Graduate school covered a lot of ground. But retirement accounts were not part of the curriculum, and that gap follows therapists straight into private practice.
The most common question we hear: can private practice therapists put money into a 401k employed?
The answer is yes, and the version built for self-employed practitioners is often more generous than the plan a hospital or agency employer might have offered.
What matters is understanding which account type fits your practice structure, because that determines how much you can actually set aside.
Solo 401(k) Plans Are Built For Self-Employed Therapists
A Solo 401(k), sometimes called an Individual 401(k) or a one-participant 401(k), is a retirement account designed specifically for self-employed individuals with no full-time employees other than a spouse.
For a therapist running a solo private practice, it’s the closest equivalent to the 401(k) a large employer would offer, and in many situations the contribution limits are higher.
The account works on two tracks. As the employee of your own practice, you can contribute a portion of your compensation up to the annual employee deferral limit the IRS sets each year.
As the employer, you make an additional profit-sharing contribution on top of that, up to a combined ceiling the IRS adjusts annually for inflation.
Those two layers together can shelter considerably more income than a traditional employer plan where only the employee-side deferral applies. The IRS publishes updated limits each fall at its retirement plan page.
If you’re operating as a sole proprietor or single-member LLC taxed as a sole proprietor, your net self-employment income determines how much the employer side can contribute.
Your bookkeeping accuracy directly affects your retirement contribution room, which is one reason clean books matter beyond just tax filing.
How much that employer contribution can be depends significantly on how your practice is structured, and that’s worth understanding before you open any account.
How Does Your Practice Structure Affect How Much You Can Contribute?
Your practice’s legal and tax structure changes the math significantly.
A sole proprietor, a single-member LLC, and an S-corp therapist are all self-employed, but they each calculate retirement contributions differently.
For sole proprietors and single-member LLCs taxed as sole proprietors, the employer-side contribution is calculated as a percentage of net self-employment income after the self-employment tax deduction. The IRS lays out the exact formula in Publication 560, and it results in a rate somewhat below the stated percentage once the deduction is applied.
For an S-corp therapist, the employer contribution is capped at 25% of your W-2 wages from the practice, and distributions don’t count toward it. A low salary therefore shrinks the employer contribution, even in a very profitable year.
The employee-side deferral is the same regardless of structure: up to the annual IRS limit, with a catch-up contribution allowed for practitioners 50 and older.
The structure question matters most on the employer side, and the S-corp trade-off there is significant enough to be worth its own explanation.
S-Corp Therapists Should Set Salary With Retirement Contributions In Mind
When an S-corp therapist takes a W-2 salary, the employer contribution is figured on that salary alone. Profit you take as distributions above the salary doesn’t count, although the math is simpler than the self-employment tax adjustment sole proprietors work through.
In a profitable practice, a salary set very low to save payroll tax can quietly cap how much you’re able to put away each year.
This is one reason the S-corp election conversation for therapists goes beyond just payroll tax savings.
The retirement contribution math is a second dimension of the same decision, and it often pulls in the opposite direction from payroll tax savings. Therapists weighing whether to elect S-corp status should run both the payroll tax calculation and the retirement contribution comparison side by side.
Our S-Corp tax calculator is a useful starting point for that comparison.
One practical note: S-corp therapists make contributions through payroll, not directly from the business account. The employer profit-sharing contribution shows up as a payroll expense on the practice books.
Getting this right matters for both tax accuracy and clean financials.
Once you know your structure, the next question is which account type to use, and that comparison is worth looking at closely.
What Makes a 401(k) Different From A SEP-IRA For Private Practice?
Both a Solo 401(k) and a Simplified Employee Pension (SEP-IRA) let self-employed therapists save for retirement with pre-tax dollars, but the two accounts aren’t interchangeable.
The SEP-IRA only accepts employer-side contributions, with no employee deferral component. For a therapist in the early years of practice with modest net income, that means the SEP-IRA ceiling is lower.
The Solo 401(k) stacks both layers: employee deferral plus employer profit-sharing. That two-layer structure means a therapist can reach the annual combined limit at a lower income level than a SEP-IRA would require.
For a full-time therapist in private practice with a reasonable caseload, the Solo 401(k) almost always allows more total contribution than the SEP-IRA at the same income level.
