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Is a personal defined benefit plan an option for me?

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  • Is a personal defined benefit plan an option for me?

    I'm 37 and currently an employed through my hospital.  I max out my 403b and 457b plans (don't have the option to make after tax contributions), backdoor Roth, HSA, and put whatever we have left into a taxable brokerage account.  I also make side income through consulting.  I've read that some physicians are able to participate in personal defined benefit plans in able to put more money away for retirement, and these contributions can be tax deductible as well as rolled over to an IRA at retirement.  I'm trying to figure out if this is an option for me.

  • #2
    Agree with Rex, better when closer to retirement when you want to put a lot of money away (e.g. to catch up on retirement contributions when you had a late start). You have to be able to contribute a significant amount for a set number of years and it's difficult (and expensive) to get from under that. As Rex stated, you need to have a pretty stable (self-employment) income and secure for a number of years

    It also depends on how much you make in a side business. In a solo-401k you can put up to $54,000 per year and that's easier and cheaper to manage yourself if you don't have one yet.  So look at that first (you can have both if you really make a lot).

    Expensive? No, all relative to the amount you put away, which can be 6 figures, and the cost for the actuary to run your plan is not related to the amount of your contribution. Few thousand to set-up the plan and than a yearly fee for maintenance 1,500-2,000 or so (deductible of course)

    Although a tax cut is possible, even then you will get a further deduction if you contribute and I guess you could even consider putting more in since you keep more $$ in your pocket (risky though if the rates go up again).

     

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    • #3
      I know that you cant tell exactly what youre contributions could be but some sites that have calculators show at 37 you can put away large sums of money...but those are definitely marketing things and I know the amount will vary depending on how large contributions are each year.

      Im currently looking into this myself and am just going to talk to someone and get the skinny on my particular situation. Really no way to be sure if it fits your unique situation without looking first, its too complicated to get a good estimate without getting specific. Then you can see whether its worth all the hassle and cost or not.

      Schwab is 1500/yr but whether that and any incidental fees are worth it will depend on the overall plan.

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      • #4
        As others have stated, a side consulting gig at age 37 is not the ideal solution for you unles you are making 6 figures and have a predictable growing stream of IC income for several years into the future. Consider the benefits of a taxable account as an alternative.
        Working to protect good doctors from bad advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

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        • #5
          I agree with the others, but as everyone is saying it depends how much you are making on the side as a consultant. You can take the guesswork out and see how much you would benefit on our calculator: http://www.dedicated-db.com/defined-benefit-plan-calculator/

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          • #6




            I agree with the others, but as everyone is saying it depends how much you are making on the side as a consultant. You can take the guesswork out and see how much you would benefit on our calculator: http://www.dedicated-db.com/defined-benefit-plan-calculator/
            Click to expand...


            Hate sites that make you give them your contact info and such to use a tool like that, I simply close the window and never again visit your site. You'd probably have better follow through making the friction less up front. Friction decreases interaction and uptake in everything. Why not do the annoying and intrusive stuff after you may have perked their interest for further information. If people dont even know if it makes sense for them they certainly wont be handing out their vitals to see.

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            • #7
              Sorry to offend. The calculator does give a real estimate and many people use it use it withholding their true contact info. In our defense, we provide an honest estimate. It's up to you to decide whether to provide honest contact info.

               

               

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              • #8




                I’m 37 and currently an employed through my hospital.  I max out my 403b and 457b plans (don’t have the option to make after tax contributions), backdoor Roth, HSA, and put whatever we have left into a taxable brokerage account.  I also make side income through consulting.  I’ve read that some physicians are able to participate in personal defined benefit plans in able to put more money away for retirement, and these contributions can be tax deductible as well as rolled over to an IRA at retirement.  I’m trying to figure out if this is an option for me.
                Click to expand...


                Having a) high income (at least $400k or so) AND b) having a very high stability of income are two primary requirements for individual DB plans.  Not likely that you will be able to pull this off with just side income.  If you can, there is no reason why you shouldn't do it.  Also, be aware that this plan won't last for more than about 15 years, so it does help if you are setting this plan closer to retirement so that you are at your peak earning years.

                I'd say that at 37 years this type of plan starts making a lot of sense, but only if you satisfy the above criteria and if you don't have any non-spouse employees.
                Kon Litovsky, Principal, Litovsky Asset Management | [email protected] | 401k and Cash Balance plans for solo and group practices, fixed/flat fee, no AUM fees

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                • #9




                  I’m 37 and currently an employed through my hospital.  I max out my 403b and 457b plans (don’t have the option to make after tax contributions), backdoor Roth, HSA, and put whatever we have left into a taxable brokerage account.  I also make side income through consulting.  I’ve read that some physicians are able to participate in personal defined benefit plans in able to put more money away for retirement, and these contributions can be tax deductible as well as rolled over to an IRA at retirement.  I’m trying to figure out if this is an option for me.
                  Click to expand...


                  If you are maxing out an individual 401(k) already with that consulting income then you can consider it, but it seems unlikely this will be a good option for you. You can't put any of your regular employee income in it.
                  Helping those who wear the white coat get a fair shake on Wall Street since 2011

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