The short version

If you are a 1099 physician with no employees, you should almost certainly use a Solo 401(k) rather than a SEP-IRA. The overall contribution cap is similar; the flexibility is not.

The one exception where a SEP-IRA might win: you want a plan you can open and fund in under 30 minutes, you're contributing a modest amount, and you don't care about Roth or loans. That's a narrow window.

The overall cap

Both plans are subject to the annual defined-contribution limit ($69,000 in 2024, check current-year figure). Above the age 50 catch-up threshold, Solo 401(k)s add another few thousand.

SEP-IRA. Contribution is up to 25% of net self-employment income (calculated as net earnings minus the deductible portion of self-employment tax, times ~92.35%). All employer contribution, no employee elective deferral. So if your net SE income is $200K, your SEP-IRA cap is roughly $37,000 — nowhere near the $69K ceiling.

Solo 401(k). Two contribution buckets:

• Employee elective deferral — up to $23,000 (2024) regardless of income, taken from your first-dollar SE earnings.
• Employer profit-sharing — up to 25% of net SE income, same math as the SEP-IRA formula.

Combined, they can hit the full $69K ceiling much faster. A Solo 401(k) holder with $200K net SE income can contribute $23K (elective) + $37K (employer) = $60K. A SEP-IRA holder at the same income tops out at $37K.

For high-earning oncology contractors, the Solo 401(k) simply lets you shelter more money in most income ranges.

Roth access

SEP-IRA. No Roth version. All contributions are pre-tax. (SECURE Act 2.0 technically allows Roth SEP contributions starting in 2023, but as of this writing most custodians have not rolled out the functionality. Verify before assuming.)

Solo 401(k). Roth sub-account is standard. You can split contributions pre-tax and Roth however you want, up to the $23K employee deferral limit. Roth 401(k) contributions do not have income phase-outs — a critical feature for high-income physicians, who are otherwise blocked from direct Roth IRA contributions and have to do the backdoor Roth workaround.

For a fellow-to-attending transitioning into peak earnings, having Roth capacity now is disproportionately valuable — those dollars grow tax-free forever, and your current marginal rate is (usually) lower than it will be in the tax brackets ahead.

Loan access

SEP-IRA. No loans. To access funds early you'd take a distribution, pay income tax + 10% early-withdrawal penalty if under 59.5.

Solo 401(k). Loans permitted up to $50,000 or 50% of vested balance (whichever is less). Interest is paid back to your own plan. Not something to plan on using, but valuable optionality — particularly in year 1–2 attending when your student loans, home purchase, and disability insurance shopping are all peaking simultaneously.

Filing complexity

SEP-IRA. No plan-level filing required at any balance. You just track contributions on your personal return.

Solo 401(k). Once plan assets cross $250,000, you must file Form 5500-EZ annually with the IRS. It's not a difficult filing (one page for most cases) but it is a filing. Below $250K, no annual filing is required.

For a fellow just starting out, you'll be under $250K for a few years. When you cross it, either learn the 5500-EZ or add it to your CPA's annual scope.

Contribution timing

SEP-IRA. You have until your tax filing deadline (including extensions) to open AND fund the plan for a given tax year. Missed the calendar year? Fine — open the plan in March, contribute for the prior year.

Solo 401(k). The plan must be opened by December 31 of the tax year for which you want to contribute. Employer profit-sharing contribution can be made through your extension deadline; employee elective deferral must also be made by the tax deadline (contributions in 2024 for 2023 may still be allowed under SECURE Act 2.0 for the employee portion — verify current guidance).

The SEP-IRA's flexibility on timing is why some new attendings default into it — they missed the December 31 deadline for a Solo 401(k) and needed a retirement-account option that could still be opened for last year. Fixable next year, but a real short-term reason to pick SEP-IRA.

Choosing a custodian

Solo 401(k)s from the big three (Fidelity, Schwab, Vanguard) have been free to open, free to maintain, and offer the standard index-fund lineup you'd want. Fidelity's plan has historically had the most flexibility on Roth and rollovers.

Beware "specialty" Solo 401(k) providers that charge asset-based fees or push you into higher-cost fund lineups. For a straightforward W-2/1099 oncologist, the free plans from major brokerages are sufficient.

When SEP-IRA still wins

Not often, but:

• You're doing your first year of 1099 work, missed the December 31 Solo 401(k) deadline, and want to shelter something for the prior tax year.
• Your net SE income is modest enough (say, under $100K) that the 25% cap is more than you'd actually contribute anyway, and simplicity is worth the loss of Roth access.
• You genuinely don't want to touch a 5500-EZ ever, and you're comfortable capping out well below the DC limit.

Bottom line

For a graduating hem/onc fellow taking a 1099 position or doing significant 1099 moonlighting on top of a W-2, open a Solo 401(k) before December 31 of the tax year you'll first earn contractor income. You keep every option — pre-tax deferrals, Roth deferrals, employer profit sharing, loans — and you can always contribute less if you don't want to max out.

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About this article. This is a draft written by LeoMed staff, pre-review by a physician-focused CPA. IRS contribution limits change annually; verify current-year figures before acting. Nothing here is tax advice for your specific situation.