 2.0's Section 603 kicked in. If you earned more than $150,000 in FICA wages in 2025, your catch-up contributions to a 401(k) must now be made on a Roth (after-tax) basis.
This applies to Solo 401(k) plans too, though the mechanics for self-employed individuals using Schedule C income rather than W-2 wages aren't fully settled in all plan documents.
If you're a self-employed physician paying yourself a W-2 salary through an S-corp and you earned above $145,000 in FICA wages in 2025, work with your plan administrator and CPA now — before you make catch-up contributions — to confirm whether your plan documents have been updated to comply.
There's an important carve-out for many self-employed physicians: the mandate is triggered by FICA wages specifically.
If you operate as a sole proprietor or single-member LLC and file on Schedule C — meaning you have no W-2 salary from your business — you have no FICA wages from the plan sponsor and are not subject to the Roth-only requirement.
You can make catch-up contributions on either a pre-tax or Roth basis at your discretion. The mandate primarily affects physicians paying themselves a W-2 salary through an S-corp who exceed the $150,000 threshold.
If that's your structure, confirm with your plan administrator and CPA before making catch-up contributions for 2026.
Can You Have Both?
Yes. Nothing in the tax code prevents you from having both a Solo 401(k) and a SEP-IRA. That said, running both simultaneously creates complexity without much added benefit for most physicians. The total contribution limit is still $72,000 across employer contributions. There's no stacking of limits by having two plans.
The more common scenario is physicians who had a SEP-IRA for years and are now considering a transition to the Solo 401(k). You don't have to liquidate the SEP-IRA; you can just roll it into the Solo 401(k), which is a tax-free transfer that also solves the pro-rata problem for future backdoor Roth conversions. It's worth a conversation with your accountant before you do it, but it's a well-worn path.
This article is for informational and educational purposes only and should not be taken as tax, legal, or financial advice. Contribution limits and tax rules are based on IRS guidelines current as of the 2026 tax year. Consult a qualified CPA or financial advisor for guidance specific to your situation.
Frequently Asked Questions
What is the maximum contribution to a Solo 401(k) or SEP-IRA in 2026?
Both plans share a $72,000 maximum for those under 50. The Solo 401(k) goes higher for older contributors: $80,000 for ages 50–59 and 64+, and $83,250 for ages 60–63, thanks to catch-up provisions. The SEP-IRA caps at $72,000 regardless of age.
What is the difference between a Solo 401(k) and a SEP-IRA?
Both are designed for self-employed individuals, but the mechanics differ significantly. The SEP-IRA is employer-contributions only, capped at 25% of compensation. The Solo 401(k) lets you contribute as both employee (up to $24,500) and employer (up to 25% of compensation), which produces much higher totals at moderate income levels.
Which retirement account is better for a physician doing locum tenens?
For most locum physicians earning under $288,000 in self-employment income, the Solo 401(k) is the better choice. At $150,000 in net self-employment income, for example, a SEP-IRA caps at $30,000 while a Solo 401(k) allows up to $62,000 in contributions.
Does a SEP-IRA affect the backdoor Roth IRA?
Yes, and this is a significant drawback. The IRS pro-rata rule aggregates all traditional IRA and SEP-IRA balances when calculating the taxable portion of a Roth conversion. A large SEP-IRA balance can make the backdoor Roth strategy mostly or entirely taxable. A Solo 401(k) is excluded from this calculation entirely.
Can I make Roth contributions to a Solo 401(k)?
Yes. You can designate up to $24,500 of your employee deferrals as Roth contributions (more if you're eligible for catch-up contributions). The employer profit-sharing portion must remain pre-tax. The SEP-IRA has no functional Roth option as of 2026, despite a technical provision created by SECURE 2.0.
Can self-employed physicians take a loan from their Solo 401(k)?
Yes. Solo 401(k) plans allow loans up to the lesser of $50,000 or 50% of the vested account balance. Repayment goes back into your own account. The SEP-IRA has no loan provision, and early withdrawals before age 59½ trigger a 10% penalty plus ordinary income tax.
Does the Solo 401(k) have any catch-up contribution provisions?
Yes. Participants aged 50–59 or 64+ can contribute an additional $8,000 per year in employee deferrals. Those aged 60–63 can contribute an additional $11,250 under a SECURE 2.0 provision. The SEP-IRA offers no catch-up contributions at any age.
When does a SEP-IRA make more sense than a Solo 401(k)?
The SEP-IRA makes sense if you have W-2 employees (other than a spouse), if you're earning over $288,000 in self-employment income and are under 50, if you need to open a plan retroactively after December 31, or if you want the simplest possible setup with no annual IRS filing requirement.
What is the deadline to open a Solo 401(k) for 2026?
The plan must be established by December 31, 2026 to make employee deferrals for that tax year. The employer profit-sharing contribution can be made up until your business tax return deadline, including extensions. The SEP-IRA can be opened and funded as late as the filing deadline with extensions.
Can a physician have both a Solo 401(k) and a SEP-IRA at the same time?
Yes, but the $72,000 total employer contribution limit still applies across both plans. You can't stack the ceilings. The more practical move for physicians with an existing SEP-IRA is to roll it into a Solo 401(k), which eliminates the pro-rata issue and consolidates the accounts.
How does business structure affect Solo 401(k) contributions?
Sole proprietors and single-member LLCs calculate employer contributions at 20% of net self-employment income, not 25%. S-corp owners base contributions on their W-2 salary, not total distributions. Physicians with partners or multiple owners typically can't use a Solo 401(k) at all and need a different plan type.
What is the SECURE 2.0 mandatory Roth catch-up rule for 2026?
Beginning in 2026, individuals who earned more than $150,000 in FICA wages in 2025 must make catch-up contributions on a Roth (after-tax) basis. This applies to Solo 401(k) plans where the owner pays themselves a W-2 salary — typically S-corp structures. Sole proprietors and single-member LLC owners filing on Schedule C have no FICA wages from the plan sponsor and are generally exempt from the mandate, giving them the flexibility to make catch-ups pre-tax or as Roth. Confirm your structure with a CPA before making catch-up contributions.
