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Welcome to the latest episode of the Physician Cents Podcast, where we explore complex financial topics tailored specifically for physicians. Whether you're a medical student, resident, fellow, or attending physician, you're going to find valuable insights that can help you increase your financial IQ, further your financial journey, and improve your overall well-being. Hosted by Chad Chubb and Tyler Olson, let’s dive in!
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If we had to sum up this part of the series in one line, it would be this: small tax "oops" moments can get expensive fast. Most of these mistakes happen when our income changes quickly (hello, training-to-attending jump), when we juggle multiple retirement plans, or when we work across state lines.
In this post, we cover mistakes #6 through #12 from Tyler's Tweet. We focus on what goes wrong, why it's common for Physicians, and what tends to fix it before penalties, amended returns, and unnecessary tax drag pile up.
This one shows up in two physician situations more than any others.
First, the transition year out of training. Early in the year, we still look like a resident or fellow on paper, so a direct Roth IRA contribution feels safe. Then a signing bonus hits, moonlighting adds up, or the attending salary starts mid-year, and suddenly our total income lands above the Roth IRA income limits. Now we're stuck backtracking, and if the contribution had gains, fixing it can create more tax friction than we expected.
Second, married filing separately. Even if our income is nowhere near the usual Roth income thresholds, filing separately can disqualify us from direct Roth IRA contributions. Tyler also called out a key detail Physicians miss: if we're married, file separately, live with our spouse at least half the time, and make more than $10,000 in the year, we generally can't do the direct Roth IRA contribution. There are caveats when spouses live apart, so the facts matter.
The punchline is painful: an ineligible direct Roth IRA contribution can trigger a 6% annual penalty until it's corrected.
The good news is that this is often fixable, but we need to fix it in a timely way. Chad and Tyler emphasized that the 6% penalty doesn't hit the moment we make the contribution. It generally comes into play when we file taxes, which means there's often a window to clean it up before it becomes a recurring problem.
In practice, we usually work with the custodian to recharacterize the Roth contribution into a traditional IRA contribution, then complete the backdoor Roth steps. Tyler mentioned Fidelity as a common example, and noted it's often a simple form with support to estimate the recharacterization amount.
One more operational tip we fully agree with: if we're going to switch custodians (for example, moving accounts between major brokerages), it's typically far easier to correct the mistake at the original custodian before transferring anything. Otherwise, we may be forced to do more manual calculations.
Most of the time, Physicians shouldn't be tapping Roth IRA dollars early anyway, so the "conversion 5-year rule" often ends up being a non-issue. Still, it's worth understanding before we default to a backdoor Roth in a borderline year.
This mistake is tailor-made for Physicians because our compensation often comes from more than one place. We might have a university paycheck and a physician group paycheck, or a hospital job plus a separate clinical role.
The common misunderstanding is thinking we can max out each plan independently. In reality, Tyler emphasized that if we have two 401(k)s (or a 401(k) and a 403(b)), we still have one combined employee deferral limit across those plans.
They cited $23,500 for 2025 and $24,500 for 2026 (under age 50). Importantly, this limit applies to what we contribute as the employee, whether pre-tax or Roth. Employer match and employer profit-sharing do not count toward that employee limit.
Overcontributing creates a mess. At best, it's a hassle that requires correction. At worst, it can create extra tax reporting and potential double taxation if it isn't fixed correctly.
The confusing part is that some plans really do sit on their own island, while others don't.
Chad called out the 457(b) as the classic example. A 457(b) can often be maxed in addition to our 401(k) or 403(b), which is why it's such a powerful benefit when we have access to it.
They also discussed the 401(a), which often shows up at academic institutions. In the example they gave, an employer might require something like 5% employee contribution with a 5% employer contribution. In many cases (and depending on plan design), that required 401(a) contribution does not reduce our separate 403(b) employee deferral limit. That combination can allow a high savings rate without "bumping into" the same cap.
One caution we liked: don't assume the plan type based on the employer website or handbook. Tyler has seen plan labels used incorrectly. The safer move is to request the plan documents, often the Summary Plan Description (SPD), and confirm what we're actually dealing with.
For Physicians with 1099 income, this gets even trickier. Chad noted they've seen accountants treat a solo 401(k) as a fresh, brand-new employee bucket, even when the physician already maxed a W-2 401(k) or 403(b). That is not how it works.
If we already maxed our employee deferral at the hospital plan, we generally cannot do another full employee deferral into the solo 401(k). However, the solo 401(k) can still be valuable because it may allow employer profit-sharing contributions based on that self-employment income.
