Locum Physician Case Study: $101,850 Saved Annually
A 39-year-old 1099 orthopedic surgeon with no retirement plan deducted $203,700 through a 401(k) profit-sharing and cash balance combination, deferring a reported $101,850 a year in federal and state income tax.
- Published
- Updated
- Entity
- Sole proprietor
Tax deferred per year
$101,850
Reported; about 50% combined bracket
- Deducted
- $203,700
- Deferral, profit sharing and cash balance
- vs. SEP-IRA maximum
- +291%
- Annual retirement funding, as reported
Annual contributions, $203,700
- 401(k) salary deferral$23,000
- Profit sharing$20,700
- Cash balance contribution$160,000
Next step
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At a glance
Figures are the ones reported for this engagement. Where the engagement did not state something, the row says so rather than estimating it.
| Owner age | 39 |
|---|---|
| Income | Not disclosed |
| Entity | Sole proprietor (1099 locum tenens contractor) |
| Staff | None |
| Plan design | 401(k) with profit sharing plus a cash balance pension plan |
| Employee cost | $0 (no employees) |
| Owner contribution | $203,700 ($23,000 salary deferral, $20,700 profit sharing, $160,000 cash balance) |
| Estimated deduction | $203,700, taken on Form 1040 Schedule 1, Part II, line 16 |
| Reported tax deferred | $101,850 a year in federal and state income tax |
| Tax-rate assumption | About 50% combined federal and state marginal rate, as reported by the client |
Challenge
Emily, a 39-year-old orthopedic surgeon working locum tenens assignments as a 1099 contractor, had income that spiked and dipped from month to month, which made quarterly estimated taxes a recurring headache.
She reported a combined federal and state marginal bracket of roughly 50% and had no formal retirement vehicle in place, so every dollar of profit was taxed at that rate.
Solution
We paired a 401(k) profit-sharing plan with a cash balance pension plan, both sponsored by her sole proprietorship.
For the year she made a $23,000 salary deferral, a $20,700 profit-sharing contribution, and a $160,000 cash balance contribution, a total of $203,700.
As a self-employed owner she took every deduction on Form 1040 Schedule 1, Part II, line 16 (self-employed SEP, SIMPLE, and qualified plans).
SEP-IRA maximum vs. the combined plan
- SEP-IRA maximum for the year: SEP-IRAbaseline (1.00x)
- 401(k) profit sharing + cash balance: Combined plan$203,700 (3.91x)
Next step
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Outcome
Contributing $203,700 to the combined plan deferred a reported $101,850 in federal and state income tax for the year, based on her 50% combined bracket.
The plan also let her hold a whole life insurance policy inside the pension plan and fund the premiums with deductible plan contributions, so her family is insured if she dies prematurely. Any death-benefit guarantee rests on the issuing carrier's claims-paying ability.
Relative to the maximum she could have contributed to a SEP-IRA that year, her annual retirement funding rose by 291%.
“I never realized how easy it could be. Tax season is no longer a stress point.”
Case studies are illustrative, based on real client engagements with names and identifying details changed. Results depend on age, income, entity type, employee demographics, plan design, and federal and state tax rates, and are not a guarantee or projection of your outcome. This content is educational and is not individualized tax, legal, or investment advice — consult a qualified professional before acting.
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