Cash Balance Plans for Physicians and Medical Practices
Key takeaways
- A cash balance plan is a type of defined benefit plan that credits each participant with a pay credit and an interest credit.
- Contribution limits are driven by the $290,000 annual benefit limit and the participant's age, so older physicians can contribute the most.
- Plans are usually paired with a 401(k) and profit sharing, and must cover eligible staff.
- Contributions are generally expected to continue for several years; they are not a one-year shelter.
How it works
Each participant has a hypothetical account that grows with an annual pay credit (a flat dollar amount or percentage of pay) and an interest credit set by the plan. The practice makes deductible contributions to fund those promises, and an actuary certifies the required range each year.
How much can be contributed
The 2026 limit on the annual benefit a defined benefit plan can provide is $290,000, and compensation counted is capped at $360,000. Because the plan must fund a benefit payable at retirement age, the deductible contribution needed to reach the limit rises with age. Physicians in their 50s and 60s can often contribute well into six figures per year, on top of a 401(k) and profit-sharing plan. An actuary's illustration based on your age, pay and staff is the only reliable number.
Who it fits
- Practice owners and partners with stable profits who are already maxing their 401(k) and profit sharing.
- 1099 physicians with significant, consistent self-employment income.
- Physicians generally over about 40 who want to catch up on retirement savings.
- Practices where the owner-to-staff cost of required employee contributions is acceptable.
Staff and testing
Cash balance plans must satisfy coverage and nondiscrimination rules, which usually means providing meaningful contributions for eligible staff, often through the profit-sharing plan. Practices with young, lower-paid staff and older, higher-paid physicians often get the most efficient results.
Commitment and flexibility
Unlike profit sharing, a cash balance plan creates a funding obligation. Contributions can be adjusted within an actuarial range and plans can be amended, but the IRS expects defined benefit plans to be permanent rather than one-year tax shelters. Plan on several years of contributions.
At distribution
When the plan ends or you retire, the balance can usually be rolled into an IRA or 401(k), keeping it tax-deferred.
Frequently asked questions
How much can a doctor contribute to a cash balance plan?
It depends on age, pay and plan design. The annual benefit limit is $290,000 for 2026, and contributions needed to fund it increase with age, often reaching six figures annually for physicians in their 50s.
Can a locum physician have a cash balance plan?
Yes. Self-employed physicians can sponsor a cash balance plan alongside a solo 401(k), subject to the same rules.
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Sources
This article is for general educational purposes and is not tax, legal or investment advice. Tax law changes often and its application depends on your facts. Figures reflect 2026 rules as published by the sources listed above. Consult a qualified professional before acting. See our editorial policy.