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Tax Strategy6 min readMar 17, 2026
Tax Planning for Physicians Employed by Hospitals
Employed physicians have fewer deductions than self-employed doctors, but there are still powerful strategies to reduce taxes on a high W-2 income.
Tax Planning for Employed Physicians
The Challenge
Employed physicians (W-2) receive a large income but lack the business deduction flexibility of self-employed doctors.
Top Strategies
Maximize All Pre-Tax Benefits
- 401(k)/403(b): $23,500 + $7,500 catch-up (2025)
- 457(b) if offered by the hospital (deferred compensation plan)
- DCFSA for childcare: $5,000
- HSA if on HDHP: $8,550 family
Invest Outside of Retirement Accounts
- Municipal bonds for high-bracket physicians
- Tax-efficient index funds and ETFs
- Real estate investments (depreciation, passive income)
Backdoor Roth IRA
Most employed physicians exceed Roth IRA income limits. Use the backdoor strategy:
- Contribute $7,000 to non-deductible traditional IRA
- Convert to Roth IRA
Mega Backdoor Roth (if 401k allows after-tax contributions)
Contribute up to ~$46,500 after-tax to 401(k) and convert to Roth.
Private Practice Moonlighting
If you moonlight in self-employment capacity, you can deduct expenses and contribute to a Solo 401(k) on top of your employee 401(k).
Charitable Giving
Bunch donations, donate appreciated stock, or use a Donor-Advised Fund.
High-earning physician? There are still powerful strategies available even on a W-2.