Financial Planning for Physicians

A late start and a high income call for a plan built around the way medical careers run.

As a physician, you may not start saving until your thirties, when a high income arrives fast. That shorter window is the starting point for financial planning for physicians. You line up your hospital or practice plans with your taxes and insurance. Then you decide the order of the choices you face when you leave medicine.

Medical school and residency, sometimes followed by a fellowship, can keep you in training well into your thirties. By the time you earn an attending salary, friends in other fields may have been saving for years. The income that follows is high, and it tends to arrive quickly. For physicians, financial planning has to begin from that late start and make good use of the years that follow.

A high income does not turn into lasting wealth on its own. Student loans, a larger house, a practice buy-in, and a higher tax bracket can all arrive in the same few years. The plan has to account for every one of them, and it has to hold up if your health or your job changes.

Why Does a Physician’s Career Change the Plan?

A physician’s career usually runs in four stages. Training comes first, with low pay and often large loans. The early attending years bring the first real income and a long list of competing uses for it. The peak earning years follow, when higher income can make tax planning matter more. Then comes the transition out of practice and the decades that follow it.

Each stage carries its own decisions, and many of them affect the next stage. How you save in your forties can affect the tax choices you have in your sixties. A payout election on a deferred compensation plan may affect your taxable income for years after you leave a hospital.

You usually choose your own last day, unlike people in careers with a mandatory retirement age. That flexibility has real value. It is worth the most when your savings and your tax plan are already lined up to use it.

How Physician Pay and Benefits Differ

Your employer and its plan design help determine which accounts are open to you. Physicians employed by a hospital or health system may have a 403(b), a 401(a), and a 457(b), each with its own contribution rules. Physicians who own part of a practice may have a practice 401(k), a cash balance plan, and an ownership stake that has its own value. If you have moved between employers, or between hospital work and private practice, you may also hold plans from past jobs.

The 457(b) needs a closer look than any other account. A governmental 457(b), offered by public hospitals and some universities, can generally be rolled over to an IRA. A non-governmental 457(b), offered by a tax-exempt employer such as a nonprofit hospital, works differently. The money stays subject to the employer’s general creditors until it is paid out. It cannot be rolled over to an IRA. Two accounts with the same name can behave very differently when you leave.

One detail in the contribution limits matters here. A 401(k) and a 403(b) share one personal limit on the amount you defer each year. A 457(b) has its own separate limit, so having both a 403(b) and a 457(b) can give you more room to defer, depending on each plan’s terms. The 457(b) limit can also count any employer contributions. The IRS updates these limits each year.

RETIREMENT ENGINEERING™

The Order Matters

Five retirement decisions and why timing matters.

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Decisions for the Working Years

These choices are easy to put off while the schedule is full.

Student loans. Paying loans off quickly, refinancing, and loan forgiveness tied to a nonprofit employer each lead to different cash flows. Forgiveness programs have their own rules, and those rules have changed over time, so the choice is worth revisiting.
Disability coverage. For a working physician, future earnings are often the largest asset. Policies define disability in different ways, so it helps to compare how each one treats your specialty, other medical work, and work outside medicine. As savings grow, the amount of coverage you need may fall.
Which accounts to fund first. The employer match, the 403(b) or 401(k), the 457(b), and any Roth options each carry different tax and access rules. Some 403(b) plans allow a special catch-up after 15 years with the same eligible employer, subject to extra IRS limits. A 457(b) may allow a special catch-up in the three years before the plan’s normal retirement age, based partly on room you did not use in earlier years.
A backdoor Roth IRA. Depending on your income and filing status, you may not be able to contribute to a Roth IRA directly. A nondeductible IRA contribution followed by a conversion is one route, but existing traditional, SEP, or SIMPLE IRA balances can make part of the conversion taxable. A SEP IRA from locum tenens or other side work counts in that calculation too.
Practice owners. A cash balance plan is a type of pension. An actuary sets how much the practice must put in, based on the plan formula and funding rules, and the required amount can change from year to year.
Savings outside retirement plans. Holding a mix of taxable, Roth, and pre-tax savings can give you more choice about which account to draw from, and when.

Malpractice coverage and asset protection belong in the same conversation. How much protection an account or a home has depends heavily on state law, so this is an area to review with an attorney who practices in your state.

Advisory work is paid by fee. The firm is also licensed to provide insurance solutions, and when a client purchases an insurance policy, such as disability or life coverage, the firm may receive a commission. We are not fee-only.

