In a 2023 PwC survey, 57% of respondents named finances their top stressor. With looming law school debt, varying caseloads, office overhead, and retirement planning considerations, many attorneys would undoubtedly agree. Deferring your attorney fees is a financially savvy strategy for stabilizing your income, mitigating taxes, and reducing financial stress.
First: Attorney Fee Deferral Options
When selecting a financial vehicle for your deferred fees, you will choose between a fixed annuity or a market-based structured settlement. Fixed annuities have a locked-in interest rate, creating a buffer against market volatility. Market-based structured settlements allow for additional growth potential and can be managed by your financial advisor. If desired, you can also combine the two options.
An Attorney Fee Deferral Can Create a Steady Stream of Income for You or Your Law Firm
The legal business can be inconsistent. Business flow and annual income can be unpredictable (as we saw during the COVID-19 pandemic). Managing annual expenses is equally challenging when office overhead fluctuates.
An attorney fee deferral can be paid to an individual attorney or split into separate streams of payments for multiple attorneys or the law firm. Fixed annuities offer guaranteed payments1 over a set period, establishing a financial safety net for you and your firm.
Grow Your Money Pre-Tax and Minimize Your Tax Liability
Both options allow you to invest your attorney’s fees pre-tax. Market-based structured settlements utilize a portfolio that suits your risk tolerance. Attorneys with more financial flexibility can choose a long-term growth mix of stocks and bonds. Short-term conservative and balanced options are also available. Market-based structured settlements offer a “laddering” strategy by paying out fees at pre-set intervals. This approach allows you to take advantage of potentially higher returns and spread risk over time.
With an inconsistent income, tax planning can be a challenge. In addition to providing a regular source of income, an attorney fee deferral can potentially lower your annual tax liability. Rather than pay taxes up front, you invest your pre-tax fees and only pay income tax on the payments received within a given year. Ultimately, you may be able to keep more money in your pocket.
Supplement Retirement
Unlike traditional retirement vehicles such as 401(k) plans, IRAs, and SEP-IRAs, attorney fee deferrals do not have a maximum contribution. Additionally, payments can be scheduled to begin pre-retirement. Your financial advisor can manage attorney fee deferrals as part of your overall portfolio.
Contact Us Before Settlement
As an attorney, you have enough on your plate. Let us help you create your plan for financial security. Contact your Sage consultant to review your options today.
1Guarantees are subject to the claims-paying abilities of the issuing insurance company.