Optimizing the Retirement Plan for Professionals such as Doctors or Dentists – The Secret Weapon of the DB Plan

What is a Defined Benefit Pension Plan?

In retirement planning, there is a type of plan known as the Defined Benefit Pension Plan, also referred to as the DB Plan. It is a program that disburses a pension based on the income at the time of retirement (various companies have different calculation formulas, and actuaries assist in the calculation). For instance, an employee working at a company until retirement with a monthly salary of $100,000 can receive 80% of their salary, which amounts to $80,000 per month as a pension until their passing. This is the Defined Benefit Pension Plan, distinguished by its predefined goals from regular retirement plans.

How is the Defined Benefit Pension Plan Calculated?

Compared to familiar company retirement plans like the 401k Profit Sharing Plan, which contributes a certain percentage of each employee’s salary every year, the DB Plan operates differently. It sets a target, and funds are contributed (or approached) toward that goal each year. Therefore, actuaries need to calculate the contributed funds each year based on factors like an employee’s salary, age, previous year’s investment returns, etc. (the actual criteria may not be limited to these three).

Who is the Defined Benefit Pension Plan Most Suitable For?

The Defined Benefit Pension Plan is particularly suitable for small businesses with a modest scale, few employees, and decent income. Professions like doctors and dentists, who are typically self-employed or manage small practices, find this retirement plan especially fitting because of the following traits:

1. Stable Retirement Income: DB Plans offer a stable and predictable retirement income. This is significant for professionals like doctors and dentists, providing them with a sense of financial security by knowing there is a guaranteed amount during retirement.
2. High Income and Tax Efficiency: Especially for those doctors and dentists with higher incomes, DB Plans provide tax advantages. Contributions made to the plan are tax-deductible, offering a valuable tool for managing tax liabilities and maximizing tax savings within legal limits.
3. Asset Protection: DB Plans provide a certain level of asset protection, crucial for professionals in the medical field who may face potential legal challenges. The funds in a DB Plan are generally safeguarded from creditors and legal proceedings.
4. Tailored Contributions: DB Plans allow for tailored contributions based on factors like age, income, and years until retirement. This flexibility is beneficial for professionals with varying income levels and retirement timelines.
5. Long-Term Advantage: Professionals in the medical field, especially those with established practices, can leverage the long-term advantage of DB Plans. The plan’s structure allows for contributions over an extended period, optimizing the retirement benefit.
6. Sole Proprietorship Considerations: For self-employed doctors or dentists operating as sole proprietors, DB Plans offer an attractive retirement solution. The ability to contribute based on individual circumstances makes it a versatile option.

Maximizing Tax Efficiency with DB Plan & Combo Plan

The suitability of Defined Benefit Pension Plans for doctors and dentists lies in their ability to provide a secure and predictable retirement income, tax advantages, asset protection, and flexibility in contributions, making them a valuable tool for financial planning in the medical profession. At TransGlobal, we can also design a Combo Plan for you, enabling you to contribute more with minimal costs and potentially saving you tens or even hundreds of thousands in taxes each year. What are you waiting for? Contact us now to learn more!

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Disclaimer: This article is for informational purposes only and should not be construed as financial advice or legal advice. Please consult with a professional to develop a strategy that is right for you. Investing in securities involves risks, and there is always the potential of losing money when you invest in securities. TransGlobal Advisory, LLC (TGA) does not provide legal, tax, or accounting advice. You should consult your personal tax or legal advisor before making any financial decisions.