Have you found that traditional retirement savings options need to meet your goals for growing your wealth? You’re not alone. Many surgeons face this issue, as standard retirement plans often fail to address the unique financial demands of professionals with higher incomes.
This is where nonqualified retirement plans come into play and may offer a solution to enhance your wealth management strategy.
At Surgeons Capital Management, our team of professionals has over 200 years of combined experience in wealth management for surgeons across the United States. We dedicate our extensive knowledge to exclusively serving surgeons, their families, and surgical practices.
In this article, we’ll discuss the benefits of nonqualified retirement plans, the different types, and how they could be positioned to maximize your wealth and retirement planning strategy.
What Is a Nonqualified Retirement Plan?
Nonqualified plans provide an alternative retirement savings option for high-earning individuals, such as surgeons. Unlike qualified retirement plans, governed by the Employee Retirement Income Security Act (ERISA), nonqualified plans are exempt from these regulations. This lack of ERISA oversight means nonqualified plans are not subject to the nondiscrimination and top-heavy testing that apply to qualified plans, offering greater adaptability in their structure and benefits. This flexibility can be particularly beneficial for high earners like yourself who need tailored financial solutions.
Contributions to nonqualified plans are made with after-tax dollars, meaning there is no immediate tax deduction as found in traditional retirement accounts like IRAs and 401(k)s. However, these plans often allow for greater flexibility regarding contribution limits and offer more control over when and how funds are accessed, contrasting with the stricter regulations and lower contribution limits associated with qualified plans.
Benefits of Nonqualified Retirement Plans for Surgeons
For surgeons, nonqualified plans can be particularly attractive for several reasons:
- Increased contribution limits: With qualified retirement plans, you may be constrained by contribution limitations. Nonqualified plans often allow for significantly larger contributions, potentially accelerating wealth accumulation.
- Tax-deferred growth: While contributions are made with after-tax dollars, earnings within the plan typically grow tax-deferred. This means you can benefit from the power of compound interest and investing in the financial markets, all while postponing immediate tax burdens.
- Strategic tax planning: By allowing the deferral of taxes on investment earnings and having the flexibility to delay withdrawals until retirement, you might reduce your tax liability during your highest earning years. This is especially advantageous when you’re in a higher tax bracket.
Types of Nonqualified Plans Relevant to Surgeons
Let’s explore four main types of nonqualified retirement plans.
Deferred Compensation Plans
Deferred compensation plans are a type of nonqualified plan designed to provide supplemental retirement income to high-earning employees. These plans allow you to defer a portion of your income—often from bonuses—until retirement. The deferred income grows tax-deferred, potentially reducing your tax liability.
There are two primary forms of these plans:
- True deferred compensation plans: Employees defer part of their current income, which is then invested and taxed upon withdrawal at retirement.
- Salary-continuation plans: The employer funds the plan, committing to pay out future retirement benefits to the employee. Like true deferred compensation plans, these are also taxed at the time of withdrawal.
Both types serve as strategic tools if you have already maximized contributions to qualified retirement plans, offering an alternative means of increasing retirement savings without immediate tax implications.
Executive Bonus Plan
This plan is straightforward: a company grants an employee a life insurance policy as a bonus, with premiums paid by the employer. These premium payments are deductible for the employer and taxable to the employee as compensation. In some cases, employers may also cover the taxes associated with this bonus.
Split-Dollar Plan
This plan involves shared ownership of a permanent life insurance policy between an employer and a key employee. The employee is typically responsible for the mortality costs, while the employer pays the remainder of the premium. Upon the employee’s death, the beneficiaries receive the majority of the death benefit, and the employer recoups its contributed premiums.
Group Carve-Out
This plan substitutes a key employee’s group life insurance coverage exceeding $50,000 with an individual policy, avoiding imputed income tax on the excess coverage. The employer reallocates the funds it would have spent on the excess group policy to pay for the individual policy solely owned by the employee.
