Can a Hospital Physician Use a Defined Benefit Plan for 1099 Locum Income?

Yes, potentially: a hospital-employed physician with genuine self-employed locum earnings can consider a defined benefit plan sponsored by that business, subject to worker and related-employer review and actuarial design. Unrelated hospital W-2 wages are not automatically that business's plan compensation. The question is which employer and earned compensation the actual plan would use. Do not add hospital wages to locum receipts and call the sum plan compensation. This is a source-of-pay worksheet for mixed W-2 and 1099 work; our broader physician guide covers multi-entity practice ownership.

Put each pay source in a separate row

Start with the hospital employer, hospital W-2 pay, benefits, and any hospital retirement plan. Put the locum practice on another row with its legal form, invoices, business expenses, payroll if any, and workers. Note whether the contracts actually make the physician an independent business owner under the facts; a 1099 label alone is not a plan design. IRS Publication 560 explains that an employee may also be self-employed and that the rules for self-employed retirement contributions depend on earned income from that business.

For a sole proprietor, gross locum receipts are not final plan compensation. The IRS sole-proprietor compensation guidance starts with net earnings and accounts for relevant self-employment tax and retirement-plan adjustments. If the business is an S corporation, the IRS distinguishes W-2 compensation from shareholder distributions for retirement-plan purposes. Have a CPA and actuary apply the actual structure and plan terms; do not derive a contribution from a gross 1099 total.

A mixed-income illustration, not a contribution estimate

Assume a physician receives $230,000 of hospital W-2 wages and separately bills $140,000 for locum shifts through a sole proprietorship. The locum business has $30,000 of deductible business expenses, leaving an illustrative $110,000 before the additional adjustments relevant to self-employed plan compensation. The worksheet records hospital wages and locum net earnings on different rows. It does not turn $340,000 into the locum plan's compensation base, and $110,000 is not a permissible defined benefit contribution. An enrolled actuary needs verified compensation, age, benefit formula, existing plan details, and current rules to produce an illustration.

Next, stress-test locum collections and coverage of the physician's operating costs. If shifts stop for a quarter, can the practice still handle obligations under a professionally designed plan? The IRS defined benefit overview describes formula-based benefits and annual actuarial funding. An unusually strong run of shifts should not be mistaken for a permanent funding capacity.

Ask who else and what else the plan touches

Provide the adviser with a worker census, ownership interests in other practices, and information on existing plans. “Solo” on an invoice does not settle employee coverage or related-employer questions. Ask the administrator to document the filing and valuation duties applicable to the actual one-participant or employee plan. The Department of Labor's Form 5500 overview describes the reporting framework, while the IRS Form 5500-EZ instructions distinguish one-participant filing thresholds and actuarial schedule requirements. The administrator should apply those rules to the actual plan; do not assume every owner-only plan files the same form.

The Wealth Mavericks video discusses physicians' defined benefit decisions generally; it does not determine treatment of hospital W-2 and separate locum income. For a decision file, collect contracts, tax returns, payroll records, business financials, and the latest plan documents, then ask an actuary and CPA to model the actual employer. TaxBowl's tax advisory team can help organize the accounting and compensation inputs.