Strategies for physician wealth management and retirement planning

Physicians and medical professionals face a different set of challenges than other industries when managing wealth and planning for retirement. But there are steps they can take to protect their assets, reduce taxation and optimize their capital.

"We have yet to meet anyone who isn't concerned about minimizing the impact of taxes to increase the amount of money they'll be able to put toward their retirement," Brian P. Driscoll, executive director and financial advisor for J.P. Morgan Securities, said at the Becker's ASC 22nd Annual Meeting — The Business and Operations of ASCs. "They also face limitations with traditional retirement plans, such as the 401k, which can be limiting. They can only reach up to a maximum of $50,000 per year and for some higher income earners that just isn't enough."

J.P. Morgan Securities aims to work with physicians to develop a financial game plan to help physicians work toward a customized investment strategy that reflects their specific goals and objectives. It aids physician groups in implementing core retirement plans for practices, as well.

"We want to be able to increase the amount of overall contributions to retirement accounts," said Mr. Driscoll. "This sounds simple but there are necessary steps that have to take place. One way to put more money away and to minimize the taxes on that capital is to put it into a tax-deferred vehicle."

A 401k plan is where everybody starts. It's safe to say most people have a defined-contribution plan or 401k for their practice. The difficulty is that it only goes so far. "The reality is that very few of our clients actually enjoy those best-of circumstances," said Mr. Driscoll. "So you may be able to get to $53,000 but the reality is that you're limited to some about that is significantly below that. Specifically for our equity partner clients, they are amounts that just don't do anything to accurately fund for retirement."

In a traditional defined-benefit plan, which practices will often have in place, there is a future interest in annuity income when you retire. In terms of funding it as a practice an actuarial firm will manage the promise being made to those paying into the plan. The participants don't see an account value, they just see that future obligation that they are being promised.

"As an organization, you then have to make good on that obligation, but what is common for many clients is these legacy-defined benefit plans become under funded, either through a decline in the discount rate or poor markets you have a gap between the benefit obligation and the amount of money you have to back stop it," said Mr. Driscoll.

A cash-balance plan works a little bit differently. It essentially addresses one of the key issues around traditional-defined benefits plans, which is the exposure to those funding gaps. "They are hybrid plans that were developed to bridge the gap between defined-contribution and defined-benefit to be able to give you the opportunity to defer significantly higher amounts than you can in 401k plans, but do so selectively and not expose yourself to the kind of funding risk you see in traditional defined-benefit plan," said Mr. Driscoll.

A combination of a cash-balance plan, accounting to minimize taxation and the implementation of a 401k can affect high levels of individual contribution on a per partner basis. The key in this scenario is the ability to have the partners' total contributions as a percentage represent the lion's share of the contribution. It allows for scenarios where the vast majority of the contributions can be towards the key partners in a practice and there can still be a very meaningful, tax deductible contribution made to additional staff.

"Your physician practice presents and opportunity to enhance retirement savings that a lot of other business structures don't necessarily present because of employee demographics and ratios," Daniel F. Resnick, executive director and financial advisor for J.P. Morgan Securities, said at the meeting. "The real points to takeaway are the tax benefits, the creditor protection from having assets inside of the plan and a benefit to recruiting new partners and retaining existing partners. We've seen this become a very effective tool for our clients."

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