Padding Your Retirement Nest: Tips for Self-Employed Physicians and Dentists

For doctors, dentists, and other medical practitioners who own their practices, it’s no secret that, while they may enjoy incomes well above the average, significant challenges exist with respect to planning for a secure, comfortable retirement. For one thing, it’s not unusual for them to come out of medical or dental school with hundreds of thousands in student loan debt. Add to that the overhead imposed by expensive equipment, rental or debt service for office space, staffing and payroll, and all the other expenses necessary for maintaining a thriving practice, and saving adequately for retirement starts to look more like a fond dream than a guaranteed reality. In other words, retiring with sufficient assets to replace the income needed for maintenance of the preferred lifestyle isn’t as easy for physicians and other medical practitioners as many assume.

On the other hand, self-employed medical and dental practitioners have some important tools that can make the retirement funding conundrum easier to solve. Let’s take a look.

First, there’s the obvious: self-employed practitioners should establish and regularly fund a 401(k). Especially with the passage of SECURE 2.0, which offers a tax credit equal to 100% of startup costs for most plans, there has never been a better time to establish a tax-advantaged plan for retirement that benefits the self-employed individual and rewards their employees. In 2023, participants can make elective deferrals of up to $22,500 ($30,000, including the “catch-up” contribution available to those age 50 and over). Funds grow on a tax-advantaged basis, and now that Roth 401(k)s are treated under the same rules as Roth IRAs, RMDs will be eliminated, starting in 2024. A self-employed physician aged 45 could contribute the maximum each year until full retirement age at 67 and, assuming an average return rate of 5%, have a retirement nest egg of well over a million dollars.

But for self-employed practitioners, there’s even better news. All 401(k)s permit additional employer-funded profit sharing contributions. In 2023, the annual addition to a 401(k)—the total of employer contributions, employee contributions, and forfeitures allocated to a participant—cannot exceed the lesser of 100% of the participant’s compensation or $66,000. That means that a self-employed physician or dentist age 49 or younger (i.e., not eligible for catch-up contributions) could potentially contribute as much as $66,000 to a 401(k) account. Doing that until full retirement age, assuming an average annual return of 5%, would result in a retirement account totaling in excess of $2.5 million.

Finally, don’t forget the humble IRA. In 2023, anyone can contribute up to $6,500 to an IRA ($7,500 for those 50 and older). Depending on your income, your IRA contributions may or may not be deductible from your taxable income, but in either case, they have no effect on your eligibility to make 401(k) contributions, and, like your 401(k), the funds grow on a tax-deferred basis. If you have a Roth IRA, withdrawals in retirement may be tax-free, depending on certain conditions. And that extra tax-advantaged savings would add another $269,400 to your retirement fund by full retirement age.

Savant Wealth Management is dedicated to providing guidance to those preparing for retirement. As a fiduciary advisor, we make recommendations that are delivered with the client’s best interest as the foremost consideration. To learn more, click here to access our “Retirement Countdown Guidebook.”

SOURCES

1. Internal Revenue Service, “401K and Profit-Sharing Plan Contribution Limits,”
2. Greg Iacurci, “SECURE 2.0 Changes 3 Key Rules around Required Withdrawals…” CNBC.com, January 3, 2023
3. Nicolle Wilson, “401K Profit-Sharing Plans…” Guideline.com, April 1, 2020
4. Internal Revenue Service, “One-Participant 401K Plans,”
5. Andrew Bloomenthal, “401K and IRA Contributions: You Can Do Both,” Investopedia.com, December 17, 2022

Patricia L. Hutchinson Director of Retirement Plan Services MBA

Patty has been involved in the financial services industry since 2006. She earned a bachelor of science degree in marketing and management from Northern State University in Aberdeen, SD, and an MBA from Colorado Technical University, Sioux Falls, SD.