Solo 401(k) vs. SEP-IRA vs. cash balance plan: which fits a physician?

If you earn self-employment income, from a practice you own, locums, call contracts or consulting, you can sponsor your own retirement plan. Most physicians default to a Solo 401(k), and for most that is right. But two other plans come up in every conversation with a CPA: the SEP-IRA, because it is simple, and the cash balance plan, because it can shelter far more. Here is how they compare.

Side by side

Solo 401(k): the default

A Solo 401(k) lets you contribute as both employee and employer. The employee deferral ($24,500 in 2026, plus $8,000 at age 50 or $11,250 at ages 60 to 63) is shared with any other 401(k) or 403(b) you have. The employer contribution is about 20% of net self-employment earnings, and the total is capped at $72,000 plus catch-up. It offers a Roth option, loans if the plan allows, and, if the plan is self-directed, real estate with an exception from UBTI for debt-financed property that an IRA doesn't have. I cover the details, with a calculator, in the Solo 401(k) guide for physicians with side income.

SEP-IRA: simple, but watch the backdoor Roth

A SEP-IRA takes only employer contributions, about 20% of net self-employment earnings, up to the same $72,000. There is no employee deferral and no catch-up, so a physician with unused deferral room can put away less than in a Solo 401(k). Its real advantages are simplicity and timing: you can open and fund it up to your tax-filing deadline, including extensions.

The catch for physicians is the backdoor Roth. A SEP-IRA is an IRA, so its balance counts in the pro-rata rule. If you hold $200,000 in a SEP-IRA and convert a $7,500 nondeductible contribution to Roth, most of that conversion becomes taxable. Money in a Solo 401(k) doesn't count. A SEP-IRA must also cover eligible employees at the same contribution percentage, which matters if your business has staff.

Cash balance plan: the big lever, at a price

A cash balance plan is a pension, technically a defined benefit plan, that shows each participant an account balance. Because the IRS limits the benefit it can eventually pay ($290,000 a year in 2026, as a lifetime annuity) rather than the yearly contribution, the allowed contribution rises steeply with age. For physicians in their 50s and 60s it is often well over $100,000 a year, on top of a 401(k).

The trade-offs are real. An actuary designs the plan and sets the required contribution each year, so it isn't optional in a lean year. Administration typically costs a few thousand dollars a year. It must cover eligible employees, and pairing it with a 401(k) can limit the 401(k)'s employer contribution. It is usually meant to run at least three to five years. And you can only contribute from self-employment income you actually have, so it fits a physician with a large, steady self-employment income, not a few locums shifts.

Which one, for which physician?

• W-2 job with a side LLC and modest 1099 income: Solo 401(k). If you already max the deferral at work, a Solo 401(k) and a SEP-IRA allow about the same amount, and the Solo 401(k) keeps the backdoor Roth clean. See a side LLC and a Solo 401(k) for W-2 physicians.
• It's past December 31 and you never opened a plan: a SEP-IRA can still be opened for last year, or ask your provider about the first-year Solo 401(k) rules under SECURE 2.0.
• Practice owner or full-time locums physician over 50, maxing out a 401(k), with income to spare: ask a CPA and an actuary about adding a cash balance plan.
• Practice with employees: a Solo 401(k) isn't available, and a SEP-IRA or cash balance plan must include eligible staff. That calls for a plan designed around the whole practice.

Frequently asked questions

Can I have a SEP-IRA and a Solo 401(k) for the same business?

Generally not in the same year in a way that adds room. Both draw on the same employer contribution limit for the business, and some Solo 401(k) plan documents require it to be the only plan. Pick one per business.

Does a SEP-IRA hurt my backdoor Roth?

It can. A SEP-IRA balance counts in the pro-rata rule, so a backdoor Roth conversion becomes partly taxable. A Solo 401(k) balance doesn't count, and many physicians roll SEP-IRA money into a Solo 401(k) for that reason.

How much can I put in a cash balance plan?

It depends on your age, your self-employment income and the plan's design. The 2026 limit is on the eventual benefit ($290,000 a year as a lifetime annuity), so an actuary works out the contribution. For older physicians it is often more than $100,000 a year.

Can I stop funding a cash balance plan in a bad year?

Not easily. Contributions are required under the plan design, though plans can be amended or frozen. Expect to fund it for several years before starting one.

Which plan has the highest limit in 2026?

A cash balance plan, for older physicians with enough self-employment income. A Solo 401(k) allows up to $72,000 plus catch-up, and a SEP-IRA up to $72,000 with no catch-up.

2026 figures from IRS Notice 2025-67. Contribution room depends on your net self-employment earnings and, for a cash balance plan, on your age and the plan's design. This is educational content, not tax or legal advice; design any plan with your own CPA and, for a cash balance plan, an actuary.

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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.