The theme here is coordination. It's not just about avoiding an overcontribution, it's also about making sure we fill every bucket we're actually allowed to use.
Mistake #8 is one of our favorites because the upside can be huge, but most Physicians have never had it explained clearly.
Tyler framed it this way: "defined benefit plan" is essentially another term for a pension. In academics, a pension may be an employer-funded benefit that becomes meaningful if we stay long-term, often on the order of 20 to 25 years. That time horizon matters. If we're going to move around, the value can be a lot less impressive than the benefit brochure suggests.
In private practice (or certain owner setups), the defined benefit concept often shows up as a cash balance plan. Tyler noted these can allow high earners to shelter over $100,000 per year, and sometimes far more depending on age and plan design.
If we want a grounded overview of how these plans work for doctors, this is a solid starting point: Cash balance plans for physicians and doctors.
Cash balance plans are not a "sign this and you're done" product. Chad emphasized there are a lot of moving parts. We generally need an actuary, and Tyler mentioned the plan can cost a few thousand dollars per year to run.
Because of that cost, the size and consistency of income matters. In their discussion, they used a rough yardstick similar to other business tax planning conversations: once we're in the $200,000 to $250,000 range of 1099 income, we can start kicking the tires. Under $100,000, it often won't pass the cost-benefit test.
Consistency matters too. Tyler highlighted longevity as a key factor. If we're sprinting for one or two big years but expect to cut back soon (a scenario he sees with some emergency physicians), we should evaluate the plan based on sustainable income, not a short-lived peak.
The group practice employee mix also matters. Tyler mentioned how staff ages and partner ages can affect feasibility because the benefits must be allocated with retirement timelines in mind. In other words, plan design can get awkward if non-partner staff are older than the partners.
This part surprises almost everyone the first time.
Chad explained that cash balance plan assets are often invested conservatively, sometimes targeting something like 4 to 5% returns, because too much growth can reduce how much we're allowed to contribute. The plan's goal isn't to swing for the fences, it's to create a predictable benefit and maximize deductible contributions.
They even gave a real-world style example: moving a large plan heavily into cash before Q4 to keep values level, so the next contribution can be larger. It sounds backward until we remember the primary objective is current tax savings and structured retirement accumulation, not aggressive growth inside that specific bucket.
Once we've filled the usual tax-advantaged buckets (401(k) or 403(b), HSA, backdoor Roth), the taxable brokerage account is often next. For many mid-career Physicians, it becomes the largest account simply because it has no contribution limit.
Tyler's warning was simple: if we invest in taxable accounts without tax awareness, we create unnecessary tax drag. Two examples from the discussion:
Asset location matters here. Tyler gave a clear example: when clients inherit taxable assets, the taxable account can suddenly become a huge piece of the portfolio. If that happens, we may need to reorient the retirement accounts to hold more bonds, so we can keep the taxable account more tax-efficient.
For a straightforward framework, this guide lays out the "where you hold what" logic: WealthKeel's explanation of asset location.
Chad added a practical idea: municipal bonds may be worth considering for the bond portion of a taxable account because they are generally exempt from federal taxes. (They also noted we still might hold some taxable bonds for diversification, but munis can be a key tool.)
He also shared a simple "tax return reality check" that we like: look for the line that shows tax-exempt interest, then ask whether part of our current taxable interest could be shifted into tax-exempt interest instead. They described onboarding a seven-figure client with large taxable assets and not a penny in municipals, which is exactly the kind of gap that shows up when investment management and tax planning never talk to each other.
If we want a physician-specific take on building a taxable account with taxes in mind, this resource matches the discussion closely: how to build a tax-efficient taxable account as a physician.
This mistake is brutally common because it doesn't feel like a mistake when it happens.
Many Physicians file married filing separately to reduce payments under an income-driven repayment (IDR) plan. That can be a legitimate strategy in the right year. The issue is what happens later: tax software often defaults to last year's filing status, and busy households may accept the "we already did the work for you" prompt without revisiting the decision.
Tyler's point was blunt: a competent accountant usually won't blindly repeat last year's filing status without asking why. Software will.
Filing separately can push us into different brackets and can cause us to lose deductions and credits, including several family-related benefits depending on income and circumstances. When that happens, the cost can easily be thousands per year.
Chad suggested a clean way to evaluate it each year: ask for a married filing separately versus married filing jointly worksheet (or similar comparison) that shows the tax bill both ways. Then compare that tax difference to the student loan payment savings from the IDR strategy.
It's a repeatable annual decision, especially because the student loan world keeps changing. Nothing about this should run on autopilot, except maybe our automated savings.
