Published by AE Tax Advisors Team • 2026-06-04

$2M Earner Shelters $185,000 Using Defined Benefit Pension Plan

The Client

Dr. Laura Kinsey, a 52-year-old dermatologist and practice owner in Bethesda, Maryland, generated $2.1 million in annual practice revenue with $850,000 in net income after staff and overhead. She had three employees. Her federal tax bill exceeded $280,000 per year.

The Problem

Dr. Kinsey was maxing out her 401(k) at $23,000 per year (plus $7,500 catch-up) and had no other tax-sheltered savings vehicles. With $850,000 in pass-through income, she was in the 37% bracket and needed a significantly larger deduction to meaningfully impact her tax burden.

Our Strategy

We established a defined benefit pension plan alongside the existing 401(k). The defined benefit plan allowed annual contributions of $155,000 based on Dr. Kinsey's age, income, and target retirement benefit (older owners can contribute more because the benefit must be funded over fewer years). Combined with the 401(k) ($30,500) and a profit-sharing layer covering employees, total tax-deductible retirement contributions reached $185,000 per year.

The Results

The $185,000 in deductible contributions reduced Dr. Kinsey's taxable income from $850,000 to $665,000, saving approximately $68,000 per year in federal taxes. Over a 10-year period before retirement, the plan will shelter $1.85 million from current taxation while building a substantial retirement fund.

Key Takeaway

Defined benefit pension plans allow business owners aged 45+ to contribute $100,000-$250,000+ per year in tax-deductible retirement savings -- far exceeding 401(k) limits. They are especially powerful for high-income professionals with small staffs.