What Is a Cash Balance Plan?
Think of a Cash Balance Plan as a hybrid between a 401(k) and a traditional pension. Unlike a 401(k), where employees bear investment risk, Cash Balance Plans provide guaranteed growth with employer-funded contributions. Physicians can accumulate retirement wealth more predictably while still enjoying tax-deferred growth.
Why They’re Perfect for Physicians
- Higher Contribution Limits: Depending on age and income, physicians can contribute $150,000–$300,000 annually — far beyond the $22,500 401(k) limit.
- Age-Based Advantages: Contributions increase with age, making them ideal for physicians in their 50s and 60s who need catch-up savings.
- Major Tax Savings: Every dollar contributed reduces taxable income. For a specialist earning $500,000+, this can mean tens of thousands saved annually.
- Predictable Growth: With guaranteed credits, physicians gain stability without having to manage investments themselves.
Benefits for Medical Practices
Cash Balance Plans aren’t just about individual savings — they’re also a strategic advantage for practices:
- Tax-Deductible Contributions: Every contribution reduces the practice’s taxable income, often generating six-figure savings.
- Flexible Allocation: Plans can be designed so that 80–90% of contributions go to physician-owners while still meeting IRS rules.
- Recruiting & Retention: Offering robust retirement packages helps attract top talent and retain valuable providers.
Stacking with Other Retirement Plans
The real magic happens when you combine a Cash Balance Plan with a 401(k) and profit-sharing plan. This “stacking” strategy can allow a physician in their late 50s to contribute $300,000+ annually toward retirement, creating both massive tax deductions today and accelerated wealth accumulation for the future.
Implementation Considerations
Setting up a Cash Balance Plan requires more expertise than a standard 401(k). You’ll need an actuary, annual compliance testing, and professional investment management. While setup and admin costs ($2,500–$5,000 upfront, $2,000–$4,000 annually) are higher, the tax savings and retirement benefits far outweigh the expense.
A Real-World Example
Consider Dr. Chen, a 52-year-old anesthesiologist. By adding a Cash Balance Plan, she increased annual retirement contributions from $73,500 to $258,500. This cut her taxable income by $185,000, saving her over $80,000 in taxes annually. Over 10 years, she’ll accumulate an extra $2.5 million in retirement savings — all while reducing her tax burden.
The Bottom Line
Cash Balance Plans are one of the most effective yet underutilized retirement tools available to physicians. They offer higher contributions, significant tax deductions, and accelerated savings when you need it most. For practices, they strengthen financial stability and provide a competitive edge in recruiting talent.
At J&S Moore Financial Group, we specialize in helping medical practices design and implement Cash Balance Plans as part of a broader tax and retirement strategy.
Schedule a Consultation to see how a Cash Balance Plan could transform your retirement outlook and your practice’s tax position.
