Maximizing Retirement Savings: Understanding Tax-Advantaged Accounts and Employer Matches

By: Tanya Frias, CFP®, ChSNC®

Published: May 2, 2023

📂 Financial Education

Written for:

✅ Residents and Fellows

✅ Early Career Physicians

✅ Mid Career Physicians

✅ Established Professionals

As physicians, you work hard to provide high-quality care to our patients, and you deserve to have financial security in our retirement years. One of the best ways to achieve this is by taking advantage of tax-advantaged accounts, which allow us to save money on taxes while saving for the future.

Here are some tax-advantaged accounts for physicians to consider:

401(k)/403(b) plans

401k plans are typically offered by for-profit companies, while 403b plans are offered by non-profit organizations, such as schools, hospitals, and charities. These employer-sponsored plans allow individual 401(k) contributions to a cumulative total of (2023 contribution limits)$22,500, or $30,000 if you’re 50 or older, across all jobs. Pre-tax contributions to retirement plans are contributions that are made before taxes are taken out. This means that the money you contribute is not subject to income taxes in the year that you contribute it. For example, if you contribute $22500 to a 401(k) plan, your taxable income for the year will be reduced by $22500.

Here are some of the benefits of making pre-tax contributions to retirement plans:

  • You can reduce your taxable income in the year that you make the contribution.

  • Your money can grow tax-deferred over time.

  • You may be eligible for a tax deduction or credit for your contributions.

  • Your retirement savings may be protected from creditors in the event of bankruptcy.

Here are some of the drawbacks of making pre-tax contributions to retirement plans:

  • You will have to pay taxes on the money when you withdraw it in retirement.

  • Your retirement savings may be subject to RMDs (Required Minimum Distributions) beginning at age 72.

  • You may have to pay a 10% early withdrawal penalty if you withdraw money from your retirement plan before age 59 ½.

Overall, pre-tax contributions to retirement plans can be a great way to save for retirement. However, it is important to weigh the benefits and drawbacks before making a decision.

Individual Retirement Accounts (IRAs)

There are two main types of IRAs: traditional and Roth. With a traditional IRA, you make contributions with pre-tax dollars, which means you can deduct your contributions from your taxable income. With a Roth IRA, you make contributions with after-tax dollars, but your earnings grow tax-free and you can withdraw them tax-free in retirement.

The amount you can contribute to an IRA each year is based on your income and filing status. For 2023, the contribution limits are:

  • $6,500 for individuals with earned income

  • $7,000 for individuals age 50 and older

You can contribute to an IRA even if you have a retirement plan at work. However, if you are covered by a retirement plan at work and your income is above certain limits, you may not be able to deduct your contributions to a traditional IRA.

IRAs offer a number of tax benefits, including:

  • Tax-deductible contributions (for traditional IRAs)

  • Tax-deferred growth (for both traditional and Roth IRAs)

  • Tax-free withdrawals (for Roth IRAs)

IRAs can be a great way to save for retirement. They offer a number of tax benefits and can help you grow your retirement savings faster. If you are not sure which type of IRA is right for you, you should consult with a financial advisor.

An important point to note is that you can contribute to both an IRA and also an employer sponsored plan like a 401(k)/403(b) in the same tax year.

Health Savings Account

A Health Savings Account (HSA) is a tax-advantaged account that allows you to save money for qualified medical expenses. HSAs are available to individuals who are enrolled in a high-deductible health plan (HDHP).

There are a number of benefits to having an HSA, including:

  • Tax-deductible contributions: You can deduct your contributions to an HSA from your taxable income.

  • Tax-free growth: Your money grows tax-free in an HSA.

  • Tax-free withdrawals: You can withdraw money from your HSA tax-free to pay for qualified medical expenses.

  • Carryover of unused funds: You can carry over unused funds from year to year.

There are a few things to keep in mind about HSAs:

  • You must be enrolled in a high-deductible health plan to qualify for an HSA.

  • The contribution limits for HSAs are lower than the contribution limits for other retirement accounts, such as IRAs and 401(k)s.

  • You can only use your HSA to pay for qualified medical expenses.

If you are eligible for an HSA, it can be a great way to save for your health care costs. HSAs offer a number of tax benefits that can help you save money.

For physicians in residency, it's important to note that you may not have access to all of these accounts through your employer. However, in most cases your employer will offer some type of employer sponsored plan, which can provide significant tax savings.

By signing up for Andwise's free financial planning and monitoring software, you can determine which tax-advantaged accounts are right for you and how much you should be contributing to each. This software can also help you track your contributions and make adjustments as needed.

In summary, as physicians, we have access to several tax-advantaged accounts that can help us save for retirement while reducing our tax burden. By taking advantage of these accounts and regularly contributing to them, we can ensure a more secure financial future.

Don't miss out on this opportunity to maximize your retirement savings. Sign up now for free access to physician-optimized financial planning and monitoring tools.

Stay In The Loop

Join 1000+ physicians who receive our monthly newsletter and stay up to date on our community events, resources, and tools.