Retirement Plans for New Chiropractic Offices: SEP IRA vs Solo 401(k)
Compare SEP IRA and Solo 401(k) for new chiropractic offices. Learn contribution limits, costs, and steps to set up your retirement plan.
When you open a chiropractic practice, retirement planning may not top your to-do list, but it should. As a practice owner, you have two powerful options for tax-advantaged retirement savings: the SEP IRA and the Solo 401(k). Both are designed for self-employed individuals and small business owners, but they differ in contribution limits, flexibility, and administrative burden. This guide compares them directly so you can choose the right fit for your new office.
SEP IRA: Simple and Low-Cost
The Simplified Employee Pension (SEP) IRA is a traditional IRA-based plan. You, as the employer, contribute to your own account and those of eligible employees. For a solo practice with no staff, it’s straightforward.
Key Features
- Contribution limit (2026): Up to 25% of your net self-employment income, capped at $70,000 (the IRS limit for 2026). Net income is your profit after deducting half of self-employment tax.
- Employee eligibility: If you have employees, you must contribute the same percentage of pay for them as you do for yourself. This can become costly as you hire.
- Setup cost: $0 to $50 if you open with a discount broker like Fidelity, Vanguard, or Charles Schwab. No annual maintenance fees at most major providers.
- Deadline to open and contribute: You can open and fund a SEP IRA up to the tax filing deadline, including extensions (typically October 15).
Pros and Cons
- Pros: Minimal paperwork, no filing requirement (unless you have employees), low cost, flexible contributions (you can skip a year).
- Cons: Lower contribution limit than a Solo 401(k) if you have high income, and mandatory contributions for employees once hired.
Solo 401(k): Higher Limits, More Complexity
The Solo 401(k), also known as an Individual 401(k), is designed for businesses with no employees other than the owner and spouse. It offers both employee deferrals and employer profit-sharing contributions.
Key Features
- Contribution limit (2026): Up to $23,500 in employee deferrals (plus $7,500 catch-up if age 50+), plus employer profit-sharing up to 25% of compensation, with a total cap of $70,000 (or $77,500 with catch-up). This can be significantly higher than a SEP IRA.
- Employee eligibility: Only you and your spouse can participate. If you hire non-spouse employees, you may need to switch to a regular 401(k) or another plan.
- Setup cost: $0 to $200 for a basic plan at providers like E*TRADE, Fidelity, or Vanguard. Some providers charge annual fees if you have a balance above a threshold.
- Deadline to open: You must open the plan by December 31 of the tax year, but you can make contributions up to the tax filing deadline.
Pros and Cons
- Pros: Higher contribution limits, allows Roth contributions (after-tax), and can take loans from the account.
- Cons: More administrative work, requires an annual Form 5500-EZ once assets exceed $250,000, and you must document plan operations.
Comparison Table: SEP IRA vs Solo 401(k)
| Feature | SEP IRA | Solo 401(k) |
|---|---|---|
| Contribution limit (2026) | Up to 25% of net income, max $70,000 | Up to $23,500 deferral + 25% profit-sharing, total max $70,000 (or $77,500 with catch-up) |
| Employee eligibility | Must include eligible employees | Owner and spouse only |
| Setup cost | $0-$50 | $0-$200 |
| Annual maintenance | Usually $0 | Usually $0, but may have fees |
| Roth option | No | Yes |
| Loan provision | No | Yes |
| Deadline to open | Tax filing deadline (April 15, or Oct 15 with extension) | December 31 of tax year |
| Form 5500-EZ filing | Not required | Required if assets >$250,000 |
How to Choose: Which Fits Your Practice?
Consider your income and hiring plans. If you’re a solo practitioner with net income under $150,000, the SEP IRA is often sufficient and simpler. For example, if your net income is $100,000, a SEP IRA allows a contribution of $25,000 (25% of $100,000). A Solo 401(k) would allow the same $25,000, but you could also defer $23,500 as an employee, bringing your total to $48,500 if you choose. That’s a significant difference.
If you expect to hire staff within a few years, the SEP IRA becomes less attractive because you must contribute for them. The Solo 401(k) also becomes problematic once you have non-spouse employees, as you’d need to convert to a standard 401(k) plan, which is more expensive. In that case, you might start with a SEP IRA and switch later, or consider a SIMPLE IRA (another option, but not covered here).
Practical rule: If you want maximum savings and have no employees, choose a Solo 401(k). If you value simplicity and may hire soon, start with a SEP IRA.
Steps to Set Up Your Plan This Week
- Estimate your net income from your practice’s profit and loss statement. This determines your contribution limit.
- Choose a provider. For SEP IRA, call Fidelity, Vanguard, or Schwab. For Solo 401(k), the same providers offer plans; some have online applications.
- Open the account. For SEP IRA, you can open it online in 15 minutes. For Solo 401(k), you’ll need to complete a plan document, which may take a few days.
- Set up automatic transfers. Even if you contribute annually, schedule monthly transfers to build discipline.
- Document your plan. For Solo 401(k), keep records of contributions and plan adoption.
FAQ
Can I have both a SEP IRA and a Solo 401(k)? No, you cannot have both for the same tax year if you’re self-employed. You must choose one. However, you can have a traditional IRA in addition, but contributions are limited.
What happens if I hire an employee? If you have a SEP IRA, you must contribute for eligible employees. If you have a Solo 401(k), you’ll need to amend the plan or switch to a standard 401(k) once you hire non-spouse employees.
When is the deadline to open a Solo 401(k)? You must open the plan by December 31 of the tax year. Contributions can be made up to the tax filing deadline.
Are there penalties for early withdrawal? Yes, both plans have a 10% penalty for withdrawals before age 59½, plus income tax. Exceptions apply for disability or first-time homebuyers.
The Bottom Line
For a new chiropractic office, the choice between a SEP IRA and a Solo 401(k) hinges on your income, hiring plans, and desire for administrative work. If you’re solo and want to maximize savings, the Solo 401(k) offers higher limits and Roth options, but requires more setup. If you value simplicity and may hire soon, the SEP IRA is a low-cost, flexible start. Whichever you choose, act before year-end to lock in tax benefits for 2026.