Retirement Plans for New Vet Clinics: SEP IRA vs Solo 401(k)

2026-08-21

Compare SEP IRA and Solo 401(k) for new vet clinics. Learn costs, limits, deadlines, and steps to choose the right retirement plan.

Starting a new vet clinic means making dozens of business decisions, and retirement planning is one you shouldn’t put off. For a solo owner or an owner with a spouse on payroll, the two most practical options are the SEP IRA and the Solo 401(k). Both are tax-deferred, easy to set up, and have low costs. This guide compares them directly so you can pick the one that fits your income, hiring plans, and administrative tolerance.

What Is a SEP IRA?

A Simplified Employee Pension (SEP) IRA is a retirement plan funded entirely by employer contributions. You, as the employer, contribute up to 25% of each employee’s compensation, capped at a dollar limit. For 2026, that cap is $70,000 (up from $69,000 in 2025). If you’re self-employed, the calculation is slightly different: you contribute up to 20% of your net self-employment income, adjusted for half of self-employment tax.

Key features:

No employee contributions allowed (only employer).
Contributions are discretionary: you can contribute $0 in a lean year.
Setup is free or low-cost at most brokerages.
No annual filing requirement (Form 5500) as long as plan assets stay under $250,000.
If you have employees, you must contribute the same percentage for each eligible employee (those 21+ with 3 years of service).

What Is a Solo 401(k)?

A Solo 401(k), also called an individual 401(k), is designed for a business owner with no employees other than a spouse. It combines an employee deferral (like a traditional 401(k)) with an employer profit-sharing contribution.

For 2026, the employee deferral limit is $23,500 (under 50) or $30,500 (50+ with catch-up). The total contribution limit (employee + employer) is $70,000, or $77,500 with catch-up.

Key features:

You can contribute as both employee and employer.
Employee deferrals are pre-tax or Roth (Roth option available in most plans).
Employer profit-sharing is tax-deductible.
No employees allowed (except a spouse), or you lose Solo status.
Requires an annual Form 5500 once assets exceed $250,000.

SEP IRA vs Solo 401(k): Head-to-Head

Here’s a direct comparison of the two plans for a new vet clinic owner.

Feature	SEP IRA	Solo 401(k)
Contribution limit (2026)	Up to $70,000 (25% of comp)	Up to $70,000 ($23,500 deferral + profit share)
Employee deferrals	Not allowed	Allowed (up to $23,500)
Roth option	No	Yes (for employee deferrals)
Eligibility for employees	All employees 21+ with 3 years of service	Only owner and spouse
Annual filing (Form 5500)	Only if assets >$250,000	Only if assets >$250,000
Setup cost	$0 at most brokers	$0 at most brokers (or $100-$300 for custom plans)
Administrative burden	Low	Moderate (must track deferrals)
Deadline to set up	Tax filing deadline (including extensions)	December 31 of the tax year
Deadline to contribute	Tax filing deadline (including extensions)	Tax filing deadline (including extensions)
Best for	High income, no employees, simple	High income, want Roth, no employees

Which One Should You Choose?

Your choice depends on three factors: your income level, whether you have employees, and whether you want a Roth option.

If you have employees (non-spouse)

You cannot use a Solo 401(k). Your only option here is the SEP IRA (or a traditional 401(k), which is more complex and costly). With a SEP, you must contribute the same percentage for all eligible employees, so factor that cost into your decision. For example, if you contribute 10% of your own compensation, you must contribute 10% for each eligible employee.

If you’re solo or only have a spouse

You have a choice. Here’s a practical rule of thumb:

If you want to save more than $23,500 per year, choose the Solo 401(k). The employee deferral allows you to put away a large chunk of income as an employee, then add an employer profit share.
If you want the simplest possible plan with no employee deferrals, choose the SEP IRA. It’s one calculation, one contribution.
If you want Roth contributions, choose the Solo 401(k). SEP IRAs don’t offer Roth.

Contribution example

Let’s say you’re a new vet owner with net self-employment income of $120,000 in 2026.

SEP IRA: You can contribute up to 20% of net income, which is $24,000 (before self-employment tax adjustment).
Solo 401(k): You can contribute $23,500 as an employee deferral, plus an employer profit share of up to 25% of compensation (after the deferral). In practice, you could contribute around $23,500 + $24,000 = $47,500, but the total is capped at $70,000. So you can save nearly double with the Solo 401(k).

Steps to Set Up Your Plan This Week

Here’s what to do now, whether you choose a SEP or Solo 401(k).

Decide on the plan type based on the criteria above. If you’re unsure, start with a SEP IRA because it’s simpler and you can switch later.
Open an account at a brokerage like Fidelity, Vanguard, or Charles Schwab. All offer free SEP IRA and Solo 401(k) plans. For a Solo 401(k), you’ll need to fill out a plan document, which takes about 15 minutes online.
Set up a business bank account if you don’t have one. Contributions must come from the business account.
Calculate your contribution using the IRS worksheets or a retirement calculator. For a SEP, it’s 20% of net income (self-employed) or 25% of compensation (if you have a corporation). For a Solo 401(k), decide how much to defer as an employee.
Make your contribution by the tax filing deadline (usually April 15, plus extensions). For a Solo 401(k), the employee deferral must be elected by December 31 of the tax year, but you can make the actual deposit later.
Track your plan assets and file Form 5500-EZ if your balance exceeds $250,000 (this typically won’t happen in year one).

Common Mistakes to Avoid

Missing the December 31 deadline for Solo 401(k) deferral elections. You must decide how much to defer by year-end, even if you deposit later.
Hiring an employee and forgetting you have a Solo 401(k). Once you hire a non-spouse employee, you must either amend the plan or switch to a SEP.
Ignoring the 3-year service rule for SEP eligibility. If you have employees, you must include those who meet the age and service requirements.
Not considering the Roth option. If you expect to be in a higher tax bracket in retirement, Roth contributions can be valuable.

FAQ

Can I have both a SEP IRA and a Solo 401(k)?

Yes, but the total contribution limit across all plans is $70,000 for 2026. You can’t exceed that combined limit. In practice, it’s usually simpler to pick one.

What if I hire an employee later?

If you have a Solo 401(k), you must stop making employee deferrals for yourself and either amend the plan to cover the new employee or switch to a SEP IRA. You can’t keep a Solo 401(k) with non-spouse employees.

Is there a deadline to open a SEP IRA?

You can open a SEP IRA as late as the tax filing deadline (including extensions) and still contribute for that tax year. For 2025 taxes, that’s April 15, 2026 (or October 15, 2026 with extension).

What are the costs to maintain these plans?

At major brokerages, both plans are free to open and have no annual fees. If you use a third-party administrator for a custom Solo 401(k), expect to pay $100-$300 per year.

The Bottom Line

For a new vet clinic with no employees, the Solo 401(k) offers higher contribution limits and a Roth option, making it the better choice for most owners who want to maximize savings. If you have employees or prefer zero administrative hassle, the SEP IRA is a solid, low-cost alternative. Either way, start this week: open an account, set up your plan, and make your first contribution before the deadline. Your future self will thank you.