The Order of Investing for Attending Physicians

Jimmy Turner, MD

Updated:

September 5, 2023

Published:

September 6, 2023

Once you have finished training, your income will increase significantly. Now is the time to kick your retirement savings into high gear. Retirement accounts provide a great way to save, but there are lots of options. Retirement accounts come with many confusing terms and restrictions, so choosing the best plan is often challenging. This article will provide a guide to help you navigate the world of retirement accounts as an attending. If you are still in residency or fellowship training, check out our guide for trainees.

Where to Start

In order to figure out an how much money to save annually, you need to know your financial independence number. Then, you simply use an online calculator (this calculator is my favorite) to determine your annual savings goal based on your timeline. After that, use the below information to optimize your savings!

1. Employer Match (401K or 403B)

If your employer offers a match, get it. An employer match is essentially free money. The specifics of matching contributions can vary, but a common arrangement is a 100% match on the first 3-6% of your salary that you contribute.

Make sure you understand your employer’s vesting requirements. If you leave your job before you become vested, you will forfeit all or some of the matching contributions.

You can contribute up to $22,500 into a 401K or 403B in 2023 ($30,500 if you’re age 50 or older).

Any money you contribute is deducted from your adjusted gross income (AGI). If you have student loans and are in an income-driven repayment (IDR) plan, contributions to a pre-tax retirement account will lower your student loan payments.

2. Health Savings Account (HSA)

Although not traditional retirement accounts, HSAs allow you to save money for the future and have better tax benefits than any retirement account. HSAs are triple-tax advantaged: contributions are made using pre-tax money, investment gains are untaxed, and distributions are untaxed if you use them for qualified medical expenses.

Unfortunately, you can only contribute to an HSA if you are enrolled in a high-deductible health plan. In 2023, you can contribute $3,850 (single coverage) or $7,750 (family coverage).

Contributions to an HSA reduce your AGI, so they will also lower your IDR student loan payments.

3. Government 457 plan

If you work for a government agency and are eligible for a governmental 457 plan, use this next. Much like a 401K, you contribute to the 457-plan using pre-tax money and the limit is $22,500 for 2023.

A 457 is technically a deferred compensation plan, not a retirement account. If you leave your employer, you can take money out of the 457 even if you have not reached retirement age. However, you do have to pay taxes on your contributions and investment gains when you withdraw them from your account.

There is one big downside to 457 plans. The money in your account remains the property of the employer until you withdraw it. If your employer files for bankruptcy, the money could be seized by creditors, leaving you with nothing. The risk of bankruptcy of government agencies is low. However, many non-profit organizations (like hospitals) offer non-government 457 plans. These organizations are at higher risk of default, so we recommend contributing to other accounts before a non-governmental 457.

4. Backdoor Roth IRA

After you have maxed out your contributions to the accounts above, then the backdoor Roth IRA is the next step (assuming your income makes you ineligible to contribute directly to a Roth IRA). In 2023, you can contribute up to $6,500 to a backdoor Roth ($7,500 if you’re age 50 or older).

Setting up a backdoor Roth IRA involves contributing post-tax money to a Traditional IRA, then converting it to a Roth IRA. You pay taxes on your contribution, but are not taxed on investment gains.

Creating a backdoor Roth IRA gets tricky if you have money in other IRAs (i.e., rollover IRA, SEP IRA). Make sure you understand all the rules or consult with a financial advisor before setting up a Backdoor Roth IRA.

5. Non-governmental 457

Non-governmental 457 plans (NG 457s) are not as straightforward as governmental plans and carry higher risk of loss due to bankruptcy of your employer. However, it is investment money that is contributed pre-tax so it will decrease your overall tax burden and help you save for the future.

Before contributing to an NG 457, make sure you understand the financial strength of your employer. If you are uncertain or fear bankruptcy is in the realm of future possibilities, it is reasonable to avoid contributing to the 457.

6. Taxable accounts

Once you have used maxed out your tax-advantaged plans, the only option left for investments is taxable accounts (often called “brokerage accounts”). You can only put post-tax money into a brokerage account and you have to pay capital gains taxes on investment gains as you receive them.

