Small Business Retirement Plans - 3-part series

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Tom wrote:

Thanks for posting this, Johanna.  My wife just set up her dental practice and has two employees.  I am wondering if you can help me determine if she can contribute to a SIMPLE IRA.  The sticking point is I am not sure we have earned income.  She is set up as a LLC and makes enough to make “draws” to cover living expenses.  However, because of various deductions from a newly established practice, the LLC will show a loss for the year.  Because of this, does that mean she doesn’t have earned income and therefore cannot contribute the $12500 to the IRA?  Or, does she have earned income because she is making draws from the business for living expense.  Thanks in advance.

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The withdrawals do not count as expenses, therefore, it sounds as if she might have enough income to contribute to a SIMPLE IRA. I'm glad you liked the articles.

[Tom]

Thanks for posting this, Johanna.  My wife just set up her dental practice and has two employees.  I am wondering if you can help me determine if she can contribute to a SIMPLE IRA.  The sticking point is I am not sure we have earned income.  She is set up as a LLC and makes enough to make "draws" to cover living expenses.  However, because of various deductions from a newly established practice, the LLC will show a loss for the year.  Because of this, does that mean she doesn't have earned income and therefore cannot contribute the $12500 to the IRA?  Or, does she have earned income because she is making draws from the business for living expense.  Thanks in advance.

[jfoxcpacfp]

The 401k will be less expensive when you have more employees who qualify because you won't be responsible for 100% of funding for employees - 25% of pay is a pretty big kill. As for total costs, no way to give an estimate, so many variable factors. Of course, one cost you'll have with a 401k that you won't have with a SEP is compliance - annual calculations, employee reports and government reporting.

[triad]

All costs associated with a 401k.  including contributions for employees when the owner maxes out, AUM fees, record keeping, and anything else I'm forgetting.  I do a SEP now for my small office (5 employees + me) and love the transparent costs (25% of eligible employee salary - right now that is just one employee) and no other fees.  Eventually I'll have to do a 401k when more of my employees become eligible for the SEP and I want to do backdoor roths as well but can't do it with a large SEP account.

[jfoxcpacfp]

triad wrote:

what are the average fees of a 401k?

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Are you asking what the average fees are to manage a 401k?

[triad]

what are the average fees of a 401k?

[jfoxcpacfp]

I just finished uploading the 3rd of a 3-day series of blog posts discussing the 3 most common small-business retirement plans used by doctors - both full-time and for moonlighting income. The purpose of articles is to summarize the highlights of each plan and to give you a simple checklist of when a particular plan is appropriate for you. Depending upon where you are in your career and the timing, more than 1 plan can be implemented to get the most "bang for the buck".

If you are interested, I recommend you start with:

• Part 1: What is a SIMPLE IRA and when should I use one? next


• Part 2: What is a SEP IRA and when should I use one? then


• Part 3: What is a 401k and when should I use one?

If you have any questions, I'll be happy to answer them.