Much of this information is taken directly from the IRS website.   

Roth IRA

• Depending on your modified AGI (annual gross income), you may qualify to contribute to a Roth IRA.  Check here for income requirements. Residents and fellows will generally qualify unless they have a high income spouse or other sources of significant income. This is a great way to put away money while you are in a lower tax bracket and minimally taxed on your contribution, but then have tax free growth. It is generally encouraged to do if you qualify.

• You cannot deduct contributions to a Roth IRA, but qualified distributions are tax-free.

• You can make contributions to your Roth IRA after you reach age 70 ½, assuming you meet income criteria (most physicians will not if they are working as a full time attending physician).

• You can leave amounts in your Roth IRA as long as you live.

• If you don't qualify because you make more income, consider a backdoor ROTH as an alternative option. 

Accounts for employed physicians

• 401(k) - feature of a qualified profit-sharing plan that allows employees to contribute a portion of their wages to individual accounts. The employee can contribute up $20,500 in 2022 ($19,500 in 2021).  Employers can contribute to employees’ accounts.​​

  • Traditional 401k​ - Elective salary deferrals are excluded from the employee’s taxable income (lowering your tax burden in the contributing years), but distributions, including earnings, are includible in taxable income at retirement

  • Roth 401k​ - You pay taxes in the year earned and the contribution goes in as post tax dollars, so the money you put in and its growth are not taxed with distributions at retirement.  However, your employer match is subject to taxes, since they put in the their money with pre-tax dollars.

  • Other types of 401k are listed here.  

  • We often get the question of whether someone should pick the traditional 401k versus the Roth 401k option.  Nobody has a crystal ball about what tax rates will be at retirement, so there's no absolute answer.  The thinking behind those that choose the traditional option is that they anticipate being in a lower tax bracket at retirement than they currently are, and thus it makes sense to save on taxes now and pay taxes at a lower tax bracket later.  Those arguing for the ROTH option would contend that they save the tax on the growth of the money they put in (remember, they still have to pay taxes on the employer's contribution).  Since it's hard to project which one comes out ahead, many choose to split their money between the two options.  Not every employer offers a Roth option.

• 403(b) - retirement plan offered by public schools and certain 501(c)(3) tax-exempt organizations (including some hospitals). Employees and employers can contribute.  The deferred salary is generally not subject to federal or state income tax until it's distributed, unless it offers a Roth option (taxed currently but is tax-free including earnings when distributed). Pros and cons are:

  • Flexibility in contributions

  • Investment options are limited to those chosen by the employer

  • may have high administrative costs

  • optional loans and hardship distributions add flexibility for employees

• 457b - available for certain state and local governments and non-governmental entities tax exempt under IRC Section 501. They can be either eligible plans under IRC 457(b). Plans eligible under 457(b) allow employees of sponsoring organizations to defer income taxation on retirement savings into future years

  • A potential downside that is often brought up on the forums is that 457s are accessible to your employer's creditors.  If you are concerned about the long term financial stability of your institution, this may be something to consider when deciding to contribute.​

• Thrift Savings Plan (TSP) - defined contribution plan designed to resemble the 401(k) open to employees of the US civil service employees and members of the uniformed services.  Employees of the VA have this as one of the components of their retirement package.  One big advantage is low fees.  This Wikipedia piece goes over it in depth, including available investment options and the various funds.

• Profit-Sharing Plan - If you are a partner in your practice, you may have the option to participate in one of these.  It allows you to put up the lesser of 100% of compensation or $61,000 for 2022 ($58,000 for 2021; $57,000 for 2020, subject to cost-of-living adjustments for later years).

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Accounts for self-employed or side gig income

 The following options are some of the options that seem to be most popular amongst group members.  The information is taken from this page on the IRS website, which has a great overview of these and additional options, and which has links to relevant forms and additional information.  

• SEP (Simplified Employee Pension) IRA - can contribute as much as 25% of your net earnings from self-employment (not including contributions for yourself), up to $61,000 for 2022 ($58,000 for 2021, $57,000 for 2020 and $56,000 for 2019)

  • Note that if you use this option, you will NOT be able to do the backdoor ROTH, which many physicians like to do for additional tax advantaged options.​

• Solo 401k -

  • Make annual salary deferrals up to $20,500 in 2022, ($19,500 in 2021 and in 2020; $19,000 in 2019), plus an additional $6,500 in 2022, in 2021 and in 2020 ($6,000 in 2015 - 2019) if you're 50 or older either on a pre-tax basis or as designated Roth contributions.

  • Contribute up to an additional 25% of your net earnings from self-employment for total contributions of $61,000 for 2022 ($58,000 for 2021; $57,000 for 2020 and $56,000 for 2019), including salary deferrals.

  • Note, you are generally required to file an annual report on Form 5500-EZ if it has $250,000 or more in assets at the end of the year. A one-participant plan with fewer assets may be exempt from the annual filing requirement 

• Defined Benefit Plans

  • Traditional pension plan with a stated annual benefit you will receive at retirement, usually based on salary and years of service.

  • Benefit may also be defined based on a cash balance formula in a hypothetical individual account (a cash balance plan).

  • Maximum annual benefit can be up to $245,000 for 2022 ($230,000 for 2021 and for 2020; $225,000 for 2019).

  • Contributions are calculated by an actuary based on the benefit you set and other factors (your age, expected returns on plan investments, etc.); no other annual contribution limit applies.

  • These are quite complicated, require actuarial calculations, and relevant expertise.  You cannot do this yourself.  They are expensive to set up and maintain, but given the significant contribution capabilities, can be powerful tax strategy tools if you have enough side income or 1099 income to support larger contributions.

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Additional resources are available at the IRS website at https://www.irs.gov/retirement-plans.  Some other commonly asked questions are on these pages:  

• Required minimum distributions (RMDs) - when you will have to take money out of your retirement accounts.

• Rollovers of retirement plans and IRA distributions