Would a CPA-friendly, 6-figure deduction help reduce your onerous federal income tax burden?

Do you want to ensure a more prosperous retirement, but resent being compelled by government regulations to contribute so much on behalf of your employees?

Do you seek the peace of mind that goes with 100% creditor-proof asset protection?

It doesn’t matter whether you are a sole-practitioner or part of a large multiphysician practice, just starting out or nearing retirement. One of these three sophisticated new strategies probably can help you tremendously.

Defined Contribution plan design has evolved far beyond the familiar 401(k). Look at the percentage of contributions accruing to the benefit of the physician/owners in Table 1. The physicians can shelter $65,000 in total income while contributing a total of only $4500 to non-key employees. This dramatic skewing of benefits to the principals results from the integration of three components. Traditional 401(k) salary deferrals are coupled with minimum safe-harbor employer contributions, avoiding “top-heavy” concerns. A “New Comparability” Profit-Sharing component creating classes of employees facilitates additional contributions, the bulk of which goes to the owners. Existing plans often can be converted to a similar design at little to no cost. Assets in such plans are 100% creditor-proof by federal statute.

(Cash-Balance) Defined Benefit plans use new comparability testing to mimic the operation of a profit-sharing plan while minimizing employee benefits costs. Tax-deductible contributions may exceed 100% of pay, and deductions in excess of $100,000 are the norm! These plans also can offer significant preretirement survivor benefits without altering the retirement benefit by one dime. (Translation: Pay your life-insurance premiums with tax-deductible dollars.) Another advantage lies in the ability to equalize owners’ contributions, even if they are of differing ages (Cash-Balance 1), or to optimize each owner’s contribution (Cash-Balance 2). The advantages of fixed-income and equity products can be had by offering a cash-balance plan in combination with a 401(k). Again, assets are 100% protected by federal statute.

Non-Qualified Deferred Compensation plans offer a significant advantage in that 100% of all deferrals accrue to the benefit of the contributor/physician. There is no employee contribution requirement. This strategy can be used with or without a 401(k) and/or Defined Benefit Plan. Generally, NQDC must overcome tax hurdles in the PA/practice environment. However, NQDC can be attractive for physicians willing to operate under the restrictions of Section 409A of the American Jobs Creation Act and to investigate the myriad advantages of co-employment with a Professional Employer Organization. Because the deferred compensation has yet to be received, 100% of assets are protected from practice creditors.

Bottom Line: Physicians often are approached with so-called tax reduction strategies that are costly and/or unacceptable to their CPAs. Many operate in a legal “grey area” that makes implementation a potential time-bomb. Conversely, each of the above strategies offers (up to) 6-figure tax-deductions, 100% asset protection, and robust retirement benefits. All operate within strict federal guidelines, and each is well within your CPA’s comfort zone.

Mark Boehm, CWPP™, is a Texas Medical Association Insurance Trust advisor. For more information on this topic, contact him at 972-395-8464, or alphawealth@verizon.net.