Retirement Plans for New Dental Practices: SEP IRA vs Solo 401(k)

Starting a dental practice brings many decisions, and retirement planning often gets pushed aside. But choosing between a SEP IRA and a Solo 401(k) early can save you thousands in taxes and build long-term wealth. This guide compares the two most common retirement plans for solo or small dental practices, with concrete numbers and steps to act this week.

Why Retirement Plans Matter for New Practices

As a practice owner, you wear many hats. Retirement plans offer two key benefits: tax deductions now and tax-deferred growth later. For 2026, the IRS allows you to contribute up to $23,500 to a 401(k) as an employee (plus a $7,500 catch-up if you’re 50 or older), and up to $70,000 to a SEP IRA (with a 25% of compensation limit). These limits are higher than a traditional IRA, making them powerful tools for reducing taxable income.

SEP IRA: The Simpler Choice

A SEP IRA (Simplified Employee Pension) is a traditional IRA funded by employer contributions. You can contribute up to 25% of your net self-employment income, capped at $70,000 for 2026. For a dentist earning $150,000 net, that’s a maximum contribution of $37,500. The plan is easy to set up, with no annual filing requirement (unless you have employees).

Pros:

• Low setup cost: $0 to $50 if you use a brokerage like Fidelity or Vanguard.
• No ongoing administrative fees.
• Contributions are flexible: you can skip a year if cash flow is tight.
• Deadline: you can set up and contribute up to the tax filing deadline (including extensions), typically April 15.

Cons:

• If you have employees, you must contribute the same percentage for them, which can be costly.
• Contribution limits are lower than a Solo 401(k) if you want to save more than 25% of income.
• No Roth option (though you can convert later).

Solo 401(k): More Saving Power

A Solo 401(k) is designed for self-employed individuals with no employees (other than a spouse). It allows you to contribute as both employee and employer. For 2026, you can defer up to $23,500 as an employee, plus a profit-sharing contribution of up to 25% of compensation, for a total maximum of $70,000 (or $77,500 with catch-up).

Pros:

• Higher contribution limits: if your net income is $100,000, you can contribute $23,500 (employee) + $25,000 (25% employer) = $48,500, versus $25,000 with a SEP IRA.
• Roth option available: you can designate employee contributions as Roth, allowing tax-free withdrawals later.
• Loan provision: you can borrow up to $50,000 or 50% of your account balance, which can be useful for practice cash flow.

Cons:

• More paperwork: once your account exceeds $250,000, you must file Form 5500-EZ annually.
• Setup cost: $0 to $200, depending on the provider (e.g., Vanguard, Fidelity, or a TPA).
• Must be established by December 31 to make contributions for that year (unlike SEP IRA).

Comparison Table: SEP IRA vs Solo 401(k)

Feature	SEP IRA	Solo 401(k)
2026 Contribution Limit	25% of net income, up to $70,000	Employee deferral $23,500 + 25% employer, up to $70,000 ($77,500 with catch-up)
Setup Cost	$0-$50	$0-$200
Annual Filing	None (unless you have employees)	Form 5500-EZ if balance >$250,000
Deadline to Set Up	Tax filing deadline (April 15, 2026)	December 31, 2025
Roth Option	No	Yes (for employee deferrals)
Loans	No	Yes (up to $50,000)
Best For	Simplicity, no employees	Maximizing contributions, Roth, loans

How to Choose: A Decision Framework

1. Do you have employees? If yes, a SEP IRA forces you to contribute for them, which can be expensive. A Solo 401(k) is only for solo practices, so you’d need a different plan (like a SIMPLE IRA) if you have staff. For a new practice with no employees, both work.
2. How much do you want to save? If you plan to save more than 25% of your net income, the Solo 401(k) wins because of the employee deferral. For example, on $120,000 net income, a Solo 401(k) allows $23,500 + $30,000 = $53,500, while a SEP IRA caps at $30,000.
3. Do you want a Roth option? If you expect to be in a higher tax bracket later, Roth contributions can be valuable. Only the Solo 401(k) offers this.
4. Do you need flexibility in contributions? SEP IRAs allow you to skip years. Solo 401(k)s also allow flexibility, but you must make employee deferrals consistently if you choose to contribute.

Steps to Set Up Your Plan This Week

1. Estimate your net self-employment income for 2026. Use your last year’s tax return or a conservative projection.
2. Decide on a provider. For SEP IRA: Fidelity, Vanguard, or Charles Schwab. For Solo 401(k): Vanguard, Fidelity, or E*TRADE. All offer low-cost index funds.
3. Open the account online. It takes 15-30 minutes. You’ll need your EIN and practice details.
4. For a Solo 401(k), adopt a written plan. Most providers give you a prototype plan document. If you want custom provisions, hire a TPA for $500-$1,500.
5. Set up automatic contributions from your practice checking account to the retirement account. Start with a percentage you can sustain.
6. Mark your calendar: For SEP IRA, you have until April 15, 2026, to contribute for 2025. For Solo 401(k), you must open the plan by December 31, 2025, to contribute for 2025.

FAQ

Q: Can I have both a SEP IRA and a Solo 401(k)? A: Yes, but the total contribution limit across all plans is $70,000 (or $77,500 with catch-up). Having both doesn’t increase your limit, so it’s usually unnecessary.

Q: What if I hire an associate later? A: If you hire a W-2 employee, you can no longer use a Solo 401(k). You’d need to switch to a SIMPLE IRA or a 401(k) plan. SEP IRA contributions for employees are mandatory at the same percentage, so factor that in.

Q: How much can I contribute if my net income is $80,000? A: For a SEP IRA: 25% of $80,000 = $20,000. For a Solo 401(k): $23,500 (employee) + $20,000 (25% employer) = $43,500, but the total cannot exceed $70,000, so you’re fine.

Q: Are there penalties for early withdrawal? A: Yes, 10% penalty plus income tax if you withdraw before age 59.5, unless you qualify for exceptions like disability or first-time home purchase (up to $10,000).

The Bottom Line

For most new dental practices with no employees, the Solo 401(k) offers more flexibility and higher contribution limits, especially if you want a Roth option or plan to borrow from your retirement account. The SEP IRA is simpler and cheaper to maintain, but its lower limits may not maximize your tax savings. Start with a low-cost provider, set up your plan before the deadline, and automate contributions. Review your plan annually as your practice grows and your staffing changes. The best plan is the one you actually fund consistently.

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