Retirement Plans for Self-Employed Therapists

When you leave an agency for private practice, the 403(b) does not come with you. What replaces it is entirely your decision, and for most practice owners it is the largest deduction still available after the books are closed and the mileage is logged.

Why this is tax strategy, not just saving

A deductible retirement contribution does two jobs at once. It moves money from your practice into an account you own, and it reduces the income you are taxed on this year. For a practice owner in a meaningful bracket, that is one of the last genuinely large levers left at year end.

One caveat to set expectations: employer retirement contributions reduce income tax, but they do not reduce self-employment tax for a sole proprietor. The 15.3% layer is computed before the plan deduction. That is a structural reason some owners look at the S-corp question and retirement planning together rather than separately.

The plain IRA, traditional and Roth

Start with the floor. Anyone with earned income can contribute up to $7,500 to an IRA for 2026, plus a $1,100 catch-up at age 50 or older. That limit is shared across all your IRAs. It is $7,500 total, not $7,500 each.

A traditional IRA contribution may be deductible, but the deduction phases out at surprisingly modest income if you (or your spouse) are covered by a workplace plan. A Roth IRA gives no deduction now and tax-free qualified withdrawals later, and it has its own income phase-out, for 2026, roughly $153,000 to $168,000 for a single filer and $242,000 to $252,000 for a married couple filing jointly.

An IRA is a fine first step for a practice in its first year or two. It is not a plan for a profitable practice, because the ceiling is too low to move your tax picture. It is, however, an excellent supplement alongside a business plan, and it is worth doing for a non-working or lower-earning spouse as well.

SEP-IRA: simple, generous, and dangerous once you hire

A SEP-IRA is employer-funded only. There is no employee deferral. The practice contributes up to 25% of compensation, capped at $72,000 for 2026. For a sole proprietor the calculation works out to roughly 20% of net earnings from self-employment (your profit less half of your self-employment tax), because the contribution reduces the base it is computed on.

Its virtues are real: almost no paperwork, no annual filing, and it can be opened and funded as late as your extended tax filing deadline, which makes it the plan people reach for when they discover a large tax bill in September.

Its flaw is equally real. You must contribute the same percentage of compensation for every eligible employee. If you contribute 20% for yourself, you contribute 20% for the administrative assistant and every eligible clinician on payroll. Eligibility is broad too, generally an employee aged 21 who has worked for you in three of the last five years and earned at least a threshold amount ($800 for 2026). For a solo practice, excellent. For a group practice with W-2 staff, this is how a good idea becomes an unaffordable one.

SIMPLE IRA: the small-team option

A SIMPLE IRA sits in the middle. Employees, including you, can defer up to $17,000 for 2026, with a $4,000 catch-up at 50 or older. Certain small employers may use slightly higher limits, and there is an enhanced catch-up for ages 60 through 63. The employer must then either match up to 3% of compensation or make a 2% nonelective contribution for everyone eligible.

It is designed for employers with 100 or fewer employees, it is much cheaper to run than a full 401(k), and the required employer contribution is far lighter than a SEP's. Two things to know before you commit: it must generally be established by October 1 for the current year, and withdrawals within the first two years of participation can carry a 25% early-distribution penalty rather than the usual 10%. Rolling money out early is punitive.

Solo 401(k): the highest ceiling for an owner-only practice

For a practice with no employees other than you and, if applicable, your spouse, this is usually the strongest option, because you contribute in two capacities.

• As the employee: up to $24,500 in elective deferrals for 2026, plus a $8,000 catch-up at age 50 or older, or $11,250 for those aged 60 to 63 under the enhanced catch-up rules.
• As the employer: up to 25% of your W-2 compensation if the practice is an S corporation, or roughly 20% of net self-employment earnings if you are a sole proprietor.
• Combined, capped at $72,000 for 2026, not counting catch-up contributions.

Two features matter beyond the ceiling. Most Solo 401(k) providers offer a Roth deferral option, which a SEP does not, useful in a year when your income is unusually low, or if you expect higher rates later. And a Solo 401(k) can permit plan loans, which IRAs cannot. Administration is light, but once plan assets pass $250,000 you have an annual Form 5500-EZ to file.

The SEP is the plan you can open in September to fix a tax bill. The Solo 401(k) is the plan you open in advance because you were paying attention. The trade-off in one sentence

The four options, side by side

How your S-corp salary changes the math

This is the interaction most practice owners have never had explained, and it can be worth thousands.

