This post is adapted from a recent episode of the Scholar Financial Advising podcast. Listen here for the full discussion.
A listener asked:
“I work as a locum tenens physician, so all of my income is 1099. Since I don’t have access to an employer retirement plan, what types of retirement accounts are available to me?”
This is a common situation for contractors and independent physicians. Without an employer to sponsor a retirement plan, it becomes your responsibility to create one. Fortunately, there are a few strong options—but choosing the right one requires a little planning ahead.
Two Main Retirement Options for 1099 Income
If you’re earning 1099 income, especially as a locum tenens physician, the two most common retirement account options are:
1. SEP IRA
A SEP IRA is easy to set up and allows for high contribution limits. However, there’s a major tradeoff. If you plan to use a backdoor Roth IRA strategy, a SEP IRA could block you. That’s because of the pro-rata rule, which treats all IRAs—including SEP IRAs—as one combined account when determining Roth conversion taxes. This makes it hard to isolate clean Roth contributions.
Unless you already have significant IRA balances that can’t be rolled over, the SEP IRA is rarely our first choice.
2. Solo 401(k)
For most 1099 physicians, the solo 401(k) is the better option. It allows the same contribution limits as the SEP IRA, but since it’s structured as a 401(k), it does not interfere with backdoor Roth contributions. This makes it a cleaner, more flexible long-term strategy.
Think Ahead: Will You Hire Employees?
Before committing to a solo 401(k), consider whether your business will stay solo or if it might grow.
If you are strictly working as a 1099 contractor—doing locum shifts and billing under your name—then a solo 401(k) is likely a perfect fit.
But if you expect to hire employees in the future, that changes things. The moment you bring on staff, you’re no longer eligible for a solo 401(k). You would need to move to a traditional small business 401(k), which means updating your plan and possibly rolling over assets.
We’ve seen this cause headaches for people who opened a solo 401(k) and then had to unwind it a year later because they expanded their practice. Thinking ahead can save you that hassle.
What to Look for in a Solo 401(k)
If a solo 401(k) fits your situation, here are a few key things to look for when selecting a provider:
- Low-cost index funds: Avoid plans loaded with high-fee options. Look for funds with expense ratios in the low tenths of a percent.
- Good bond fund choices: Even though many people focus on equities, bond funds matter too—especially if you’re planning a diversified portfolio across tax-advantaged and taxable accounts. A strong bond fund option will support efficient asset location over time.
Final Thoughts
If you’re earning all or most of your income as a 1099 contractor, a solo 401(k) is usually the cleanest and most flexible retirement plan available. Just make sure to think ahead about the future of your business. If you expect to remain a solo operator, the solo 401(k) is hard to beat. If there’s a chance you’ll grow your team, you’ll need a different strategy down the line.
Either way, setting up the right plan now can save you both time and trouble later.
For more insight into retirement planning for independent physicians, listen to the full podcast episode here.