We partner with advisors who provide financial and tax consulting for physicians, dentists and small medical practices. Traditional defined benefit plans work best for the solo practitioner or doctor with spouse or family practices. When a medical practice includes common law employees, we recommend our OwnersPlus™ Retirement Program which combines a Cash Balance Plan with a Safe Harbor 401(k)/Profit Sharing Plan.
Dr. Charles, age 52, is an independent ER doctor with a C-corporation. He pays himself $350,000 in W-2 salary annually. He is looking for the maximum tax deduction and believes he can sustain this level of income for the next 5-10 years.
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Annual earnings
$350,000
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Maximum OnePersonPlus® Defined Benefit + OnePerson (k) contribution for 2019
$227,300
Contribution to DB Plan: $185,500
Contribution to 401(k): $41,800
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Estimated 2019 tax savings
$84,101
Combined marginal tax rate of 37%
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Defined Benefit Accumulation at age 62
$2.73 Million
10 years, 5-7% rate of return
When he retires or terminates the plans, he will roll the assets into an IRA where they continue to grow tax-deferred until withdrawn.
Dr. Smith has an Internal Medicine practice with 4 employees. She pays herself $280,000 in W-2 and wants to maximize her own tax savings, while controlling the cost of employee benefits.
Solution: OwnersPlus Cash Balance Plan + Safe Harbor 401(k) Profit Sharing Plan
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Total CB + 401(k) Contribution for Owner:
$210,375
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Total Contribution for 4 Employees
$14,355
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Estimated 2019 Tax Savings
$83,150
Combined marginal tax rate of 37%
93% of the contribution will go toward Owner’s retirement
Special Considerations for Physicians and Small Medical Practices
- The older the physician, generally, the higher the contribution. Most physicians begin their practices with school debt and incur high expenses to set up a practice. As practices mature and physicians are older – 45+ — many have the excess cash flow to support high contributions and need the tax deductions.
- Doctors who are employed by hospitals or research centers generally will participate in a retirement plan through the institution. However, many of them have side income from independent research studies, serving as expert witnesses, sitting on board of directors, etc. This secondary income source may not be needed to maintain life style and can be used to fund a defined benefit plan and reduce the tax liability.
- Doctors who work as locum tenens – serving temporarily in hospitals or other locations — often receive high self-employment income for these engagements and have few work-related expenses. Some doctors choose to do this as a way of semi-retiring. Generally, the net profit from this income can be used to fund a defined benefit plan if it is not needed for current cash flow.
- If the physician owner of a medical practice adds a spouse who works in the business in some capacity, this could increase the total contribution for their family in a situation where otherwise, the doctor would have maxed out with only his or her own contribution.