If your practice is an S corporation, the employer contribution is based on your W-2 wages only. Distributions do not count. So the same instinct that says "keep the salary low to save payroll tax" also lowers the ceiling on what you can put into your retirement plan.

Compare two owners, each with $100,000 available, each under 50, each using a Solo 401(k):

• Sole proprietor, $100,000 of net profit. Employee deferral of $24,500, plus an employer contribution of roughly 20% of net earnings after the self-employment tax adjustment, around $18,600. Total in the region of $43,100.
• S corporation, $100,000 of W-2 salary. Employee deferral of $24,500, plus an employer contribution of 25% of $100,000, or $25,000. Total $49,500.

Now imagine that same S-corp owner had set salary at $50,000 to minimize payroll tax. The employer contribution ceiling drops to $12,500, and roughly $12,500 of retirement funding capacity disappears in exchange for a payroll-tax saving that may well be smaller. Reasonable compensation, payroll tax and retirement capacity are one decision, not three, which is why we look at them together in an S Corp Strategy Report rather than in isolation.

The trap that catches high earners

If your income is above the Roth IRA phase-out, you may have heard of the backdoor approach, contributing to a traditional IRA and converting it to a Roth. It works, but there is a rule that quietly ruins it: when you convert, the taxable portion is computed across all of your traditional, SEP and SIMPLE IRA balances, not just the account you converted.

So a practice owner sitting on a large SEP-IRA balance who tries a backdoor Roth ends up with a mostly taxable conversion. A Solo 401(k) balance is not counted in that calculation. If Roth conversions are part of your longer-term plan, that difference alone can be the deciding factor between a SEP and a Solo 401(k), and it is worth raising with your CPA before you open either.

What changes when you hire

Every plan above assumes a particular staffing picture, and hiring changes it:

• A Solo 401(k) stops being available once you have a common-law employee who meets the plan's eligibility rules, a spouse does not count against you. You convert to a regular 401(k), which brings nondiscrimination testing, or adopt a safe harbor design that trades a required employer contribution for skipping the testing.
• A SEP becomes expensive fast, because you owe every eligible employee the same percentage you take.
• A SIMPLE is often the sensible landing spot for a small W-2 team, predictable cost, low administration.
• Long-term part-time staff now count. Under current rules an employee who works at least 500 hours in consecutive years can become eligible to defer even without meeting a full-time threshold. Part-time front desk and per-diem clinicians are not automatically outside the plan.
• Independent contractors are not employees for plan purposes, but if you have misclassified someone, you have a retirement plan problem on top of a payroll tax problem. See the group practice bookkeeping guide for that discussion.

Two more things worth raising with your advisor. Small employers starting a new plan may qualify for tax credits covering plan start-up costs, plus an additional credit for contributions made on behalf of employees, which can offset much of the first years' expense. And a growing number of states now require employers above a certain size to either offer a plan or register for a state-run auto-IRA program. Check whether yours does.

Deadlines, which are not all the same

• IRA, contribute for the prior year up to the April filing deadline, no extensions.
• SEP-IRA, establish and fund up to your extended filing deadline. The most forgiving option, which is why it rescues so many September conversations.
• SIMPLE IRA, generally must be established by October 1 for the current year.
• Solo 401(k), recent legislation lets a sole proprietor adopt a plan for the prior year up to the filing deadline for that first plan year, with employee deferrals permitted in limited circumstances. In practice, if you want reliable access to the full deferral, set the plan up before December 31. Employer contributions can generally follow later, up to the extended due date.

One more: elective deferrals from an S-corp salary have to actually run through payroll during the year. You cannot decide in March that you meant to defer more last year.

How to choose

Simplified, and assuming you have no employees other than a spouse:

1. Profit is modest and cash is tight. Fund an IRA, traditional or Roth depending on your bracket, and revisit next year.
2. Profit is solid, you want to save more than an IRA allows, and you plan ahead. Solo 401(k). The highest ceiling at any given income, a Roth option, and it does not block a backdoor Roth.
3. You are already past year end and need a deduction. SEP-IRA, funded before your extended deadline, with an eye on whether hiring will make it unworkable later.
4. You have W-2 staff. SIMPLE IRA or a safe harbor 401(k), priced out with the employer contribution included in your payroll budget.

This is general information rather than advice for your situation, plan choice depends on your entity, your staffing, your other income and your household picture, so please work it through with your own CPA and, where investments are involved, a licensed financial adviser. Our free 401(k) contribution calculator will show you what a given salary or profit level actually allows, and payroll and retirement is where we set these plans up alongside the payroll that funds them.