Key Takeaways

Starting your retirement savings early will pay off in the long run due to the power of compounding. Attending physicians often have lots of options, so it's important to know which to use first. If your employer offers a match, make sure to get it. After that, move on to an HSA (if you’re eligible), 457 plans (if you're eligible), a Backdoor Roth IRA, and finally a brokerage account.

Where to Start

In order to figure out an how much money to save annually, you need to know your financial independence number. Then, you simply use an online calculator (this calculator is my favorite) to determine your annual savings goal based on your timeline. After that, use the below information to optimize your savings!

1. Employer Match (401K or 403B)

If your employer offers a match, get it. An employer match is essentially free money. The specifics of matching contributions can vary, but a common arrangement is a 100% match on the first 3-6% of your salary that you contribute.

Make sure you understand your employer’s vesting requirements. If you leave your job before you become vested, you will forfeit all or some of the matching contributions.

You can contribute up to $22,500 into a 401K or 403B in 2023 ($30,500 if you’re age 50 or older).

Any money you contribute is deducted from your adjusted gross income (AGI). If you have student loans and are in an income-driven repayment (IDR) plan, contributions to a pre-tax retirement account will lower your student loan payments.

2. Health Savings Account (HSA)

Although not traditional retirement accounts, HSAs allow you to save money for the future and have better tax benefits than any retirement account. HSAs are triple-tax advantaged: contributions are made using pre-tax money, investment gains are untaxed, and distributions are untaxed if you use them for qualified medical expenses.

Unfortunately, you can only contribute to an HSA if you are enrolled in a high-deductible health plan. In 2023, you can contribute $3,850 (single coverage) or $7,750 (family coverage).

Contributions to an HSA reduce your AGI, so they will also lower your IDR student loan payments.

3. Government 457 plan

If you work for a government agency and are eligible for a governmental 457 plan, use this next. Much like a 401K, you contribute to the 457-plan using pre-tax money and the limit is $22,500 for 2023.

A 457 is technically a deferred compensation plan, not a retirement account. If you leave your employer, you can take money out of the 457 even if you have not reached retirement age. However, you do have to pay taxes on your contributions and investment gains when you withdraw them from your account.

There is one big downside to 457 plans. The money in your account remains the property of the employer until you withdraw it. If your employer files for bankruptcy, the money could be seized by creditors, leaving you with nothing. The risk of bankruptcy of government agencies is low. However, many non-profit organizations (like hospitals) offer non-government 457 plans. These organizations are at higher risk of default, so we recommend contributing to other accounts before a non-governmental 457.

4. Backdoor Roth IRA

After you have maxed out your contributions to the accounts above, then the backdoor Roth IRA is the next step (assuming your income makes you ineligible to contribute directly to a Roth IRA). In 2023, you can contribute up to $6,500 to a backdoor Roth ($7,500 if you’re age 50 or older).

Setting up a backdoor Roth IRA involves contributing post-tax money to a Traditional IRA, then converting it to a Roth IRA. You pay taxes on your contribution, but are not taxed on investment gains.

Creating a backdoor Roth IRA gets tricky if you have money in other IRAs (i.e., rollover IRA, SEP IRA). Make sure you understand all the rules or consult with a financial advisor before setting up a Backdoor Roth IRA.

5. Non-governmental 457

Non-governmental 457 plans (NG 457s) are not as straightforward as governmental plans and carry higher risk of loss due to bankruptcy of your employer. However, it is investment money that is contributed pre-tax so it will decrease your overall tax burden and help you save for the future.

Before contributing to an NG 457, make sure you understand the financial strength of your employer. If you are uncertain or fear bankruptcy is in the realm of future possibilities, it is reasonable to avoid contributing to the 457.

6. Taxable accounts

Once you have used maxed out your tax-advantaged plans, the only option left for investments is taxable accounts (often called “brokerage accounts”). You can only put post-tax money into a brokerage account and you have to pay capital gains taxes on investment gains as you receive them.