Leaving Medicine and the Years After

Some retirement decisions have to be made before your last day. A non-governmental 457(b) may ask you to choose how it pays out, as a lump sum or in installments, by a deadline set in the plan document. That deadline can fall at or before separation, and the choice may be hard to change later. Read the plan document well before you set a date.

Other pieces tend to land in the same year or two. Your employment agreement may decide who pays for tail coverage on a claims-made malpractice policy. If you own part of a practice, the buy-sell agreement may set the value of your share, how accounts receivable are handled, and whether you are paid in one sum or over several years. You may also choose whether to roll old plans to an IRA, a decision covered in the guide to a 401(k) rollover.

Retirement does not automatically bring a low tax bracket. Installments from a 457(b), buyout payments, a pension, or other deferred pay can keep your income high for years. Required minimum distributions generally begin at 73 or 75, depending on your birth year. Workplace plans can follow different rules if you keep working. Lower-income years before then can be a useful window to consider a Roth conversion. A conversion adds to that year’s taxable income, so the timing matters. Higher income can also raise your Medicare Part B and Part D premiums through a surcharge called IRMAA, which is generally based on your tax return from two years earlier. If retirement lowers your income, you may be able to ask Social Security to use a more recent year.

The order you draw from each account matters as much as how much you hold. That is covered in the guide to a retirement withdrawal strategy.

Physicians in the Carolinas and Florida

Holland Capital Management is based in Charlotte, with an office in Winter Park, Florida. Large health systems in both states, including Atrium Health, Novant Health, AdventHealth, and Orlando Health, employ many physicians, and each has its own mix of retirement plans. The planning issues on this page apply to physicians anywhere in the country.

How Holland Capital Approaches Physician Planning

At Holland Capital, we call this process Retirement Engineering. We start with the life you want after medicine and work back to the decisions that have to support it.

For a physician, that means looking at the pieces together. They include your remaining working years and your hospital or practice plans, including any practice interest. They also include your insurance, taxes, investment risk, and the income your savings will need to provide. We can then model different retirement dates, market conditions, and spending needs to show how each could affect the plan, before you make choices that are hard to reverse. Holland Capital Management is an independent registered investment adviser acting as a fiduciary.

Is Holland Capital Management the Right Fit for You?

Start with a 15-minute Clarity Call. We will talk through your situation, what you are trying to solve, and whether working together makes sense.

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Frequently Asked Questions

When Should a Physician Start Planning for Retirement?

Start as soon as you earn an attending income. The choices you make early, such as which accounts to fund and how to handle student loans, affect how much room you have later. A fuller review about ten years before you plan to stop, and again about five years out, gives you time to adjust. All of it fits within your broader retirement planning.

What Is the Difference Between a Governmental and a Non-Governmental 457(b)?

A public employer offers a governmental 457(b), which can generally be rolled over to an IRA. A tax-exempt employer, such as a nonprofit hospital, offers a non-governmental 457(b). Its assets remain subject to the employer’s general creditors until paid, and they cannot be rolled over to an IRA. Your plan documents will say which type you have.

Can a Physician Contribute to Both a 403(b) and a 457(b)?

Yes, if your employer offers both. The 457(b) has its own contribution limit, separate from the limit you share across any 403(b) and 401(k) plans. That can give you more room to defer each year, depending on each plan’s terms and any employer contributions to the 457(b). Check the current limits with the IRS, since they change annually.

Does a Backdoor Roth Work If I Already Have an IRA?

It can, but part of the conversion may be taxable. The IRS looks at all of your traditional, SEP, and SIMPLE IRA balances together when you convert. If most of that money is pre-tax, most of the conversion is taxable too. Moving old IRA money into a workplace plan that accepts it is one way some physicians address this.

How Much Disability Insurance Does a Physician Need?

There is no single right amount. It depends on your income, your savings, your household costs, and how many working years you have left. Policy terms matter as much as the amount, especially how a policy defines disability for your specialty. As savings grow, you may need less coverage.

Should a Physician Take a 457(b) as a Lump Sum or in Installments?

It depends on the plan and on your other income. Installments can spread the tax over several years, but they can also fill the lower brackets you might use for Roth conversions and raise Medicare premiums. In a non-governmental plan, money you have not yet received stays exposed to the employer’s creditors. Neither choice is right for everyone, and the options depend on your plan document.

Do Retired Physicians Land in a Lower Tax Bracket?

Not always. Deferred pay, practice buyout payments, a pension, and required minimum distributions can keep income high after you stop seeing patients. Some physicians have several lower-income years, and some have none. Mapping your income year by year before you leave shows which applies to you.