Vet Practice Group 401(k): Maximize Owner Savings When You Have Employees

The Solo 401(k) is the best retirement account in veterinary practice — until the day you hire a W-2 employee who isn't your spouse. At that point, the plan closes to new contributions and you need a real group plan. Here's how to design a safe harbor 401(k) that lets you and your associate DVMs still reach $72,000/year while covering your techs, receptionists, and kennel staff at a predictable, manageable cost.

Why the Solo 401(k) shuts down when you hire staff

The Solo 401(k) (also called an owner-only or individual 401(k)) is only available to practices with no W-2 employees other than the owner and their spouse. The moment you bring on a vet tech, receptionist, or associate DVM on a W-2, the plan technically becomes a covered plan under ERISA — and the IRS requires it to be offered on a non-discriminatory basis to eligible employees.¹

In practice: you can keep existing Solo 401(k) assets where they are, but you must stop making new contributions as owner and open a group plan that covers your staff. Most practice owners with employees are unknowingly out of compliance if they've been contributing to a "Solo" plan after hiring W-2 staff.

The two real options: safe harbor 401(k) vs. SIMPLE IRA

For a veterinary practice with 2–20 employees, the choice usually comes down to two plan types:

The bottom line for most vet practice owners: the safe harbor 401(k) wins because the profit-sharing layer is what gets you to $72,000 as the owner. A SIMPLE IRA caps you at your own deferral plus the employer match — a significant step down in retirement savings power.

How a safe harbor 401(k) works

A safe harbor 401(k) is a regular 401(k) with one important feature: the employer makes a mandatory contribution that automatically passes non-discrimination testing. In exchange, the IRS waives the annual ADP/ACP testing that governs how much highly compensated employees (HCEs — generally owners and employees earning $160,000+ in 2025) can defer relative to non-HCEs.

Without safe harbor, a practice owner's deferral could be limited by what their support staff saves. Safe harbor removes that constraint entirely.

Safe harbor formulas (choose one)

• 3% non-elective: The practice contributes 3% of compensation to every eligible employee's account, regardless of whether they contribute themselves. Simplest option — employees who don't enroll still get the contribution. 100% immediately vested.
• Basic match: Practice matches 100% of the first 3% of pay deferred + 50% of the next 2% deferred. Maximum employer cost is 4% of compensation for any employee who defers at least 5%. 100% immediately vested.
• QACA (Qualified Automatic Contribution Arrangement): Similar to basic match but tied to auto-enrollment. Employer matches 100% of first 1% + 50% of next 5% = max 3.5%. 2-year cliff vesting (unusual exception — most safe harbor contributions vest immediately).²

SECURE 2.0: auto-enrollment is now required for new plans

Under SECURE 2.0, any 401(k) plan established after December 29, 2022 must implement automatic enrollment starting in 2025.³ This means:

• New employees are automatically enrolled at a minimum 3% deferral rate.
• The rate must auto-escalate 1%/year up to at least 10% (capped at 15%).
• Employees can opt out or change their rate, but the default is enrollment.

Exemptions: Businesses with fewer than 11 employees and businesses that have been in operation for fewer than 3 years are exempt from the auto-enrollment mandate. Many small vet practices qualify for the exemption when they first adopt a plan, but lose it as they grow.

For practices setting up a safe harbor QACA, auto-enrollment is inherent to the structure — the QACA is built around automatic contribution rates. This makes QACA a natural fit for a new plan in a growing practice.

The owner math: getting to $72,000 despite having employees

The reason to use a 401(k) instead of a SIMPLE IRA is the profit-sharing layer. The plan works like this:

1. Employee deferral: As the practice owner (and as an employee of your own S-corp), you defer $24,500/year — or $32,500 if 50–59/64+, $35,750 if 60–63.
2. Safe harbor employer contribution: The practice makes its safe harbor contribution — both for you and for your employees. For you, 3% non-elective on your W-2 salary.
3. Profit-sharing contribution: On top of safe harbor, the practice can make an additional discretionary profit-sharing contribution of up to 25% of W-2 compensation — for all plan participants. You can set this as a flat percentage (e.g., 5% for everyone) or use a permitted disparity or age-weighted formula that concentrates more of the profit-sharing toward older, higher-paid employees (i.e., you).
4. The result: If your W-2 from your own S-corp is $185,000, a 3% safe harbor + 22% profit sharing = $46,250 employer contributions. Add $24,500 employee deferral = $70,750 — just under the $72,000 ceiling for 2026.¹

