Doctors face a unique set of retirement challenges. Most enter the workforce later, often with significant student debt, and quickly land in top tax brackets. Traditional retirement tools like 401(k) plans, while useful, are rarely sufficient for physicians looking to accelerate wealth-building and minimize tax liability.
That’s where cash balance plans come in. These underutilized retirement vehicles allow for contributions far beyond 401(k) limits, often generating six-figure annual tax deductions. For high-income earners and profitable medical practices, they offer a rare opportunity to address both immediate tax optimization and long-term retirement security.
What Is a Cash Balance Plan?
A cash balance plan is a hybrid retirement plan that blends features of a pension with the familiarity of a 401(k). Each participant has a notional account funded by employer contributions, which grow annually through:
- Pay credits (typically a percentage of salary)
- Interest credits (a guaranteed rate set by the plan)
Unlike 401(k)s, where individuals choose investments and bear the risk, cash balance plans are professionally managed. The employer assumes investment risk and is responsible for delivering the promised interest credit, regardless of portfolio performance. At retirement or separation, participants can roll the balance into an IRA, preserving tax deferral.
2025 Contribution Limits: Why the Numbers Matter
In 2025, physician-owners under age 50 can contribute up to $70,000 to a combined 401(k) and profit-sharing plan (or $77,500 if age 50+). Physicians aged 60–63 may increase this to $81,250 using SECURE 2.0 catch‑ups. Meanwhile, a well‑structured cash balance plan may allow annual employer-funded contributions of $300K to $350K, depending on age and income, up to the IRS cap of $280,000 in annual pension benefit value.
These limits scale with age and income. A 45-year-old might contribute ~$150,000, while a 55-year-old could reach ~$250,000 depending on compensation and plan design. Take a hypothetical radiologist earning $500,000:
- Traditional 401(k): $77,500
- Potential Cash Balance Plan: ~$200,000
- Additional tax-deferred savings: $122,500
- Tax savings (45% combined rate): ~$55,000 annually
Over 15 years, that’s $1.8M in additional savings and over $800K in cumulative tax relief.
Takeaway: These plans dramatically expand contribution capacity, creating powerful compounding and immediate cash flow benefits.
Why They’re a Fit for Medical Practices
Cash balance plans are especially well-suited for medical groups because:
- Revenue is consistent and predictable
- Physicians are high earners needing tax deferral
- Practices often skew older in ownership demographics
- There’s strong internal financial management capacity
Practices with multiple partners aged 45+ and stable cash flow can design plans that disproportionately benefit senior physicians while staying compliant with IRS non-discrimination rules. Many pair cash balance plans with safe harbor 401(k)s to further maximize contributions and streamline compliance.
These plans can also differentiate a practice when recruiting. Most high earners won’t retire comfortably on 401(k)s and Social Security alone. Offering a cash balance plan signals long-term investment in key talent.
Tax and Strategic Planning Advantages
For doctors in high-tax states like New York, the tax savings are substantial. A $200,000 contribution could reduce federal income tax by $90,000 and state tax by $15,000+, depending on the marginal rate.
Because contributions can be made after year-end, up to the tax filing deadline, they offer planning flexibility based on actual earnings. This makes them especially valuable for pass-through entities like S corps and partnerships, where income can vary and tax planning is nuanced.
They also interact with the Qualified Business Income (QBI) deduction. While contributions reduce QBI-eligible income, they may help doctors stay under thresholds that allow them to claim the full deduction.
Related: How New York State Taxes Affect High-Income Doctors and How to Reduce Them
Solo vs. Group Practices: What to Know
Solo practitioners can take full advantage of these plans with:
- No need for non-discrimination testing
- Flexible integration with solo 401(k)s
- Simplified plan design and administration
If you’re an independent contractor or small-practice owner with steady income, this is one of the most efficient ways to turbocharge retirement savings.
However, group plans have more complexity, specifically:
- Meeting non-discrimination rules
- Balancing contributions among owners and staff
- Coordinating with existing 401(k) plans
Still, with the right plan design and administration, group practices can maximize benefits for physician-owners while providing meaningful contributions to staff. This often involves modeling scenarios that satisfy IRS rules while directing the majority of funding to partners.
How to Get Started
Setting up a cash balance plan typically takes 3–4 months and involves coordination across your:
- CPA or financial advisor (for tax modeling and integration)
- Third-party administrator (for compliance and filings)
- Actuary (for plan design and valuations)
The process includes reviewing financials, designing the plan, setting eligibility and vesting terms, and integrating contributions with payroll and other retirement vehicles. Once established, the plan is funded annually and maintained through coordinated administrative support.
Cash balance plans are one of the most powerful tools available to high-earning doctors. They allow you to shift six figures of income from today’s tax return into a tax-deferred retirement account—compounding for decades while reducing current tax liability. But they’re not plug-and-play. Success requires commitment, stable income, and the right partners to guide implementation and administration.
At Revonary, we help physicians model potential tax savings, coordinate with plan administrators, and ensure your plan is integrated into your overall financial strategy. If your practice is ready to take retirement planning to the next level, we’re here to help.
Contact us today to learn more about our accounting services for doctors and discover how a cash balance plan could accelerate your savings and reduce your tax burden—starting this year.
