As the leaves turn and the year winds down, many of you may find yourselves reflecting on your practice’s financial goals and the long-term benefits you offer to yourself and your team.
Fall is an ideal season for taking a fresh look at your retirement benefits at work, especially for high-earning professionals like those in the medical field, to take stock of retirement savings opportunities.
Today, let’s talk about an advanced retirement savings vehicle that may just be the perfect addition to your financial lineup: the cash balance plan.
What is a Cash Balance Plan?
A cash balance plan is a type of defined benefit plan that combines elements of both traditional pensions and defined contribution plans, like a 401(k). In essence, each participant has an account credited with contributions and a set interest rate, which grows steadily over time. When it is time for retirement, participants have the option to receive the balance as a lump sum or an annuity, offering both flexibility and a significant savings vehicle.
Why Cash Balance Plans Are Perfect for Medical Practices
Medical practices often consist of high-earning professionals who need to put away more for retirement than what a typical 401(k) allows. A cash balance plan is uniquely suited for this setup because it enables physicians and other healthcare practitioners to defer a much larger portion of their income, providing significant tax advantages.
Here are a few reasons why these plans make a great addition to a medical practice:
- Substantial Tax Savings
Cash balance plans allow participants to defer large amounts of income each year—sometimes several times more than 401(k) contribution limits permit. For medical practices with substantial earnings, this can mean major tax savings, as contributions are tax-deductible for the business and tax-deferred for participants.
- Accelerated Retirement Savings
While many retirement plans have modest contribution caps, a cash balance plan is designed to maximize retirement contributions, helping high-income professionals quickly build their nest eggs. For doctors and other practitioners aiming for early or well-funded retirement, this accelerated savings can be a game changer.
- Attracting and Retaining Talent
Retirement benefits are a strong selling point for recruiting skilled professionals. Offering a cash balance plan can help your practice stand out by providing a more substantial benefit package than a standard 401(k) alone, appealing to both new hires and seasoned employees.
- Customized Contributions and Benefits
Cash balance plans can be tailored to the needs of the practice, enabling customized contribution amounts. Older doctors may contribute more aggressively to catch up on retirement savings, while younger staff members can build their accounts more gradually.
- Greater Asset Protection
Like all qualified retirement plans, cash balance plans offer strong protections from creditors. This asset protection can be especially valuable for medical professionals who face a higher risk of liability, making it a secure way to accumulate wealth over time.
Integrating a Cash Balance Plan: Next Steps
Adopting a cash balance plan requires careful consideration of your practice’s goals, current financial structure, and employee composition. Designing the plan involves actuarial calculations to determine contribution levels and future benefits. At BGA 401k, our team specializes in helping medical practices implement tailored retirement strategies that maximize tax advantages, enhance employee benefits, and align with long-term financial objectives.
If the fall season has inspired you to take a fresh look at your retirement planning options, reach out to discuss whether a cash balance plan might be the right fit for your medical practice.
Embracing a proactive, tax-efficient strategy can make a significant difference in your financial landscape, ensuring you are set up for a secure and rewarding future.
Together, let’s elevate the way we approach retirement plans.
Christopher A. Cristallo, MBA, CFP®
BGA 401k
Qualified Retirement Plan Advisor