Solo 401(k) vs SEP-IRA for Locum Tenens Clinicians

For nearly every 1099 locum tenens physician, CRNA, or AA, the Solo 401(k) wins. The reason is structural: a Solo 401(k) has two contribution sources — an employee elective deferral *plus* an employer profit-share — while a SEP-IRA has only one, the employer contribution. That second lever lets you put away far more at a given income, and it comes with age-based catch-ups, reliable Roth access, and a clean backdoor Roth.

The SEP-IRA has exactly one genuine advantage: simplicity. You can open and fund a SEP right up to your tax-filing deadline (including extensions), with essentially no ongoing paperwork and no Form 5500 filing. That makes the SEP a reasonable last-minute or set-it-and-forget-it choice — but you pay for that simplicity in lost deferral room and lost Roth optionality.

There is one important caveat to "Solo 401(k) always wins": at very high net self-employment income, the two converge. Both plans are ultimately capped at the 2026 Section 415(c) annual-addition limit of $72,000 (before catch-ups). Once your income is high enough that the employer-only ~20%-of-net SEP contribution alone reaches $72,000 (roughly $300,000+ of net self-employment income), the SEP matches the Solo 401(k) on the base contribution — so the Solo's dollar advantage is largest at low-to-moderate locum income, where the deferral fills first.

The Solo 401(k) has two sources stacked on top of each other; the SEP has one. That single difference drives almost everything below.

Solo 401(k) — two contribution sources:

1. Employee elective deferral — up to $24,500 for 2026, dollar-for-dollar, *regardless of how low your income is* (capped only at 100% of your compensation or earned income). This is the lever the SEP lacks. 2. Employer profit-share — up to 25% of W-2 compensation if you are an S-corp owner, or an effective ~20% of net self-employment earnings if you are a sole proprietor or single-member LLC. (The statutory 25% applied to a net base that has already been reduced by the contribution itself and the half-SE-tax deduction works out to roughly 20% of net — the special computation in IRS Publication 560.) 3. Combined cap — employee plus employer additions cannot exceed the Section 415(c) limit of $72,000 for 2026, before catch-ups.

SEP-IRA — one source only:

- Employer contribution only, up to the lesser of 25% of compensation or $72,000 for 2026 — again an effective ~20% for the self-employed under the Pub. 560 special computation. The IRS SEP FAQ is explicit: SEPs are funded by employer contributions only, and catch-up contributions apply only to employee elective deferrals — so a SEP has no deferral and no catch-up.

Why the Solo 401(k) reaches a big number at much lower income: because the deferral is *not* tied to the 25%/20% formula. Take a clinician with $100,000 of net self-employment income: a SEP caps at roughly $18,600-$20,000 (about 20% of net), while a Solo 401(k) layers a $24,500 deferral on top of that ~$18,600 employer piece for roughly $43,100+ — more than double, on the same income. The SEP only catches up once 20%-of-net by itself hits the $72,000 ceiling.

For the 2026 tax year, the headline figures are the employee deferral of $24,500, the combined Section 415(c) annual-addition cap of $72,000 (which is also the SEP dollar ceiling), and a compensation cap of $360,000 that limits the base used for the 25%/20% employer calculation in both plans.

The catch-ups are where the Solo 401(k) pulls further ahead — and a key technical point: catch-up contributions sit on top of the $72,000 Section 415(c) limit; they are not counted in annual additions. So a Solo 401(k) participant's true 2026 ceiling is:

- Under 50: $72,000 - Age 50-59: $72,000 + $8,000 catch-up = $80,000 - Ages 60-63 (the "super" catch-up): $72,000 + $11,250 = $83,250 - Age 64+: reverts to the standard $8,000 catch-up → $80,000

A SEP-IRA has none of these catch-ups — it stops at $72,000 for everyone, because catch-ups attach only to elective deferrals, which a SEP does not have.

This is the single biggest reason a high-earning locum should avoid the SEP. A funded SEP-IRA can make nearly every backdoor Roth dollar taxable; a Solo 401(k) does not.

