The demanding nature of a surgical career, with long hours and complex responsibilities, can often leave retirement planning on the back burner. However, prioritizing your financial future and understanding your retirement options is vital.
At Surgeons Capital Management, we understand the unique challenges faced by your profession. We are a dedicated wealth management firm for surgeons in Pennsylvania, with over 200 years of combined experience.
This article discusses qualified retirement plans for surgeons, their key features, common mistakes, and ways to avoid these pitfalls for effective retirement planning.
What Is a Qualified Retirement Plan?
As defined by the IRS, a Qualified Retirement Plan (QRP) is a retirement plan that meets the specific requirements outlined in Section 401(a) of the Internal Revenue Code. These plans qualify for tax benefits such as tax-deferred growth on earnings and tax-deductible contributions. QRPs must comply with regulatory requirements regarding participant eligibility, vesting schedules, benefit accrual, and the proper benefits funding.
For surgeons, qualified retirement plans (QRPs) are crucial financial tools that enhance retirement savings through significant tax advantages. These plans can be established by employers or structured individually for self-employed individuals. QRPs also offer some legal protections from creditors in bankruptcy situations. However, as of 2024, the protection cap for traditional and Roth IRAs is $1,512,350, with adjustments every three years.
Key Features of Qualified Retirement Plans
Several types of qualified retirement plans are available, each with its own features and benefits. Here’s a closer look at some of the most common options for surgeons.
401(k) Plans: These plans are available to surgeons in for-profit entities. They allow pre-tax salary deferrals, which reduce taxable income and enable investments to grow tax-deferred. Employers often match contributions, further increasing retirement funds. As of 2024, the contribution limit is $22,500 for individuals under age 50, with an additional $7,500 for those aged 50 and older, raising the total to $30,000.
403(b) Plans: Operated by non-profit organizations and educational institutions, these plans are similar to 401(k) plans with pre-tax contributions and deferred taxes on earnings. The contribution limit is the same as 401(k) plans, with $22,500 for people under 50 and $30,000 for those 50 and older, which includes extra catch-up contributions.
Roth IRAs: These plans are an excellent retirement savings option whether you work for a company or are self-employed. They are funded with after-tax dollars, allowing for tax-free growth and tax-free withdrawals in retirement. The contribution limit is $6,500 for those under age 50 and $7,500 for those 50 and older, which includes the catch-up contribution.
For Roth IRA contributions in 2024, single filers can contribute the full amount with a Modified Adjusted Gross Income (MAGI) of less than $153,000, with phase-outs starting at $138,000. Married couples filing jointly are allowed full contributions with a MAGI of less than $228,000, with phase-outs beginning at $218,000.
There are no income limits for converting a Traditional IRA to a Roth IRA, meaning that higher-income surgeons can still access Roth IRA benefits through a conversion. However, it’s recommended to consult with a tax or financial advisor to weigh the pros and cons.
Qualified Retirement Plans for Self-Employed Surgeons
SEP IRAs: Popular among self-employed surgeons, these plans enable contributions of up to 25% of their earnings. The maximum contribution is either 25% of their income or $66,000, whichever is less.
SIMPLE IRAs: These plans are simple to set up for surgeons working in small practices. Those under 50 can contribute up to $15,500, and those 50 or older can contribute up to $19,000, including catch-up contributions.
Solo 401(k) Plans: Also known as individual 401(k) or one-participant 401(k) plans, are specifically designed for self-employed individuals with no employees other than a spouse who works in the business. These plans allow contributions as both an employee and an employer, with a combined limit of up to $66,000 in 2024, or $73,500 if aged 50 or older with catch-up contributions. This setup maximizes retirement savings by leveraging dual contribution roles within the same plan.
Common Mistakes Surgeons Make With Qualified Plans
Despite the advantages, surgeons can encounter some common pitfalls when dealing with qualified retirement plans. Here are some key points to consider:
- Contributing too little, too late: For surgeons, especially those just starting their careers, balancing current financial needs like managing student debt or other expenses with planning for the future is essential. Start your retirement contributions early, regardless of the amount, because they can have a powerful long-term effect. The value of early and consistent contributions should never be underestimated.
- Not taking advantage of employer matching: If your employer offers matching contributions, it’s free money that can significantly accelerate your retirement savings. Contribute at least enough to capture the entire match.
- Making poor investment decisions: Choosing overly aggressive investments within your qualified plan can expose your savings to unnecessary risk. On the other hand, investing too conservatively could result in missing out on potential growth opportunities. Choose a diversified portfolio that matches your risk tolerance and aligns with your retirement timeline.
- Neglecting catch-up contributions: As you approach retirement, neglecting to take advantage of catch-up contribution options may leave you with a funding shortfall. Determine your eligibility and develop a strategy to maximize catch-up contributions.
How SCM Helps Surgeons With Qualified Retirement Plans
At Surgeons Capital Management (SCM), our team of financial advisors understands your unique situation, and we specialize in wealth management for surgeons. Here are some ways SCM can guide you through the retirement planning process:
- Customized retirement strategies: We take a personalized approach, and our financial advisors will work with you to understand your financial goals, risk tolerance, and career timeline. We will develop a tailored retirement strategy by considering factors such as your practice type, income level, and expected retirement date.
- Contribution optimization: We’ll help you determine the optimal contribution level for your qualified plan, considering factors such as your tax bracket, desired retirement lifestyle, and potential employer matching contributions.
- Investment selection: Qualified plans often offer a range of investment options. SCM’s advisors can guide you through the selection process, helping you select investments suited to your risk tolerance and long-term objectives.
- Tax minimization strategies: Our team stays current on complex tax regulations and can help you develop strategies to minimize your tax burden throughout your career and retirement. This includes maximizing tax-deductible contributions to your qualified plan and utilizing other tax-advantaged retirement savings vehicles.
- Ongoing monitoring and adjustments: The financial markets can fluctuate and your personal circumstances can change over time. SCM’s financial advisors provide ongoing monitoring of your qualified plan and your overall retirement strategy. We can work with you to adjust your contributions or investment allocation as needed to help you with your evolving goals.
About Surgeons Capital Management
Surgeons Capital Management works exclusively with surgeons, their families, and surgical practices. Specialization matters, and our commitment to surgeons forms the core of our value.
Partnering with us means we take on the financial tasks and worries you prefer to not manage yourself. Let us do the heavy lifting so you can focus on building your practice and spending time with your loved ones.
Our team of leading financial advisors for surgeons in Pennsylvania will craft a tailored retirement strategy to effectively utilize the benefits of qualified plans and assist you in pursuing your financial goals.
Contact us today to schedule a personalized wealth management consultation.
