What is Deferred Compensation?
Deferred compensation refers to a portion of an employee’s earnings that is set aside to be paid at a later date, typically after retirement.
This can include retirement plans, pensions, or other arrangements where income taxes on the deferred amount are delayed until the physician receives the funds.
For physicians, deferred compensation can be an effective tax-planning strategy.
Given the typically high earnings of medical professionals, deferring a portion of income can reduce taxable income in peak earning years and shift taxation to retirement, when physicians may be in a lower tax bracket.
Additionally, employer-sponsored deferred compensation plans may provide investment growth opportunities and long-term financial security.
Types of Deferred Compensation Plans
Deferred compensation plans come in two types: qualified and non-qualified.
Qualified plans (like 401(k)s) follow strict IRS rules, including limits on how much you can contribute, but they offer strong tax advantages.
Non-qualified plans (like SERPs) are more flexible, allowing higher contributions, but they come with risks—such as relying on your employer’s financial stability.
Physicians in private practice can also create their own deferred compensation plans, such as defined benefit or cash balance plans, to build retirement savings.
Example in Practice
Dr. Smith, a hospital-employed cardiologist, opts into a non-qualified deferred compensation (NQDC) plan offered by her employer.
She defers $50,000 annually, reducing her taxable income and allowing the funds to grow tax-deferred.
When she retires at age 65, she receives structured payouts from the plan, spreading the tax liability over multiple years while supplementing her retirement income.
How We Help With Deferred Compensation Plans
Physicians Thrive helps doctors navigate deferred compensation plans by offering expert guidance on tax strategies, contribution limits, and investment options.
Whether choosing between qualified and non-qualified plans or setting up private retirement savings, we ensure physicians maximize benefits while minimizing risks, securing their long-term financial future with confidence.
Reach out today and let one of our advisors explain everything you need to know about these types of plans.
