How to meet two common wealth-planning goals using the same ‘medicine'

By David B. Mandell, JD, MBA, April 1, 2026

In working with physicians all over the country for 30 years as an attorney and wealth manager, I am confident in my impressions of what wealth-planning goals are common among all types of doctors — including dermatologists. Two such goals are to shield assets from liability and to reduce taxes.

Often, a dermatologist will have to use a tool that achieves one goal but does not impact the other (e.g., a limited liability company may protect assets from liability but will not reduce taxes on income). There are, however, two ‘medicines’ each at the practice and personal planning level that can achieve both goals — helping to reduce taxes while also protecting against liability. This article briefly describes these four tools.

Practice planning: Qualified retirement plans

Of the four tools I will describe, this is one of two that are likely being used by a significant number of dermatologists reading this article. Qualified retirement plans (QRPs) include both defined contribution plans, like 401(k)s or 403(b)s, as well as defined benefit plans.

From a tax point of view, these tools all provide a current tax deduction against a physician’s income, so they are extremely attractive for tax planning. In fact, these tax deductions can range anywhere from the $20,000 range for 401(k)s to $200,000 or more for certain types of defined benefit plans.

In terms of asset protection, these plans often have the highest level of creditor protection under state law. Of course, in all 50 states, there is a variation — and some states provide the highest level of protection only for a limited dollar amount. Nonetheless, for most states, this protection is at an unlimited dollar level. Be sure to check with an asset protection expert on the protections in your state.

Individual Retirement Accounts (IRAs) are technically not QRPs, although they act like them in many financial and tax respects. A Simplified Employee Pension–IRA can provide the same tax deduction level as certain QRPs, while a Roth IRA has a different tax treatment, but is also beneficial. A Roth acts more like a non-qualified plan in that there is no deduction for contributions, but the assets grow tax-free and come out tax-free. From an asset protection perspective, in many states, IRAs enjoy the same protections as QRPs, but in certain states they are weaker. Be sure to check with an asset protection expert on IRA protections in your state.

Practice planning: Non-qualified plans

Non-qualified plans are used by physicians much less frequently than QRPs, and this is generally unfortunate. For tax purposes, non-qualified plans work like Roth IRAs: You get no deduction for the contribution, but the funds grow tax-free in the plan and can come out tax-free at retirement. In fact, most physicians, when asked, would like to put more into a Roth IRA-type vehicle yet they are ignoring the tool that could achieve this objective, namely, the non-qualified plan.

Non-qualified plans often fund into a permanent life insurance vehicle. Thus, the level of asset protection is dictated by state rules regarding permanent (also called cash value) life insurance policies — see further below.

The other benefit of a non-qualified plan is that it is flexible. Unlike a QRP, the non-qualified plan does not need to be offered to any employees. It can be completely discriminatory. In this way, a practice can sponsor a non-qualified plan just for the dermatologists, just for partners, or just for a few doctors who want to participate.

Personal planning: The primary home

As with the QRP, it is likely that most readers own a primary home or will in the future. Regarding asset protection, nearly every state protects some or all of a home’s equity from lawsuits and creditor claims. As above, state laws do vary significantly here — ranging from no protection to protection of an unlimited amount of home equity. Be sure to check with an asset protection expert to understand how your state’s homestead law protects home equity.

The tax benefits of home ownership are consistent in all states and include the ability to write off mortgage interest (with limitations), as well as a $500,000 capital gain exclusion for a married couple on the sale of a home ($250,000 for single filers). In addition, local property taxes on a primary home can be deductible against your federal income tax, although that deduction has become more limited in recent years.

Personal planning: Permanent life insurance

As mentioned above, cash value, or permanent life insurance is shielded from creditors under state law. Once again, these exemptions vary significantly throughout the 50 states.

From a tax point of view, the benefits are also consistent throughout the U.S. since they emanate from the federal tax code. These include the ability for the cash value inside of such policies to grow tax-free, and, if managed properly, to be accessed tax-free. Death benefits paid to beneficiaries are also generally income tax-free under Section 101 of the code.

Further, the Internal Revenue Service allows for the tax-free exchange of these types of policies, using a like-kind exchange. You may have read about such tax-free exchanges when it comes to real estate, but life insurance is another asset class favored with this tax benefit. Using this technique can be beneficial, as one could move cash value from one policy to another over time with no taxation. This might be attractive if costs come down, new policies are more attractive or new features of competing policies are more aligned with your planning. As just one example, I have like-kind exchanged my cash value policies three times in the last 23 years, moving from what I perceived as good policies to great policies and reducing costs along the way.

Conclusion

If you are interested in both shielding assets from future liability and reducing taxes, these four tools are possible financial ‘medicines’ to seriously consider in your planning.

The information in this communication was prepared for educational purposes only and is not a solicitation to buy or sell any security or insurance product, nor an offer to provide investment advice. All examples are for illustrative purposes only and may not be relied upon for investment decisions. It should not be assumed that recommendations made in the future will be profitable or will equal the performance of the investment recommendations contained in this communication; nor should any past recommendation be taken as personalized investment advice. Nothing contained herein should be construed as legal or tax advice and is not intended to replace the advice of a qualified tax advisor or legal professional. The information presented may have been compiled from third-party sources we believe to be reliable but cannot guarantee its accuracy or completeness.

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