Solo practitioners in law and medicine often focus on running their practices and serving clients, leaving retirement planning on the back burner. However, setting up the right retirement plan can significantly reduce taxable income while building long-term wealth. The best retirement plans for solo law firms and medical offices depend on factors like income level, staff size, and desired contribution limits. Here are the top options that solo attorneys and doctors should consider.
1. Solo 401(k)
A Solo 401(k), also known as an individual 401(k), is ideal for business owners with no employees other than a spouse. It allows contributions as both an employee and employer, providing one of the highest retirement savings limits available.
- Employee deferral limit: Up to $23,000 in 2025 ($30,500 if age 50+)
- Employer contribution: Up to 25% of net earnings from self-employment
- Total contribution limit: Up to $69,000 ($76,500 with catch-up)
Solo 401(k) plans can be traditional (pre-tax) or Roth (after-tax), giving flexibility on how contributions are taxed.
2. SEP IRA
A Simplified Employee Pension (SEP) IRA is another popular option for solo professionals. It’s easy to set up and has lower administrative requirements than a 401(k).
- Contribution limit: Up to 25% of net earnings from self-employment, capped at $69,000 in 2025
- Contributions are tax-deductible
- No employee deferral option
A SEP IRA is particularly beneficial for high-earning solo attorneys or doctors who don’t need to make catch-up contributions or prefer simple plan management.
3. SIMPLE IRA
A Savings Incentive Match Plan for Employees (SIMPLE IRA) is designed for small businesses with fewer than 100 employees. While less flexible than a 401(k), it’s a straightforward retirement plan.
- Employee contribution limit: $16,000 in 2025 ($19,500 for age 50+)
- Employer match: Typically 3% of employee compensation or a 2% non-elective contribution
A SIMPLE IRA is best for small practices with a few employees who want a low-maintenance retirement plan.
4. Defined Benefit Plan
For attorneys or doctors with consistently high income and a desire to save aggressively, a defined benefit pension plan may offer the largest tax deferral. These plans function like traditional pensions, with contributions calculated to fund a specific annual benefit upon retirement.
- Annual contributions can exceed $100,000 depending on age and income
- Contributions are tax-deductible
- Requires actuarial calculations and more complex administration
Defined benefit plans can be paired with 401(k) or profit-sharing plans to maximize savings.
5. Traditional and Roth IRAs
While contribution limits are smaller, traditional and Roth IRAs are essential building blocks for retirement savings.
- Contribution limit: $6,500 for 2025 ($7,500 if age 50+)
- Roth IRAs provide tax-free growth, while traditional IRAs offer tax-deductible contributions (subject to income limits)
Roth IRAs are especially valuable for younger professionals expecting higher tax rates in the future.
6. Profit-Sharing Plans
A profit-sharing plan can be added to a Solo 401(k) to further increase savings. Employers can contribute up to 25% of compensation, providing flexibility in high-profit years. This is particularly useful for small medical practices or law firms with fluctuating income.
Choosing the Right Plan
Selecting the best retirement plan depends on factors like your current income, retirement timeline, and whether you have employees. A CPA can analyze your situation and design a plan that maximizes contributions while minimizing taxes.
Tax Benefits of Retirement Plans
Contributions to most retirement plans are tax-deductible, reducing your taxable income and saving thousands in annual taxes. Plans like Roth IRAs, while not deductible upfront, provide tax-free withdrawals during retirement, creating long-term benefits. Combining retirement contributions with strategies like tax preparation and entity structuring can amplify these savings.
Steps to Implement Your Retirement Plan
- Evaluate your current income and long-term retirement goals.
- Choose a plan based on contribution limits and administrative needs.
- Work with a financial advisor or CPA to establish and manage the plan.
- Revisit your plan annually to ensure it aligns with your evolving goals and cash flow.
Solo attorneys and doctors who implement retirement plans early can benefit from compounded growth, major tax deductions, and a secure financial future.