The mechanism is the pro-rata rule on IRS Form 8606, line 6. When you convert a nondeductible traditional IRA contribution to Roth (the "backdoor"), line 6 requires you to add up the year-end value of all your traditional, SEP, and SIMPLE IRAs combined. The conversion is then taxed in proportion to the pre-tax share of that total. If you hold a large pre-tax SEP balance, most of your "backdoor" conversion is treated as coming from pre-tax money and is taxed — defeating the strategy.

A Solo 401(k) is not an IRA. 401(k) balances — including a Solo 401(k) — are excluded from the Form 8606 line 6 aggregation. You can carry a six-figure Solo 401(k) balance and still execute a clean, fully nontaxable backdoor Roth each year. That is a decisive advantage for any locum whose income exceeds the Roth IRA direct-contribution limits and who therefore relies on the backdoor.

The fix if you are already stuck in a SEP: you can generally roll the SEP-IRA balance *into* a Solo 401(k) before December 31, which removes it from the line 6 calculation and reopens a clean backdoor Roth. Confirm the timing and your plan's acceptance of rollovers with a CPA.

It depends on whether you have FICA wages — which most sole-proprietor and single-member-LLC locums do not.

Under SECURE 2.0, starting in 2026 catch-up contributions must be made as Roth (after-tax) for anyone whose prior-year (2025) FICA wages from the plan-sponsoring employer exceeded $150,000 (the threshold was raised from $145,000 by Notice 2025-67). "FICA wages" here means Section 3121(a) Social Security wages — essentially W-2 Box 3.

Sole proprietors and single-member-LLC locums have no FICA wages. Their Schedule C net earnings are self-employment income, not Section 3121(a) wages, so the Roth-only mandate generally does not apply to them — they can still make pre-tax catch-up contributions in 2026.

An S-corp locum is different. If you operate as an S-corp and pay yourself a W-2 salary over $150,000 in 2025, you *are* subject to the rule and must route your 2026 catch-ups to Roth. This interacts directly with the S-corp reasonable-salary strategy — see the cross-link below.

A timing note: the IRS final regulations (released September 15, 2025, as IR-2025-91) are *generally* effective for plan years beginning after December 31, 2026, but the Roth catch-up requirement itself applies starting January 1, 2026 under a reasonable, good-faith compliance standard.

Your entity determines the compensation base for the employer contribution — and a too-low S-corp salary can quietly cap how much you are allowed to save.

Sole proprietor / single-member LLC: the employer profit-share is computed off your net self-employment earnings using the Publication 560 special computation (net profit reduced by the half-SE-tax deduction and by the contribution itself), which produces the effective ~20% rate. You have no W-2 wages and — as noted above — are generally exempt from the mandatory-Roth catch-up rule.

S-corporation: for *both* the SEP 25% and the Solo 401(k) employer 25%, the contribution is computed off W-2 wages only. S-corp distributions and K-1 profit do not count as compensation for retirement contributions. This creates a real tension with the S-corp payroll-tax-minimization strategy: the same low "reasonable salary" that minimizes Social Security and Medicare tax also caps your retirement-savings capacity, because the 25% employer contribution and the deferral are both limited by that W-2 figure. If you set a salary too low to chase payroll-tax savings, you may forfeit thousands in tax-advantaged retirement room. (See the S-corp guide for the reasonable-salary analysis.)

Here is the full side-by-side for the 2026 tax year. The short version: the Solo 401(k) beats the SEP on contribution room at most income levels, on catch-ups, on reliable Roth and mega-backdoor Roth access, and on keeping the backdoor Roth clean; the SEP beats the Solo only on administrative simplicity and last-minute setup flexibility.

Two nuances in the table deserve a word. On Roth in a SEP: SECURE 2.0 Section 601 has technically *permitted* Roth SEP contributions since 2023, but adoption is rare — most custodians still offer traditional pre-tax SEPs only, and the employer is not required to offer the Roth option. In practice, treat the SEP as pre-tax/no-Roth and rely on the Solo 401(k) for Roth. On admin: a Solo 401(k) generally must file Form 5500-EZ once plan assets exceed $250,000, while a SEP has no 5500 filing — the one place the SEP is genuinely simpler.