A side LLC and a Solo 401(k): how a W-2 physician can run more than one retirement plan

Most employed physicians have exactly one retirement plan: the one their hospital or group offers. They max it out, take the match, and assume that is the ceiling. For a lot of us it isn't. If you earn any real self-employment income on the side, from locums, hospital call contracts, consulting, expert-witness work or a medical directorship paid as a contractor, that income can sponsor a retirement plan of its own. Run it through a small LLC, open a Solo 401(k) for that business, and you have a second plan sitting next to the first, with a separate contribution limit for most of what goes in.

Step 1: a real side business

The plan follows the business, so the business has to be real. That means 1099 income for independent work: locums through an agency that pays you as an independent contractor (many do, but some pay locums physicians as W-2 employees, and that income does not count), call-coverage contracts with hospitals that pay you as a contractor, consulting for industry or for another organization, chart review and expert-witness work, advisory boards, a directorship where you are paid as a contractor. In general it should come from someone other than your W-2 employer. You cannot take part of your regular job and relabel it 1099.

Strictly speaking you do not need an LLC. A sole proprietor can sponsor a Solo 401(k). The LLC is what keeps it clean: a separate entity with its own federal employer identification number (free from the IRS, and most plan providers will ask for one), its own bank account and contracts in its own name. A single-member LLC is taxed as a sole proprietorship unless you elect otherwise, so the income still lands on Schedule C of your own return and there is no separate business return. A few things to settle with your attorney and CPA at the start:

• The type of entity. Many states require licensed professionals who provide clinical services through an entity to use a professional LLC or professional corporation. Pure consulting may not. Your state's rules decide.
• Malpractice. An LLC does not protect you from your own professional negligence. Locums agencies usually provide coverage; consulting and expert-witness work may need their own.
• S corporation election. It can save payroll tax at higher incomes, but it changes the retirement math: contributions are then based on the salary the S corporation pays you, not on profit. The planner below assumes the default sole-proprietor treatment.

Step 2: the Solo 401(k)

A Solo 401(k) is an ordinary 401(k) for a business with no employees other than the owner and a spouse who works in it. Most large brokerages offer one at no cost, and specialist providers offer versions that allow alternative investments (more on that below). Three practical points:

• Open it before December 31 if you want to make employee deferrals for that year. For a brand-new plan, SECURE 2.0 gives sole proprietors some first-year flexibility up to the tax-filing deadline, and employer contributions can be made up to the filing deadline including extensions, but the simplest path is to open it in the year you earn the income.
• Your spouse can join if they genuinely work in the business, with their own limits.
• Paperwork is light until the plan holds more than $250,000 at year end. Then you file Form 5500-EZ each year. Miss it and the penalties are steep.

How the limits stack

This is where most of the confusion lives. There are two different limits, and they work differently:

• Your employee deferral is per person. The $24,500 you can defer from your own pay in 2026 (plus $8,000 if you are 50 or older, or $11,250 at ages 60 to 63) is shared across every 401(k) and 403(b) you participate in. If you already max it out at the hospital, there is no employee deferral left for the Solo 401(k).
• The total cap is per employer. Each unrelated employer's plan has its own $72,000 limit on everything that goes in (deferrals plus employer contributions, not counting catch-ups). Your LLC is a separate employer, so as the "employer" it can make a profit-sharing contribution of roughly 20% of your net self-employment earnings, under its own $72,000 cap.

Two plans at work change the picture further:

• A 457(b) has its own, separate $24,500 limit. Many hospitals and universities offer one alongside the 403(b) or 401(k). It does not share the deferral limit with the other plans, so if you have one, it is another $24,500 of room. At a non-profit hospital, though, a 457(b) is not held in trust for you: until it is paid out, the money belongs to the employer and is exposed to its creditors. Understand that before you fund it heavily.
• A 403(b) is combined with your Solo 401(k). This trap catches academic and non-profit physicians. Because you control your LLC, the IRS adds your 403(b) contributions, yours and your employer's, to your Solo 401(k) contributions under a single $72,000 cap. With a 401(k) at an employer you do not own, each plan has its own cap.

One more change for 2026: if you earned more than $150,000 in FICA wages from your employer in 2025, any catch-up contributions you make in that employer's plan must now go in as Roth.

A worked example: a hospitalist under 50 defers the full $24,500 into the hospital 401(k) and gets a $12,000 match. On the side, locums shifts produce $60,000 of net profit through an LLC. The Solo 401(k) can take an employer contribution of about $11,800, for roughly $48,300 a year across both plans. If the hospital also offers a 457(b), that adds another $24,500. At $150,000 of side profit, the Solo 401(k) contribution grows to about $29,600.

Why this fits hospital-employed doctors best: ownership

The whole structure depends on your side LLC being a separate employer from your main job. If you own a meaningful share of the practice that employs you, it may not be.

