Beyond the 401(k): How Physicians Can Maximize Retirement Savings in 2026

Luke A. Palmer, CFP®, AAMS®, CRPS®, AWMA®, Owner and CEO

31 December 2025

The Short Answer: Physicians who ask, “How can I save more for retirement than my 401(k) allows?” should consider a cash balance plan, a Defined Benefit Plan structure that permits annual contributions of $100,000 to $300,000 or more, depending on age and income. When combined with a 401(k), total annual tax-deferred savings can exceed $350,000 for physicians in their 50s and 60s.

You’ve maximized your employer-sponsored retirement plan, funded your Backdoor Roth IRA, contributed to your Health Savings Account, and still face a substantial tax bill. For physicians earning $400,000 to $800,000 annually, this scenario is frustratingly common, and it reveals a fundamental mismatch between standard retirement vehicles and high-income professional needs.

The mathematics are stark. In 2026, the 401(k) contribution limit stands at $24,500 for employee deferrals, with an additional $8,000 catch-up contribution for those age 50 and older.¹ Even with maximum matching contributions and profit-sharing plans reaching the $72,000 combined limit, a physician earning $600,000 can shelter only about 12% of gross income through traditional Defined Contribution plans like 401(k)s and SEP IRAs.

Our wealth management research into physician retirement planning reveals a significant gap between what most doctors save and what they need to achieve their retirement goals. The solution lies in understanding and strategically implementing retirement vehicles that most physicians have never encountered.

Key Observations

Standard Defined Contribution limits ($72,000 maximum in 2026) leave physicians with substantial untapped tax-deferral capacity.
Cash balance plans, a type of Defined Benefit Plan, allow contributions 3-4x higher than 401(k) plans, with limits that increase significantly with age.
SECURE 2.0 changes now in effect require high earners ($150,000+ in prior year wages) to make catch-up contributions on a Roth basis, creating new planning considerations.
Proper plan design can allocate 80-90% of contributions to physician-owners while satisfying IRS nondiscrimination requirements.

Understanding Retirement Plan Categories: Defined Contribution vs. Defined Benefit

Before exploring advanced strategies, it’s essential to understand the two fundamental categories of tax-advantaged retirement plans.

Defined Contribution plans include familiar vehicles like 401(k)s, 403(b) Plans, 457(b) plans, SEP IRAs, and SIMPLE IRAs. In these plans, you contribute a defined amount each year, including employee deferrals, matching contributions from your employer, and profit-sharing plans, and your ultimate retirement benefit depends on contributions plus investment performance. You select from available investment options, typically index funds and other mutual funds, and bear the investment risk. Contribution limits are fixed by the IRS regardless of age.
Defined Benefit Plans work differently. These include traditional pensions and cash balance plans. Rather than limiting annual contributions, the IRS limits the benefit you can receive at retirement. An actuary calculates backward from that limit to determine how much you can contribute each year, and for older participants, this calculation allows dramatically higher annual contributions to retirement funds.

This distinction explains why physicians limited to $72,000 in their 401(k) can potentially contribute $250,000 or more to a cash balance plan: different rules govern each plan category.

What Is a Cash Balance Plan for Physicians?

Definition: A cash balance plan is a type of Defined Benefit Plan that combines the high contribution limits of traditional pensions with the portability and account-balance simplicity of a 401(k). Each participant has a notional account funded by employer contributions that grows through guaranteed annual interest rate credits, typically 4-6%.

Unlike a traditional pension that promises a monthly benefit at retirement, a cash balance plan expresses your benefit as a lump sum balance, hence the name. At retirement or separation from the practice, you can roll these retirement funds into a traditional IRA or Roth IRA (with appropriate tax treatment), preserving tax deferral or creating tax-free retirement income.

The critical distinction from a 401(k): contribution limits are based on the actuarially determined benefit you’ll receive at retirement rather than a fixed annual cap. The guaranteed interest rate credit (typically 4-6%) provides predictable growth regardless of market conditions, though actual plan investments may include diversified index funds and other investment options managed by the employer or plan fiduciary.

How Much Can Physicians Contribute to a Cash Balance Plan in 2026?

