As the year winds down, it is the perfect time to reflect on your financial goals and take steps to maximize your savings for the year ahead. For busy medical professionals, optimizing retirement savings while minimizing taxes is an essential part of securing your financial future.
In our last blog, we introduced the cash balance plan, a powerful tool for high-income earners like doctors. Today, we will dive deeper into the substantial tax savings this strategy offers, helping you end the year on a financially strong note.
Why Doctors Are Uniquely Positioned to Benefit from Tax-Saving Strategies
Doctors often fall into higher tax brackets, which makes reducing taxable income a top priority. With traditional retirement plans like 401(k)s offering limited contribution caps, physicians may find themselves searching for better ways to shelter their earnings. The cash balance plan offers a solution tailored to your needs.
1. Larger Contribution Limits Mean Bigger Deductions
Unlike 401(k) plans, which have strict annual limits ($23,500 in 2025), cash balance plans allow significantly higher contributions. Depending on your age and income, you could defer $100,000, $200,000, or even more annually into the plan. These contributions are tax-deductible, reducing your taxable income and allowing you to keep more of what you earn.
Example:
Dr. Smith, a 52-year-old surgeon, contributes $250,000 to a cash balance plan. With a marginal tax rate of 37 percent, this contribution could save Dr. Smith $92,500 in taxes for the year.
2. Tax-Deferred Growth Supercharges Savings
Once funds are in a cash balance plan, they grow tax deferred. This means your investments compound without the drag of annual taxes, resulting in faster growth compared to taxable accounts. Over time, this advantage can help you accumulate significantly more wealth for retirement.
3. Protecting Against Medicare Surtaxes
High-income earners are subject to the Net Investment Income Tax (NIIT) and additional Medicare surtaxes. By maximizing contributions to a cash balance plan, you reduce your adjusted gross income (AGI), potentially avoiding these extra taxes and keeping more of your earnings.
4. Integrated Tax Strategies: Pairing Plans for Maximum Impact
Cash balance plans work best when paired with 401(k) profit-sharing plans. By leveraging both, doctors can achieve:
- Higher overall contribution limits.
- Tiered contribution strategies that favor practice owners and partners.
- Flexibility in allocating contributions among team members.
Case Study:
A group of five physicians adopted a combined cash balance and 401(k) profit-sharing plan. Collectively, they deferred over $1.2 million in one year, resulting in more than $444,000 in tax savings while providing competitive benefits to their staff.
5. Long-Term Wealth Preservation Through Asset Protection
In addition to tax savings, cash balance plans offer strong creditor protections, safeguarding your retirement funds from lawsuits or malpractice claims. This dual benefit of tax efficiency and asset protection makes it an indispensable strategy for medical professionals.
Taking the Next Step: Your Tax Savings Strategy
Implementing a cash balance plan requires careful analysis and design. At BGA 401k, we specialize in helping medical practices create retirement solutions that deliver both tax advantages and long-term financial security.
Our tailored approach ensures your plan aligns with your:
- Practice structure.
- Retirement timeline.
- Employee benefits strategy.
As the year comes to a close, take control of your financial future. Let us help you unlock substantial tax savings while securing a comfortable retirement.
Ready to Optimize Your Retirement Plan?
Contact BGA 401k today to schedule a consultation and learn how a cash balance plan can elevate your retirement strategy. Together, we will build a solution that helps you maximize savings, minimize taxes, and secure a brighter future.
Together, let’s elevate the way we approach retirement plans.
Christopher A. Cristallo, MBA, CFP®
Qualified Retirement Plan Advisor