Free Tool — Healthcare Practice Owners
Are you in the right retirement plan?
Most physician practice owners open a SEP-IRA and never revisit it. Depending on your age, entity structure, and net profit, a Solo 401(k) or Cash Balance Plan could shelter two to five times more — and cut your tax bill by tens of thousands of dollars per year.
Retirement plans for practice owners, answered
Which plan fits which practice, how employees change the answer, and the funding deadline that differs by entity.
Which retirement plan is right for a practice owner?
It depends on whether there are employees, how much the owner wants to contribute, and how stable income is. A SEP-IRA is the simplest and works well for an owner with no eligible employees. A solo 401(k) generally allows a larger contribution at the same income because it combines an employee deferral with an employer contribution. Practices with staff move toward a 401(k) with a safe harbor design, and owners with high, stable income sometimes add a defined benefit or cash balance plan on top.
How do employees change the answer?
Substantially, because coverage and nondiscrimination rules prevent a plan from benefiting only the owner. A SEP generally requires the employer to contribute the same percentage of compensation for every eligible employee, which becomes expensive quickly as staff grows. A 401(k) with a safe harbor design provides more control over cost while still allowing meaningful owner contributions. The plan that is obviously right for a solo practitioner is often the wrong one the moment there are eligible staff.
SEP-IRA or solo 401(k)?
For an owner with no eligible employees, a solo 401(k) usually allows a larger contribution at the same income, because the owner contributes both as employee (a salary deferral) and as employer, while a SEP allows only the employer piece. The solo 401(k) carries somewhat more administration and has an annual filing obligation once assets pass a threshold. A SEP is easier to establish and maintain; the trade is contribution capacity for simplicity.
When does a cash balance plan make sense?
Generally for owners with high and reasonably predictable income who want to contribute well beyond defined contribution limits, and it favors older owners because contributions are actuarially determined and the funding window is shorter. It requires an actuary, annual funding commitments that are not discretionary, and a multi-year horizon. The commitment is the constraint — a practice with volatile income is usually a poor fit regardless of how attractive the deduction looks in a strong year.
What is the deadline to fund a plan?
Employer contributions generally follow the due date of the return they are deducted on, including extensions — which means the deadline depends on entity type. A contribution deducted on an extended S-corp return follows that return's extended deadline in September; one deducted on an extended personal return follows October. Traditional and Roth IRA contributions are due in April and extensions do not move them. Establishment deadlines are separate from funding deadlines and are worth confirming before relying on either.