Cash balance plan contribution limits scale dramatically with age and can reach $300,000 or more annually for physicians approaching retirement. A 45-year-old physician might contribute approximately $150,000 annually, while a 55-year-old could reach $250,000 or more depending on compensation and plan design.²

The IRS limits the lifetime benefit to approximately $3.5 million at age 62 (adjusted annually for inflation), which translates to substantial annual contribution capacity for physicians building toward that ceiling. Here’s how the numbers compare across retirement vehicles for 2026:

Retirement Vehicle	2026 Maximum	Age 50+ Maximum
401(k) Employee Deferral	$24,000	$32,500
403(b) Plan (Hospital/Academic)	$24,000	$32,500
401(k)/403(b) + Matching + Profit-Sharing	$72,000	$80,000
SEP IRA	$72,000	$72,000
457(b) Plan (Hospital-Employed)	$24,000	$32,500
Cash Balance Plan (Age 45)	~$150,000	—
Cash Balance Plan (Age 55)	~$250,000	—
Combined 401(k) + Cash Balance	$220,000–$350,000+	Varies by age

The difference is transformative. A 52-year-old physician contributing $32,500 to a 401(k) versus $222,500 to a combined 401(k) and cash balance structure is saving seven times more annually, with corresponding tax benefits that can exceed $100,000 per year. Note that hospital-employed physicians with access to both a 403(b) Plan and 457(b) plan can potentially defer even more through their employer-sponsored retirement plan options, though still far less than what a cash balance plan permits.

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How Do Cash Balance Plans Reduce Physician Tax Liability?

Cash balance plans deliver a triple tax advantage for physician practice owners, reducing taxes at the business level, personal level, and through decades of tax-deferred growth.

Business-level deduction. Contributions are fully tax-deductible as a business expense, reducing your practice’s taxable income dollar for dollar. A $200,000 contribution at a 40% combined federal and state marginal rate generates $80,000 in immediate tax savings.³
Personal income reduction. Lower practice profits flow through to reduced personal income on your K-1, potentially lowering your individual tax bracket and reducing exposure to the 3.8% Net Investment Income Tax and additional Medicare tax.
Tax-deferred compounding. Like other qualified retirement plans, cash balance plan assets grow tax-deferred until withdrawal, allowing compound growth on pre-tax dollars for decades.

Who Should Consider a Cash Balance Plan?

Cash balance plans work best for physicians meeting these criteria:

Practice owners or partners. As an employer contribution, cash balance plans require the ability to make contributions through your practice entity.
Age 40+. Contribution limits increase with age, making cash balance plans most powerful for physicians in their 40s, 50s, and early 60s.
Stable, high income. Ideally $400,000 or more annually with predictable year-to-year earnings.
Few younger employees. Nondiscrimination requirements mean you’ll typically need to make some contribution for eligible employees, though proper plan design can minimize this cost.
Required professional team. You’ll need a third-party administrator (TPA), an enrolled actuary to calculate annual contributions, and coordination with your CPA and wealth management advisor. Annual administration costs typically range from $2,000 to $5,000 for smaller plans.
Investment options and management. Unlike 401(k) plans where participants choose their own investments from a menu of index funds and mutual funds, cash balance plan assets are managed at the plan level. The employer or plan fiduciary selects investment options and bears responsibility for ensuring the plan can deliver the promised interest rate credits.

For practices navigating the transition from active practice to retirement, a cash balance plan can integrate effectively with succession planning strategies, providing both immediate tax benefits and long-term financial security.

Understanding the Risks and Limitations

Cash balance plans aren’t appropriate for every physician or practice. A balanced assessment requires understanding potential drawbacks:

Investment risk falls on the employer. The plan promises a guaranteed interest rate credit regardless of actual investment performance. If the underlying investments, whether index funds, bonds, or other assets, underperform, the practice must make additional contributions to cover the shortfall.
Income variability challenges. Practices with highly variable year-to-year income may struggle with mandatory funding requirements. A significant income decline in any year still requires meeting minimum contributions, unlike discretionary profit-sharing plans that can be reduced or eliminated.
Complexity and administrative burden. These plans require annual actuarial valuations, IRS Form 5500 filing, and potentially PBGC (Pension Benefit Guaranty Corporation) premiums. Administrative costs are meaningful, though typically modest relative to tax savings for appropriate candidates.
Liquidity constraints. Once contributed, funds are generally inaccessible until separation from service or retirement. Physicians needing liquidity flexibility should ensure adequate savings outside retirement accounts.

