When you’re running your own practice or working as a 1099 physician, retirement planning for doctors can easily take a back seat. Between patient care and running a business, it’s hard to find time to think about saving for the later years.
But the truth is, the sooner you set up the right retirement plan, the more flexibility and tax savings you’ll have. That’s where the Solo 401(k) comes in. For self-employed doctors, it’s one of the most powerful ways to save for the future while lowering taxable income today.
Who Qualifies for a Solo 401(k)
The Solo 401(k) is designed for small business owners and independent contractors who don’t have full-time employees other than their spouse.
You’re likely to qualify if you’re a physician operating as a sole proprietor, single-member LLC or S-Corp. Your spouse can also be included in the plan if they work in the business and earn income, which effectively doubles your family’s contribution potential an important advantage to understand in Retirement Planning for Doctors. These eligibility rules are often overlooked, yet they play a key role in maximizing long-term benefits when considering Retirement Planning for Doctors.
If you expect to hire staff in the future, you can still start a Solo 401(k) now, then switch to a full 401(k) later once your team becomes eligible.
How a Solo 401(k) Works for Doctors
The Solo 401(k) stands out because you get to contribute as the employee and the employer into your plan.
As the employer in your Solo 401(k), you can contribute up to 25% of your compensation, or roughly 20% of net self-employment income if you’re a sole proprietor.
On the employee side, you can defer up to $23,500 of your income in 2025 (or $30,000 if you’re age 50 or older).
Altogether, your combined contributions can reach as high as $70,000 for 2025. That’s significantly higher than what you can contribute to a traditional or Roth IRA.
To put it in context, the contribution limits for traditional and Roth IRAs for 2025, are:
- $7,000 per year if you’re under age 50
- $8,000 per year if you’re age 50 or older (this includes a $1,000 catch-up contribution)
That’s why, for high-earning self-employed doctors, a Solo 401(k) is a top choice for physicians looking to catch up on retirement savings quickly. It offers nearly 10 times the annual contribution potential of an IRA, along with more flexibility on tax treatment (pre-tax or Roth) and business deductions, key advantages often highlighted in Retirement Planning for Doctors. For many physicians, understanding these expanded benefits is essential to making informed decisions as part of effective Retirement Planning for Doctors.
How to Choose Between Pre-Tax and Roth Contributions
When you contribute to a Solo 401(k), you can choose between pre-tax (traditional) and Roth contributions, or even use both.
The difference in the tax treatment:
- Pre-tax contributions reduce your taxable income today. You’ll pay income tax later when you withdraw funds in retirement.
- Roth contributions use after-tax dollars. You don’t get a deduction upfront, but qualified withdrawals in retirement are completely tax-free.
Some plans also allow after-tax non-Roth contributions, which can open the door to what’s known as a Mega Backdoor Roth, a strategy that helps high earners move more money into tax-free growth.
If you’re not sure which option fits best, think about your goals. If you want to cut your current tax bill, pre-tax contributions make sense. If you’d rather build tax-free income for the future, the Roth option gives you that freedom.
When and How to Set Up a Solo 401(k)
Setting up a Solo 401(k) is simpler than most doctors expect; you just have to stay on top of the deadlines.
- Adopt your plan before year-end. In order to make employee contributions for 2025, you must sign your plan document by December 31, 2025.
- Make your employee deferral election on time. You must decide and document how much you’ll contribute before the year ends.
- Fund employer contributions later. You typically have until your business tax filing deadline, including extensions, to make the employer portion.
You’ll need a financial institution (custodian) to hold your account and possibly a third-party administrator (TPA) to help with setup or annual filings if your balance grows large.
How Contributions Work Based on Your Business Type
Since many physicians operate under different business structures, contribution rules can vary slightly based on your entity type.
- If you’re an S-Corp owner, your contributions are based on your W-2 wages, not distributions. That means your deferrals must go through payroll, and employer contributions are calculated based on your official salary.
- If you’re a sole proprietor or single-member LLC, contributions are based on net self-employment income after certain adjustments. You’ll record your employee deferral election and make your deposits once your Schedule C numbers are finalized.
No matter your structure, it’s important to label your deposits correctly, whether it’s pre-tax employee, Roth employee, employer, or after-tax. This ensures your CPA can reconcile contributions properly when preparing your tax return.
Common Mistakes Self-Employed Doctors Should Avoid
A Solo 401(k) offers excellent flexibility, but there are a few common pitfalls to watch for:
- Missing the employee deferral deadline. You must elect your employee contribution by year-end, even if you fund it later.
- Paying yourself too little as an S-Corp owner. Employer contributions depend on W-2 wages, so setting your salary too low can limit how much you can contribute.
- Mixing Roth and after-tax contributions. These are different buckets with different tax rules, mixing them can create reporting headaches.
- Ignoring the Form 5500-EZ requirement. Once your Solo 401(k) balance exceeds $250,000, you’ll need to file a simple annual report to avoid IRS penalties.
How a Solo 401(k) Compares to a SEP or SIMPLE IRA
Doctors often ask whether they should set up a SEP IRA or SIMPLE IRA instead. While those plans can work well for certain situations, a Solo 401(k) usually provides more benefits for high-earning physicians, especially when viewed in the broader context of Retirement Planning for Doctors.
Compared to a SEP IRA, a Solo 401(k) allows you to make both employee and employer contributions, which means you can reach higher total savings on the same level of income. It also allows Roth contributions, something a traditional SEP IRA doesn’t.
A SIMPLE IRA, on the other hand, is best suited for small practices with a few employees who want an easy, low-cost plan. The contribution limits are much lower than a Solo 401(k), and there’s less flexibility in how you contribute or invest.
For most self-employed doctors without staff, the Solo 401(k) offers the best mix of high limits, tax flexibility and long-term growth potential.
Read more: The Augusta Rule For Doctors: How To Earn Tax-Free Rental
Frequently Asked Questions About Solo 401(k)s for Doctors
Can I have both a Solo 401(k) and a hospital 401(k)?
Yes, you can. The employee deferral limit ($23,500 in 2025) is shared across both, but your employer contribution for the Solo 401(k) is separate and based on your business income.
Can my spouse also contribute?
Yes. If your spouse works for your business and earns income, they can make contributions too, effectively doubling your household’s savings.
What happens if I hire staff later?
Once you hire eligible employees, you’ll need to convert your Solo 401(k) to a standard 401(k) that includes them. Your plan provider or CPA can guide you through that transition.
Do I have to file anything with the IRS?
If your plan balance exceeds $250,000 at year-end, you must file Form 5500-EZ annually. It’s short and straightforward, but easy to forget if you’re not tracking it.
Is a Solo 401(k) better than a SEP IRA for doctors?
In most cases, yes. The Solo 401(k) offers higher contribution potential, Roth options, and more flexibility for self-employed physicians who want to save aggressively and manage taxes efficiently.
Ready To Set Up Your Solo 401(k)?
A Solo 401(k) is one of the most effective retirement tools available for self-employed doctors. It lets you save more, reduce taxes, and keep control over your investments, all within one flexible plan, making it a key strategy in Retirement Planning for Doctors.
At MedTax, we help doctors design Solo 401(k) plans that fit their exact situation, whether you’re a 1099 physician, S-Corp owner, or small practice owner. We’ll make sure your plan is set up correctly and optimized for both tax savings and long-term growth.
Book a call with us today to set up your Solo 401(k) and start saving smarter for retirement.
Until next time!
