The comparison usually gets framed as a contest over how much you can contribute. That framing is wrong, and it sends physicians toward the wrong account.
For a physician with self-employment income, the SEP IRA and the solo produce an identical employer contribution: 20 percent of net earnings from self-employment after the deduction for one-half of self-employment tax. Same formula, same rate table in Chapter 5 of IRS Publication 560, same dollar. The employer side is a tie, always. Every real difference lies somewhere else — and for a physician, the difference that decides it is not a contribution limit at all. It is what the account does to your .
The employer contribution is a tie, so stop comparing that column
Both accounts cap employer contributions at 25 percent of compensation, which for a self-employed person resolves to 20 percent of net earnings after the self-employment tax adjustment. Both are subject to the same section 415(c) annual additions limit, which IRS Notice 2025-67 sets at $72,000 for 2026.
If you look only at that column, the accounts are interchangeable. Here is everything else.
| SEP IRA | Solo 401(k) | |
|---|---|---|
| Employer contribution | 20 percent of adjusted net earnings | 20 percent of adjusted net earnings, identical |
| Employee elective deferral | None | Up to $24,500 for 2026, shared across all your 401(k) and plans |
| Roth option | Limited; Roth SEP contributions require adopting plan language many documents lack | Designated Roth deferrals if the plan document permits |
| Counts in the IRA base | Yes | No |
| Participant loans | Not permitted | Permitted if the plan document allows |
| Annual filing | None | Form 5500-EZ once plan assets reach $250,000 |
| Establishment deadline | Due date of the return, including extensions | Due date of the return, without extensions, for a first-year retroactive deferral |
| Ongoing paperwork | Minimal | Adoption agreement, deferral elections, eventual filings |
The pro-rata rule is the whole argument, and it is not close
Under section 408(d)(2) of the Internal Revenue Code, all of your traditional, SEP, and SIMPLE IRAs are treated as a single contract for the purpose of figuring the taxable portion of any distribution or conversion. The instructions implement this at line 6, which asks for the total value of all traditional, SEP, and SIMPLE IRAs as of December 31 of the conversion year.
The consequence for a physician is direct. A physician above the Roth income phase-out contributes to a and converts, which is only clean when the pre-tax IRA balance is zero. A SEP IRA sits in that pro-rata base. A solo 401(k) does not, because employer plan assets are not IRAs and never appear on line 6. One account quietly taxes every future backdoor Roth conversion; the other leaves it alone.
Example calculation
Assumptions, stated explicitly: 2026 tax year. Physician with a $180,000 SEP IRA balance, entirely pre-tax, on December 31. Makes a $7,500 nondeductible traditional IRA contribution and converts the full $7,500 to Roth. 2026 IRA limit from IRS Notice 2025-67. No other IRAs.
Total non-Roth IRA value at December 31, including the converted amount: $180,000 + $7,500 = $187,500 Nondeductible basis: $7,500 Nontaxable fraction of the conversion: $7,500 / $187,500 = 4.0 percent
Nontaxable portion of the $7,500 conversion: $7,500 x 0.04 = $300 Taxable portion: $7,500 - $300 = $7,200
At a 35 percent federal marginal rate, tax on a conversion the physician expected to be tax-free: $7,200 x 0.35 = $2,520
The remaining $7,200 of basis is not lost. It stays on Form 8606 and stretches across future distributions over decades, which is a poor substitute for having used it now.
Repeat that every year for a decade and the SEP has cost far more than any administrative convenience it saved.
Important
The pro-rata calculation uses the December 31 balance of the conversion year, not the balance on the conversion date. Converting in March and opening or funding a SEP IRA in November of the same year still produces a taxable conversion. Any repair has to be complete by December 31 of the year you convert.
The fix is a rollover, and it has a hard December 31 deadline
If you already hold a SEP IRA and want clean backdoor Roth conversions, the standard repair is to roll the SEP balance into an employer plan that accepts incoming rollovers — a solo 401(k) from your own work, or in some cases a current employer's 401(k) or 403(b). Once the money sits in a qualified plan, it leaves the section 408(d)(2) base and stops appearing on Form 8606 line 6.
Four conditions make this work:
- The receiving plan document must accept incoming rollovers from a SEP IRA. Not every prototype document does, which is why this belongs on the checklist before you open any plan. The feature list is in the solo 401(k) setup guide.
- The transfer should be a direct trustee-to-trustee rollover, so no withholding applies and the 60-day clock never starts.
- The rollover must settle by December 31 of the year you convert, because that is the measurement date.
- Only pre-tax money moves. Any nondeductible basis stays in the IRA and remains tracked on Form 8606.
The full repair sequence, including what to do when the conversion has already happened, is in the backdoor Roth pro-rata fix. The conversion mechanics themselves are in the backdoor Roth module.
Worked comparison at $60,000 of net self-employment income
Here is the case that describes most physicians reading this: a W-2 hospital job with the 403(b) already receiving the full elective deferral, plus $60,000 of net profit from or telehealth.
