Physician Practice Retirement Accounts: The Options Most CPAs Don't Surface

A 54-year-old physician with $500,000 in practice net income and a $250,000 salary can layer roughly $285,000 in combined Solo 401(k) and cash balance plan contributions — saving approximately $121,000 in combined federal and Georgia state tax. The average physician practice owner is significantly underusing retirement accounts as a tax tool. Not because the options are complicated — they are not — but because nobody ever sat down and showed them the full picture.

The Solo 401(k) is widely discussed. The defined benefit plan is not. The combination of both, structured correctly for a physician in their late 40s or 50s, can produce deductions of $200,000–$300,000 per year. At a 37% marginal federal rate plus state, that is real money — avoided every single year until retirement.

Here is the full stack, from simplest to most powerful.

What Is a SEP-IRA and Who Should Use One?

Best for: Solo physicians in their first year of practice, or anyone who wants zero administrative complexity.

How it works: A Simplified Employee Pension IRA allows contributions of up to 25% of W-2 compensation (for S-corp owners) or approximately 20% of net self-employment income (for sole proprietors), up to a maximum of $72,000 for 2026.

2026 limits:

• Maximum contribution: $72,000
• No catch-up contribution for age 50+
• Deadline: tax filing deadline including extensions (typically October 15)

The critical limitation: If your practice has W-2 employees, you must contribute the same percentage of compensation for every eligible employee. A physician contributing 25% of their own $200,000 salary must also contribute 25% of each employee’s compensation. For practices with staff, this makes SEP-IRA very expensive relative to a 401(k), which offers far more design flexibility.

Bottom line: SEP-IRA is the right choice only for true solo practices with no employees. As soon as you have staff, move to a 401(k).

What Is a Solo 401(k) and How Does It Work?

Best for: Solo physicians with no W-2 employees (other than a spouse), or physicians who want the maximum contribution with the most flexibility.

How it works: A Solo 401(k) — also called an Individual 401(k) or Owner-Only 401(k) — allows contributions in two buckets:

Employee elective deferral (you as the employee):

• Up to $24,500 for 2026
• If age 50 or older: $32,500 (the extra $8,000 is the catch-up contribution)
• Can be pre-tax (traditional) or Roth

Employer profit-sharing (the S-corp as the employer):

• Up to 25% of your W-2 salary from the practice
• Combined with the employee deferral, subject to the overall 415(c) limit: $72,000 ($80,000 if age 50+)

2026 example — physician, age 52, $220,000 S-corp salary:

• Employee deferral: $32,500
• Employer profit sharing: 25% × $220,000 = $55,000
• Total: $87,500
• Federal tax avoided at 37%: $32,375

Why salary affects this: The employer profit-sharing contribution is calculated as a percentage of your W-2 salary. A physician with a $100,000 salary contributes a maximum of $25,000 in profit sharing. A physician with a $220,000 salary contributes up to $55,000. This is one of the underappreciated reasons why setting the right S-corp salary matters — too low, and you cap your retirement contribution.

The Roth Solo 401(k) decision: The employee deferral portion can be designated Roth (after-tax contributions that grow tax-free). For physicians who expect to be in a high tax bracket in retirement, Roth contributions are often the right call for the deferral portion. The employer profit-sharing must be pre-tax.

Requirement: No W-2 employees other than yourself and a spouse. If you hire a non-spouse employee who meets the plan’s eligibility requirements, you must offer them plan participation — at which point you need a full 401(k) plan, not a solo plan.

How Does a Group 401(k) with Profit-Sharing Design Work?

Best for: Practices with employees where the physician wants to maximize their own contribution while minimizing cost.

A properly designed 401(k) plan can use Safe Harbor provisions and new comparability profit-sharing formulas to allow a physician owner to receive a disproportionately large profit-sharing allocation relative to rank-and-file employees. The design is more complex than a solo plan and requires a third-party administrator (TPA), but the result is often a higher owner contribution than a simpler plan would allow.

This is plan design territory — the details depend entirely on your practice’s headcount, employee demographics, and compensation mix. The key point: having employees does not mean you are limited to contributing the same percentage for everyone. A well-designed plan can still direct the majority of contributions to the owner.

