Retirement Plan Design for Physicians: Going Beyond the 401(k) 

Defined Benefit Cash Balance Plans offer a powerful strategy for highly compensated physicians, allowing substantial annual contributions—often exceeding $150,000. Key features include tax-deductible contributions and suitability for small physician practices with consistent or growing cash flow. Additionally, they can be seamlessly combined with existing 401(k) plans, especially when employees are covered. Let’s look at a few illustrative examples.

Dr. Ruiz, age 51, is a solo practitioner and pays himself a $375,000 annual salary. His practice is thriving, and he would like to maximize retirement savings and reduce taxable income. He plans to retire in nine years.

Solution: Combine a Solo 401(k) with a Cash Balance Plan. Total contribution to the Solo 401(k) $45,300 (includes profit sharing) + total contribution to the Cash Balance Plan $182,000 = $227,300*

Dr. Smith, age 53, runs a dermatology practice with three employees. She pays herself $425,000 in annual salary and wants to catch up on retirement savings. Dr. Smith understands that she’ll need to provide some benefit for her employees to maximize her own contributions. She plans on retiring in seven years.

Solution: Combine a safe harbor 401(k) plan with a Cash Balance Plan. Total contribution to both plans for three employees: $30,000 + total contribution for herself to both plans: $230,000 (over 88% of plan contributions to the owner*).

* Source: The Mand Marblestone Group; based on general actuarial assumptions. Actual amounts will vary.

Remember that upon retirement or plan termination, assets can be rolled over tax-free into an IRA for continued investment and tax deferral. In the case of a defined benefit plan like the Cash Balance Plan, generally, the older the physician, the more substantial the annual contribution. Solo practitioners whose spouses are employed by the practice can benefit significantly from these strategic retirement planning options as they can include them in the Cash Balance Plan to maximize total savings for the family.

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