Physician Retirement Planning
Physicians have some of the largest retirement saving opportunities in the tax code, because high income makes deductible contributions more valuable. The challenge is that plan options depend on employer type, practice ownership and age, so the sequence matters.
Plan options by employer type
| Setting | Common plans | Notes |
|---|---|---|
| Private practice owner | Solo 401(k), SEP IRA, cash balance plan, 401(k) with profit sharing | Cash balance plans can allow large deductible contributions for older owners with steady income |
| Hospital or for-profit employer | 401(k), possibly a non-qualified deferred compensation plan | Plan limits and employer match rules apply; check the plan summary |
| Nonprofit or public hospital | 403(b), 457(b) | Some 457(b) plans allow withdrawals without the usual early-withdrawal penalty after separation; rules vary by plan |
| Locum tenens or 1099 physician | Solo 401(k) or SEP IRA on 1099 income | Contributions are tied to self-employment earnings and must be planned around estimated taxes |
Roth and backdoor Roth options
High earners may not be able to contribute directly to a Roth IRA, but a backdoor Roth can be an option. Its tax results depend on existing pre-tax IRA balances because of the pro-rata rule. Some employer plans also allow Roth 401(k) contributions, and the choice between pre-tax and Roth depends on current versus expected future tax rates.
Cash balance plans
For established practices with steady, high profit, a cash balance plan can allow significantly larger deductible contributions than a 401(k) alone, especially for owners in their late forties and fifties and older. These plans require annual actuarial work, a funding commitment and careful coordination with any employees, so they are best evaluated with a plan administrator and tax advisor.
Annual contribution limits
The IRS sets contribution limits each year, including limits for deferrals, catch-up contributions and total plan contributions. These limits change for inflation. Use the current year's official IRS figures, and confirm deadlines with your plan administrator, since some plans must be established before year-end and others can be funded up to the tax filing deadline.
A simple planning order
- Capture any employer match first, as it is typically the best return available.
- Fund the maximum allowed employee deferral in the plan you have.
- Add a profit-sharing, SEP or solo 401(k) component if your practice structure allows it.
- Evaluate a cash balance plan once income is consistent and high enough to fund it.
- Coordinate any Roth or backdoor Roth IRA contributions with your overall tax picture.
Retirement plan design for physicians is a specialized area. PremCPA.com provides CPA services that can coordinate plan contributions with your tax return, and SmallTax.com offers tax help for small businesses if your practice has employees.
General educational information only, not tax, legal, investment or retirement plan advice. Contribution limits, plan rules and tax treatment change over time and depend on individual circumstances. Confirm current figures with the IRS and a qualified professional before acting.