Key Takeaways

Starting your retirement savings early will pay off in the long run due to the power of compounding. Attending physicians often have lots of options, so it's important to know which to use first. If your employer offers a match, make sure to get it. After that, move on to an HSA (if you’re eligible), 457 plans (if you're eligible), a Backdoor Roth IRA, and finally a brokerage account.

In order to figure out an how much money to save annually, you need to know your financial independence number. Then, you simply use an online calculator (this calculator is my favorite) to determine your annual savings goal based on your timeline. After that, use the below information to optimize your savings!

1. Employer Match (401K or 403B)

If your employer offers a match, get it. An employer match is essentially free money. The specifics of matching contributions can vary, but a common arrangement is a 100% match on the first 3-6% of your salary that you contribute.

Make sure you understand your employer’s vesting requirements. If you leave your job before you become vested, you will forfeit all or some of the matching contributions.

You can contribute up to $22,500 into a 401K or 403B in 2023 ($30,500 if you’re age 50 or older).

Any money you contribute is deducted from your adjusted gross income (AGI). If you have student loans and are in an income-driven repayment (IDR) plan, contributions to a pre-tax retirement account will lower your student loan payments.

2. Health Savings Account (HSA)

Although not traditional retirement accounts, HSAs allow you to save money for the future and have better tax benefits than any retirement account. HSAs are triple-tax advantaged: contributions are made using pre-tax money, investment gains are untaxed, and distributions are untaxed if you use them for qualified medical expenses.

Unfortunately, you can only contribute to an HSA if you are enrolled in a high-deductible health plan. In 2023, you can contribute $3,850 (single coverage) or $7,750 (family coverage).

Contributions to an HSA reduce your AGI, so they will also lower your IDR student loan payments.

3. Government 457 plan

If you work for a government agency and are eligible for a governmental 457 plan, use this next. Much like a 401K, you contribute to the 457-plan using pre-tax money and the limit is $22,500 for 2023.

A 457 is technically a deferred compensation plan, not a retirement account. If you leave your employer, you can take money out of the 457 even if you have not reached retirement age. However, you do have to pay taxes on your contributions and investment gains when you withdraw them from your account.

There is one big downside to 457 plans. The money in your account remains the property of the employer until you withdraw it. If your employer files for bankruptcy, the money could be seized by creditors, leaving you with nothing. The risk of bankruptcy of government agencies is low. However, many non-profit organizations (like hospitals) offer non-government 457 plans. These organizations are at higher risk of default, so we recommend contributing to other accounts before a non-governmental 457.

4. Backdoor Roth IRA

After you have maxed out your contributions to the accounts above, then the backdoor Roth IRA is the next step (assuming your income makes you ineligible to contribute directly to a Roth IRA). In 2023, you can contribute up to $6,500 to a backdoor Roth ($7,500 if you’re age 50 or older).

Setting up a backdoor Roth IRA involves contributing post-tax money to a Traditional IRA, then converting it to a Roth IRA. You pay taxes on your contribution, but are not taxed on investment gains.

Creating a backdoor Roth IRA gets tricky if you have money in other IRAs (i.e., rollover IRA, SEP IRA). Make sure you understand all the rules or consult with a financial advisor before setting up a Backdoor Roth IRA.

5. Non-governmental 457

Non-governmental 457 plans (NG 457s) are not as straightforward as governmental plans and carry higher risk of loss due to bankruptcy of your employer. However, it is investment money that is contributed pre-tax so it will decrease your overall tax burden and help you save for the future.

Before contributing to an NG 457, make sure you understand the financial strength of your employer. If you are uncertain or fear bankruptcy is in the realm of future possibilities, it is reasonable to avoid contributing to the 457.

6. Taxable accounts

Once you have used maxed out your tax-advantaged plans, the only option left for investments is taxable accounts (often called “brokerage accounts”). You can only put post-tax money into a brokerage account and you have to pay capital gains taxes on investment gains as you receive them.

Starting your retirement savings early will pay off in the long run due to the power of compounding. Attending physicians often have lots of options, so it's important to know which to use first. If your employer offers a match, make sure to get it. After that, move on to an HSA (if you’re eligible), 457 plans (if you're eligible), a Backdoor Roth IRA, and finally a brokerage account.

Learn About Attend