Example calculation
Assumptions, stated explicitly: 2026 tax year. Net Schedule C profit of $60,000. W-2 wages from the hospital position already exceed the $184,500 Social Security wage base, so the Social Security portion of self-employment tax does not apply and only the 2.9 percent Medicare portion does. Additional Medicare tax ignored for simplicity, which understates tax slightly. The 403(b) has already received the full $24,500 elective deferral for the year.
Net earnings from self-employment: $60,000 x 0.9235 = $55,410 Medicare portion of self-employment tax: $55,410 x 0.029 = $1,606.89 Deductible half: $1,606.89 / 2 = $803.45 Adjusted net earnings: $60,000 - $803.45 = $59,196.55
Employer contribution, SEP IRA: $59,196.55 x 0.20 = $11,839.31 Employer contribution, solo 401(k): $59,196.55 x 0.20 = $11,839.31 Employee deferral available in the solo 401(k): $0, because the 403(b) consumed the $24,500 402(g) limit
Total contributed, either account: $11,839.31 Difference in dollars contributed: $0
The dollars are identical. If you stopped the analysis at the contribution column, you would call it a tie and pick the simpler account.
Now change one assumption. Suppose the same physician left the hospital job in June and the 403(b) received only $9,000 of deferrals. The remaining 402(g) room is $24,500 minus $9,000, or $15,500, and the solo 401(k) can accept it while the SEP cannot. The same $60,000 of profit shelters $27,339.31 instead of $11,839.31 — a difference of $15,500 in a single year, from a feature that does not exist in a SEP.
Quick takeaway
The employee deferral is worth $0 in a year your W-2 plan already used the full $24,500, and up to $24,500 in a year it did not. Partial years — the transition out of residency, a mid-year job change, a fellowship year, a sabbatical — are where the solo 401(k) separates itself decisively. The pro-rata advantage, by contrast, applies every single year.
One caution on the aggregate limit. A 403(b) sponsored by a hospital you do not control normally carries its own section 415(c) limit. But under Treasury Regulation section 1.415(f)-1(f), if you control the business sponsoring your own plan, the 403(b) is aggregated with that plan for annual additions purposes. The regulation's illustration is literally a physician with a hospital 403(b) and a majority-owned professional entity. Check this with your CPA before funding a large employer contribution alongside a well-funded 403(b).
What the SEP still does better
Two things, honestly.
Establishment deadline. Publication 560 states that you can set up a SEP for a year as late as the due date of your return including extensions. A solo 401(k) has a tighter first-year rule: SECURE 2.0 section 317 permits a sole proprietor to adopt a plan after year-end, but the first-year retroactive elective deferral must be elected and deposited by the original due date without extensions. If you are reading this in September with an extended return and no plan in place, the SEP may be the only account still available for that year.
Simplicity. A SEP has no adoption agreement to elect features in, no deferral elections to date and file, and no Form 5500-EZ obligation ever. For a physician with one $8,000 consulting engagement and no interest in backdoor Roth conversions, that is a defensible reason to choose it.
The broader placement question — which account to fill first across a 403(b), an , a taxable account, and this one — is mapped in the solo 401(k) and SEP IRA module.
Common questions
I already have a SEP IRA. Did I make a mistake?
Not necessarily, and it is fixable either way. If you do not do backdoor Roth conversions and do not have unused elective deferral room, the SEP has cost you nothing. If either of those applies, open a solo 401(k) that accepts rollovers, move the SEP balance in by December 31 of the year you next convert, and the problem is retired.
Can I contribute to both in the same year?
Technically it is possible, but both plans count toward the same section 415(c) annual additions limit for the same business, and the interaction creates avoidable complexity. Pick one plan for the business and consolidate.
Does a SEP IRA affect my spouse's backdoor Roth?
No. The pro-rata calculation is performed per individual. Your SEP IRA has no effect on your spouse's Form 8606, even on a joint return.
Is a Roth SEP available now?
SECURE 2.0 permits designated Roth treatment for SEP contributions, but the plan document must provide for it and many prototype documents do not. Confirm in writing rather than assuming. The solo 401(k) Roth deferral option is far more widely available.
What to do next
- Check whether you hold any pre-tax IRA money — traditional, rollover, SEP, or SIMPLE. Your December 31 statements answer this in five minutes and determine which account you should own.
- If you intend to do backdoor Roth conversions and hold a SEP, confirm in writing that a candidate solo 401(k) plan document accepts incoming SEP rollovers before opening anything.
- Pull your final pay statement of the year and read the year-to-date 403(b) deferral figure. That number, subtracted from $24,500, is the entire value of the solo 401(k) deferral feature to you this year.
- Compute your employer contribution once from actual Schedule C profit, since the figure is the same either way and should not drive the choice.
- If the SEP has to move, execute the direct trustee-to-trustee rollover well before December 31, not in the last week of the year.
- File your Form 8606 for every year with nondeductible basis, whether or not you converted, so the basis survives.
The decision is smaller than it appears once the contribution column is set aside as a tie. If you never convert to a Roth and never have unused deferral room, either account works. If either of those is true even occasionally, the solo 401(k) wins on features that the SEP structurally cannot offer. Our account-selection tools follow this same order of questions, though the protocol above works with or without us. This is education, not individualized financial advice.