Maximizing Wealth With Nonqualified Retirement Plans for Surgeons

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 can be structured with pre-tax* or after-tax dollars, meaning there can be an immediate tax deduction as found in traditional retirement accounts like IRAs and 401(k)s, or the tax deduction can be taken when retirement payments are made. In addition, 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 can be structured with pre or 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: 

1. True deferred compensation plans: Employees defer part of their current income, which is then invested and taxed upon withdrawal at retirement. 
2. Salary-continuation plans: The employer promises to pay a future benefit while not being required to fund the plan but commits to paying 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 and may restrict access to some of the policy values. 

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. This is the principle concept, but many other design structures can be used. As an example, restrict access to policy values upon early termination from the firm, including non-profits. 

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. 

*Please access https://treasury.gov for additional information related to nonqualified deferred  compensation plans and arrangements under section 409A of the Internal Revenue Code.