These nonqualified plans provide you with various opportunities to maximize your retirement savings. They offer flexibility and tax advantages that can be beneficial for supplementing your retirement beyond the limits of qualified retirement plans.
How SCM Can Optimize Your Nonqualified Plan
At Surgeons Capital Management (SCM), we understand that every surgeon’s financial situation is unique. We take a personalized approach, carefully considering your tax situation, risk tolerance, and long-term goals. We can assist you in:
Evaluating your eligibility: We can determine if your practice offers nonqualified plans and help you understand their specific terms and benefits, including any available life insurance components that can be a strategic tool for wealth accumulation and estate planning.
Selecting the most suitable plan: Our in-depth knowledge of these plans allows us to recommend the option that best aligns with your financial objectives, risk preferences, and overall investment strategy.
Optimizing contributions: We can help you develop a contribution strategy that has the potential to maximize your wealth accumulation while considering your current and future income needs.
If you are an owner of an Ambulatory Surgery Center(s) or ASC’s: We specialize in designing programs that help you recruit, retain, and reward talented surgeons, including equity partners. Our team of financial advisors will tailor strategies designed to ensure your ASC attracts and keeps top-tier surgical talent, fostering long-term success and growth for your center.
Why Surgeons Capital Management
While nonqualified plans offer significant benefits, navigating the intricacies of these options can be time-consuming and complex. Understanding the various plan structures, tax implications, and alignment with your financial goals requires careful consideration. This is where working with a financial advisor who is experienced in working with surgeons becomes invaluable.
Surgeons Capital Management has a team of leading financial advisors for surgeons in the United States. We are dedicated to maximizing opportunities to help you increase your wealth. Our capabilities extend nationwide, and we proudly service surgeons throughout the United States.
Our financial advisors possess the experience to:
- Develop a comprehensive financial plan: We look beyond retirement planning to create a holistic strategy encompassing your current and future financial needs, including debt management, investment, and estate planning strategies.
- Integrate nonqualified plans with other strategies: We aim to make your nonqualified plan work seamlessly with your existing qualified retirement plans and other wealth-building strategies.
- Provide ongoing guidance: As your financial circumstances evolve, we remain by your side, offering ongoing monitoring and adjustments to your plan as needed.
We invite you to schedule a complimentary consultation with one of our financial advisors. During this personalized meeting, we can discuss your specific needs, explore the suitability of nonqualified plans, and answer any questions you may have.
Contact Surgeons Capital Management today for specialized wealth management services tailored for surgeons.
The subject matter discussed in this article is for informational purposes only. It is not intended and should not be relied upon as investment or financial advice and does not constitute an offer, recommendation, or solicitation.
Please be advised that this document is not intended as legal or tax advice. Accordingly, any tax information provided in this document is not intended or written to be used, and cannot be used, by any taxpayer for the purpose of avoiding penalties that may be imposed on the taxpayer. The tax information was written to support the promotion or marketing of the transaction(s) or matter(s)addressed and you should seek advice based on your particular circumstances from an independent tax advisor.
Duly-registered and duly-licensed financial professionals with Surgeons Capital Management offer securities through Equitable Advisors,LLC (NY, NY 212-314-4600), member FINRA/SIPC (Equitable Financial Advisors in MI & TN), offer investment advisory products and services through Equitable Advisors, LLC, an SEC registered investment advisor, and offer annuity and insurance products through Equitable Network, LLC (Equitable Network Insurance Agency of California, LLC, Equitable Network Insurance Agency of Utah, LLC, Equitable Network of Puerto Rico, Inc.). Equitable Advisors and Equitable Network are affiliates and do not provide tax or legal advice or services. Please contact your personal tax and/or legal advisors regarding your specific situation prior to implementing any specific strategies. Surgeons Capital Management is not a registered investment advisor and is not owned or operated by Equitable Advisors or Equitable Network. PPG-6651956.1 (6/24) (Exp. 3/27)
![Surgeons Capital Management](https://www.scm-advisors.com/wp-content/uploads/2023/03/Surgeons-logo.jpg)