Locum Tenens: How to Cut Your Tax Bill for 2018

Many locum tenens physicians earning high income from self-employment are eligible to make very large annual, tax-deductible contributions to an IRS-approved qualified retirement plan called a defined benefit plan.  It may sound boring—but it’s not!

A Powerful Tax Cutting Plan

In many cases, locums can contribute $100,000 or more to a defined benefit plan annually—and thereby save $35,000+ in taxes every year while rapidly building a substantial retirement nest egg.

Or, said another way, doctors who are eligible for a defined benefit plan but do not move to establish one before the December 31 deadline may needlessly be paying tens of thousands of dollars more in 2018 taxes than they need to.

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

That Seems Too Good to be True...

When we start going into the details of defined benefit (DB) plans with people who are good candidates for them (individuals who have high income from self-employment), we often run into some skepticism.  How, they ask, can it possibly be legal to make a $100,000+ tax-deductible contribution to a retirement plan and thereby save $35,000 or more in taxes annually?

... But Isn't

Well, it is possible and it is legal, and locum tenens with high income from self-employment would be wise to familiarize themselves with the powerful tax advantages that DB plans offer.

Defined benefit plans are not touted in the financial press nearly as often as other retirement plans such as SEP-IRAs or 401(k)s.  Perhaps the reason DB plans get so little publicity is because they are not suitable for 98% of the population.  For financial columnists it is far easier to generate interest from an article about 401(k)s, which are relevant to many more people. Why write on a topic as esoteric and specialized as a defined benefit plan?

Defined benefit plans have been around for decades, however, and are IRS-approved.  In many ways, DB plans are like Individual (Solo) 401(k) plans on steroids.  They are perhaps the most powerful financial tool for high-earning self-employed individuals looking to both save on taxes and to rapidly build a large retirement nest egg.  If you are self-employed and face a large tax bill each year, we recommend that you find out if you are one of the lucky 2% of the population that can take advantage of a DB plan.

There are a couple of things about DB plans you should know at the outset.  First, because each DB plan is created specifically for a certain person’s circumstances, it costs money to set up and to administer.  Also, DB plans are a bit more of a financial commitment than 401(k)s or SEP-IRAs, both of which do not require annual contributions.  These characteristics of DB plans, however, pale in comparison to the significant tax savings they can enable.

Can You Use This Savings Tool?

Is a defined benefit plan right for you?  We only need a few pieces of information about your situation to generate a complimentary tax-savings proposal for you.  There is no cost to you for this service and no obligation whatsoever.  If you do find that a DB plan works for your situation, you should start planning now if you want to save on your 2018 tax bill.  Plans must be established by December 31 of the year for which contributions are made.  However, it takes time to create the plan documents, and pension administrators are incredibly busy in the last couple of months of the year.  Thus, it is best to begin the process of establishing your plan no later than September 1st.

If you provide us with just the few pieces of information listed below, we will get back to you in 48 hours with a preliminary proposal that will outline how much in tax you could save each year by establishing and contributing to a defined benefit plan. 

  • Business Entity Type (e.g. S-Corp, sole prop., LLC)
  • Owner’s Annual Income (approximate)
  • Date Business Started
  • Owner’s Age
  • Number of Employees

You can use our Tax Savings Analysis Tool to enter your information online: 

Calculate My Tax Savings

Or you can call Peter directly at - 619-435-1701 - or email: thoms@orioncapitalmgmt.com

Visit us at www.LocumTenensTaxStrategy.com to learn more.


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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.