Skip to content
  • About
  • Contact
  • Contribute
  • Book
  • Careers
  • Podcast
  • Recommended
  • Speaking
  • All
  • Physician
  • Practice
  • Policy
  • Finance
  • Conditions
  • .edu
  • Patient
  • Meds
  • Tech
  • Social
  • Video
    • All
    • Physician
    • Practice
    • Policy
    • Finance
    • Conditions
    • .edu
    • Patient
    • Meds
    • Tech
    • Social
    • Video
    • About
    • Contact
    • Contribute
    • Book
    • Careers
    • Podcast
    • Recommended
    • Speaking

Are you taking advantage of all of your tax deferred investment options?

Amarish Dave, DO
Finance
October 25, 2023
Share
Tweet
Share

Given the tax bracket most doctors are in, reducing their tax burden is a key factor in their investment success and long-term retirement plan. At this time of year, many doctors may not have maximized all of their retirement tax-deferred options. Here is a summary of different options to consider.

Traditional 401(k) plans

Benefits

Tax deductions. Contributions to a Traditional 401(k) are tax-deductible, reducing an individual’s taxable income for the year in which contributions are made.

Tax-deferred growth. Earnings within the account grow tax-deferred until withdrawal, allowing for compound growth.

Employer matching. Many employers offer matching contributions, effectively increasing the amount individuals save for retirement.

Limitations

Required minimum distributions (RMDs). Individuals must begin taking withdrawals from their Traditional 401(k) at age 72, which can affect tax liability.

Early withdrawal penalties. Withdrawing funds before age 59½ typically results in a 10 percent penalty and income tax on the withdrawn amount.

Roth 401(k) plans

Benefits

Tax-free withdrawals. Qualified withdrawals from a Roth 401(k) are tax-free, providing tax-free income in retirement.

No RMDs. Roth 401(k)s do not have RMDs during the account holder’s lifetime, allowing for continued tax-free growth.

Limitations

No immediate tax deduction. Contributions to Roth 401(k)s are made with after-tax dollars, so they do not provide an immediate tax deduction.

Employer match taxed. Employer matching contributions are tax-deferred, meaning individuals will pay taxes upon withdrawal.

Traditional IRAs

Benefits

Tax deductions. Contributions to a Traditional IRA can be tax-deductible, lowering an individual’s taxable income.

Tax-deferred growth. Similar to Traditional 401(k)s, earnings within a Traditional IRA grow tax-deferred.

Limitations

ADVERTISEMENT

RMDs. Starting at age 72, Traditional IRA owners must take RMDs, potentially increasing their taxable income.

Early withdrawal penalties. Withdrawing funds before age 59½ incurs a 10 percent penalty and income tax.

Roth IRAs

Benefits

Tax-free withdrawals. Qualified withdrawals from a Roth IRA are tax-free, providing tax-free income in retirement.

No RMDs. Roth IRAs do not have RMDs during the account holder’s lifetime, allowing for continued tax-free growth.

Limitations

No immediate tax deduction. Contributions to Roth IRAs are made with after-tax dollars and do not provide an immediate tax deduction.

Income limitations. High-earning individuals may be ineligible to contribute to Roth IRAs.

Simplified Employee Pension (SEP) IRAs

Benefits

Higher contribution limits. SEP IRAs allow for higher annual contributions, making them ideal for self-employed individuals and small business owners.

Tax deductions. Contributions are tax-deductible, lowering taxable income.

Limitations

Employer contributions only. Contributions are made by the employer, not the employee. Thus, they are generally unavailable for non-self-employed individuals.

No catch-up contributions. SEP IRAs do not offer catch-up contributions for older individuals.

Solo 401(k) plans

Benefits

High contribution limits. Solo 401(k)s permit higher contributions compared to Traditional or Roth IRAs.

Tax deductions. Contributions are tax-deductible, reducing taxable income.

Limitations

Self-employed requirement. As the name suggests, Solo 401(k) plans are designed for self-employed individuals and business owners with no full-time employees, excluding their spouses.

Complex administration. Managing a Solo 401(k) may require additional administrative efforts compared to other retirement accounts.

Conclusion

Tax-deferred retirement accounts provide doctors with valuable tools for saving for retirement while benefiting from tax advantages. The right choice depends on a doctor’s financial situation, goals, and time horizon. Traditional accounts offer immediate tax deductions, while Roth accounts provide tax-free withdrawals. The specific benefits and limitations of each account type should guide the decision-making process.

Amarish Dave is a board-certified neurologist with over 20 years of experience in both neurology and active stock investing. In addition to his medical career, he holds a background in business from the University of Michigan and has successfully passed the SIE exam administered by FINRA. Dr. Dave is founder, FiscalhealthMD.com, a website dedicated to educating doctors at all stages of their careers, ranging from residents to retirement, about financial planning.

Prev

Nature's role in relieving physician burnout

October 25, 2023 Kevin 0
…
Next

The Djokovic saga: Vaccination policies revisited

October 25, 2023 Kevin 0
…

Tagged as: Practice Management

Post navigation

< Previous Post
Nature's role in relieving physician burnout
Next Post >
The Djokovic saga: Vaccination policies revisited

ADVERTISEMENT

ADVERTISEMENT

ADVERTISEMENT

More by Amarish Dave, DO

  • The doctor’s guide to dividend wealth: Building a resilient portfolio with smart investments

    Amarish Dave, DO
  • What to put in Roth vs. traditional IRAs: It can make big differences

    Amarish Dave, DO
  • How to select the right mutual funds for your goals

    Amarish Dave, DO

Related Posts

  • Eradicate the disability tax, before it’s too late

    Shreya Kumar
  • How hospitals are taking advantage of the 340B Drug Pricing Program

