Physician Retirement Planning: How to Plan for a Tax-Efficient Future

Your classmates from college who entered finance or tech careers started building retirement wealth at 23. You spent those years in residency earning $60,000 while juggling 80-hour weeks and six-figure student loans. By the time you finally start earning an attending physician salary around age 34, you’re already a decade behind.

The numbers tell the story. Data from Definitive Healthcare analyzing over 810,000 physicians, shows the average doctor in 2025 is 54.4 years old, significantly older than the median U.S. worker at 41.8. Many physicians work longer than they’d prefer simply because they started retirement planning too late.

Starting late doesn’t mean staying behind. Strategic use of tax-advantaged accounts can help you catch up and build the retirement you want.

Maximize Tax-Advantaged Retirement Accounts

Employed physicians typically access retirement savings through 401(k) or 403(b) plans. According to IRS guidelines for 2025, you can contribute $23,500 annually through salary deferrals. Physicians 50 and older can add $7,500 in catch-up contributions. Recent legislation lets doctors aged 60 to 63 contribute even more with an enhanced catch-up of $11,250.

These contributions reduce your taxable income immediately. A physician in the 37% federal bracket who contributes $23,500 saves $8,695 in federal taxes right away. When you add employer matching or profit-sharing, total contributions can reach $70,000 for 2025.

Physicians at nonprofit hospitals often have access to both 403(b) and 457(b) plans. The 457(b) matters because you can fund it in addition to your 403(b). That lets you defer $47,000 in pre-tax income annually if your employer offers both plans. The 457(b) also allows penalty-free withdrawals after leaving your job, regardless of age.

Self-Employed Physician Options

Private practice owners have different tools with equal power. A Solo 401(k) lets you contribute as both employee and employer. You make employee deferrals up to $23,500, your practice adds profit-sharing dollars up to 25% of your W-2 compensation and you can include voluntary after-tax contributions up to the $70,000 total limit.

SEP IRAs offer another path for self-employed physicians. These accounts accept contributions up to 25% of compensation or $70,000 for 2025, whichever is lower. They’re simpler to administer than Solo 401(k) plans but tie directly to W-2 wages. Many physicians who structure practices as S corporations keep W-2 wages relatively low to minimize payroll taxes, which limits SEP IRA contributions.

Build Additional Tax Efficiency

The backdoor Roth IRA opens tax-free growth for high-income physicians. Direct Roth IRA contributions phase out at income levels that exclude most doctors. The backdoor method bypasses these limits. You contribute $7,000 to a traditional IRA, or $8,000 if you’re 50 or older, then immediately convert it to a Roth IRA.

Watch for the pro-rata rule though. If you have existing traditional IRA balances from residency or old 401(k) rollovers, part of your conversion becomes taxable. The fix often involves rolling pre-tax IRA balances into your current employer’s 401(k) before executing the conversion.

Health Savings Accounts deserve more attention than they typically receive. For 2025, contribution limits reach $4,300 for individual coverage or $8,550 for family coverage, plus $1,000 if you’re over 55. These accounts provide triple tax benefits: deductible contributions, tax-free growth and tax-free withdrawals for qualified medical expenses.

The strategic approach treats your HSA as a retirement account. Pay current medical bills from regular income and let HSA investments compound for decades. Healthcare costs increase substantially after retirement. Having dedicated tax-free dollars specifically for medical expenses reduces pressure on other retirement accounts and helps manage required minimum distributions.

Handle Student Loans While Building Wealth

Young physicians wrestle with choosing between aggressive loan payoff and retirement contributions. The math often favors retirement accounts. If your loans carry 4.5% interest and you’re in the 32% federal bracket, every dollar in a traditional 401(k) saves 32 cents in taxes. That exceeds the interest savings from extra loan payments.

Public Service Loan Forgiveness changes everything for physicians at nonprofit hospitals. After 120 qualifying payments, remaining balances disappear. Making minimum payments while maximizing retirement contributions makes clear sense if you qualify for PSLF.

At minimum, capture your full employer match. That provides immediate returns that dwarf loan interest rates. Beyond the match, compare loan rates against tax savings to find your optimal balance.

Advanced Approaches for Practice Owners

Practice owners access strategies that dramatically accelerate wealth building. Defined benefit plans allow contribution limits far beyond 401(k) caps. While standard plans max out at $70,000, defined benefit plans can accept annual contributions exceeding $275,000 for older, high-earning physicians approaching retirement.

Tax diversification across account types provides flexibility in retirement. Money spread between traditional pre-tax accounts, Roth accounts and taxable investments gives you options for managing your tax bracket through strategic withdrawals.

Practice owners can layer multiple plans. Combining a 401(k) profit-sharing plan with a defined benefit plan allows contributions through both vehicles simultaneously. This approach can defer $300,000 or more annually for physicians with the right profile.

Your Next Steps

Physician retirement planning requires coordinating multiple strategies across different account types while managing your unique timeline and tax situation. Starting late doesn’t doom you to working until 70, but catching up requires intentional planning and smart execution.

Getting the details right makes a substantial difference over your career. Working with professionals who understand both retirement account mechanics and physician-specific challenges helps you make informed decisions about building the retirement you want.

We help medical professionals create comprehensive retirement strategies that maximize tax efficiency while addressing your specific circumstances. Whether you’re optimizing an employer benefits package or implementing advanced plans for your practice, we can guide you through the technical details and strategic decisions. Contact a James Moore professional to discuss your physician retirement planning.

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