Retirement Planning for Physicians: A Guide to Your Financial Future

As a physician, planning for retirement is a crucial part of managing your financial future. With challenges like extended training, significant student loan debt, and a delayed start to your peak earning years, it’s essential to take a strategic approach to ensure long-term financial security. This guide walks you through different retirement plan options based on your employment situation, helping you make informed decisions that align with your financial goals.

Physicians have several retirement plan options depending on their employment status. The table below provides a quick overview before we explore each plan in detail:

Retirement Plans for Employed Physicians

401(k) Plans:
If you’re employed by a hospital, clinic, or healthcare organization and receive a W-2, you likely have access to employer-sponsored retirement plans. Understanding your options can help you maximize your savings and employer contributions.

Traditional 401(k)
A Traditional 401(k) is ideal if you're in a high tax bracket now, as contributions are pre-tax, lowering your taxable income immediately. Your savings grow tax-deferred, and you won’t pay taxes until withdrawal in retirement. Many employers offer matching contributions, though these are also pre-tax and taxed upon withdrawal.

At age 73, Required Minimum Distributions (RMDs) begin, potentially increasing your taxable income. Early withdrawals before 59½ typically incur a 10% penalty plus taxes unless exceptions apply, such as the Rule of 55, disability, or hardship. A Traditional 401(k) is beneficial if you expect a lower tax bracket in retirement, allowing you to defer taxes until later

Roth 401(k)
A Roth 401(k) is a strong option if you expect higher taxes in retirement. Contributions are made with after-tax dollars, so while there’s no immediate tax break, the money grows tax-free, and qualified withdrawals remain tax-free. Employer matches go into a pre-tax account, meaning they’ll be taxed at withdrawal.

RMDs begin at age 73 but can be avoided by rolling the account into a Roth IRA. You can withdraw contributions anytime tax- and penalty-free, but earnings withdrawn before 59½ may be taxed and penalized unless exceptions apply. A Roth 401(k) provides tax-free withdrawals in retirement and safeguards against future tax increases

Contribution limits for 401(k) plans in 2025 are:

Solo 401(k) Plans
For self-employed physicians without employees (except possibly a spouse), a Solo 401(k) allows you to contribute both as the employee and the employer, allowing you to save more for retirement.

Contribution limits for Solo 401(k) plans in 2025 are:

403(b) Plans
If you work for a non-profit or governmental hospital, you might have access to a 403(b) plan. These function similarly to 401(k) plans, offering tax-deferred contributions and potential employer matching.

Contribution limits for 403(b) plans in 2025 are:

457(b) Plans
Some governmental and non-profit employers offer 457(b) plans, which provide an additional way to save for retirement. One unique advantage is that these plans don’t have early withdrawal penalties if you leave your employer.

For 2025, contribution limits for 457(b) plans are:

Tip: If you have access to both 403(b) and 457(b) plans, you can contribute the maximum to each, doubling your retirement savings to $47,000 ($62,000 if you’re 50+). If you're within three years of your plan's retirement age and haven’t maxed out contributions in previous years, you may qualify to contribute up to $47,000 in total, allowing you to double your retirement savings.

Types of 457(b) Plans:

401(a) Plans
Some non-profits offer 401(a) plans, which typically require mandatory contributions from your employer. These usually come as a flat dollar amount or a percentage of your compensation. These funds can be rolled into an IRA or another retirement account, giving you an additional savings vehicle.

Retirement Plans for Self-Employed Physicians
If you’re self-employed, working as an independent contractor, or earning 1099 income through moonlighting or locum tenens work, you have several tax-advantaged retirement options.

SEP-IRA (Simplified Employee Pension IRA)
A SEP-IRA is easy to set up and allows contributions of up to 25% of net self-employment earnings, capped at $70,000 in 2025. Contributions are tax-deferred, lowering taxable income, but withdrawals in retirement are taxed as ordinary income. While SEP-IRAs lack catch-up contributions for those over 50, they offer flexibility with no required annual contributions. Funds can be rolled into other qualified plans, though conversions are taxable. Physicians can still contribute to a Traditional or Roth IRA if eligible. A SEP-IRA is ideal for those with fluctuating income or no employees but should be compared to a Solo 401(k) for higher contribution limits and more flexibility.

For those considering a Backdoor Roth IRA, SEP-IRAs and SIMPLE IRAs can complicate the process due to the pro-rata rule, which taxes Roth conversions based on all pre-tax IRA balances, making them less tax-efficient.

A Solo 401(k) is often a better option for self-employed individuals since it isn’t subject to the pro-rata rule, allowing for smoother Roth conversions. If you already have a SEP-IRA or SIMPLE IRA, rolling it into a Solo 401(k) can help maintain tax efficiency when using the Backdoor Roth strategy.

Defined Benefit Plans
If you’re looking to contribute large amounts toward retirement, a defined benefit plan (traditional pension) might be a good option. These plans allow for significantly higher annual contributions than other retirement plans, but they require long-term commitment and more complex administration.