These considerations underscore the importance of working with experienced advisors who understand both retirement plan design for professional practices and the specific financial circumstances of physicians.

Strategic Recommendations

Evaluate your retirement goals gap. Calculate whether your current trajectory, including 401(k), 403(b) Plan, SEP IRA, profit-sharing plans, or other employer-sponsored retirement plan contributions, will provide sufficient retirement income.
Maximize all available tax-advantaged accounts first. Ensure you’re contributing fully to your Health Savings Account, executing your annual Backdoor Roth IRA conversion, capturing all matching contributions, and maximizing employer-sponsored retirement plan deferrals before adding a cash balance plan.
Assess practice stability. Cash balance plans require consistent funding. Ensure your practice has predictable profitability before committing to mandatory contributions.
Begin planning early. With a 3-4 month implementation timeline, physicians seeking 2026 deductions should initiate discussions no later than August or September.
Model multiple scenarios. Request illustrations showing contribution levels, tax savings, and projected accumulations under various interest rate and income assumptions before committing.

Key Takeaways: Physician Retirement Planning Beyond the 401(k)

Cash balance plans allow physicians to contribute $100,000 to $300,000+ annually, three to four times the maximum 401(k), SEP IRA, or profit-sharing plans contribution, making them the most powerful tax-deferred savings vehicle available for high-income practice owners.
Contribution capacity increases significantly with age, making these Defined Benefit Plans particularly valuable for physicians in their 40s, 50s, and early 60s who need to accelerate progress toward retirement goals after years of student loans and medical school debt repayment.
The 2026 Defined Contribution limits ($24,500 employee deferral, $72,000 combined maximum including matching contributions and profit-sharing) leave significant tax-deferral capacity unused for physicians earning $400,000 or more annually.
A complete wealth management strategy combines multiple vehicles: Health Savings Account, Backdoor Roth IRA, employer-sponsored retirement plan (401(k) or 403(b) Plan), and cash balance plan for maximum tax efficiency.
At retirement, funds can roll into a traditional IRA or Roth IRA, providing flexibility for tax-efficient distribution planning based on your circumstances.

Is a Cash Balance Plan Right for Your Practice?

The question isn’t whether you can afford to implement a cash balance plan; it’s whether you can afford not to. For physicians earning $400,000 or more with stable practice income, the tax savings alone typically justify establishing a plan within the first year.

Schedule a Retirement Plan Analysis

Palmer Wealth Group™ helps physician practice owners evaluate whether cash balance plans and other advanced retirement strategies align with their retirement goals and overall wealth management objectives. Our team coordinates with your CPA, attorney, and plan administrator to ensure seamless implementation. Contact us at (817) 438-8241 to discuss your physician retirement planning options.

Important Disclosures

This article is provided for informational purposes only and does not constitute personalized investment, legal, or tax advice. The contribution limits, tax benefits, and scenarios described reflect general principles and may vary based on individual circumstances.

Cash balance plans involve complex tax and legal considerations. You should consult with qualified legal, tax, and financial professionals before establishing any retirement plan. Palmer Wealth Group™ and Commonwealth Financial Network® do not provide legal or tax advice.

Retirement plan contribution limits and tax provisions are subject to change. The figures presented reflect 2026 IRS limits and may be adjusted in future years.

Securities and advisory services offered through Commonwealth Financial Network®, Member FINRA/SIPC, a Registered Investment Adviser.

References

Internal Revenue Service. “401(k) limit increases to $24,500 for 2026.” IR-2025-67, November 2025.
FuturePlan by Ascensus. “2026 Cash Balance Plan Contribution Limits.” January 2026.
Wipfli LLP. “What is a cash balance plan, and how does it benefit physicians?” 2025
“Cash Balance Plans for Physicians & Doctors: A ‘How to’ Guide.” January 2026.
Internal Revenue Service. “COLA increases for dollar limitations on benefits and contributions.” Notice 2025-67, November 2025.
“Cash Balance Plans for Doctors: Physician Retirement Planning.” 2026.
Forvis Mazars. “Retirement Plan Contribution Deadlines for the Physician Enterprise.” December 2025.

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