Can a Cash Balance Plan 401(k) Combination Help Secure a Physician's Retirement?

By Derrick Handwerk |

As a successful physician, you have a number of responsibilities. You have to take care of your clients, manage your practice, coordinate with your colleagues, and hopefully have enough time left over to spend with your family. Through all of that, even though you may be making a great income and are able to save significant amounts, you may not be optimizing your retirement strategy.

Simply saving money in an IRA and contributing to a 401(k) might work for a number of people, but for the families we advise, I often find that that strategy may not be the best choice. 

One better way that physicians can secure their retirement is by combining a cash balance plan with a 401(k) plan so they get the best of both worlds while maximizing their retirement savings. While it does involve a little more work, the benefits of having access to each type of retirement plan is often worth it.

The Challenges Physicians Face

Through working with physicians and consulting private businesses for over 25 years, I know from firsthand experience that running a practice can be quite expensive. Whether you started a firm from scratch, or you bought into an existing business and eventually became a partner, there are significant expenses in running and maintaining a successful practice. With those expenses, you may not have saved up as much for your retirement as you wish you had. 

Yet I also know that those costs don’t stay the same over time. While you may have to spend more in your earlier years as your career gets started and your family grows, or when you run into unexpected issues with your business, those expenses might slow down after a while. While that’s great news for your cash flow, a problem arises with that situation: it’s not always easy to catch up on any missed retirement contributions.

Traditional Investment Vehicles Aren’t Enough

Unfortunately, there are contribution limits in traditional savings vehicles like a 401(k) and IRA, which limits your ability to catch up on the years you weren’t able to save. In 2023, people can contribute $6,500 into an IRA, and $22,500 into a 401(k) as an employee. While not insignificant, if you have years of retirement contributions you’d like to catch up on, or if you really want to ramp up your savings so you can retire earlier, those amounts can limit you reaching your retirement goal in time.

Combining a 401(k) With a Cash Balance Plan

Instead of following the traditional route, a better option to consider is combining a 401(k) plan with a cash balance plan. Utilizing each of these plans allows you to contribute a far greater amount than if you were to only use one, and you receive the benefits each account offers. 

With a 401(k), every participant has their own accounts which they can contribute toward and choose suitable investments for themselves. The contributions invested are not guaranteed, so there is no promise of earning a certain percentage or reaching a specific dollar amount at retirement. When they reach retirement or leave the company, the contributions and the growth in the accounts are the participant’s to do with as they please. These are the most typical plans offered by companies.

A cash balance plan is less common but provides numerous benefits. These plans offer a stated benefit amount when you reach retirement age—unlike a 401(k) plan. Additionally, cash balance plans allow for much higher contribution amounts. In 2023, the maximum you can contribute to a 401(k) from both the employer and employee is $63,000, while a cash balance pension plan allows contributions up to $265,000.

One important consideration is if you can save over 37%. Why is that important? Because if you can contribute $100,000 into a cash balance plan, it could save you over $37,000 in taxes and that cash balance plan is sheltered from unjust medical litigation. With tax rates a constant frustration for successful business owners, and medical litigation an ever-present worry, these additional benefits make cash balance plans even more advantageous.

Choosing the Plan Right for You

There are no one-size-fits-all strategies when it comes to your physician practice and your retirement. But if you’d like to retire sooner, or with more money, it’s worth considering all of your retirement options, especially a cash balance plan. I offer a second opinion on your current retirement plan and customize it to fit your needs. I’ve improved a number of the plans I’ve analyzed to the benefit of the physicians I work with, and I’d love to see if I can do the same for you. If you think we can help you solve your retirement puzzle, please contact us by phone at 215-393-0700 or email at for a complimentary consultation.

About Derrick

Derrick Handwerk is Family Chief Financial Officer at Handwerk Consulting. His firm offers a variety of financial planning services for physicians and senior medical professionals in the state of Pennsylvania. With over 25 years of experience owning, managing, and consulting for privately held businesses and helping medical professionals successfully work toward financial security, Derrick prides himself on maintaining the highest level of client service. He loves providing clients confidence knowing he’s watching over their financial life like a hawk and is gratified knowing he’s helping change their lives for the better.

Derrick received his MBA from Lehigh University in Bethlehem, PA, and was nominated as a Martindale Business Scholar. He has also been certified as a Certified Wealth Strategist® and received his Wealth Preservation and Asset Protection certification from the Wealth Preservation Institute. He has written hundreds of articles, spoken at numerous conferences and has appeared on several TV shows. Outside of the office, Derrick enjoys spending time with his family at his vacation homes, playing golf, and dining out. To learn more about Derrick, connect with him on LinkedIn.

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