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A Retirement Plan for Every Physician


Physicians should always find a way to start maximizing their retirement contributions early in their careers. Here are some of the pros and cons of the numerous retirement savings accounts available.

The No. 1 questions most certified public accountants hear is, “Do you have any recommendations on how to lower my overall tax burden?” The obvious ways to lower a taxpayer’s tax burden is to either reduce revenue or increase tax deductions. Let’s face it, no one wants to make less revenue, and as a result we are always looking for tax savings via additional deductions.

Generally, a taxpayer needs to spend money in order to obtain a tax deduction. However, when maximizing contributions to a retirement account, the taxpayer gets the best of both worlds in that they generally receive a tax deduction not for spending money but for saving for their own retirement. In many cases, employers may match employee contributions to a retirement plan, which provides even more incentive.

As a result, every physician should try to maximize contributions to their retirement account. The government has ensured, through various retirement vehicles, that everyone has access to saving for retirement. Below are summaries of some of the retirement vehicles that can provide valuable tax deductions and put you on a path to financial security.

401(k) Plan: A 401(k) plan is an employer-sponsored retirement plan and is probably the most popular of all retirement plans. An employee contributes to the 401(k) plan via payroll deductions. The deductions from payroll generally are on a pre-tax basis, which means that the contributions are deducted from your pay, and transferred to the plan, before federal and state income taxes are calculated. This is a major benefit from a tax standpoint, because you will generally not pay any income taxes on the amount of wages earned that you contribute to the plan or on any investment gains earned in your account. The maximum annual employee contribution to a 401(k) plan for 2011 is $16,500. However, if the employee is at least age 50, he or she can make an annual “catch up” contribution of an additional $5,500. A 401(k) plan is subject to a nondiscrimination test, as a result some limitations may apply on employee contributions, if the employee is classified as a highly compensated employee.

403(b) Plan: A 403(b) plan is the hospital and not-for-profit corporation equivalent to a 401(k) plan. Similar to the 401(k) plan, an employee contributes to a plan on a pre-tax basis via payroll deductions. The maximum annual employee contribution to a 403(b) plan for 2011 is $16,500, with an additional annual “catch up” contribution of $5,500 for employees that are at least age 50. A 403(b) plan is also subject to a nondiscrimination test which may limit the amount of contributions made by a highly compensated employee.

SIMPLE 401(k) Plan: Eligible small employers may adopt a simplified retirement plan called a “Savings Incentive Match Plan for Employees,” also known as a SIMPLE 401(k) plan. An employee contributes to a SIMPLE 401(k) plan via payroll deductions. Again, the contributions are made on a pre-tax basis, which will result in the contribution being exempt from federal and state income tax. A major disadvantage of the SIMPLE 401(k) is that the maximum contribution for 2011 is $11,500, with an additional “catch up” contribution of $2,500. This is significantly less than a traditional 401(k) plan. However, a major advantage of the SIMPLE 401(k) is that it is not subject to the nondiscrimination test, so highly compensated employees will not be subject to contribution limits. The plan is much easier to administer than the regular 401(k) plan.

Simplified Employee Pension (SEP) Plan: A Simplified Employee Pension plan, often referred to as a SEP, can prove to be a great retirement vehicle for any business. However, a SEP is often preferred by self-employed individuals who operate as a sole proprietorship, with a few to no employees. The employer or sole proprietor receives a tax deduction for contributions made on behalf of the employees, which in most cases is the sole proprietor. For 2011, the contribution limit is the lesser of: (1) 25% of the participant’s compensation; or (2) $49,000. For the sole proprietor, the SEP is generally the retirement plan of choice, due to the significant contribution ceiling of $49,000.

Whether a physician is self-employed, an employee of a non-for-profit or for-profit practice, a retirement plan should always be available. If an employer does not offer a retirement plan, you should lobby your employer to implement one. If an employer refuses to implement a retirement plan, a physician may always contribute to an Individual Retirement Account (IRA). Although the IRA contributions limits are much less than the contribution limits of the retirement accounts previously mentioned, they still may provide some tax savings.

Physicians, due to their high earning potential, should always find a way to start maximizing their retirement contributions early in their careers. Maximizing retirement contributions will not only provide valuable savings in income taxes, but it is an important pathway to generating financial security.

John Teixeira, CPA, MST is a tax manager with Sansiveri, Kimball & Co. LLP. Located in Providence, R.I., Sansiveri, Kimball & Co. LLP, is a leading provider of accounting, tax and consulting services to the medical community. For more information about Sansiveri, Kimball & Co. L.L.P., or the topic discussed in this article, John can be reached at

Sansiveri, Kimball & Co. L.L.P. is also a proud member of the National CPA Health Care Advisors Association. HCAA is a nationwide network of CPA firms devoted to serving the healthcare industry. Members provide proactive solutions to the accounting needs of physicians and physician groups. For more information contact the HCAA at

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