Physicians face a unique financial landscape. After years of education and training, they often begin their careers later than other professionals—carrying significant student loan debt but quickly earning high incomes. This places them among the most heavily taxed professionals, and many lose more than necessary to taxes simply due to lack of proactive investment planning.
Tax efficiency isn’t just for the ultra-wealthy; it’s essential for any high-income earner seeking to preserve and grow wealth. For physicians in particular, minimizing tax drag and maximizing after-tax returns can significantly improve long-term outcomes.
The Foundation of Tax-Efficient Investing
A central principle of tax-aware investing is understanding the difference between asset allocation and asset location. While asset allocation determines your mix of investments—like stocks, bonds, or alternatives—asset location focuses on where those investments are held, such as tax-deferred, tax-free, or taxable accounts.
A smart approach involves placing income-generating investments, such as dividend-paying stocks or interest-bearing bonds, in tax-deferred accounts like 401(k)s or IRAs, where income can compound without an immediate tax burden. On the other hand, growth-oriented investments with longer time horizons—like diversified stock funds—are well-suited to taxable accounts, where favorable long-term capital gains rates apply if held for over a year.
Aligning the characteristics of your investments with the right type of account helps minimize tax drag—a quiet but compounding reduction in returns that can erode long-term growth.
Selecting the Right Investment Vehicles
Once your accounts are in place, the next step is choosing the right types of investments to match your goals and tax profile. For taxable accounts, investments focused on long-term capital appreciation, such as index funds or tax-managed mutual funds, help minimize distributions and optimize after-tax growth. For tax-deferred accounts, income-focused investments—such as bond funds, real estate investment trusts (REITs), and dividend-oriented strategies—can be used to build future cash flow without incurring current-year taxes.
In addition to thoughtful investment selection, strategies like tax-loss harvesting (selling losing positions to offset gains), holding for over a year to qualify for long-term capital gains treatment, and donating appreciated securities to avoid gains taxes can all help enhance tax efficiency.
Retirement Accounts and Advanced Strategies
Physicians often have access to a variety of employer-sponsored retirement accounts such as 401(k), 403(b), and 457(b) plans. These accounts reduce current taxable income and allow for tax-deferred growth, making them excellent vehicles for building wealth over time. While direct Roth IRA contributions are restricted for high earners, the “Backdoor Roth IRA” strategy allows physicians to build tax-free retirement assets by converting nondeductible traditional IRA contributions.
Health Savings Accounts (HSAs) offer a rare triple-tax advantage: contributions are tax-deductible, earnings grow tax-deferred, and qualified withdrawals are tax-free. Used wisely—especially if invested rather than spent—an HSA can double as a stealth retirement savings tool.
Physicians in private practice may also benefit from defined benefit or cash balance pension plans. These allow for higher pre-tax contributions than traditional retirement accounts and can dramatically accelerate retirement savings while reducing taxable income.
Coordinating Investment and Tax Strategies
Investment and tax planning should work hand in hand. Unfortunately, many physicians take a fragmented approach, missing opportunities that come from integrated, year-round planning.
Major transitions—such as buying into a practice, launching a side business, or shifting from W-2 to 1099 income—can significantly affect your tax profile. Proactive planning around these events allows for what we believe are smarter investment decisions and fewer surprises at tax time.
Common mistakes include placing income-generating assets in taxable accounts, underestimating the impact of state taxes, or failing to plan for exposure to the Alternative Minimum Tax (AMT). Additionally, many don’t adjust their investment strategies when tax laws or personal circumstances change—resulting in outdated plans that no longer serve their goals.
Effective tax planning is not a once-a-year event. It’s an ongoing process: checking estimated taxes, timing contributions, rebalancing portfolios, and incorporating tax law updates. It should evolve as your income, family, and professional life do.
Final Thoughts
Physicians work hard for their income—and taxes can quietly take a disproportionate share without careful planning. But a tax-efficient investment strategy—one that places long-term growth investments in taxable accounts and reserves income-producing strategies for tax-deferred accounts—can help you keep more of what you earn and accelerate your path to long-term financial security.
You don’t need to be an expert in tax law, but you should have a team that is. By working with advisors who understand the intersection of investing and taxation, you can build a portfolio designed for your goals and circumstances. If you’re not sure where to start, I encourage you to reach out to a Curi RMB Capital advisor today.
The opinions and analyses expressed in this newsletter are based on Curi RMB Capital, LLC’s (“Curi RMB”) research and professional experience are expressed as of the date of our mailing of this newsletter. Certain information expressed represents an assessment at a specific point in time and is not intended to be a forecast or guarantee of future results, nor is it intended to speak to any future time periods. Curi RMB makes no warranty or representation, express or implied, nor does Curi RMB accept any liability, with respect to the information and data set forth herein, and Curi RMB specifically disclaims any duty to update any of the information and data contained in this newsletter. The information and data in this newsletter does not constitute legal, tax, accounting, investment or other professional advice. Returns are presented net of fees. An investment cannot be made directly in an index. The index data assumes reinvestment of all income and does not bear fees, taxes, or transaction costs. The investment strategy and types of securities held by the comparison index may be substantially different from the investment strategy and types of securities held by your account. RMB Asset Management is a division of Curi RMB Capital.
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