Securing Your Family's Future: Defined Benefit Plan For Self-Employed Doctors & Their Spouse

I recently met with a physician who was job stacking. Both she and her husband are high-income physicians working W-2 jobs. They both maximize their retirement plans, but they recognize that their W-2-based plans will not be sufficient to meet their desired retirement lifestyle.

She works at several lucrative 1099 side jobs that earn over $100, 000 annually. She contacted me to inquire about the potential tax and retirement benefits of micro-incorporation for her 1099 income, as opposed to receiving it as a sole proprietor.

In today's post, we will discuss the general idea of Defined Benefit Plans for self-employed doctors. Tomorrow's post will provide a specific answer to her question.

Hint: It is best to start a micro-corporation.

Introduction

Being a self-employed doctor offers numerous advantages, such as the freedom to practice medicine on your own terms and the potential for higher earnings. However, it also entails the responsibility of securing your financial future, which includes retirement planning. One powerful retirement savings strategy that is often overlooked by self-employed doctors and their employed spouses is the defined benefit plan.In this blog post, I will explore why every self-employed doctor should consider implementing a defined benefit plan, not only for themselves but also for their spouse if they are employed by the professional micro-corporation. (Pro-tip: Retirement funding is one of the many reasons to consider employing your spouse in your professional micro-corporation.)

In my particular case, after creating my professional micro-corporation, I began employing my stay at home spouse as our book keeper. This significantly opened the door for us to both maximize our business based solo 401(k)-defined benefit plan that essentially tripled the amount of money that we could save for our future in a tax-advantaged manner. In the end, this was one of the many factors of micro-incorporation that accelerated the growth of of our net worth and allowed by to coast FIRE earlier.

If you questions about whether you and your household would benefit from a similar structure reach out to me here to schedule a free 45 minute call.

Now let’s take a look at some of the considerations of a defined benefit plan for self-employed doctors.

1. Substantial Tax Benefits for Both

One of the most compelling reasons for self-employed doctors to consider a defined benefit plan for themselves and their employed spouse is the significant tax benefits it offers. Contributions made by the self-employed doctor to fund the plan are typically tax-deductible. This reduces your taxable income, potentially lowering your overall tax liability. Additionally, contributions made on behalf of your spouse that is employed by your micro-corporation are also tax-deductible for the business, effectively reducing your family's taxable income even further. By maximizing these tax benefits, you can keep more of your family's income in your pockets and allocate it toward retirement savings.

2. Enhanced Retirement Savings Potential

Defined benefit plans are renowned for their ability to help individuals accumulate substantial retirement savings, and this holds true for both self-employed doctors and their employed spouses. These plans allow for higher annual contributions compared to traditional retirement accounts like IRAs or 401(k)s. As a result, you can turbocharge your retirement savings, potentially reaching your financial goals sooner.

For self-employed doctors, this means setting aside a significant portion of your income for retirement, securing your future. For employed spouses, this represents an opportunity to build a substantial retirement nest egg, taking advantage of the employer's contributions made on their behalf.

3. Guaranteed Retirement Income for Both

One of the standout features of defined benefit plans is the guaranteed retirement income they provide. These plans offer a predetermined benefit based on a formula, usually considering factors such as years of service and income history. Knowing that both you and your spouse will receive a fixed income stream in retirement can provide peace of mind and financial security for your family. This assurance ensures that your family can maintain its lifestyle and cover essential expenses, even in retirement.

4. Family Asset Protection

In many cases, assets held within a defined benefit plan are protected from creditors. This protection extends to both the self-employed doctor and the employed spouse. This level of asset protection is especially valuable if your family encounters unexpected financial challenges or legal issues. Your retirement savings will remain secure, serving as a financial safety net for your family.

5. Retirement Flexibility

Defined benefit plans offer flexibility when it comes to retirement timing. You can adjust your contributions and retirement ages to align with your family's financial goals and professional journey. This adaptability can be particularly advantageous for self-employed doctors and their spouses, allowing you to plan for a comfortable retirement on your terms.

6. Reduced Investment Risk for Both

With defined benefit plans, the investment risk lies primarily with the plan sponsor, in this case, the self-employed doctor. This means that both you and your employed spouse don't have to worry about managing investment portfolios or the potential impact of market downturns on your retirement savings. You can focus on your respective careers and trust that your retirement income is secured through the plan.

Summary

A defined benefit plan is a powerful retirement savings tool for self-employed doctors, and extending its benefits to their employed spouses can be a strategic financial move. By taking advantage of substantial tax benefits, enhancing retirement savings potential, securing guaranteed retirement income, protecting family assets, and enjoying flexibility in retirement planning, you can ensure a financially secure future for both you and your spouse.

To get started, consult with a financial advisor or retirement plan specialist experienced in working with self-employed professionals and their families. They can help you design a defined benefit plan tailored to your unique circumstances, maximize tax advantages, and set your family on the path to a prosperous retirement. With the right plan in place, you can enjoy not only the rewards of your medical career but also the peace of mind that comes from a well-funded retirement for both you and your spouse.

If you have questions about how to do this, you can schedule a meeting with me here for a free 45 minute discussion about your specific situation.

In my next post, I will fully unpack why for self-employed doctors, a professional micro-corporation is better for retirement than a sole proprietor.

This is a common issue for doctors as job stacking becomes more common. Check out my free e-book on job stacking if you want to learn more about this growing job structure.

If you are currently receiving your 1099 income income as a sole proprietor, and recognize for retirement funding it would be better to receive it through a micro-corporation, let us help you. You can work with our legal network to help create a highly personalized professional micro-corporation in any state, go here and the SimpliMD legal network will be happy engage with you to begin the process.

Tod