If you’re a physician working for a large medical system, there are likely several benefits to consider. You may not have given them much thought when signing on, but it’s essential to regularly review benefits like your retirement savings options, insurance policies, stock options, and more.
Here are a few common hospital benefits to address.
Most of us rely on the retirement savings plans our workplaces offer us, and medical professionals are no exception. Start by understanding the type of retirement plan your hospital system provides. Common options include a 401(k), 403(b), or 457(b) plan.
401(k)s are perhaps the most common retirement savings vehicle for employees of for-profit or private organizations. You elect to contribute pre-tax dollars, and any contributions lower your taxable income. Keeping your taxable income at bay can make April a much more pleasant month out of the year.
Plus, some companies also offer a match, where they contribute a set percentage to the account on your behalf.
Pro tip: Even if you’re just starting out, contribute at least enough to get the full employer match. It’s free money—take advantage of it!
A 403(b) is a tax-sheltered annuity plan offered to non-profit, ministry, or public sector employees. It works similarly to a 401(k), with pre-tax contributions to fund the account. However, 403(b)s are more limited than 401(k) plans in the types of investments available.
A 457(b) works very similarly to a 401(k) or 403(b). Participants elect to deduct a certain amount of pre-tax dollars from their pay, and those funds are automatically contributed to their retirement account. A 457(b) plan is designed for local or state government workers and civil servants.
In 2022, the contribution limit for 401(k)s, 403(b)s and 457(b)s is $20,500, with a $6,500 catch-up contribution limit for those 50 and older.
Retirement Plan Considerations
As you review your plan opportunities, there are a few things worth keeping a careful eye on.
First, determine if your employer offers a contribution match. If so, what is it, and are you reaping the benefits? Not taking advantage of a contribution match leaves money on the table and makes you miss out on free retirement income.
Some employers will match a certain percentage of your contributions. For example, they may match 50% of your contribution, up to 5% of your salary.
Next, determine if your network automatically enrolls you in their 401(k) or 403(b) plan. Carilion Network, for example, automatically enrolls all employees in their retirement savings program at 3%. Contributions increase a percentage point each year, capping out at 10%. If you do not wish to participate, you must manually un-enroll.
Finally, ask your human resources department if your plan allows for after-tax contributions. These contributions don’t lower your taxable income, but they create tax-deferred growth, which could benefit high-income earners.
Most people who make after-tax contributions end up converting or rolling the funds over into a Roth account (IRA or 401k) because tapping the earnings of after-tax contributions is taxable. This strategy is known as a mega back door Roth and is quite technical and complex, so be sure to talk with your tax professional to see if this strategy could work for you.
Some hospital networks in the area, Carilion included, provide some employees with a pension plan. This offering is uncommon in today’s day and age, so it’s understandable if you don’t quite understand how it works.
A pension is a defined benefit plan where your employer contributes to the account regularly, and you receive a guaranteed retirement income. Unlike a 401(k) or 403(b), you don’t have to contribute anything. Your hospital network will contribute on your behalf, and they also assume the financial responsibility and risk.
Yes, you work at a hospital. But you still need to consider your healthcare plan carefully! Your employer either offers HMO or PPO plans or a selection of both. Open enrollment occurs in the fall, and you can change plans at that time if needed.
HMO stands for Health Maintenance Organization. If you’re on an HMO plan, you are restricted to only using healthcare professionals within that network. You also must visit your primary care physician (PCP) before seeing any type of specialist, and your PCP must make a referral.
You will not receive any coverage if you visit a healthcare facility outside your network. But, you can expect to pay lower premiums on an HMO plan.
A PPO, or Preferred Provider Organization, allows for a bit more flexibility than an HMO but typically comes with higher premiums. If you’re on a PPO, you do not need to visit your PCP before seeing a specialist, and you can still maintain coverage when visiting a provider outside of your network.
HSAs & FSAs
If you participate in a high deductible health plan, you can access a health savings account (HSA). The IRS determines what counts as a high deductible health plan each year. For 2022, this will be any health plan with a deductible higher than $1,400 for individuals or $2,800 for families.
An HSA can be a great savings tool as it offers triple tax benefits:
- Contribute up to $3,650 (or $7,300 for a family) of pre-tax dollars
- Grow money in the account tax-free
- Receive tax-free withdrawals on eligible expenses
If you aren’t eligible for an HSA, you can still establish a flexible spending account or FSA. The 2022 annual limit is $2,850, and anything you don’t use by the end of the year does not roll over. Like an HSA, you can use money from an FSA to fund eligible medical expenses or dependent care.
Insurance plays a significant role in helping doctors manage risk and protect their financial standings. Your hospital may offer coverage for things like malpractice insurance, disability insurance, or life insurance.
As a healthcare professional, you’re at risk of being sued by a client or patient for malpractice. Malpractice is a type of professional liability insurance that helps protect the personal wealth of healthcare professionals in the event of a lawsuit.
Should you be unable to work due to injury or illness, disability insurance covers a percent of your lost wages. Short-term disability insurance covers temporary ailments and typically lasts up to six months.
Long-term disability insurance has a much longer and more involved application process, but the insurance company pays out the benefits over a more extended period. Some policies allow you to receive payments for decades, even until you are 65.
Keep in mind that specialty physicians may benefit from securing a supplemental policy outside of work. The definition of disability is a grey area, and you want to be sure you’re adequately covered.
As far as life insurance goes, it’s typical for employers to offer a group life insurance policy. They’ll cover either your entire premium or a portion of it.
You may need more coverage than your employer gives. If that’s the case, you can purchase an individual policy. A personal policy has no connection to your employer, and you continue receiving coverage even if you choose to leave your current hospital network.
Healthcare professionals tend to receive competitive compensation packages. It’s unlikely your only income comes in the form of a base salary. From stock options in your employer to bonus structures and productivity pay, make sure you review all aspects of your compensation.
These can account for a significant portion of your earnings, but they aren’t as reliable or steady as your base pay. This can make it tricky to account for them in your financial plan. Consider working with a financial professional to review your “extra” compensation and help strategize on effective ways to use it.
Additional Benefits Medical Professionals May Encounter
Along your journey as a healthcare professional, you may encounter other perks like:
- Student loan assistance
- CME budget and professional dues for licensing
- Relocation or sign-on bonuses
Make sure to read the fine print about any additional perks. For example, things like student loan assistance or sign-on bonuses may be contingent on how long you stay with your employer. Nobody wants to find out they’re legally required to pay a lump sum to their employer just because they’re leaving.
We Work With Medical Professionals Like You
We have offices across Virginia and South Carolina, and we’re blessed to work near several prestigious medical programs and institutions.
As a result, we’re well-versed in helping medical specialists make intelligent decisions about their money, compensation packages, retirement plans, and more.
If you’re currently navigating your hospital’s compensation package and benefits, don’t hesitate to contact us today.
Partners in Financial Planning provides tax-focused, comprehensive, fee-only financial planning and investment management services. With locations in Salem, Virginia and Charleston, South Carolina, our team is well-equipped to serve clients both locally and nationally with over 100 years of combined experience and knowledge in financial services.
To learn more, visit https://partnersinfinancialplanning.com