Most DPC owners end up choosing between a SEP IRA, a Solo 401(k) and a SIMPLE IRA. Which one fits depends mostly on whether you have employees, how much you want to put away, and how much paperwork you'll put up with. Your CPA picks the right one with you, and the contribution limits change every year.
SEP IRA
Only the practice contributes, as a percentage of each person's pay. It's the simplest to set up and run, and you decide each year how much to put in, including nothing.
The catch comes when you hire. Eligible employees have to get the same percentage you give yourself. If you put in 15% of your own pay, an eligible medical assistant gets 15% of theirs.
Solo 401(k)
This one is for an owner with no employees other than a spouse. You contribute twice: once as the employee, from your pay, and once as the employer, from the practice. That usually lets you put away more at the same income than a SEP.
It takes more paperwork, and once the plan holds enough money it needs its own annual filing. When you hire your first eligible employee, it's no longer a solo plan, and your CPA will need to help you change course.
SIMPLE IRA
Built for small employers with staff. Employees can put in part of their own pay, and the practice either matches up to a set percentage or gives everyone eligible a fixed percentage. The limits are lower than a 401(k), and so are the cost and the paperwork.
A SIMPLE IRA generally has to be set up by October 1 to take effect that year, so it's a fall decision, not a December one.
How to think about the choice
- No employees and want to save a lot: your CPA will likely look at a Solo 401(k).
- No employees and want the least paperwork: a SEP is often enough.
- Staff now or soon, and want them to save too: a SIMPLE IRA or a regular 401(k).
Each plan has its own setup and contribution deadlines, and some fall before December 31. Ask your CPA in the fall, not in April.
Where the money comes from
Retirement contributions are cash leaving the practice. Treat them like owner pay. They come after your bills, your reserve and your tax set-aside. This post walks through that order.
In a made-up example, your CPA says you can put $30,000 away this year. If your reserve isn't full yet, I'd set up a monthly transfer of $2,500 instead of one large deposit in March, so the practice never runs short.
How it shows up in your books
Contributions for employees are a business expense. Your own contributions are recorded depending on how the practice is taxed. Tell your bookkeeper which plan you have, and send the plan statements so every deposit gets recorded right.
What I'd do this week
- Ask your CPA which plan fits and what this year's deadlines are.
- Check that your reserve and tax savings are on track before you commit to a number.
- If you already have a plan, send your bookkeeper this year's statements.
Common questions
Can I have more than one plan?
Sometimes, but the rules get complicated quickly. Ask your CPA before opening a second plan.
Do I have to cover my employees?
With a SEP or SIMPLE IRA, eligible employees are included under the plan's rules. Your CPA or plan provider can tell you who counts as eligible.
Is the practice itself a retirement plan?
It can be part of one, but I wouldn't count on selling it. Putting money away every year in a real account is the safer path.
Want to know what you can afford to put away?
We close your books every month and show you profit and cash by the 15th, so you and your CPA can set a retirement number the practice can carry. If that's what you need, apply to work with us.