Retirement Planning for Private Practice Physicians

Mergers and acquisitions have been all the rage in medicine for decades now. But when it comes to medicine, bigger is not always better, and no one knows that more than private practice physicians.

Going it alone, though, can pose some challenges that docs in health systems don’t have to face. A major one? Planning for retirement. Here’s what you need to know as a private practice physician.

How should doctors plan for retirement?

So, first things first. Regardless of the setting you work in, every doctor needs a solid plan for retirement. That’s because, compared to other professionals, doctors take a really long time to reach their income potential. That also means that you have relatively less time to save up for retirement...which means that you won’t make nearly as much in interest. So it's a whole thing.

This challenge is often compounded for private practice physicians, who often take on more debt to front the initial capital investment it takes to become an owner.

Your best bet to plan for retirement is to consult a financial planner who has experience working with physicians. They can look at your financials in a really detailed way to figure out exactly what you need to save (and on what timeline) based on your particular goals. We have a great tool to find peer-recommended advisors across the country right here.

What is the best retirement plan for a doctor?

From the 401(a) to the 403(b) and the 401(k), there’s an alphabet soup of retirement plans available to doctors who are employed by a health system or other entity. For physicians in private practice, though, a qualified retirement plan (aka QRP) may look at little different.

QRPs are plans that qualify for tax benefits because they meet certain requirements set by the IRS. These perks make QRPs pretty alluring compared to nonqualified plans, but nonqualified plans can be an important adjunct to retirement planning, especially for docs in private practice.

Qualified retirement plans for private practice physicians

QRPs in private practices can look like a defined benefit plan, a profit sharing plan, a money purchase plan, or even a regular old 401(k). Much like employed physicians, private practice docs can deduct contributions made to a QRP. You can also get tax-deferred asset growth and certain asset protection if there are any non-owner employees who participate in the plan.

But even though QRPs come with some pretty good perks, they’re not all sunshine and rainbows. For example, the cost of contributions is substantial, as is the cost of taxes at the time of distribution. There is also the risk of liability for physician owners should any employee funds be mismanaged. For this reason, it can be worthwhile to explore other options alongside a QRP.

Nonqualified plans for private practice physicians

As a doctor, you’re subject to rules, rules, rules. Unlike QRPs, which come with very strict funding rules, nonqualified plans offer significant freedom and flexibility. Physician owners can choose to contribute a lot, a little, or nothing at all, and they need not offer this type of plan to non-owners. Moreover, the funds in these plans can sometimes grow tax free and be accessed tax free in retirement. 

Unfortunately, though, contributions to nonqualified plans are not tax deductible, which is definitely a drawback.

Other retirement strategies for private practice physicians

If your goal is to generate significant wealth for retirement, you may need to explore additional ways to increase your income and then grow it. Here are some ideas to get started.

• Consulting. Working as a physician consultant can help you increase your income substantially, even as a resident. By investing a portion of the money you make as a consultant, you'll be setting yourself up for retirement, one gig at a time. You can get started with consulting on flipMD for free anytime.
• Life insurance. So-called permanent life insurance policies can be an excellent strategy for retirement. Much like actual retirement plans, these types of policies can often grow tax free and can be accessed tax free during your lifetime. So depending on your situation, it may make sense to cash in on your life insurance policy during retirement rather than saving it for a beneficiary after your death.
• SEP IRA. The SEP IRA is a snazzy savings vehicle that can be used to grow income made from things like consulting or moonlighting. Basically anything reported on a Form 1099. The contribution limits for the SEP IRA are pretty generous, making it a great option to supplement another retirement plan.

Hope this helped get you thinking about retirement and how to get there. For more info on retirement planning for physicians, you can also check out our recent blog on the topic.