Many high-income locum tenens physicians face a common challenge: maximizing retirement savings while minimizing taxes. Dr. Lo Tenens, a 48-year-old anesthesiologist earning $350,000 annually, exemplifies this struggle. She's maxing out her Solo 401(k) contributions, but worries it won't be enough to achieve her retirement goal of maintaining her current lifestyle, estimated to require $200,000 annually. How can she save more while reducing her tax burden?
This post explores how combining a Solo 401(k) with a defined benefit plan can significantly boost retirement savings, lower taxable income, and create long-term financial security.
What Are Defined Benefit Plans?
Defined benefit plans are employer-sponsored retirement plans that guarantee a specific retirement benefit based on factors like salary and years of service. Unlike defined contribution plans (e.g., 401(k)s or IRAs), they offer a predictable retirement income stream. A popular type is the cash balance plan, blending
Key Advantages
The Power of Combining a Solo 401(k) with a Defined Benefit Plan
This combination offers unparalleled opportunities:
Addressing the Spouse Strategy
Adding a spouse to your Solo 401(k) may be less attractive:
Limited Contributions: Combined Solo 401(k) contributions are capped at $140,000 (2025 - $70,000 per person), less than the combined plan's potential.
Case Comparison: Spouse vs. Combined Plans
The combined approach offers significantly greater tax savings.
Fees: Are They Worth It?
Defined benefit plan fees ($5,000-$10,000 annually) are outweighed by the substantial tax advantages.
Potential Downsides (and Rebuttals)
Defined benefit plans are complex. Early withdrawals can incur penalties. However, the greater tax savings and growth potential usually outweigh these concerns.
Investment Options and Actuarial Calculations
These plans offer various investment options. Actuarial calculations, performed by professionals, determine necessary contributions. Consulting a financial advisor is highly recommended.
Example of Growth (Simplified - Revised and Corrected for 2025)
(Important Note: Solo 401(k) "employer" contribution is limited to 6% of compensation ($21,000) when combined with a defined benefit plan. The employee deferral limit is $23,500. This example assumes contributions within legal limits and consistent income. Consult a financial advisor for personalized projections.)
(This is a simplified example assuming no contribution limit increases for future years. Actual results will vary. Consult a financial advisor.)
A defined benefit plan, combined with a Solo 401(k), is a powerful tool for high-income physicians. It maximizes savings and minimizes taxes. Consult a financial advisor specializing in physician retirement planning. The figures presented are based on assumptions and should not be considered financial advice. Contact Modoo Strategy LLC today for a free consultation: