Locum Tenens: What is Your Best Tax Cutting Tool?

Because a locum tenens physician typically has high income from self-employment and few available tax deductions, he or she often pays a lot in tax. However, locums are also in a great position to cut their tax bills significantly while rapidly building large retirement nest eggs.

The best and easiest way for locums to reduce their tax bills is to make large, annual tax-deductible contributions to the most advantageous retirement plan for their particular circumstances.

Best Retirement and Tax Cutting Tools

Photo credit: 401(K) 2013 via Foter.com / CC BY-SA

In this post, we compare the two most useful plans for locum tenens: the Individual 401(k) and the defined benefit plan. (The SEP-IRA is also a potential solution, but the Individual 401(k) usually comes out on top in a head-to-head contest.)

Each of the two plans we are examining has pros and cons. For self-employed physicians making $100,000 or less annually, an Individual 401(k) may make more sense. For those making more than $100,000, the defined benefit plan is often the more powerful choice. However, it is always a good idea to run the numbers for both options.

Individual 401(k)

Owners of an Individual 401(k) make two types of contributions, a salary deferral and a profit sharing contribution. For 2016, the total contribution limit is $53,000 plus a $6,000 catch-up contribution for those 50 or older.


  • Easy to set up
  • Usually inexpensive to maintain
  • Can provide additional layer of legal protection for assets


  • Contribution limit of $53,000 is low relative to defined benefit plan
  • Moderate record keeping required


Defined Benefit Plan

While the defined benefit plan does not work for everyone, for those that it does it is the gold standard of retirement plans. Annual tax-deductible contributions of $100,000 or $150,000 or more are possible, depending on a plan owner’s age, income, and years until retirement. Contributions like these can cut tens of thousands of dollars from a plan owner’s tax bill each year.


  • By far the largest contribution potential of any retirement plan ($100,000+)
  • Can be combined with an Individual 401(k) to offer still more contribution potential and flexibility
  • Can provide additional layer of legal protection for assets


  • Costs are higher than with a 401(k), as a defined benefit plan document must be created and there are annual administration requirements and IRS filings to be done for the plan. The tax savings from these plans, however, usually far outweigh the costs.

Bottom Line: Taxes are usually the single biggest drain on a self-employed doctor’s wealth. It is essential to protect as much income from current-year taxes as possible. Both the Individual 401(k) and the defined benefit plan can play a role in saving on taxes and quickly building a large retirement nest egg.

At Locum Tenens Tax Strategy, we specialize in constructing customized retirement plan solutions designed to maximize a physician’s tax savings while rapidly building his/her retirement next egg.

Deadline Approaching!

To save on 2016 taxes, plans must be established by December 31, 2016. We would be pleased to generate a complimentary retirement plan proposal for you. Use our Tax Savings Analysis Tool or contact us directly at: thoms@orioncapitalmgmt.com or 619-435-1701



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Peter C. Thoms, CFA

About the author

Peter Thoms founded Orion Capital Management LLC in April 2002. Peter has an extensive background in crafting investment solutions for high-income clients in a wide variety of circumstances. He has a passion for helping clients to protect their hard-earned income and does do by structuring customized retirement and investment strategies to minimize clients' tax burden while accelerating their retirement savings.