Retirement Planning for Physicians: Building a Secure Future for You and Your Practice
As a physician and business owner, you’ve dedicated your career to taking care of others. But when planning for your retirement, it’s crucial to take proactive steps to secure your financial future. Unlike employed physicians with access to employer-sponsored retirement plans, practice owners must take the initiative to establish retirement benefits for both themselves and their employees. The right plan can provide tax advantages, attract and retain top talent, and ensure financial stability as you approach retirement.
Why Retirement Planning is Essential for Physician Practice Owners
Physician-owners face unique challenges in retirement planning. With high incomes, fluctuating cash flow, and significant business responsibilities, it can be easy to delay long-term financial planning. However, establishing a solid retirement plan early can offer significant benefits, including:
Tax Savings: Contributions to qualified retirement plans reduce taxable income, allowing for long-term tax-deferred growth.
Financial Security: A well-structured plan can provide a comfortable retirement without the need to sell your practice under pressure.
Employee Retention: A competitive retirement plan attracts and retains skilled staff, improving overall practice stability and morale.
Succession Planning: A retirement strategy supports a seamless transition when it’s time to step away from your practice.
Choosing the Right Retirement Plan for Your Practice
Several retirement plan options are available to physician practice owners, each with its own advantages and considerations. The right choice depends on your practice’s size, cash flow, and long-term goals. Here are the most common options:
Simplified Employee Pension (SEP) IRA
A SEP IRA is an easy-to-administer plan ideal for solo practitioners or small practices. It allows for high contribution limits (up to 25% of compensation, with a maximum of $70,000 in 2025).
Contributions are employer-funded, meaning employees cannot contribute, and all eligible employees must receive the same percentage of their salary. This plan works well if you have few employees and want flexible contributions.
401(k) Plan
A 401(k) is a powerful option for physician practice owners, offering employer and employee contributions. Employees can defer up to $23,500 in 2025 ($31,000 if age 50 or older and $34,750 if age 60-63). Employers can also contribute, allowing total contributions to reach $70,000 ($77,500 for those 50+ and $81,250 for those age 60-63).
Solo 401(k): Ideal for solo practitioners, with no full-time employees (other than a spouse). A Solo 401(k) allows for both employee and employer contributions, enabling higher contribution limits than traditional IRAs—up to $70,000 in 2025 (or $77,500 with catch-up contributions for those 50+ and $81,250 for those age 60-63). Solo 401(k)s also offer tax advantages, including the ability to choose between tax-deferred (traditional) or tax-free (Roth) contributions. Additionally, they provide flexibility with optional loan provisions and the ability to invest in a wide range of assets. This makes them an excellent option for maximizing retirement savings while managing taxable income.
Traditional 401(k) with Safe Harbor: A type of retirement plan designed to help business owners and highly compensated employees maximize contributions while ensuring compliance with IRS non-discrimination testing. It requires employers to make mandatory contributions—either a matching or non-elective contribution—which are immediately vested for employees. This structure allows owners and key employees to contribute up to the annual 401(k) limits without concerns about failing compliance tests. Safe Harbor plans also enhance employee retention by offering valuable employer contributions, making them a great option for businesses looking to attract and retain talent while optimizing tax benefits.
Profit-Sharing Plan
A profit-sharing plan is a flexible employer-sponsored retirement plan, often combined with a 401(k) plan. It allows businesses to make discretionary contributions to employees’ retirement accounts based on company profits or a set formula based on business profitability. This provides flexibility, enabling practice owners to contribute more in good years and less when cash flow is tighter. This flexibility makes it an excellent option for companies looking to reward employees, incentivize productivity, and manage cash flow effectively while supporting long-term retirement savings.
Cash Balance Plan
A cash balance plan is a defined benefit plan that allows for even higher tax-deferred contributions than a 401(k) or profit-sharing plan. It is ideal for high-earning physicians who want to accelerate their retirement savings while reducing taxable income. Cash balance plans provide predictable benefits at retirement and can be combined with a 401(k) for even greater savings potential.
Defined Benefit Plan
A defined benefit plan offers substantial tax-deferred contributions for high-earning physicians seeking the maximum possible retirement savings. Contributions are based on actuarial calculations and can sometimes exceed $300,000 per year. However, these plans require mandatory funding and more administrative oversight, making them best suited for physicians with consistent, high income.
Is Your Retirement Plan Working for You?
At Waterworth Wealth Advisors, we help physicians ensure their retirement plans are optimized, compliant, and delivering the full benefits they’re designed to provide. Whether you already have a plan in place or are considering adjustments, we work closely with practice owners to:
Ensure Compliance & Efficiency
Retirement plans have complex rules and evolving regulations. We provide ongoing oversight to help you stay compliant and ensure your plan operates as efficiently as possible.
Maximize Tax Benefits
Your plan should provide more than retirement savings—it should also work as a strategic tax tool. We help you leverage all available tax-saving opportunities, including deductible contributions and tax-efficient distribution strategies.
Optimize Plan Design for Your Needs
Whether you have a 401(k), cash balance plan, or a combination of options, we assess how well your current setup aligns with your retirement goals, practice structure, and employee needs. If adjustments could enhance benefits, we guide you through the best strategies.
Monitor and Adjust Your Investment Strategy
Your retirement savings should grow in alignment with your long-term goals and risk tolerance. We help ensure your investment strategy is properly diversified and periodically reviewed to keep you on track.
Integrate with Your Business & Succession Plans
If you plan to sell or transition your practice, your retirement strategy should work in tandem with your business plan. We help coordinate these elements to create a financially sound exit strategy.
Take Control of Your Financial Future
Retirement planning for physicians who own their practice is complex, but with the right strategy, you can secure your financial future while providing valuable benefits to your employees. By proactively managing and optimizing your plan, you can build long-term wealth, reduce taxes, and create a clear path toward retirement on your own terms.
Is your current plan meeting your needs? Let’s review it together to ensure you’re getting the most out of your retirement strategy. Your years of hard work and dedication deserve a retirement that allows you to enjoy the rewards of your career—start planning today to make that a reality.
