Why Self-Employed Dentists Are Replacing the SEP IRA With a Solo 401(k) and Saving Up to $23,000 More Per Year

Why Self-Employed Dentists Are Replacing the SEP IRA With a Solo 401(k) and Saving Up to $23,000 More Per Year

David Beren

6 min read

Quick Read

A Solo 401(k) allows self-employed dentists to contribute roughly $51,000 annually compared to $28,000 with a SEP IRA, creating approximately $23,000 in additional tax-deferred savings per year and reducing the annual tax bill by roughly $7,360 for those in the 32% federal bracket.

The Solo 401(k) is the only current option for dentists to make Roth contributions and execute a Mega Backdoor Roth strategy, enabling tax-free growth and income control for those planning practice sales that would otherwise trigger Social Security taxation and Medicare surcharges.

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A self-employed dentist with a net Schedule C profit of $150,000 and a SEP IRA is leaving roughly $23,000 in tax-deferred savings on the table every year. The Solo 401(k) closes that gap and, for dentists who expect a large practice sale at retirement, also offers a path around one of the most expensive tax traps in retirement planning.

Where the SEP IRA Runs Out of Road

The SEP IRA only permits employer contributions. For a self-employed dentist, that means 25% of net self-employment income, which works out to roughly 20% after the self-employment tax deduction, or about $28,000 on $150,000 of net profit. The math is simple, and the ceiling arrives quickly.

The Solo 401(k) operates differently. As both employer and employee, the dentist can make contributions in both roles. The IRS allows a Solo 401(k) participant to make contributions in both the employee and employer roles, enabling a higher combined contribution than the SEP IRA permits. For 2026, the employee deferral limit alone is $24,500, and the employer profit-sharing portion adds up to 20% of your adjusted net self-employment income on top of that. At $150,000 of net Schedule C income, the combined total reaches approximately $51,000, compared to $28,000 under the SEP IRA. That is roughly $23,000 more per year directed into a tax-deferred account.

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For a dentist in the 32% federal bracket, $23,000 in additional pre-tax contributions reduces the current year tax bill by roughly $7,360. Over a decade, that additional sheltered capital compounds without annual tax drag.

The Roth Election and the Practice Sale Problem

The Solo 401(k) allows for both employee and employer Roth contributions. Although Roth SEP IRAs have been authorized by a future provision of the SECURE 2.0 Act, they are not yet available to dentists for the 2026 tax year. That provision does not take effect until 2027 at the earliest. Therefore, the Solo 401(k) remains the only reliable tool for dentists who want to make Roth contributions, including both employee deferrals and employer profit-sharing contributions, up to the full $72,000 annual limit for 2026, allowing all future growth to be tax-free.

This matters most for dentists planning a practice sale. A sale typically generates a large lump-sum gain in a single year, pushing taxable income well above the thresholds at which Social Security benefits become taxable, and IRMAA Medicare surcharges begin. A dentist who has been converting contributions to Roth during accumulation years arrives at retirement with tax-free money that does not count toward those thresholds. Roth accounts also have no required minimum distributions during the owner's lifetime, making future income more controllable.

The Solo 401(k) also supports the Mega Backdoor Roth, a strategy that is unavailable in a SEP IRA. Plans allowing after-tax contributions can accept non-deductible dollars up to the overall $72,000 annual limit for 2026, which can then be converted to Roth status. For a high-income dentist who has already maxed the standard employee deferral and employer contribution, this adds another layer of Roth capacity.

The Catch-Up Numbers for Dentists Over 50

SECURE 2.0 created a tiered catch-up structure benefiting older practitioners. For 2026:

Ages 50 to 59 and 64 and older can add a catch-up contribution of $8,000 to the standard employee deferral, bringing the employee contribution ceiling to $32,500.

Ages 60 to 63 receive a higher "super catch-up" of $11,250, pushing the employee deferral ceiling to $35,750. The total plan limit (employee deferrals plus employer contributions) becomes $81,250 for this age group, because the super catch-up adds only the $3,250 excess above the regular $8,000 catch-up to the base $72,000 limi

A 61-year-old solo dentist with $150,000 of net income can contribute the full employee super catch-up plus the employer profit-sharing portion, reaching a total well above what the SEP IRA permits at any age.

The One Rule That Ends Eligibility

The Solo 401(k) carries a hard eligibility requirement that disqualifies many practices. The plan is only available to self-employed individuals with no full-time W-2 employees other than a spouse. A dentist who hires even one full-time non-owner employee must move to a different plan structure, such as a SIMPLE IRA, SEP, or traditional group 401(k).

This is the operational trigger that keeps most dentists from switching. A solo practitioner or a dentist whose only employee is a spouse qualifies. Once that changes, the Solo 401(k) generally must be terminated by the end of the following plan year, with assets rolled into a SEP, SIMPLE, or traditional group 401(k). Dentists growing their practice and anticipating added staff may want to model both scenarios before establishing the plan.

Switching From a SEP IRA: What to Verify Before Setting Up the Plan

The contribution gap varies by income level. The $23,000 figure applies to $150,000 of net income; the gap narrows at lower income levels and widens as income rises toward the point where the SEP IRA also approaches its ceiling.

The Roth election decision depends on expected retirement income, particularly if a practice sale is within 10 to 15 years. Modeling the tax cost of Roth contributions now, versus RMD and IRMAA exposure later, can clarify whether the pre-tax or Roth path yields a lower lifetime tax burden.

Employee headcount determines eligibility. If the practice employs part-time staff with fewer than 1,000 hours per year, that does not automatically trigger disqualification. However, SECURE 2.0 tightened part‑time employee rules for standard 401(k)s. For a Solo 401(k), any non‑spouse employee working 1,000+ hours per year still disqualifies you. A plan administrator can review your specific staff before you establish the plan.

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