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Financial Planning Basics for Locum Tenens Physicians

VV-Financial Plannoing

In 2019, 85% of healthcare provider groups used locum tenens physicians. With increased patient demand and the American healthcare system being short, almost 122,000 physicians by 2032, the need for locum tenens physicians is in high demand. This working arrangement offers many benefits, such as increased flexibility and more career options.

Setting your own schedule and deciding when, where, and how much you work are the major advantages of working locum tenens.   

As a locum tenens physician, you’ll have unique financial responsibilities that a provider working for a hospital or medical group wouldn’t necessarily have to consider. With the proper planning in place, you can set up your financial future while enjoying the independence and freedom that comes with working locum tenens. Let’s take a closer look at some best practices for financial planning as a locum tenens. 

Compensation is Key 

The advantage of our current medical climate is the strong demand for healthcare providers. That means there’s plenty of work available, making it a good market for talented providers. 

A reputable staffing agency, like VISTA, will help you find a position that will pay you appropriately and be a good fit for your skillset. When working with a recruiter, they will find the perfect location and negotiate the terms of a rate that you’re comfortable with. This is why it’s vital to pick an effective and reputable staffing agency.

When negotiating your pay, understand that there will be additional costs after you receive payment for which you’ll be responsible. These include: 

Federal and state taxes
Retirement contributions to an account such as a 401(k) or IRA
Medical, dental, vision, disability, and/or life insurance
In some cases malpractice insurance

As a locum tenen physician, you’ll need to budget for these items and track your income and expenses for tax purposes. This includes any expenses associated with your job to ensure you pay the right amount of income and quarterly taxes to the federal government.

There are many online tools available for self-employed providers to stay on top of their finances, and working closely with a CPA can help to ensure that you’ve got all your bases covered.  

Plan for Retirement

Working as a locum tenen clinician means changing your mindset from that of being an employee to being more entrepreneurial. Assembling a team around you that supports and sets you up for success is vital. Working with a retirement planner or a CPA will help you navigate complex tax laws while also making financially sound investments. There are multiple types of retirement accounts you can contribute to in order to meet financial goals, such as: 

Solo 401(k)Also known as a one-participant 401(k) plan, a solo 401(k) is set up like other 401(k) plans, but is only for an individual. The IRS allows contributions of up to $57,000 in 2020. If you are 50 or older, you can also make catch-up contributions of up to $6,500.

IRA. An individual retirement account is only available to those with earned income. The contribution limit for an IRA is $6,000 in 2020, or $7,000 if you are 50 or older. Like a 401(k), you’ll receive a tax deduction for the money you put into an IRA. When you withdraw funds, they will be considered taxable income. You’ll need to start taking distributions from the account after you turn 70 1/2.

Roth IRA. Singles who are making less than $122,000 and couples who are making less than $193,000 may contribute up to $6,000 ($7,000 if you’re over 50) each year. Unlike an IRA, you only pay taxes on the money when you deposit it rather than withdraw it in retirement. 

Simple IRA. The amount an individual contributes from their salary to a Simple IRA cannot exceed $13,500 in 2020. Suppose you participate in any other plan during the year and have elective salary reductions under those plans. In that case, the total amount of the salary reduction contributions that you can make to all the plans is limited to $19,500 in 2020.

Having a financial team in place will help you understand the right plan to choose for your retirement goals so that you can live comfortably.  

Prepare for Emergencies

Another aspect of working locum tenens you’ll have to consider is the impact of an emergency on your finances. Working locum tenens will be advantageous and will allow for continuous personal growth and the financial independence needed to prepare for emergencies. Work with your financial advisor to set aside an emergency fund. The amount you have in your fund will vary, but as a rule of thumb, calculate 3-6 months’ expenses and make sure that’s in the fund at all times. Financial guru Rachel Cruze has an in-depth blog post on how to build your emergency fund. 

Enjoying the Freedom of Locum Tenens Work While Safeguarding Against the Risks

Working as a locum tenens physician is genuinely a rewarding way to maintain your independent lifestyle while still being well-compensated for your skills. With a little foresight and planning with a CPA professional, you can ensure you are setting yourself up for financial success well into the future. 

Interested in pursuing a career as a locum tenens provider? Let VISTA help you on your journey. We’ve got a proven track record of partnering with healthcare providers and finding them locum tenens positions that are lucrative and fulfilling. For more on how to embrace the freedom of a career as a locum tenens, contact us today.

VISTA Helped a Locum Tenens Physician Reinvent Her Career

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