Under the controlled-group rules, if you own 80% or more of both businesses (counting, in most cases, what your spouse and minor children own), the IRS treats them as one employer. You get one $72,000 cap across both plans, not two, and your Solo 401(k) may have to be offered to the practice's eligible employees, which usually ends the idea of a "solo" plan. Smaller stakes can be pulled together too under a separate set of affiliated-service-group rules, particularly when the side business does work for, or with, the practice. A physician who is part-owner of a group should have a benefits attorney look at this before opening anything.

The cleanest case is the one most employed physicians are in: you own none of your employer. A hospital, health system, university or large group pays you a W-2, your LLC is entirely separate, and the two plans sit side by side with separate caps. That is why this works so well for hospital-employed doctors.

How I did it, and why I had to stop for a while

I have lived both sides of the ownership rule. When I joined Surgical Associates Chartered, I was a W-2 employee and owned none of the practice. My side work, locum tenens shifts, hospital call contracts and consulting, ran through my own company, Rodeen Rahbar MD LLC, and that LLC sponsored a Solo 401(k) alongside the practice's plan. Two unrelated employers, two plans, two caps: the clean case described above.

Then I bought out the practice's owner. From that point, the practice and my LLC were under common control, and in the IRS's eyes they were one employer, not two. Funding the Solo 401(k) as if it were separate would have meant, at best, sharing one cap across both plans and, at worst, a plan that should have been offered to the practice's employees. So I stopped contributing to it.

Later, as I brought partners into the practice, I structured the sales of shares to them so that my own percentage came back down below the controlled-group threshold. Once my CPA and attorney confirmed that the practice and my LLC were again separate employers, I resumed contributions to the Solo 401(k).

The lesson I took from it: a change in ownership is also a retirement-plan event. If you are about to buy into your practice, buy out a partner or sell shares, ask how it affects any plan your side business sponsors before you sign, not after. I am not sharing my exact percentages because the right answer depends on everyone's ownership, including family members', and on whether the side business works with the practice. That is a question for your own benefits attorney.

Run your own numbers

Set up your main job, then move the side-income slider. The chart shows what you can put away at every level of side net profit, layered on top of your employer plan, and you can click anywhere on it to jump to that income.

If you only want the Solo 401(k) piece, the Solo 401(k) calculator in my earlier article does that on its own.

Solo 401(k) vs. SEP-IRA vs. cash balance plan

The short answer: for a W-2 physician with side income, a Solo 401(k) is usually the best fit. It allows up to $72,000 in 2026 (plus catch-up), offers a Roth option and loans, and doesn't interfere with a backdoor Roth. A SEP-IRA allows about the same employer contribution (roughly 20% of net self-employment earnings) and can still be opened after the year ends, but it has no employee deferral and its balance can make a backdoor Roth taxable. A cash balance plan can allow six-figure annual contributions for older physicians with large, steady self-employment income, at a higher cost and with required annual funding.

If you already max out the employee deferral at work, a Solo 401(k) and a SEP-IRA allow about the same amount from side income, and the Solo 401(k) keeps the backdoor Roth clean. A cash balance plan is worth a conversation with a CPA and an actuary only when the side income is large and reliable. The full comparison, with examples and FAQs, is in Solo 401(k) vs. SEP-IRA vs. cash balance plan for physicians.

Putting real estate inside the Solo 401(k)

Where I sit: I am a Director of The Laager Group, which sponsors private multifamily syndications.

A Solo 401(k) can be "self-directed": if the plan document allows it, the plan can own investments a brokerage won't hold, including private real estate. Many providers set it up with "checkbook control," where the plan's trust opens its own bank account and you, as trustee, sign the checks. The plan can then invest in a private syndication (you still have to qualify as an accredited investor), in a real estate note, or directly in a property.

The rules are strict, and breaking them can disqualify the whole plan:

• No personal benefit. You, your spouse, your parents and your children cannot live in, vacation in, rent, buy from or sell to the plan's property. The plan cannot buy property you already own.
• No sweat equity or personal money. You cannot do the repairs yourself or pay the plan's expenses from your own pocket. Expenses come from the plan and income goes back to it.
• No personal guarantee on debt. If the plan borrows to buy a property directly, the loan must be non-recourse.

Leverage is where a 401(k) has a real advantage over an IRA. Income from debt-financed property can create Unrelated Business Taxable Income (UBTI), taxed inside the account. A 401(k) has an exception for debt-financed real estate that an IRA does not have. Through a syndication, which is a partnership, whether that exception applies depends on how the deal is structured. Many, but not all, private syndication deals are structured to fit it. Check with your sponsor and verify with your tax professional.

Two more things to weigh. Depreciation does nothing for you inside a retirement account, because the account already pays no current tax, so real estate with heavy depreciation is often more valuable in a taxable account; the syndication vs. REIT vs. interval fund calculator lets you compare both. And a syndication ties up capital for years, so keep enough in liquid investments to cover the plan's needs. Before you choose any deal, the questions in how physicians evaluate a multifamily syndication apply inside a plan exactly as they do outside it.

