Should you contribute to your company’s cash balance plan?

Physician Family Financial Advisors Podcast; Personal Finance for Doctors with Children

Find the secrets to optimizing your retirement and investment strategies with our latest episode! Discover why solo 401(k) might outshine SEP IRAs for self-employed physicians, especially if backdoor Roth conversions are on your radar. We'll also guide you through the critical decision-making process around contributing to 457(B) plans, dissecting the key differences between governmental and non-governmental options and the potential risks associated with each.

Our conversation doesn’t stop there. Learn from real-life scenarios about the pitfalls of non-governmental 457(B) plans and explore smart alternatives like brokerage accounts. With insights from Chelsea Jones, our Certified Financial Planner and Retirement Planning Specialist, we delve into the advantages of cash balance plans for both older and younger doctors. Whether you’re nearing retirement or just starting out, this episode is packed with expert advice to help you navigate your financial future with confidence. Don’t miss this chance to get ahead on your retirement planning!

Key Takeaways:

1. Solo 401(k) vs. SEP IRA:

• Recommendation: Solo 401(k) is generally better than SEP IRA for self-employed physicians, especially for those considering backdoor Roth conversions.
• Reason: Solo 401(K) allow for higher contribution limits and do not block the backdoor Roth strategy, unlike SEP IRAs.

2. Governmental vs. Non-Governmental 457(B) Plans:

• Governmental 457(B) Plans: Highly recommended due to their tax advantages and flexibility.
• Non-Governmental 457(B) Plans: Generally advised against due to risks of forfeiture and limited flexibility. Instead, consider using brokerage accounts for additional savings.

3. Pitfalls of Non-Governmental 457(B) Plans:

• Risk of Forfeiture: Your money could be at risk if the company offering the plan goes bankrupt.
• Tax Implications: Upon leaving the job, the distribution could lead to a high tax burden if not managed properly.

4. Cash Balance Plans:

For Older Doctors Nearing Retirement:

Advantages: Allows significant pre-tax contributions and potential tax savings upon withdrawal.

• Strategy: Can offer a guaranteed return, typically around 4%, making it a great option for those close to retirement.

For Younger Doctors:

• Considerations: Weigh the benefits against those of a brokerage account. Factors such as time horizon, rate of return, and tax implications are crucial.
• Decision Point: Around age 40, the decision to opt into a cash balance plan becomes more nuanced.

5. Rollover IRA vs. Backdoor Roth:

• Managing Rollover IRAs: A small balance can be converted to open up the possibility for backdoor Roth contributions.
• Alternative Strategy: Consolidate rollover IRAs into an active 401(K) or 403(B) to facilitate backdoor Roth contributions without immediate tax implications.

Transcript Samples From Key Chapters:

Chapter 'Retirement and Investment Planning Advice:

• Discussion on the pros and cons of SEP IRA vs. solo 401(k) for self-employed physicians.
• Examination of governmental vs. non-governmental 457(B) plans and their associated risks.

Chapter 'Rollover IRA Versus Backdoor Roth:

• Real-life scenarios illustrating the challenges with non-governmental 457(B) plans.
• Strategies for managing rollover IRAs to enable backdoor Roth contributions.

Chapter 'Optimizing Cash Balance Plan Contributions:

• Detailed explanation of cash balance plans, their guaranteed return rates, and contribution limits based on age.
• Analysis of the benefits for older doctors nearing retirement and strategic considerations for younger doctors.

ARE YOU GETTING ALL THE TAX BREAKS YOU REALLY DESERVE?

To find out, get your copy of The Overtaxed Doctor's Retirement Investing Checklist at https://physicianfamily.com/go

GOT A QUESTION?

Write to us at [e-mail].

NOTICE

Physician Family Financial Advisors Inc., a registered investment advisor, has reasonable belief that the information and content as a whole does not include any false or materially misleading statements or omissions of facts regarding services, investments, or client experience. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Information expressed does not take into account the specific situation or objectives of individuals and is not intended as recommendations appropriate for all individuals. Listeners are encouraged to seek advice from a qualified tax, legal, or investment adviser to determine whether any information presented may be suitable for their specific situation. Past performance is not indicative of future performance.