Working as a locum tenens physician can be greatly rewarding as you get to leave a positive impact when meeting new people in different locations. Aside from having work flexibility, by being an independent contractor, you have a higher earning potential than a permanently placed physician. However, as with any career, it's prudent to adopt good financial habits as the future can be uncertain.
Financial planning as a locum tenens physician means you have control over your finances, which allows you to have peace of mind to continue doing the work you love. Here are 5 ways to help keep your finances and retirement planning in order.
Maintain Reliable Records
Whether you have an accountant or are independently managing your income and expenses, consistent record keeping is a core aspect of a good financial plan. This includes keeping track of all income and expenses to be well prepared for the tax season. The upside to being an independent contractor is that you're qualified to deduct several business expenses such as meals, lodging, and travel provided you keep accurate records. It's best to have all the 1099 forms in hand when they arrive in January to ensure all records match and be on the good side of the IRS.
Work With an Accountant
Locum tenens, unlike employees, have to do their own taxes. Even with a flexible schedule, it can get too busy to keep track of your tax-paying obligations. An experienced accountant can competently manage your tax planning, such as applying the allowable deductions, even as you work across several states. In addition, they can offer solid financial advice, such as investing in a tax-advantaged 401k which allows diversification of investments.
Invest in a Retirement Account
For a locum physician, retirement planning can be challenging as you're also responsible for your own benefits. As an option, a financial advisor can help you in setting financial goals that ensure you have a solid future retirement. They can also help in wisely investing your retirement funds and building a strong portfolio. There are enough tax-advantaged retirement accounts to choose from, including individual 401ks, SEP-IRAS, and defined benefits plans. A solo 401k is another retirement vehicle where the physician contributes as both an employee and an employer, which reduces current taxable income. The lack of a retirement plan can be devastating when you reach the end of your career and as such, it is advisable to set up a retirement account and start saving sooner rather than later.
Have an Emergency Fund
Most financial advisors generally recommend saving 3-6 months' worth of living expenses. No one is immune to emergencies or sudden loss of income, and with the nature of locum tenens work, it's even more critical to save for a rainy day. The savings can be put aside in a high interest yielding savings account which is easily accessible should anything arise.
Open a Health Savings Account
Having a Health Savings Account (HSA) is also a good move as it offers big tax savings, allowing a contribution limit of up to $3,600 per year in 2021, which considers inflation. You can fund it using pretax dollars and use it to pay for your family's medical expenses tax-free. In addition, you get to bolster your retirement savings as it will keep growing and when you retire you get to withdraw without any penalty.
Bottom Line
The key to financial planning as a locum tenens physician is to start as soon as possible. Consult with your accountant or financial advisor to plan out how to maximize retirement and investment accounts and manage your taxes accordingly. Since you have control over your earnings and work schedule, you have the opportunity to craft the kind of financial future you want.
Hopefully, moving forward, these simple but helpful tips will guide you in securing your finances as you keep touching lives. Contact us today to learn more about locum tenens and get more acquainted with how we can partner with you to scale up your career and build a solid future.
