An example
For a 52-year-old hospitalist who works locum tenens assignments as a sole proprietor, the 2026 figures work out like this:
- Cash balance plan, first year
- $223,000
- Solo 401(k) alongside
- $43,000
- Both plans
- $266,000
- A Solo 401(k) on its own
- $80,000
- Federal income tax saved
- $46,800
Federal income tax only, compared with making no retirement contributions. State tax saved depends on where you live: see savings by state. An illustration from the same calculation as the estimate, not a quote.
Physicians are generally a specified service business for the 20% qualified business income deduction. Above the income threshold that deduction phases out, and a contribution that brings taxable income back down can restore part of it. How the deduction interacts with contributions
Which of your income counts
The plan is sponsored by your own business, so only what that business earns can support a contribution. For a sole proprietor or single-member LLC, that is net earned income from self-employment. For a professional corporation taxed as an S corporation, it is the W-2 salary the corporation pays you.
- Counts: locum tenens assignments paid on a 1099, moonlighting shifts worked as an independent contractor, and expert witness, chart review or medical director fees paid to you or your own entity as a contractor.
- Does not count: salary from a hospital, health system or group on a W-2. That income belongs to your employer's plans.
- Does not count: investment and rental income, or profit distributions from an S corporation.
Locum and moonlighting income often varies from year to year. A cash balance plan comes with a minimum contribution every year, so the question is less how much you earned in your best year and more how much you expect to keep earning on the side for the next several.
A hospital job and a side practice
Many physicians have both: a W-2 position and 1099 work on the side. The hospital and your own business are unrelated employers, so the side business can have its own plans. The limits overlap in one place that catches people out.
| Limit | Shared with the hospital job? |
|---|---|
| 401(k) salary deferrals ($24,500, plus a catch-up from age 50) | Yes. The deferral limit is per person, across every employer. If you already defer the full amount at the hospital, a Solo 401(k) in the side business has no deferral room left. |
| Employer profit-sharing contributions to a Solo 401(k) | Generally no. Each unrelated employer has its own limit, but see the note on 403(b) plans below. |
| Cash balance plan contributions | No. They are set by your side business's own actuarial valuation, based on your earnings from that business. |
The full walk-through is in a W-2 job and a side business.
Group practices and ownership stakes
A plan for one person works only when the business has no employees other than the owner and a spouse. That rules out most practice owners, and it can also rule out physicians who own only a share of something.
- A partner in a group practice with staff. The practice is the employer. A partner cannot set up a separate plan for income from the partnership, so the practice's own plans are the route. Many groups sponsor a cash balance plan for their physicians.
- A physician whose own professional corporation is a partner or shareholder in a group with employees. The affiliated service group rules can treat the two as one employer, so the group's employees count as yours.
- Ownership in an imaging center, surgery center or other business with employees. At 80% or more, counting a spouse's and minor children's shares, the controlled group rules count its employees as yours. Smaller stakes can still matter when combined with family or co-owners.
See who can have a solo cash balance plan for how these rules work.
Health is a specified service for the qualified business income deduction. Above $553,500 of taxable income for a married couple ($276,750 single), a medical practice gets no deduction, and a contribution that brings taxable income back into the phase-in range can restore part of it. See the QBI deduction and retirement contributions.