Why a 401(k) you control can beat an IRA, now and in retirement

When people leave a job, the default advice is to roll everything into an IRA. If you have a Solo 401(k), it is worth asking whether the money should go there instead. The case for the 401(k):

• The UBTI exception for leveraged real estate, described above.
• A clean backdoor Roth. Pre-tax IRA balances make most of a backdoor Roth conversion taxable under the pro-rata rule. Money in a 401(k) does not count. Rolling old pre-tax IRAs into your Solo 401(k), if the plan accepts roll-ins, can clear the way.
• Loans. If the plan allows it, you can borrow up to half your balance, to a maximum of $50,000. An IRA cannot lend to you at all.
• Roth inside the plan. Roth deferrals go in alongside pre-tax money, and since 2024 Roth balances in a 401(k) are no longer subject to required minimum distributions during your lifetime. Some plans also allow after-tax contributions that can be converted to Roth (the "mega backdoor Roth") within the $72,000 cap.
• Control. You choose the provider and the investments, and you can roll a former employer's 401(k) into it when you leave. The plan can stay open into retirement for as long as the business exists.
• Bankruptcy protection. In federal bankruptcy, 401(k) money is protected without a dollar limit; contributory IRA money has a cap. Outside bankruptcy, a plan that covers only you and your spouse is not an ERISA plan, so its protection from other creditors depends on your state's law, much like an IRA's.

The costs are real too. You are the plan's trustee, the Form 5500-EZ is your responsibility, and a prohibited transaction is your mistake to own. If you close the LLC, the plan has to be terminated and the money rolled to an IRA or another plan. An IRA is simpler, and for someone who only holds index funds, simpler may be better.

Frequently asked questions

Can I have a Solo 401(k) if I already have a 401(k) at work?

Yes, if you have self-employment income. The Solo 401(k) belongs to your side business, which is a separate employer from your hospital or group. The employee contribution limit is shared between the plans; the employer contribution and the $72,000 total limit are not, unless your work plan is a 403(b) or you control your employer.

If I max out my 401(k) at the hospital, can I still put money in a Solo 401(k)?

Yes. You will have no employee contribution left, but your LLC can still make an employer contribution of up to about 20% of its net profit (after the deduction for half of self-employment tax), up to the plan's $72,000 limit for 2026.

Do I need an LLC to open a Solo 401(k)?

No. A sole proprietor can sponsor one. An LLC keeps the business separate, with its own EIN, bank account and contracts. Some states require a professional LLC for clinical work, and an LLC does not protect you from your own malpractice.

Does locum tenens income count?

Only if you are paid as an independent contractor on a 1099. Some locums agencies pay physicians as W-2 employees, and that income cannot fund a Solo 401(k). The same applies to hospital call contracts and consulting.

Does a 457(b) count against these limits?

No. A 457(b) has its own separate $24,500 limit for 2026, so it can be used on top of a 401(k) or 403(b) and a Solo 401(k). At a non-profit hospital, 457(b) money belongs to the employer until it is paid out and is exposed to the employer's creditors.

I have a 403(b). Is anything different?

Yes. Because you control your LLC, your 403(b) contributions, yours and your employer's, are added to your Solo 401(k) contributions under one $72,000 limit, instead of each plan having its own.

What if I own part of the practice that employs me?

If you own 80% or more of both businesses, counting in most cases your spouse's and minor children's shares, the IRS treats them as one employer: one $72,000 limit, and the Solo 401(k) may have to cover the practice's employees. Smaller stakes can be combined under the affiliated-service-group rules. Have a benefits attorney review it first.

When do I have to open the Solo 401(k)?

Open it by December 31 of the year you want to make employee contributions. Employer contributions can be made up to your tax-filing deadline, including extensions, and a new plan for a sole proprietor has some first-year flexibility under SECURE 2.0.

Should I use a SEP-IRA or a cash balance plan instead?

Usually not instead of a Solo 401(k). A SEP-IRA allows about the same employer contribution but no employee deferral, and its balance counts against a backdoor Roth. A cash balance plan can add six-figure contributions for older physicians with large, steady self-employment income, at a higher cost and with required annual funding.

Can a Solo 401(k) invest in real estate?

Yes, if the plan document allows alternative investments. It can hold private syndications, notes or property directly, subject to the prohibited-transaction rules: no personal use or dealings with family, no sweat equity, and only non-recourse loans.

Before you start

Take these to your own advisers:

• Your CPA: Is my side income self-employment income? Sole proprietor or S corporation? What can I contribute, and does my 403(b) combine with it?
• Your attorney: Which entity does my state require? Do I own enough of my employer to trigger the controlled-group or affiliated-service-group rules? What malpractice coverage does the side work need?
• Your plan provider: Does the plan allow Roth, after-tax contributions, loans, roll-ins and alternative investments? Who handles Form 5500-EZ?

For the tax side of real estate, see real estate tax concepts for physicians.

Figures are 2026 IRS limits. Tax rules change and outcomes vary by person. This is educational content, not tax, legal or investment advice, and not an offer to sell or a solicitation of an offer to buy any security. Confirm how any of this applies to you with your own CPA and attorney.

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Educational content only, not personalized financial, tax or investment advice. Figures cited are as of the date of writing and may have changed.