Controlling the employee cost: design choices that matter

A 22% across-the-board profit sharing rate is generous and costly. Most veterinary practices with a mixed-wage workforce use one of two strategies to maximize owner allocation relative to staff cost:

1. New comparability (cross-tested) profit sharing

Rather than contributing the same percentage for everyone, you define "groups" — typically one group for owner-DVMs and one for staff — and contribute different percentages to each group, provided the plan passes IRS non-discrimination testing on a projected-benefit basis. This can allow you to contribute 25% of compensation for yourself while contributing 5% for staff, as long as the benefit structure tests as non-discriminatory.⁴

New comparability requires an actuary or experienced TPA to run the discrimination tests annually. It's more complex than flat profit sharing, but for a practice with a meaningful wage gap between owner-DVMs and support staff, it can cut the staff cost by 60–70% while preserving the owner's allocation.

2. Lower W-2 salary for the owner

Your profit-sharing contribution is capped at 25% of W-2 wages. If you take a lower reasonable compensation from your S-corp (say $120,000 instead of $185,000), your contribution is smaller — but so is the matching percentage applied to staff wages. The goal is to find the W-2 level that maximizes your total retirement contribution after accounting for SE tax, QBI deduction phaseout, and employer retirement contributions.

This is where a veterinary-practice CPA and financial advisor working together matter: the interaction between S-corp salary, profit sharing, and QBI deduction ($201,750/$403,500 phaseout for 2026) has real dollar consequences that differ by practice.

SIMPLE IRA: when it still makes sense

A SIMPLE IRA is the right choice for a small vet practice when:

• You have 5 or fewer employees and total payroll is low — the SIMPLE's 2% or 3% match obligation costs less than a 401(k)'s setup and TPA fees.
• You're a recent graduate running a very lean practice and just want a basic plan for staff.
• Retirement savings aren't a current priority for the owner — no need for the $72,000 ceiling yet.

SIMPLE IRAs have one important restriction: once established, you can't switch to a 401(k) mid-year. You must wait until January 1 of the following year to transition. If you set up a SIMPLE before your practice grew, plan the transition carefully — there's a 60-day window to notify employees of the change.

Long part-time employee rules (SECURE 2.0)

Starting in 2024, employees who work at least 500 hours per year for 2 consecutive years must be allowed to participate in the 401(k) plan (previously the threshold was 3 years).³ For vet practices with part-time vet techs or kennel staff, this expands the covered population faster than many owners expect.

The rule applies to elective deferrals only — you're not required to make employer contributions for long part-time employees unless they meet the regular eligibility requirements. But they can participate, which means you must account for them in non-discrimination testing (or rely on safe harbor to avoid it).

Plan costs for a veterinary practice

Modern 401(k) platforms (Guideline, Employee Fiduciary, Betterment for Business) bundle recordkeeping + TPA into a single monthly fee, typically $150–$500/month for a 5–20 person practice. For a practice generating $500,000+ in revenue, this is rounding error compared to the tax savings.

Stacking a cash balance plan on top

Once your safe harbor 401(k) is in place, the next layer — if you're netting $250,000+ — is a cash balance plan. Unlike the 401(k), the cash balance plan's benefit testing is separate and allows even larger deductions for older owner-DVMs while minimizing the required employee contributions.

The combined stack for a 55-year-old practice owner netting $450,000 could look like:

• Solo/group 401(k) deferral: $32,500 (50+ catch-up)
• Profit-sharing: $39,500 (employer allocation)
• Cash balance plan: ~$215,000
• Total annual retirement deductions: ~$287,000

See our cash balance plan guide for full mechanics and the stacking math.

Steps to set up your plan

1. Choose a plan type and formula — Safe harbor 3% non-elective, basic match, or QACA. Run the cost comparison for your specific payroll.
2. Select a TPA and recordkeeper — Evaluate all-in platforms (Guideline, Employee Fiduciary) vs. using a local TPA with your bank's custodian. Get quotes.
3. Set the profit-sharing rate and formula — Flat percentage or new comparability? Your TPA runs the non-discrimination test to confirm it's permissible.
4. Notify employees — Safe harbor plans require an annual notice to employees. New plans must auto-enroll if started after Dec 29, 2022 and you have 11+ employees.
5. Adopt the plan document by December 31 — A new safe harbor 401(k) must be adopted by October 1 of the plan year (or December 31 if you're converting from a non-safe-harbor plan mid-year).
6. Coordinate with your CPA — Employer contributions are deductible on the practice's return; make sure the timing of contributions aligns with your extension deadlines.