A Large Medical Group

Catching up on delayed retirement savings and reducing tax liabilities are the two biggest financial challenges facing many physicians today. Cash Balance plans may solve both challenges. Pairing a Cash Balance plan with a medical group’s existing 401(k) Profit Sharing plan allows physicians to double or even triple pre-tax retirement savings. These contributions can also reduce taxable income.

Medical firms are excellent candidates because Cash Balance plans:

  • Reduce taxable income
  • Allow flexible contribution levels for owner-partners
  • Are a powerful tool for recruiting and retaining top talent
  • Accelerate retirement savings
  • Fully protect assets from creditors
  • Are portable and allow lump-sum rollovers into an IRA

MEDICAL FIRM CASE STUDY

Challenges:

  • Older partners need to accelerate their retirement savings
  • Each partner needs the flexibility to contribute different amounts and not be locked into a required contribution
  • Partners want the option to set up a separate 401(k) plan for associates
  • Management and non-participating partners want to minimize liability for other partners’ contribution amounts

Plan Design Solution:

  • FuturePlan designed a Cash Balance plan allowing the below contribution amounts for the owner-partners
  • Associates did not contribute to the Cash Balance plan and only contributed 3% of their pay to the Safe Harbor Profit Sharing plan, to satisfy non-discrimination testing
  • The Interest Crediting Rate was tied to the performance of the portfolio, thereby greatly reducing risk

Download our full case study here.

Retirement Plan Illustration – 2024

 

*Important: If you want to obtain your own, or your client’s personalized scenario, please provide FuturePlan with a full, up-to-date owner and employee census in order to receive a customized plan design illustration. FuturePlan by Ascensus does not provide tax, legal, or accounting advice. This material has been prepared for informational and illustrative purposes only, and is not intended to provide, and should not be relied on for, tax, legal, or accounting advice. You or your client should consult your/their own tax, legal, and accounting advisors before engaging in any transaction. FuturePlan by Ascensus provides plan design, administration, and compliance services. It is not a broker-dealer or an investment advisor and does not provide tax, legal, or accounting services.

(Plan Limits) $23,000 for 401(k) plan; $7,500 catch-up; $46,000 profit sharing. This chart assumes a 45% tax bracket of combined federal and state taxes and taxes are deferred. The following assumptions also apply:

  • Maximum annual contribution amounts for the cash balance/defined benefit plan are calculated using 4% interest rates and assuming no pre-retirement mortality and using the latest available applicable mortality tables.
  • The maximum cash balance amounts assume a 3-year average compensation of at least $275,000 (the maximum annuity limit for 2024), and prior years of service.
  • The amounts needed to fund the cash balance/defined benefit plan may be reduced by a participant’s prior highest 3-year salary history if it is less than the IRS maximum annuity limit (as shown above) or below the IRS maximum compensation limits under 401(a)(27) (e.g., $345,000 for 2024, $330,000 for 2023, etc.) and other deduction limits may apply.
  • The amounts needed to fund in the cash balance/defined benefit plan will also be reduced if a participant participated in any prior cash balance/defined benefit plan of the employer or a related employer.
  • Further, amounts shown may be reduced if the cash balance/defined benefit plan is not covered by the Pension Benefit Guaranty Corporation (PBGC), which may limit the amount available to fund in any paired 401(k) profit sharing plan of the employer. (Plans typically not covered by the PBGC are professional service businesses with less than 26 active participants.)
  • It is also important to note that amounts shown are estimates and will vary depending on an employer’s demographics of owners and employees along with a myriad of other factors and considerations.

For details for a specific plan design, please call (877) CB-Plans or request a free Cash Balance illustration here. For further information about PBGC coverage see this link.

FuturePlan by Ascensus provides plan design, administration, and compliance services. It is not a broker-dealer or an investment advisor and does not provide tax, legal, or accounting services.