SEP-IRA vs. Solo 401(k): Which Fits a Self-Employed PT?

PhysioTax Updated October 2026 3 min read

Retirement contributions are one of the most useful tax planning tools a self-employed PT has. They lower your taxable income now and build savings for later. The two plans we're asked about most are the SEP-IRA and the Solo 401(k). Both can work well; they just suit different situations.

The SEP-IRA

A SEP-IRA is simple. The practice (the employer) makes the contributions, up to 25% of compensation. For a self-employed owner, the calculation works out to about 20% of net self-employment earnings once the adjustment for self-employment tax is applied.

• Easy to open, with little ongoing paperwork
• Can generally be opened and funded up to your tax filing deadline, including extensions
• No separate employee contribution, and no catch-up contribution for age 50 and over
• If you have eligible employees, you must contribute the same percentage for them that you contribute for yourself

The Solo 401(k)

A Solo 401(k) lets you contribute in two roles: as the employee (a salary deferral) and as the employer (a profit-sharing contribution). Because the employee piece doesn't depend on a percentage of profit, you can often reach a given contribution level at a lower income than with a SEP.

• Higher contributions at modest income levels
• Catch-up contributions of $8,000 for age 50 and over in 2026, with a higher limit for ages 60 to 63
• Many providers offer a Roth option
• Generally available only if you have no employees other than yourself and your spouse
• Plan paperwork, and an annual information return once plan assets exceed $250,000
• Generally needs to be set up by year-end to make employee deferrals for that year

The limits for 2026

For both plans, total contributions for 2026 are capped at $72,000 (before catch-up amounts). Most PTs won't reach the cap. What matters more is how much you can contribute at your own income, and that's where the plans differ.

How your business structure changes things

If your practice is taxed as an S-corp (see our S-corp election guide), employer contributions are generally based on your W-2 salary rather than total profit. That can lower the contribution limit, so it's worth coordinating your salary and your retirement plan together.

If you have a team

Adding employees changes the picture. A SEP requires contributions for eligible staff, and a Solo 401(k) is no longer available. Plans designed for small employers, such as a SIMPLE IRA or a traditional 401(k), may fit better. It's worth reviewing your plan before you hire.

Choosing

Start with three questions. How much do you want to save each year? Do you have, or plan to have, employees? And do you want to decide after the year closes or set up a plan now? Your answers usually point clearly to one plan. We can run the numbers with you.

Want this applied to your numbers?

We can compare both plans against your actual income and contribution goals. Book a 30-minute call and we'll look at your situation together.

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