Can an employed physician open a solo 401(k) for side income?
Yes, as long as the side income is self-employment income. Locums shifts paid on a 1099, expert witness fees, consulting, and medical directorships paid as an independent contractor all qualify. If a directorship pays you on a W-2 through the hospital, that money doesn’t count. The solo 401(k) is funded from your net earnings from the side work, not from your main salary.
The catch for most employed physicians is the employee deferral limit. For 2026 it’s $24,500. You can add an $8,000 catch-up at age 50 and older, or $11,250 if you’re between 60 and 63. That limit applies to you as a person, not to each plan. It’s shared across every 401(k) and 403(b) you participate in, including the one at your hospital or group. If you already max your deferrals at work, you can’t defer again into the solo 401(k).
What you can still add is the employer contribution. As the owner of your side business, you’re also its employer, and you can contribute roughly 20% of your net self-employment earnings. Net earnings means side income minus business expenses and minus half of your self-employment tax. Total contributions to the solo 401(k) can reach $72,000 for 2026. That cap applies separately to unrelated employers, so your hospital plan doesn’t use it up.
Here’s how that looks with real numbers. Say you clear $60,000 from locums after expenses. Your W-2 salary is already above the Social Security wage base, so your side income only owes the Medicare portion of self-employment tax. That leaves room for an employer contribution of about $11,800. In the 35% federal bracket, that’s roughly $4,100 less in federal tax for the year, plus state savings in most states. Getting the net earnings figure right matters, which is why our side-income package for employed physicians keeps the bookkeeping, quarterly estimates, and contribution math together.
Check what kind of plan your employer offers. Some hospital and academic jobs offer a 457(b) in addition to or instead of a 403(b). 457(b) deferrals have their own separate limit, so they don’t reduce what you can defer into a solo 401(k). If your only workplace plan is a 457(b), you may be able to put the full employee deferral plus the employer contribution into the solo 401(k), as long as your side earnings support it.
A SEP-IRA allows the same employer contribution and is simpler to open. The problem is that a SEP-IRA balance counts against you if you do backdoor Roth contributions, because of the pro-rata rule. A solo 401(k) doesn’t. Many physicians use the backdoor Roth, so the solo 401(k) is usually the better choice.
On the practical side, you’ll need an EIN and a plan document, which most brokerages provide for free. Opening the plan before year end keeps things simple. Employer contributions can generally be made up to your tax filing deadline, including extensions. Once the account passes $250,000, you’ll file Form 5500-EZ each year.
Our CIO, Marc Eastin, is a practicing neurosurgeon, so this is a situation we know well. Sorting out side income and retirement contributions is a regular part of the tax services for physicians we provide to doctors nationwide.
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