For physician asset protection, leverage qualified retirement plans

Medicine is a profession fraught with legal risk. According to an AMA survey for the period 2007-2008, for every 100 doctors, there were 95 lawsuits.

The survey also reveals that physicians 55 years and older are eight times more likely to get sued than physicians 40 years and younger.

Not that they make eight times more medical errors, just that they are richer lawsuit bait.

That reminds me of a joke. Why won’t a shark attack a lawyer? Professional courtesy.

Back to the topic at hand, many physicians in solo or small practice simply use a SEP IRA as their retirement plan. It is very simple to set up, and the contribution limit is a generous 25% of earned income or an annual limit of $49,000. What is there not to like about it?

Well, from an asset protection perspective, they are not as ironclad as retirement plans qualified under the Employee Retirement Income Security Act (ERISA).

ERISA applies to all employer-sponsored plans, including 401(k) plans, 403(b) plans, profit sharing plans, defined benefit plans, etc. ERISA states that the employee benefits under qualified plans “may not be assigned or alienated.” This puts assets in these plans out of reach of claimants and creditors.

IRAs, including SEP and SIMPLE, are not covered by ERISA; they do not enjoy blanket federal protection. They are protected by state laws which vary greatly. Therefore, for asset protection purpose, physicians should put their retirement assets in ERISA-qualified plans as much as possible.

Unlike IRAs, setting up a qualified plan is not as easy as walking into a brokerage. There is much paperwork involved, and physicians should only do it themselves when their patients can treat their own disease.

Many insurance companies exploit this by pushing pre-packaged qualified plans that have high hidden expenses and limited investment options. Avoid them. Instead, look for an independent fiduciary plan administrator.

Michael Zhuang is founder of MZ Capital, an independent wealth management practice specializing in helping physicians achieve financial freedom.


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