Retirement Plans for New Optometry Practices: SEP IRA vs Solo 401(k)
Compare SEP IRA and Solo 401(k) for new optometry practices. Learn contribution limits, deadlines, and steps to set up your retirement plan.
When you open an optometry practice, one of the first business decisions is how to save for retirement. Two popular options are the SEP IRA and the Solo 401(k). Both allow you to contribute pre-tax dollars, but they differ in contribution limits, flexibility, and administrative burden. This guide compares them directly so you can choose the right one for your new practice.
Contribution Limits: How Much Can You Save?
For 2026, the IRS has increased contribution limits. Here are the numbers you need:
- SEP IRA: You can contribute up to 25% of your net self-employment income, capped at $70,000. The calculation is based on net earnings, which is your profit after deducting half of self-employment tax and the plan contribution itself. For a practice earning $100,000 in net profit, the maximum contribution is about $18,587 (25% of $74,349, the adjusted net earnings).
- Solo 401(k): You can contribute as an employee (up to $23,500 in 2026, plus a $7,500 catch-up if you’re 50 or older) and as an employer (up to 25% of compensation, capped at $70,000 total). The total combined limit is $70,000 (or $77,500 with catch-up). For the same $100,000 net profit, you could contribute $23,500 as employee plus up to $18,587 as employer, totaling $42,087.
Key takeaway: If you want to save more than $18,000 to $20,000 per year, the Solo 401(k) is the better choice. Most new optometrists who are single owners or have a spouse can benefit from the higher limit.
Deadlines and Setup Time
- SEP IRA: You can set up a SEP IRA as late as your tax filing deadline, including extensions (usually October 15 for calendar-year filers). Contributions can also be made by that deadline. This gives you flexibility if you have a profitable year and decide to save after year-end.
- Solo 401(k): You must open the plan by December 31 of the tax year to make employee deferrals for that year. Employer contributions can be made by the tax filing deadline. So if you want to contribute as an employee, you need to act before year-end.
Practical step: If you’re starting your practice mid-year, decide by November whether you want a Solo 401(k) so you have time to set it up.
Administrative Requirements and Costs
- SEP IRA: Minimal paperwork. You open an account at a brokerage (e.g., Fidelity, Vanguard, Schwab) and fill out a one-page adoption agreement. No annual filing required unless you have over $250,000 in assets, then you file Form 5500-EZ. Costs are typically $0 to $50 per year for account fees.
- Solo 401(k): More paperwork. You need a written plan document, which you can get free from many brokerages, but you must also track contributions and file Form 5500-EZ annually once your plan assets exceed $250,000. Some providers charge a setup fee (e.g., $50 to $200) and annual administrative fees if you use a third-party administrator. However, many discount brokerages offer free Solo 401(k) plans with no annual fee.
Comparison table:
| Feature | SEP IRA | Solo 401(k) |
|---|---|---|
| Contribution limit (2026) | 25% of net earnings, max $70,000 | Employee deferral up to $23,500 + employer up to 25%, total max $70,000 |
| Deadline to open | Tax filing deadline (including extensions) | December 31 for employee deferrals |
| Deadline to contribute | Tax filing deadline | Tax filing deadline for employer contributions |
| Annual filing | Form 5500-EZ if assets > $250,000 | Form 5500-EZ if assets > $250,000 |
| Setup cost | $0 at most brokerages | $0 to $200 at some providers |
| Administrative complexity | Low | Moderate |
| Loan option | No | Yes, up to $50,000 or 50% of vested balance |
| Roth option | No | Yes, can make Roth employee contributions |
Who Should Choose Which?
Choose SEP IRA if:
- You want simplicity and low cost.
- You expect to contribute less than $23,500 per year.
- You might have employees in the future (SEP IRA requires equal contributions for all eligible employees, but Solo 401(k) also has rules).
- You want maximum flexibility to contribute after year-end.
Choose Solo 401(k) if:
- You want to maximize your retirement savings, especially if you’re over 50.
- You want the option to take a loan from your retirement account (though not recommended for most).
- You want to make Roth contributions to diversify your tax situation.
- You are the only employee (or your spouse is also employed by the practice).
Practical Steps to Set Up Your Plan This Week
- Estimate your net income: Look at your practice’s profit and loss statement to estimate your net self-employment income for the year. This determines your contribution limit.
- Choose a provider: For SEP IRA, open an account at Fidelity, Vanguard, or Schwab. For Solo 401(k), check if your preferred brokerage offers a free plan. Many do, but verify the plan document includes the provisions you need.
- Complete the adoption agreement: For SEP IRA, fill out the simple form. For Solo 401(k), you’ll need to sign a plan document and possibly an adoption agreement. This takes 15 to 30 minutes.
- Set up a contribution schedule: Decide how much to contribute monthly or quarterly. Automate transfers to stay consistent.
- Track your contributions: Use a spreadsheet or accounting software to track employee and employer contributions separately for Solo 401(k).
FAQ
Can I have both a SEP IRA and a Solo 401(k)? Yes, but the total contributions across all plans cannot exceed the annual limit ($70,000 for 2026). For most new practices, it’s simpler to pick one.
What if I hire employees later? Both plans have rules: SEP IRA requires you to contribute the same percentage for eligible employees (those over 21, worked 3 of last 5 years, and earned $750 in 2026). Solo 401(k) also has coverage requirements, but you can amend the plan to include employees. Many practices switch to a regular 401(k) when they hire staff.
Do I need to file Form 5500-EZ? Only if your plan assets exceed $250,000. For a new practice, it’s unlikely in the first few years, but monitor your balance.
Can I contribute to a SEP IRA after the tax deadline? Yes, you can make contributions up to the tax filing deadline, including extensions. This is a key advantage if you have a profitable year and want to reduce taxable income.
The Bottom Line
For a new optometry practice, the Solo 401(k) offers higher contribution limits and more flexibility, but with slightly more paperwork. If you expect to save more than $23,500 per year or want Roth options, choose the Solo 401(k). If you prefer simplicity and don’t need to max out contributions, the SEP IRA is a solid, low-cost choice. Start by estimating your income, then open an account with a reputable brokerage. Take action this week to secure your retirement savings and reduce your tax bill.