Beyond the 401(k): Why Physicians Are Turning to Defined Benefit Plans

Most of the physicians we work with have a 401(k) story that sounds the same. They start funding it the year they become an attending, max it out every year, and on paper they're doing what every financial article tells them to do.

The problem is that the math doesn't add up. Physicians start earning real income in their early to mid-30s. The first attending years go toward six figure student loans. Someone who started a corporate career at 22 has 40 plus years to fund retirement. You have about half that.

A 401(k) was originally built to supplement traditional pensions for people with 40 year careers. It wasn't sized for someone trying to fund retirement in 20 years instead of 40.

If you've maxed your traditional retirement accounts, have stable practice income, and want to take a serious bite out of your current tax bill, there's a tool the IRS allows that often gets overlooked: the Defined Benefit plan. In our year round tax planning work with independent physicians, it's one of the highest leverage moves available and one of the least used.

Why Does the 401(k) Fall Short for Physicians?

For 2026, the IRS lets employees defer up to $24,500 into a 401(k), with an extra $8,000 catch up contribution if you're 50 or older. Add employer profit-sharing and the combined annual limit hits $72,000, or $80,000 with the catch up (IRS, 2026 contribution limits).

That's a generous limit by general workforce standards. As a percentage of physician income, it's often less impressive. A 1099 physician earning $400,000 who maxes the combined limit at $80,000 is sheltering 20% of gross income. The employee deferral alone shelters 6%.

A few things are working against you at once:

• You started late. Most physicians spend their 20s and early 30s in training, while their non-physician peers were already a decade into employer plans.
• You need a bigger nest egg. Physician spending patterns and retirement expectations don't track with the median worker's.
• You've got fewer years to fund it. If you want to retire around 60, that's roughly 25 attending years, not 38.

To replace $250,000 a year of retirement spending across a 30 year retirement, you need somewhere around $5 to $6 million saved by retirement age. Doing that on $80,000 a year of pre-tax contributions, starting at 35, asks the market to do nearly all of the work. That's a lot to bet on.

What Is a Defined Benefit Plan, Exactly?

A 401(k) is a Defined Contribution plan. You decide how much goes in, and what comes out at the end depends on how the market behaved. A Defined Benefit plan flips that around. The plan defines the benefit you'll receive at retirement, and an actuary calculates what you need to put in today to fund it.

Because the goal is to fund a specific future benefit, the IRS allows contributions that significantly exceed Defined Contribution plan limits. For 2026, a Defined Benefit plan can be designed to deliver an annual retirement benefit of up to $290,000 (IRS Notice 2025-67). Older participants with higher compensation can fund six-figure contributions on top of an existing 401(k).

You'll also hear the term "cash balance plan." It's the same Defined Benefit structure underneath, just packaged differently. Each participant has a hypothetical account that grows at a stated interest credit rate, so it reads more like a 401(k) statement. That makes it easier to explain to staff.

Why Do Physicians in Particular Benefit?

Defined Benefit and cash balance plans work especially well for physicians because they're age weighted. The closer you are to retirement, the larger your allowed annual contribution. A 55 year old physician with $400,000 in compensation can often fund $200,000 or more per year into a properly designed plan. A 35 year old at the same income would fund a fraction of that.

A few things make these plans particularly useful for physicians:

• They let you catch up. The age weighting compresses what would otherwise be 20 years of saving into 10. For physicians whose serious income years didn't start until their mid-30s, that's the whole point.
• They stack on top of your 401(k), not in place of it. You can max the 401(k), profit sharing, and the Defined Benefit plan in the same year.
• Every dollar in is a dollar deducted. At the federal marginal rate physicians typically hit (32% to 37%), plus state, you're often deferring more than 40% of every contributed dollar from current-year tax.

The misconception we correct most often: physicians assume a Defined Benefit plan locks them in for the rest of their career. It doesn't. These are multi-year commitments, typically a five year minimum funding horizon, and they can be wound down when the funding case no longer fits.

How Does the Math Actually Work?

Dr. Patel is 52, runs a single physician practice as an S-Corp, and takes home roughly $450,000 a year. Her retirement balance is around $600,000. She'd like to retire at 62, and on her current trajectory she won't be where she wants to be.

Scenario A, 401(k) and profit-sharing only:

• $32,500 employee deferral, including the $8,000 catch up for age 50+
• $47,500 in employer profit-sharing contributions through the S-Corp
• Total annual tax deferred contribution: $80,000

Scenario B, adding a Defined Benefit plan:

• Same $80,000 in 401(k) and profit sharing
• Approximately $175,000 in Defined Benefit plan contributions, as calculated by an actuary based on her age, compensation, and a 10 year funding horizon
• Total annual tax deferred contribution: $255,000

At a combined federal and state marginal rate of roughly 40%, Dr. Patel defers about $102,000 in tax this year alone. Over 10 years, she funds an additional $1.75 million in tax deferred retirement savings she would not have had under the 401(k) alone, with roughly $1 million in deferred taxes compounding alongside it.

Her specific numbers are illustrative. Actual contributions depend on plan design and how the Defined Benefit plan integrates with any existing 401(k). But across our physician clients, the pattern holds: Defined Benefit plans open up meaningfully more tax-deferred room than the 401(k) can on its own.

What Should You Know Before Setting One Up?

Defined Benefit plans are powerful, but they're not for every physician. Before starting one, you need to be honest about a few things:

• Funding is mandatory every year. Unlike a 401(k) where you can dial contributions up or down, Defined Benefit plans require the actuarially calculated contribution every year. A bad year doesn't get you a pass. Stable practice income is a precondition.
• They cost more to run. You'll need a third-party administrator (TPA) and an actuary. Annual administration runs roughly $2,500 to $5,000 for a solo plan, and climbs with staff.
• Your employees may be in it too. If your practice has W-2 staff, you may be required to fund contributions for eligible employees to pass non-discrimination testing. This is where many group practices stall.
• There's a setup deadline. To count a Defined Benefit plan contribution for a given tax year, the plan generally has to be established by the end of that tax year, though SECURE Act 2.0 provisions allow some flexibility for solo plans.
• Getting out costs something. Terminating a Defined Benefit plan early triggers paperwork and may have tax consequences.

If your income is variable, your W-2 staff is growing, or you're thinking about selling the practice in the next few years, this isn't your move. The mandatory funding obligation that makes Defined Benefit plans powerful becomes a liability instead.

The Bottom Line

A 401(k) is necessary. For physicians serious about hitting retirement targets on a compressed timeline, it's often not sufficient.

A Defined Benefit plan won't make sense for every physician. It works for those with stable income, manageable W-2 staff exposure, and the cash flow to commit to mandatory contributions for several years. For physicians who fit that profile, it's frequently the single largest tax planning move available.

If you're maxing your 401(k), staring at a six figure tax bill, and wondering whether there's anything else you can do, a Defined Benefit plan is the answer most physicians never get from their advisor.

About the Author

Doc Wealth is a physician founded tax planning firm working exclusively with physicians. Our tax team of Tax Attorneys, CPAs, and Enrolled Agents provides proactive, year round tax planning, with prompt, dependable communication when physicians need answers. We help 1099 and independent physicians design, fund, and administer Defined Benefit and cash balance plans alongside the rest of their tax planning.

This material is intended for educational and informational purposes only and does not constitute tax, legal, accounting, or financial advice. The content is general in nature and may not apply to your specific circumstances. Tax laws and financial regulations are subject to change and interpretation, and the application of these laws can vary based on individual situations. Before making any decisions, you should consult with a qualified tax advisor, legal counsel, or financial professional.