Retirement Fund Options for Locum Tenens Clinicians

May 16, 2018 - 4 minutes read

Locum tenens doctors are self-employed contractors who may or may not work through staffing agencies like TIVA. As such, it is not uncommon for locums to be responsible for their own retirement plans. The good news is that there are options. If you are a locum tenens clinician planning to make a career of locum work, you should start thinking about retirement options as early in your career as possible.

This post will discuss several different retirement fund options. As always, locums should make a point of consulting financial professionals before making any retirement decisions. A certified financial planner, estate planner, or other recognized financial expert is the most qualified to give sound advice.

Individual Retirement Accounts (IRAs)

The most common retirement fund for self-employed individuals is the individual retirement account (IRA). The federal government introduced IRAs to the general public by way of the Employee Retirement Income Security Act of 1974. The purpose of the legislation was specifically to give people a way to save for retirement outside of traditional pensions.

Among locums, the three most common IRA choices are:

  • Traditional – A traditional IRA is a tax-deductible savings vehicle that allows people to put away a certain amount of money every year out of pretax income. Traditional accounts earn a certain rate of return. At retirement, the recipient pays income tax on all money withdrawn.
  • Roth – The Roth IRA is similar to the traditional with one notable exception: money contributed is still counted as taxable income in the year it is earned. The advantage here is that withdrawals are not taxed.
  • SEP – The SEP IRA is a specialized kind of IRA that acts more like a pension than a savings account. It normally allows for more generous contributions and lower setup and maintenance costs.

Solo 401(k) Plans

A second option for locums is the solo 401(k) plan. These plans are similar to SEP IRAs in that they are simple and easy to set up and come with low overhead costs. The advantage of this sort of account is that it gives locums a broader range of investments to work with. The downside is that investing in a solo 401(k) requires locums to be a bit more involved in making investment decisions.

Defined Benefit Plan

The third option is the defined benefit plan, known as a Keogh plan, which was designed for self-employed individuals. It is not all that common among locum clinicians because there are restrictions involved. For example, a locum could not use the defined benefit plan if his or her legal status is that of independent contractor. He or she would have to set up and register a small business and then employ him/herself before a defined benefit plan would be allowed.

Those locums who do go to the effort of establishing a legally recognized company may find the defined benefit plan a lot more attractive than the other option. That’s because a defined benefit plan is essentially a pension. The doctor’s company contributes a certain amount to the plan along with the doctor, generating benefits that are guaranteed at retirement.

Start Saving Now

Regardless of the choices individual locums make, the main take away from this post is that locum doctors and should start saving now. Putting off retirement saving until a future date makes it too easy to never save at all. You’ll also capitalize on compound interest, which will add more to your account each year. Locums need to commit to saving retirement from the start, in the knowledge that they are self-employed workers with no other retirement option available.

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