Retirement Savings Options for All Physicians
Regardless of how you’re employed, these accounts can help supplement your retirement savings:

Traditional and Roth IRAs:
Both Traditional and Roth IRAs allow a contribution of $7,000 annually if you’re under 50, and $8,000 if you are 50 or older. It’s important to note that this contribution amount accounts for the amount invested across all of your IRA accounts.

What is MAGI (Modified Adjusted Gross Income)?
Modified Adjusted Gross Income (MAGI) is an IRS calculation used to determine eligibility for tax benefits like IRA contributions. It starts with Adjusted Gross Income (AGI) and adds back deductions such as student loan interest, IRA contributions, tuition fees, passive losses, and half of self-employment tax. For Roth IRAs, MAGI dictate contribution limits, while for Traditional IRAs, it determines tax-deductibility based on income and employer-sponsored plan access.

Traditional IRA :
A Traditional IRA is a tax-advantaged retirement account that allows contributions to be made with pre-tax dollars, reducing your taxable income in the year of contribution. The money inside the account grows tax-deferred, meaning you won’t owe taxes on gains or dividends until you withdraw funds in retirement. However, when you start taking distributions after age 59½, those withdrawals are taxed as ordinary income. Traditional IRAs are a great option for tax savings upfront, but they can lead to higher taxable income in retirement, especially for high earners.

Deduction limits If you not covered by a work retirement plan:

 
Deduction limits if you are covered by a work retirement plan:
 

Roth IRA:
A Roth IRA differs from a Traditional IRA as contributions are made with after-tax dollars, meaning no immediate tax deduction. However, funds grow tax-free, and qualified withdrawals in retirement remain tax-free, offering flexibility without increasing taxable income. Balancing tax-deferred (401(k), Traditional IRA and tax-free (Roth IRA) accounts enhances tax strategy and retirement income control. High-income earners face contribution limits, but a Backdoor Roth IRA allows them to access Roth benefits.

Contribution limits for Roth IRA:

Backdoor Roth IRA
For those who exceed the income limits for direct Roth IRA contributions, the Backdoor Roth IRA strategy provides a way to still contribute. This process involves making an after-tax contribution to a Traditional IRA and then converting those funds into a Roth IRA. Since there are no income limits on conversions, this method allows high earners to bypass the Roth IRA restrictions legally. The annual contribution limit remains $7,000 ($8,000 for those 50 or older), whether contributing directly to a Roth IRA or using the Backdoor Roth method. However, those with existing pre-tax IRA balances must be aware of the pro-rata rule, which affects how much of the conversion is taxable.

Health Savings Accounts (HSAs)
HSAs can be a powerful addition to your retirement strategy, especially if you're enrolled in a high-deductible health plan (HDHP). Not only do they offer triple tax benefits, but they also provide a unique way to save for retirement healthcare costs. Contributions are tax-deductible, reducing your taxable income, and the money grows tax-free if it’s used for qualifying medical expenses. When you withdraw funds for healthcare costs in retirement, they are tax-free. Even better, unlike other retirement accounts, HSAs don’t require required minimum distributions (RMDs), so you can leave the funds to grow if you need. If you're healthy and don't need to use your HSA funds right away, you can treat it as an extra retirement savings account, making it a great tool for future medical expenses or even a tax-free way to bolster your retirement savings. 

2025 HAS Contribution Limits: $4,300 for individuals, $8,550 for families, and an additional $1,000 for those 55+.

Taxable Brokerage Accounts
While tax-advantaged accounts should be your priority, taxable brokerage accounts offer investment flexibility without limits on contributions or early withdrawal penalties. Strategies like tax-loss harvesting and tax-efficient investment can help optimize your returns.

Additional Considerations for Physician Retirement Planning
Planning for retirement isn’t just about saving; it’s about optimizing your investments and minimizing taxes. Here are a few key factors to consider:

Asset Allocation & Diversification
Spreading your investments across different asset classes (stocks, bonds, real estate) helps manage risk. Index funds and target-date funds offer broad diversification with minimal management.

Tax-Efficient Withdrawal Strategies
Consider withdrawing from taxable accounts first, then Traditional IRAs/401(k)s, while letting Roth accounts grow tax-free as long as possible. This approach can lower your tax burden over time.

Required Minimum Distributions (RMDs)
At age 73, the IRS requires you to start taking RMDs from pre-tax retirement accounts, which can push you into a higher tax bracket. Roth conversions in early retirement can help reduce your future RMDs.

Estate Planning & Legacy Strategies
Consider setting up trusts, charitable giving, and beneficiary designations to pass down your wealth efficiently. Roth IRAs are great for legacy planning since they don’t require RMDs.

Passive Income & Alternative Investments
If you’re aiming for early retirement or financial independence, diversifying your income sources can help. Real estate, private equity, and income-generating side businesses provide additional financial security beyond traditional retirement accounts.

Building a solid retirement plan isn’t just about hitting contribution limits; it requires strategic tax planning, smart investing, and long-term financial management. Working with a certified financial planner (CFP) or tax strategist who understands physicians’ unique financial challenges can help you create a plan tailored to your goals. By taking a proactive approach, you can set yourself up for a secure and stress-free retirement