    Peter Ubel, MD
  • Medicare “Advantage” for my indigent patients

    Aniyizhai Annamalai, MD
  • A call for more handicap accessible options for homeless patients in Rhode Island

    Cara Zimmerman, MD
  • Why the Build Back Better Act is an investment, not a cost

    Shirin Shafazand, MD
  • The preference for insurance coverage of opioids over non-pharmaceutical options explained

    Amy Baxter, MD

More in Finance

  • The business lesson new doctors must unlearn

    Stanley Liu, MD
  • The hidden impact of denials on health care systems

    Diana Ortiz, JD
  • Why physicians are unlike the “average” investor

    David B. Mandell, JD, MBA
  • Signing bonuses and taxes: What physicians should know

    Shane Tenny, CFP
  • 5 steps to ride out a non-compete without uprooting your family

    Stanley Liu, MD
  • What every physician should know before buying into a medical practice

    Dennis Hursh, Esq
  • Most Popular

  • Past Week

    • Why Medicaid cuts should alarm every doctor

      Ilan Shapiro, MD | Policy
    • When the diagnosis is personal: What my mother’s Alzheimer’s taught me about healing

      Pearl Jones, MD | Conditions
    • 2 hours to decide my future: How the SOAP residency match traps future doctors

      Nicolette V. S. Sewall, MD, MPH | Education
    • Key strategies for smooth EHR transitions in health care

      Sandra Johnson | Tech
    • Reassessing the impact of CDC’s opioid guidelines on chronic pain care [PODCAST]

      The Podcast by KevinMD | Podcast
    • Why removing fluoride from water is a public health disaster

      Steven J. Katz, DDS | Conditions
  • Past 6 Months

    • Why tracking cognitive load could save doctors and patients

      Hiba Fatima Hamid | Education
    • What the world must learn from the life and death of Hind Rajab

      Saba Qaiser, RN | Conditions
    • The silent toll of ICE raids on U.S. patient care

      Carlin Lockwood | Policy
    • “Think twice, heal once”: Why medical decision-making needs a second opinion from your slower brain (and AI)

      Harvey Castro, MD, MBA | Tech
    • Why we fear being forgotten more than death itself

      Patrick Hudson, MD | Physician
    • Bureaucracy over care: How the U.S. health care system lost its way

      Kayvan Haddadan, MD | Physician
  • Recent Posts

    • The man in seat 11A survived, but why don’t our patients?

      Dr. Vivek Podder | Physician
    • Why gambling addiction is America’s next health crisis

      Safina Adatia, MD | Conditions
    • When did we start treating our lives like trauma?

      Maureen Gibbons, MD | Physician
    • How robotics are reshaping the future of vascular procedures

      David Fischel | Conditions
    • Medicalizing burnout misses the real problem

      Jessie Mahoney, MD | Physician
    • How the shingles vaccine could help prevent dementia

      Marc Arginteanu, MD | Conditions

Subscribe to KevinMD and never miss a story!

Get free updates delivered free to your inbox.


Find jobs at
Careers by KevinMD.com

Search thousands of physician, PA, NP, and CRNA jobs now.

Learn more

Leave a Comment

Founded in 2004 by Kevin Pho, MD, KevinMD.com is the web’s leading platform where physicians, advanced practitioners, nurses, medical students, and patients share their insight and tell their stories.

Social

  • Like on Facebook
  • Follow on Twitter
  • Connect on Linkedin
  • Subscribe on Youtube
  • Instagram

ADVERTISEMENT

ADVERTISEMENT

ADVERTISEMENT

ADVERTISEMENT

  • Most Popular

  • Past Week

    • Why Medicaid cuts should alarm every doctor

      Ilan Shapiro, MD | Policy
    • When the diagnosis is personal: What my mother’s Alzheimer’s taught me about healing

      Pearl Jones, MD | Conditions
    • 2 hours to decide my future: How the SOAP residency match traps future doctors

      Nicolette V. S. Sewall, MD, MPH | Education
    • Key strategies for smooth EHR transitions in health care

      Sandra Johnson | Tech
    • Reassessing the impact of CDC’s opioid guidelines on chronic pain care [PODCAST]

      The Podcast by KevinMD | Podcast
    • Why removing fluoride from water is a public health disaster

      Steven J. Katz, DDS | Conditions
  • Past 6 Months

    • Why tracking cognitive load could save doctors and patients

      Hiba Fatima Hamid | Education
    • What the world must learn from the life and death of Hind Rajab

      Saba Qaiser, RN | Conditions
    • The silent toll of ICE raids on U.S. patient care

      Carlin Lockwood | Policy
    • “Think twice, heal once”: Why medical decision-making needs a second opinion from your slower brain (and AI)

      Harvey Castro, MD, MBA | Tech
    • Why we fear being forgotten more than death itself

      Patrick Hudson, MD | Physician
    • Bureaucracy over care: How the U.S. health care system lost its way

      Kayvan Haddadan, MD | Physician
  • Recent Posts

    • The man in seat 11A survived, but why don’t our patients?

      Dr. Vivek Podder | Physician
    • Why gambling addiction is America’s next health crisis

      Safina Adatia, MD | Conditions
    • When did we start treating our lives like trauma?

      Maureen Gibbons, MD | Physician
    • How robotics are reshaping the future of vascular procedures

      David Fischel | Conditions
    • Medicalizing burnout misses the real problem

      Jessie Mahoney, MD | Physician
    • How the shingles vaccine could help prevent dementia

      Marc Arginteanu, MD | Conditions

MedPage Today Professional

An Everyday Health Property Medpage Today
  • Terms of Use | Disclaimer
  • Privacy Policy
  • DMCA Policy
All Content © KevinMD, LLC
Site by Outthink Group

Leave a Comment

Comments are moderated before they are published. Please read the comment policy.

Loading Comments...