Most residents aren’t thinking about retirement when they begin their careers. But the employment model you choose can have a significant impact on how early you retire and how secure you will be in retirement.
Many millennial job seekers are drawn to physician employment, lured by the idea of a balanced, predictable schedule and a steady paycheck. However, the biggest mistake senior residents make is not considering the after-tax ramifications of their employment decisions.
When evaluating an employment opportunity, you must consider the full benefits package, not simply the salary. Being an owner in a physician partnership, for example, can provide significant tax advantages that corporate employment doesn’t offer.
For example, while corporations can cover some expenses like healthcare and continuing education, they do not allow you to take any tax deductions outside of a 401(k).
By contrast, partnerships permit you to deduct expenses such as CMEs, health plan premiums, home office expenses, and business-related cell phone, travel, and internet costs.
Also, if you would like to incorporate to take further advantage of vehicle depreciation or pass-through income, you can do so within a partnership.
At Vituity, physician partners can shelter $86,000 a year between a 401(k) and a Defined Benefit Plan, while most corporate groups only let you set aside between $18,000 and $36,000 per year in a 401(k) (including matching funds).
In relation to Vituity’s primary competitors, you will need to work eight years longer to reach your retirement goals.
Working clinical shifts can be mentally and physically exhausting, and the years and mileage can take their toll. Wouldn’t you rather have the option of retiring early in your 50s rather than at 65?
On top of the tax advantages, partnerships give physicians a voice in how their practice operates. Partners determine how much physicians should be paid on an hourly basis and how to invest or divide surplus funds. Vituity's local practices are supported by our national organization with financial planning, educational opportunities, and a wealth of other resources.
When conducting your first job search, do your homework on potential employers. Prepare a list of questions to ask during each interview. Take advantage of financial planning resources the prospective organization offers to help you understand how the company’s benefits compare to the competition.
Be objective about the salary and bonuses and consider the tax implications of the employment arrangement. Think about what will be the best choice for you in a decade when you are preparing to send your kids to college. Farther down the road, will you be able to scale back your workload or retire when you’d like?
Physician contracts are not “take it or leave it” propositions. There is room to negotiate on things like salary, loan forgiveness, and non-compete clauses. Remember to get everything in writing, because handshake deals are not legally binding. If you don’t like a contract provision, and there is no reasonable way to change the terms, then that is a strong signal to walk away.
Remember, the market is in your favor right now. Take your time, do your homework, and don’t be afraid to stand up for your interests. Thanks for reading, and good luck with your search!
Originally published August 14, 2018. Last updated March 28, 2019.