Cash Balance Plans for High-Earning Physicians: When It Works

You earn a strong income.
You want a bigger deduction and a predictable way to save.
A cash balance plan might fit. It might not.

This guide keeps the steps simple. Clean math. Real trade-offs. Short lines you can scan.

What a cash balance plan is

• A defined benefit plan with a pay credit and an interest credit.

• You set a target contribution range each year.

• Contributions are usually much higher than a 401(k).

• The plan promises a benefit. You fund to meet that promise.

• It pairs well with a 401(k) or profit sharing.

When it works

• You are a high earner with stable profits.

• You want a large, recurring deduction for the next 5–10 years.

• You can commit to annual funding, not just when it feels nice.

• You already max your 401(k) and backdoor Roth.

• You want a path to reduce adjusted gross income while building protected assets.

Quick lens:

• Solo owner with steady 1099 income.

• Small practice with a few partners and a lean staff mix.

• Late-career doctor catching up before stepping back.

When to pause

• Profit swings hard year to year.

• You expect to sell soon and want full flexibility until then.

• You don’t want fixed funding rules.

• Staff costs would overwhelm the benefit.

If any of these hit, keep saving with a 401(k) and taxable accounts for now.

What the contribution can look like

Ranges vary by age and design. Examples for feel, not promises.

• Early 40s: often low six figures when paired with a 401(k).

• Early 50s: higher six figures can be possible.

• Late 50s to 60s: the largest ranges.

Your plan actuary sets the allowed band each year. Your CPA helps you aim inside that band.

How it reduces tax

• Employer contributions are deductible.

• They lower current-year taxable income.

• They can improve NIIT exposure and Medicare surtax math.

• They can help state tax planning in high-tax states.
  Read a quick primer on retirement location planning: high-state income taxes in retirement.

Skim IRS Tax Tips before you set levels each year.

Pairing with a 401(k)

Most plans sit on top of a safe-harbor 401(k).

• You defer to the 401(k) first.

• Add profit sharing if the design allows.

• The cash balance plan adds the big pre-tax layer.

• Together they create a strong deduction and a clean savings engine.

Staff impact you need to price

Qualified plans require fair benefits for eligible staff.

• Age and pay mix drive the cost.

• New-comparability designs can direct more to owners while staying fair.

• Annual staff cost is part of the total plan math. Budget it from day one.

Investment and funding basics

• The plan targets a modest interest credit rate.

• Portfolios often hold high-quality bonds and a slice of equity.

• You can fund more in down years and less in strong years to stay on track.

• Annual actuarial testing keeps the plan within limits.

Setup timeline you can follow

• Month 1–2: Feasibility study and census review.

• Month 3: Draft plan documents and pair with a 401(k) if needed.

• Month 4: Open trust accounts and set an investment policy.

• Ongoing: Fund by deadlines. Run annual testing. Keep minutes.

If you also carry 1099 income, stay clean on records: 1099 contractor tax guide.

Real-world examples

Solo cardiologist, age 52

• Already maxes 401(k).

• Adds a cash balance plan with a target of $180k per year.

• Staff cost is small.

• Outcome: large annual deduction, faster funding toward retirement, lower AGI.

Orthopedic group, four partners, mid-40s to early-50s

• Safe-harbor 401(k) in place.

• Feasibility study shows a cash balance plan works with a planned owner contribution band and a predictable staff layer.

• Outcome: higher savings for each partner, better tax control, and clear funding rules.

How this protects wealth too

• Plan assets often have strong protection under federal law for ERISA plans.

• The savings are titled to the plan, not the practice operating account.

• You reduce taxable income while building assets inside a protected wrapper.

Keep personal protection tight as well:

• Clean umbrella coverage.

• Separate banking.

• Formal minutes and contracts.

• Simple cyber steps.

Where it fits in your larger plan

• Fund HSA when eligible.

• Keep a backdoor Roth for tax-free space.

• If markets dip, harvest losses in taxable accounts to reset basis: market losses & tax-saving opportunities.

• For broad physician moves, skim Doctor tax-saving strategies (2025).

• For structure choices, compare options in Best tax structure for doctors (2025) and S-corporation benefits.

• For bigger-picture habits, The Richest Doctor is a fast read.

A cadence you can keep

• Weekly — 15 minutes
  Reconcile accounts. Move cash to a funding bucket.

• Monthly — 1 hour
  Review income. Track staff hours and eligibility.
  Check 401(k) deferrals against plan targets.

• Quarterly
  True-up estimated taxes. Adjust contributions inside the allowed band.
  Revisit investments vs the interest credit target.

• Year-end
  Finalize the cash balance and 401(k) contributions by deadlines.
  Confirm testing items are complete.
  Store minutes and trustee approvals.

Where a tax advisor helps

• Runs a feasibility study with a TPA and actuary.

• Prices staff cost and owner benefit across several designs.

• Coordinates entity pay, W-2 levels, and K-1 flows.

• Times contributions with cash flow and safe-harbor estimates.

• Syncs the plan with charitable bunching and Roth strategy.

• Keeps records clean so exams stay simple.

Related reads

• Doctor tax-saving strategies (2025)

• Best tax structure for doctors (2025)

• Exploring the tax benefits of establishing an S-corporation

• 1099 contractor tax guide

• Market losses & tax-saving opportunities

• High-state income taxes in retirement

• Business travel and CME deductions (2025)

• IRS Tax Tips

• The Richest Doctor

FAQ

Who is the best candidate for a cash balance plan?
A high-earning doctor or small group with steady profits who wants large, repeatable deductions for 5–10 years.

How much can I contribute?
It depends on age, pay, and plan design. Your actuary sets a range each year. Expect far more than a 401(k) limit.

Can I keep my 401(k) too?
Yes. Most designs pair a safe-harbor 401(k) with the cash balance plan.

What if profits drop?
Plans allow some flexibility, but you still have funding rules. Build a cash buffer and coordinate early with your actuary.

Are the assets protected?
ERISA plans usually have strong protection. IRAs vary by state. Ask your advisor to confirm your state rules.

Does this affect a future practice sale?
It can shape timing, payroll, and benefits. Model the sale year carefully and review options in minimize taxes when selling a medical practice (2025).

Can I add partners later?
Yes, with plan amendments and testing. Get advice before you change ownership or staff mix.

If this sounds close, run a feasibility study.
Bring last year’s return, current payroll, and a staff census.
Decide on a contribution band you can keep—and start funding it this year.

Ready to talk strategy? Start here.

Visit contact physiciantaxsolutions.com to schedule a consultation and learn how we can help you take control of your tax strategy today.

This post serves solely for informational purposes and should not be construed as legal, business, or tax advice. Individuals should seek guidance from their attorney, business advisor, or tax advisor regarding the matters discussed herein. physiciantaxsolutions.com assumes no responsibility for actions taken based on the information provided in this post.