What Is a Defined Benefit or Cash Balance Plan?

Best for: Physicians age 45 and older with consistent, high practice income who want the largest possible deduction.

This is the option most CPAs never bring up. It is also where the numbers become genuinely significant.

How it works: A defined benefit plan promises a specific retirement benefit — for example, 80% of your final salary per year in retirement. The annual contribution required to fund that promised benefit is actuarially calculated based on your age, current assets, and assumed investment returns. Because older physicians have fewer years to accumulate, the required annual contribution is dramatically higher.

A cash balance plan is a type of defined benefit plan where the promised benefit is expressed as an account balance rather than a monthly payment. Each year, the plan credits a specified pay credit (a percentage of compensation) plus an interest credit. The annual contribution is calculated to fund that growing balance.

Why age matters so much:

The IRS sets the maximum annual retirement benefit at $275,000 per year (2024). To fund that benefit over a shorter accumulation period, older participants must contribute more each year. The math produces results that look extraordinary but are entirely legitimate:

These ranges are approximate. The exact contribution is calculated annually by an actuary based on your plan design, prior contributions, and investment returns. Each plan is different.

The stack — Solo 401(k) + Cash Balance Plan:

The most powerful structure for an eligible physician: run both plans simultaneously. The Solo 401(k) handles the profit-sharing and employee deferral. The cash balance plan layers an additional defined benefit contribution on top.

2026 example — physician, age 54, $500,000 practice net income, $250,000 salary:

That is not a typo. A 54-year-old physician running the full stack is sheltering close to $285,000 per year from taxation. Over a 10-year runway to retirement, the compounding effect — both on the tax savings and on the tax-deferred investment growth — is the difference between a comfortable retirement and an extraordinary one.

The requirements and realities:

• Cash balance plans require an actuary to design and administer annually. Cost: $2,000–$5,000 per year. Against $100,000+ in tax savings, the economics are obvious.
• Contributions must be made consistently. You cannot skip years arbitrarily — the plan has a funding obligation. This is why consistent, high practice income is a prerequisite.
• If you have employees, they may need to participate in the defined benefit plan as well, though benefit formulas can be designed to minimize that cost relative to the owner’s benefit.
• Investments inside cash balance plans are typically conservative — the plan promises a defined benefit, so the funding assumes modest, stable returns.
• At retirement, the balance can typically be rolled to an IRA or taken as an annuity.

What Is a Backdoor Roth IRA, and Why Is It a Supplement, Not a Strategy?

Physician practice owners with income above the direct Roth IRA contribution limits ($161,000 single / $240,000 MFJ for 2024) can still contribute to a Roth IRA via the backdoor Roth strategy:

1. Contribute $7,000 ($8,000 if 50+) to a traditional IRA (non-deductible, given high income)
2. Immediately convert it to a Roth IRA
3. The conversion is tax-free if there are no other pre-tax IRA balances (the pro-rata rule applies if you have other IRAs)

The backdoor Roth contribution limit is small relative to the 401(k) and cash balance options — but the tax-free growth over decades makes it worth doing annually as a supplement. It is not a substitute for maximizing practice retirement contributions.

What Question Should You Ask Your CPA?

Ask your current CPA this question directly: “Am I running a defined benefit or cash balance plan, and if not, have you modeled whether I should be?” If they have not raised it and you are over 45, it is likely one of the reasons your tax bill is higher than it should be.

If they have never raised this option and you are over 45 with consistent practice income above $300,000, you now know why your tax bills have been higher than they needed to be.

The defined benefit plan is not a loophole. It is a specific provision of the tax code designed to allow business owners to accelerate retirement savings. The IRS expects physicians to use it. The question is whether your advisory team has told you it exists.

Which Retirement Option Is Right for You?

The decision is not permanent. A physician who starts with a SEP-IRA can add a cash balance plan later. A solo practice that hires its first employee will need to convert the solo 401(k) to a group plan. The structure should be reviewed every two to three years as income, age, and headcount change.

What does not change: the cost of not having this conversation is real, measurable, and compounds every year.