Oct. 10, 2025
Career Tips on Managing Your Retirement Account
Jim Wilson, Northern Capital Management
For many in the medical community, the largest retirement assets are 401(k) and 403(b) retirement plans. Making informed management decisions throughout your career can significantly impact your retirement. This article outlines key aspects of effective retirement plan management.
As a best practice, we recommend creating and annually updating a fee-based financial plan to help you stay on track.
Income taxes
Traditional retirement plans reduce taxable income immediately but require taxes on withdrawals. Roth contributions, introduced in 1999, are made with after-tax dollars but allow tax-free withdrawals in retirement.
The choice between traditional and Roth depends on your financial plan and personal circumstances. In our experience, optimizing taxes in retirement generally requires a mix of both pre-tax and after-tax resources.
To Roth or not to Roth?
Historically, retirees tend to be in lower tax brackets. The tax code benefits retirees through partial taxation of Social Security and favorable treatment of qualified dividends and capital gains.
If you anticipate a higher tax rate later, Roth contributions may be beneficial. If you expect a lower tax bracket in retirement, traditional contributions may be preferable. Tax laws change, making it crucial to assess current rates and fiscal policies.
Generally, taking advantage of known pre-tax deductions (e.g., 401(k), 403(b), health savings accounts, and deductible IRAs) before considering after-tax options like Roth is advisable.
Employer match formulas
Employer-matching contributions provide free money-always take advantage of them!
Many employers offer a matching contribution up to a certain percentage of salary, helping employees boost their savings without additional personal contributions. In 2025, employees can contribute up to $23,500, with an additional $7,500 catch-up contribution for those age 50 and older. Higher catch-up limits apply for those aged 60-63.
Always contribute enough to receive your employer's full match. If both spouses have employer-sponsored plans, both should contribute up to the match.
Short-term employees should still consider contributing, especially if the plan includes a "safe harbor" match, which vests immediately.
Vesting and last day of service
Employer contributions may be subject to a vesting period, typically three to five years, meaning you must remain employed for that duration to claim the full amount. Some plans also require employees to be employed on the last day of the plan year to be eligible to receive employer contributions.
If a new employer has a waiting period before contributions are allowed, consider alternative savings strategies such as increasing your spouse's contributions or using an IRA in the interim.
Early year employment changes
If you're considering a job switch, check your new employer's plan to understand contribution rules and ensure a smooth transition to continue maximizing your retirement savings. Changing jobs early in the year can affect your ability to maximize contributions. If your new employer's plan has a waiting period for participation, you may not be able to contribute fully for that year. Consider alternative savings strategies such as increasing your spouse's contributions, maximizing prior employer plan contributions before you make the change, funding an HSA, or using an IRA.
Retirement plan loans
Many plans allow participants to borrow up to 50% of their vested balance (maximum $50,000). While loans may seem attractive, they come with risks. Withdrawn funds stop earning market returns, which can hinder long-term growth. Loan repayments are typically deducted from payroll, but if employment ends before the loan is fully repaid, the outstanding amount may be taxed as an early withdrawal and subject to penalties. Other considerations include:
- Loan origination and annual fees
- Fixed interest rates (usually tied to prime)
- Maximum loan term
- Payroll deduction repayment
- Opportunity cost of lost investment gains
Always evaluate alternative borrowing options before tapping into retirement savings.
Beneficiary designations
Your beneficiary designations dictate who inherits your retirement savings. These selections override wills and trusts, so updating them regularly is crucial, especially after major life changes such as marriage, divorce, or childbirth. Spouses typically receive favorable tax treatment when inheriting retirement accounts, while naming minor children can create legal and financial complexities.
Consult with your estate planning attorney to ensure your designations align with your broader goals.
Diversifying beyond retirement accounts
While tax-deferred accounts are essential, high earners should also consider taxable investment accounts for additional flexibility. Relying solely on tax-advantaged accounts can limit options in retirement.
A diversified approach, including taxable accounts, Roth IRAs, and real estate investments, can provide more withdrawal flexibility while minimizing tax burdens in retirement. Prioritize maximizing deductible retirement contributions first, followed by strategic after-tax investments.
How much should I save?
A common question without a one-size-fits-all answer.
Many plans automatically enroll new employees at a default contribution rate, typically 2-4%. While this ensures immediate participation, the default rate is often insufficient to meet long-term retirement goals.
Financial experts generally recommend a contribution rate of 20% of gross income, including employer contributions, to stay on track for retirement. Increasing contributions over time is advisable. This "back of the napkin" calculation assumes some reliance on Social Security.
A comprehensive financial plan is a way to definitively determine your ideal savings rate.
Working beyond your required minimum distribution (RMD) age
Pre-tax retirement accounts require withdrawals starting at age 73 (or 75 for those born in 1960 or later).
Birth Year: 7/1/1949-1950
RMD Age: 72
Birth Year: 1951-1959
RMD Age: 73
Birth Year: 1960 or later
RMD Age: 75
If you continue working, you may defer RMDs by rolling funds into your current employer's plan. Another option is making Qualified Charitable Distributions (QCDs), which allow direct donations to charities, reducing taxable income while fulfilling RMD obligations. Proper RMD planning can help minimize taxes and maximize the longevity of your savings.
Asset allocation
Retirement plans typically offer two primary investment approaches:
- Do-It-Yourself (DIY): Selecting mutual funds across different asset classes, including domestic and international stocks, bonds, and specialty investments. DIY investors should periodically rebalance portfolios to maintain an appropriate risk level.
- Do-It-for-Me: Designed for investors who prefer a hands-off approach, these funds automatically adjust allocations based on the target retirement date. While convenient, target-date funds may not align perfectly with individual risk tolerances or broader financial goals.
For those working with a financial advisor, a customized investment strategy may offer better alignment with retirement planning needs and long-term financial objectives.
Questions?
Northern Capital Management advisors are Certified Financial Planners with experience working with medical professionals.
You may reach us by utilizing our WSMA Member Contact Form.
Washington State Medical Association is a client of Northern Capital Management and Northern Capital Retirement Services and receives compensation for promoting our services. As a result of the compensation arrangement there is an inherent conflict of interest. Disclosure
Northern Capital Management