The SEP-IRA wins on simplicity. Setup is straightforward; there’s no annual filing requirement, and contributions can be made up to the tax filing deadline, including extensions. The Solo 401(k) requires plan documents and, for accounts holding over a certain balance threshold, an annual IRS Form 5500-EZ.
For most therapists, the higher contribution room makes the extra step worth it.
The practical comparison between the two accounts comes down to income level and how much administration you’re willing to take on.
SEP-IRAs Are Simpler But The Solo 401(K) Usually Wins On Contribution Room
At lower net incomes, the employee-deferral component of the Solo 401(k) lets you shelter more income than the SEP-IRA’s employer-only formula produces.
At higher net incomes, both accounts approach the same combined annual ceiling, and the SEP-IRA’s simplicity becomes a more compelling trade-off.
For a therapist consistently generating solid net income from private practice, the Solo 401(k) tends to win.
For an associate therapist building a part-time practice alongside a W-2 position, the SEP-IRA may be enough, and the Solo 401(k) may be unnecessary overhead. Your accountant should run the numbers specific to your practice before you open either account.
One detail that catches therapists off guard: if you have employees at your group practice, the Solo 401(k) is no longer available. The account is restricted to practices with no full-time employees other than a spouse.
Group practice owners with W-2 therapists on staff need to look at a SIMPLE IRA or a traditional 401(k) plan instead, which is a conversation worth having before you make your first hire.
The Deadline For Opening a Solo 401(k) Matters As Much As The Contribution Limit
A Solo 401(k) has to exist before contributions go in, but the deadline to set one up is later than many therapists assume.
IRS Publication 560 lets a sole proprietor with no employees adopt a 401(k) plan after the tax year ends, as long as it’s adopted by the tax filing deadline, not counting extensions. That gives a therapist who decides in February a real option for the previous year’s income.
The SEP-IRA has more forgiving timing. Contributions can be made up to the tax filing deadline, including extensions, which can push the window to October for therapists who file extensions.
That flexibility is a real advantage if your books aren’t ready by April, and it lets you hold onto the cash until October while still deducting the contribution on the prior year’s return (March 15 and September 15 for S Corps)
Opening the plan before December 31 is still the cleaner path, especially for S-corp owners, because employee deferrals come out of wages paid through payroll during the year. The IRS explains the one-participant 401(k) timing rules on its retirement plans page. Employer contributions can generally be made up to the tax filing deadline, but the plan document has to exist first.
There’s one more dimension of the Solo 401(k) worth understanding before you choose a provider.
Traditional and Roth Options Exist Within the Solo 401(k)
The Solo 401(k) isn’t limited to pre-tax contributions. Many plan providers also offer a Roth option for the employee-deferral side, which means contributions go in after taxes but growth and qualified withdrawals are tax-free.
For a therapist expecting to be in a higher bracket in retirement, or who wants to diversify tax exposure across both pre-tax and post-tax accounts, the Roth Solo 401(k) is worth a conversation with your accountant.
The employee deferral can go into the Roth bucket if your plan offers it. Since SECURE 2.0, a plan can also let you treat the employer profit-sharing contribution as Roth, but many Solo 401(k) providers still don’t offer that option, so check your plan document before you count on it. Whether to split contributions between traditional and Roth depends on your current tax rate, expected retirement income, and how much flexibility you want later.
This planning conversation is worth having when you set up the account.
One thing to confirm before opening: the Roth option isn’t available at every plan provider. If the Roth Solo 401(k) matters to you, verify it’s available before selecting a custodian.
Get Retirement Planning Help From A CPA Who Knows Therapy Practices
Retirement planning is one piece of private practice financial health, and it connects directly to how your practice is structured, how you pay yourself, and how your books are kept.
If any of this is on your mind, book a call with our private practice accounting team. We work with therapists at every stage of practice, from solo to group, and we’re glad to help you figure out which account makes sense for your situation.
About the Authors
Mebea Yohannes is the CEO and co-founder of Traktion, an accounting firm built specifically for therapists and mental health practitioners in private practice. Yeshi Negga, CPA is the co-founder and COO. Together, they help solo and group therapy practice owners across the United States with monthly bookkeeping, year-round tax planning, S-Corp analysis, and owner compensation strategy.