When saving for retirement, it’s important to consider all available retirement savings plans and how each aligns with your job, lifestyle and vision for retirement. For physicians, that may mean looking beyond the standard 401(k) to another type of qualified retirement plan that offers more uniquely suited benefits., such as a cash balance plan.
Since physicians tend to spend more years in school than the average professional and graduate with more debt, there is consequently less time to save for retirement.
By looking beyond the traditional 401(k), there is greater opportunity to take advantage of the deferred tax benefit. Cash balance plans allow physicians to boost their retirement savings with larger contributions, while still maintaining the tax efficiencies of a qualified retirement plan.
While 401(k)s have an annual employee contribution limit of $18,000, cash balance plans have a significantly higher contribution limit, potentially allowing a physician’s total contribution to be in excess of $200,000. Since physicians tend to max out at the $18,000 limit and seek alternative methods of saving, cash balance plans can serve to supplement 401(k) savings.
Having a long-term vision
There are several other factors that make cash balance plans a unique fit for physicians. For one, money saved within a cash balance plan may be more protected from creditors or lawsuits than savings outside of a retirement plan. According to a recent study, 61 percent of doctors over 55 reported being sued at least once in their career, making the added protection of cash balance plans particularly beneficial for physicians looking to secure their assets as a precaution.
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Additionally, since cash balance plans require long-term vision—the value is realized over many years and requires relative stability within a company—they are well-suited for private practices, which tend to have high retention rates and consistent revenue. Cash balance plans are also the most profitable in organizations where there is a high owner-to-staff ratio.