For many young to mid-career physicians, a common refrain is that they feel like they are “behind” on saving for future goals like retirement, and that taxes are unexpectedly high, and getting higher. The former (feeling behind in saving toward goals) is often true, primarily because most physicians don’t begin as attendings until some point in their 30s (while many of their non-physician peers began their careers in earnest, and subsequent saving, in their 20s). On top of that, by the time a physician starts earning substantial income in their 30s, they find that every additional dollar of income (through wages, interest etc.,) is taxed at a very high rate, because of the way marginal tax rates work. In fact, it’s not uncommon for a physician to be in a marginal tax rate of 50% (!) if they are in a state with a high income tax rate.
One way to combat this concern is for physicians to be diligent about maximizing the funding of the tax-favored accounts available to them. Depending on the account, this may or may not have an impact/benefit on *current* year taxes. For example, if a household funds the maximum amount to a Health Savings Account for 2025 ($8,550), and is in the 35% marginal tax rate, they will save nearly $3,000 in taxes for 2025 alone! Funding a back-door Roth IRA, however, does not to improve current year taxes, but should provide a benefit in future years because of the tax-free growth afforded by a Roth IRA. Here are accounts that a physician should consider funding if they want to maximize financial security and minimize taxes over the course of their lifetime:
1. 401k or 403b through employer
The 2025 maximum contribution is $23,500, and most employers will contribute in addition to the employee contribution. A key question here is: Should contributions be made to the Roth or Pre-tax account?
2. Back Door Roth IRA
$7,000 is the annual limit, and a spouse can make a contribution for the same amount. It’s important, however, to be aware of aggregation and pro-rata rule when considering a back-door Roth IRA strategy. Read our physician’s guide to making (back door) Roth IRA contributions.
3. Health Savings Account
$8,550 is the maximum contribution for a household in 2025. This account is unique in that it has to be paired with a high deductible health plan, so more consideration should be given if that health insurance plan is adequate for the household. Read more about physicians and health savings accounts.
4. Mega Back Door Roth
*Some* employers offer this option through the 401k or 403b, and this is OVER and ABOVE the $23,500 that can be contributed as an elective contribution noted in #1 above. A good way to learn about if this is an option is to obtain a summary plan description for your employer’s retirement plan. Learn more about the mega-back Door Roth strategy.
5. Solo 401k – Self-Employed / 1099 income
for those who are self-employed, OR who have 1099 income, opening an additional 401k could allow them to make an additional contribution to a 401k plan, up to the IRS limit of $70,000!
6. 457b / SERP
some employers also offer additional retirement/deferred compensation plans that provide a tax deduction in the year contributions are made, along with tax-free growth. It’s important to note, however, that these plans come with their own set of rules, and in many cases the solvency of the plan is directly tied to the financial situation of the employer.
Amazingly, if you analyze the after-tax rate of return, the results are stunning. In just a 30 year period, if a physician maximized contributions to #1-#3 above, assuming an 8% rate of return, they would have just over $5.6M. On the other extreme, if they did not fund ANY of the above accounts, but rather invested funds in a taxable environment, using the same contribution amount and rate of return, they would have amassed just under $3.6M. This equates to a $2,000,000 tax difference!