The qualified business income (QBI) deduction, also called Section 199A, can be a major tax break for owners of pass-through businesses. Tyler listed the eligible entity types as sole proprietorships, partnerships, LLCs, and S corporations.
At a high level, QBI can allow a deduction of up to 20% of qualified business income. That is meaningful when the income is meaningful.
This is also where Physicians need to be careful about who this applies to. Chad and Tyler were mostly talking about 1099 Physicians and owners, not W-2 employee Physicians (unless we have a meaningful amount of 1099 income on the side).
For a physician-focused explanation of who qualifies and what to watch, this is a good resource: QBI tax deduction for physicians.
This is the "quiet error" inside the QBI conversation: we benefit from QBI for years, we build it into our mental math, then income rises and the deduction phases out.
In the episode, Chad pulled up thresholds that began around $403,500 (married filing jointly) with a full phaseout by $553,500. The exact numbers change over time, but the point holds: if our taxable income pushes into the phaseout range, the deduction can shrink quickly and then disappear. Losing a 20% deduction on a large income number can sting.
Tyler also flagged an interesting tension: S corporation strategies and QBI planning can compete with each other in some cases. That's one reason this topic tends to require careful coordination.
A tool they discussed for managing the pain is increasing retirement contributions to bring taxable income down, sometimes including a cash balance plan. In other words, if we're barely over the line, additional pre-tax planning might pull us back under it while also boosting retirement savings.
When the QBI deduction disappears, the tax bill can jump even if income barely changes. We want to see that coming, not discover it at filing time.
For locums Physicians and anyone working across state borders, state taxes can become a genuine headache. Tyler described it as a quagmire, and we agree.
The basic issue is simple: multiple states can mean multiple tax filings. If we miss a filing requirement or underpay, we can run into penalties and interest.
The messier issue is withholding. If HR withholds for the wrong state (or we filled out the wrong forms), we might overpay a state we don't owe, then underpay the state we do owe. Getting refunds back from states can take a long time, which creates cash flow stress even when the math eventually works out.
If locums is part of our plan, this overview gives a helpful sense of what we're signing up for: a physician's guide to locum tenens taxes.
State tax rules can also include reciprocity agreements, where we might owe tax to our resident state rather than our work state (or vice versa). Local taxes can complicate things further. Chad mentioned Pennsylvania as an example, noting that Philadelphia's local tax can exceed the state tax rate.
Another easy-to-miss error happens when we move. If we forget to update our address with payroll, our employer might keep withholding taxes for the old state. Now we're behind in the new state, and we're waiting on the old state refund after we file. Chad mentioned seeing this more often with physician spouses working for national employers, but it can hit anyone.
When we have multi-state income, doing it ourselves with consumer tax software can go sideways quickly. Tyler's recommendation was direct: if we know we'll be working in multiple states, we should engage a qualified tax accountant before it starts, not after.
We also liked Chad's broader framing: Physicians' time is valuable. Taxes are one of those areas where paying for professional help often beats paying later through mistakes.
Most of these issues aren't caused by bad decisions, they come from busy years and moving parts. Income jumps, multiple retirement plans, taxable accounts growing, student loan strategy shifts, and multi-state work can all create "quiet" mistakes that turn into loud tax bills.
Our main takeaway is simple: coordination beats clean-up. When we take these topics seriously before we file, we keep more of what we earn and we avoid the avoidable headaches.
The best of the best list is a paid sponsorship, but these are professionals/companies that Tyler and Chad collaborate with within their own practices or have been vetted to earn a spot on this list. By supporting our sponsors, it allows Chad & Tyler to dedicate more time to you and the Physician Cents community. If you ever have a question (or not a great experience, which we don’t expect!) about a sponsor, please let us know. We call it the “best of the best” for a reason, and we will maintain that standard for our listeners & viewers.
This information is for general purposes only. This information is not intended to be a substitute for specific professional financial, tax, or legal advice, as individual circumstances vary. Please see a financial professional, CPA, and/or an attorney in regards to your own individual situation.
Wealthkeel’s Advisory Services and Financial Planning offered through Vicus Capital, Inc., a Federally Registered Investment Advisor. WealthKeel LLC, 615 Channelside Drive, Suite 207, Tampa, FL 33602 -- 267.590.9533.
Olson Consulting LLC, Offering Advisory Services and Financial Planning, is a State-Registered Investment Advisor.
A podcast designed specifically for physicians, offering a breakdown of complex financial topics to help you develop your financial IQ, further your financial journey, and improve your well-being. Whether you're a medical student, resident, fellow, or attending physician, you're sure to learn something new that will benefit your journey.
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Conversations helping graduating medical students to attending physicians build a strong financial foundation
