Today, more than ever before, a growing number of physicians are choosing to be employed by a hospital, government or educational institution, or large practice group. In this article, I share several financial strategies that can help employed ophthalmologists succeed financially, including the importance of leveraging the employer’s benefit plans and ideas for those considering “side hustles” outside of their employed work.
LEVERAGING BENEFIT PLANS
If you are a W-2 employee, you should strongly consider participating in your employer’s qualified retirement plan (QRP), which allows you to defer income by contributing to the plan. This participation is crucial because it may be the only tax benefits you can enjoy while being employed.
For example, a traditional 401(k) is the most common type of QRP offered to physician employees of for-profit entities. Governmental entities and nonprofit health care organizations offer 403(b) plans, which work the same way as a 401(k).
Government-sponsored 457(b) plans are offered by state and local government health care organizations. Physicians can defer funds into these plans on a pretax basis in addition to contributing to a 403(b) plan.
Nongovernmental organization (NGO) 457(b) plans present a special risk for unwary physicians who are saving for retirement. While these plans, similar to 401(k) plans, allow for pretax contributions and tax-deferred growth, they gain these tax benefits only due to a substantial risk of forfeiture imposed by the Internal Revenue Service. Doctors who hold these plans can lose everything in them if the sponsoring employer goes bankrupt. While an account balance from one NGO 457(b) can usually be rolled over to another NGO 457(b) plan, they cannot be rolled over to an individual retirement account (IRA) or any other type of plan.
A 401(a) plan is a QRP normally offered by government agencies, educational institutions, and nonprofit organizations rather than by corporations. These plans are usually custom-designed and can be offered to key employees as an incentive to stay with the organization. The employee contribution amounts can be pre- or post-tax and are normally set by the employer, who must also contribute to the plan.
USE AN AFTER-TAX IRA WHEN YOU CAN
Beyond your employer’s QRP, a traditional IRA may also be a helpful tool if you are an employed retina specialist. The 2025 contribution limits for a traditional IRA allow an individual to defer up to $7,000 per year ($8,000 per year if you are 50 years of age or older). If you are not covered by a workplace retirement plan, you can deduct pretax contributions; if you do have a workplace QRP, you can make nondeductible or partially deductible contributions (depending on your earned income and filing status). Account balances can then grow tax deferred.
Roth IRA contribution limits are the same as traditional IRA limits; however, most physicians earn more than the adjusted gross income limits for Roth IRAs and are not allowed to contribute directly to a Roth IRA. Doctors can often use a “backdoor” Roth IRA by contributing to a traditional IRA and then converting the traditional IRA to a Roth IRA. (Note: This tactic requires careful planning to avoid unnecessary taxation. Work with an experienced advisor.)
Roth IRAs can be very beneficial in your long-term retirement planning because the funds in a Roth IRA grow tax deferred and are tax-free when you withdraw them from the account. Remember, tax diversification is fundamental to long-term tax planning, and a Roth IRA can be a valuable part of the tax-free bucket—assets that are distributed tax-free in retirement.
A spousal IRA is a traditional IRA or Roth IRA that receives contributions on behalf of a non-earning spouse. To contribute, the non-earning spouse must meet the ordinary requirements for making an IRA contribution, except that they are not required to have earned income. Instead, you, as the earning physician, must make enough income to cover your spouse’s contribution. The normal IRA contribution limits apply to the spousal IRA.
SIDE HUSTLES OUTSIDE OF EMPLOYMENT
At some point in your career, you may consider earning additional income through an outside activity or “side hustle.” These might include the following:
- Taking on Locums tenens work
- Moonlighting
- Becoming an expert medical witness
- Using telemedicine
- Consulting for industry
- Performing paid speaking engagements
- Taking medical surveys
- Creating a patentable medical device
- Investing in real estate
- Launching a startup
If you decide to take this path, consider a few of the following success factors:
Brand Yourself
Whether you are launching an entrepreneurial venture and want to attract investors or you never engage in a side hustle and simply want to build a successful clinical practice, your reputation among colleagues, staff, patients, and the general public is paramount. Professional referrals and online reviews are indicative of what others think of you and your work for patients.
Understand Your Employment Contract
If you want to pursue an entrepreneurial activity beyond your day-to-day practice, your first step must be to understand the current rules and restrictions under which you are presently working. This means a review of your employment agreement and a possible discussion/renegotiation to allow you to proceed.
Structure the Side Hustle for Maximal Tax and Protective Benefit
One of the significant upsides to earning additional income through entrepreneurship and side hustles is that you can structure that income to maximize its protection from liability and minimize its taxation, so that your second income stream can meet your financial goals and improve your situation. This is especially valuable for retina specialists who are employed by large institutions or in groups in which employees have virtually no say on the tax treatment of their income.
If you can justify the cost, a separate limited liability company (LLC) can be created for your new venture. Even if an LLC isn’t necessary, insurance is essential. For example, covering locums and moonlighting work with a medical malpractice policy is vitally important, whereas landlord-type policies may make sense for if you are pursing real estate ownership.
Your tax planning strategies should always minimize the long-term effect of state and federal taxes on your secondary income.
FINAL PEARLS
As part of an ever-increasing number of physicians who are employed, it is crucial that you maximize your participation in your employer’s benefit plans and consider traditional and Roth IRAs to build your retirement wealth. Additional planning opportunities may become available if you decide to pursue a second income stream during the course of your employment.
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This article contains general information that is not suitable for everyone. The information contained herein should not be construed as personalized legal or tax advice, or as a recommendation of any particular security or strategy. Investment involves risk and possible loss of principal capital. There is no guarantee that the views and opinions expressed in this article will be appropriate for your particular circumstances. Tax law changes frequently, accordingly information presented herein is subject to change without notice. You should seek professional tax and legal advice before implementing any strategy discussed herein.
