Solo Practice Retirement, Starting from Scratch

[Mednole]

I started a new practice a little over two years ago and would appreciate since advice on retirement plans.  I have three employees, plus me and my wife (non practitioner).  We both maxed out a SEP IRA this year, but next year will have to include my employees in any SEP IRA contributions.  Both me and my wife are 34, and all of our employees are younger than us.

Our w2 income has been around $250k each, with distributions of less than $200k total between us.  I don't expect much change in income up or down in the future.

If you were in my shoes and had no plan already established, what would you do?  401k plus cash balance account? If so, who works you use to set it up?  Any advice would be greatly appreciated.

 

 

[Hatton]

I did a sep/Ira because at the time it allowed me to put the largest amount away.  The problems are you cannot do a back door Roth because of prorata rules.  Also you must include all employees including part-timers after vesting.  The advantage is minimal administrative hassle and employees are responsible for their own accounts.

[litovskyassetmanagement]

Mednole wrote:

I started a new practice a little over two years ago and would appreciate since advice on retirement plans.  I have three employees, plus me and my wife (non practitioner).  We both maxed out a SEP IRA this year, but next year will have to include my employees in any SEP IRA contributions.  Both me and my wife are 34, and all of our employees are younger than us.

Our w2 income has been around $250k each, with distributions of less than $200k total between us.  I don’t expect much change in income up or down in the future.

If you were in my shoes and had no plan already established, what would you do?  401k plus cash balance account? If so, who works you use to set it up?  Any advice would be greatly appreciated.

 

 

Click to expand...

It sounds like you might benefit from a custom-designed 401k plan with $53k x 2 limit.  I do not think that a Cash Balance plan would work for you at this time given your age, but this is something that we can look at separately.  Ideally, you'd want to start this type of plan later on, at least when you are in your late thirties/early 40s.  Retirement plans are rather complex with lots of moving parts, but I think that there are many great solutions for a small practice like yours, specifically plans that have no asset-based fees and low cost Vanguard index funds, full fiduciary oversight and compliance by a competent TPA, all for a fixed/flat fee.

Here's some background information on small practice plans:

http://www.dentaltown.com/Dentaltown/Blogs.aspx?action=VIEWPOST&b=143&bp=3376

 

[jfoxcpacfp]

Mednole wrote:

I started a new practice a little over two years ago and would appreciate since advice on retirement plans.  I have three employees, plus me and my wife (non practitioner).  We both maxed out a SEP IRA this year, but next year will have to include my employees in any SEP IRA contributions.  Both me and my wife are 34, and all of our employees are younger than us.

Our w2 income has been around $250k each, with distributions of less than $200k total between us.  I don’t expect much change in income up or down in the future.

If you were in my shoes and had no plan already established, what would you do?  401k plus cash balance account? If so, who works you use to set it up?  Any advice would be greatly appreciated.

Click to expand...

Based on your comment about distributions and W2s, I do hope you have an S-corp rather than PSC.

If I were advising you, I would first want to learn your goals and more about your 5-year and long-term business plan. Tax minimization is a strategy employed to reach your goals rather than a goal (i.e. a means to an end, not the end). The type of retirement plan(s) you choose to employ may vary based upon your business plan. This is something that your CPA and financial advisor (preferably fee-only) can and should advise you about before you hire someone to set up a custom-designed plan that may or may not be appropriate for your long-term goals.

[litovskyassetmanagement]

jfoxcpacfp wrote:

Mednole wrote:

I started a new practice a little over two years ago and would appreciate since advice on retirement plans.  I have three employees, plus me and my wife (non practitioner).  We both maxed out a SEP IRA this year, but next year will have to include my employees in any SEP IRA contributions.  Both me and my wife are 34, and all of our employees are younger than us.

Our w2 income has been around $250k each, with distributions of less than $200k total between us.  I don’t expect much change in income up or down in the future.

If you were in my shoes and had no plan already established, what would you do?  401k plus cash balance account? If so, who works you use to set it up?  Any advice would be greatly appreciated.

Click to expand…

Based on your comment about distributions and W2s, I do hope you have an S-corp rather than PSC.

If I were advising you, I would first want to learn your goals and more about your 5-year and long-term business plan. Tax minimization is a strategy employed to reach your goals rather than a goal (i.e. a means to an end, not the end). The type of retirement plan(s) you choose to employ may vary based upon your business plan. This is something that your CPA and financial advisor (preferably fee-only) can and should advise you about before you hire someone to set up a custom-designed plan that may or may not be appropriate for your long-term goals.

Click to expand...

Prior to recommending a retirement plan, it is important to make sure that the plan is appropriate for the practice owners' specific personal and business needs.  So prior to deciding on which plan is best, a thorough financial overview is necessary, including cash flow, debt, salary structure, and cost-benefit analysis, etc., and only after this type of comprehensive overview should an appropriate plan be recommended.  We always provide this type of overview for all of our retirement plan clients at no charge because as fiduciaries we can't possibly recommend a plan that is not appropriate or too costly.  Our analysis also includes a design study to make sure that a specific retirement plan is appropriate given practice demographics and any potential future changes.  Plans like Cash Balance are even more complex, so one should not adopt such plans without a thorough analysis by a fiduciary working for the practice owner (not just some third party company which sells plans).

[Mednole]

Thank you all for the comments.

To address earlier questions:

1.  My company is formed as an LLC, taxed as an S- Corp.

2.  I suppose my long term goals are wealth accumulation.  All my debt (except house) is paid off.

 

In the internet era, I'd be willing to work with any firm in the U.S. that can offer the plan that I'm looking for.  They certainly don't have to be local.  Can anyone recommend a firm that will put together a  custom 401k at a reasonable price?

Thanks!

[litovskyassetmanagement]

Mednole wrote:

Thank you all for the comments.

To address earlier questions:

1.  My company is formed as an LLC, taxed as an S- Corp.

2.  I suppose my long term goals are wealth accumulation.  All my debt (except house) is paid off.

 

In the internet era, I’d be willing to work with any firm in the U.S. that can offer the plan that I’m looking for.  They certainly don’t have to be local.  Can anyone recommend a firm that will put together a  custom 401k at a reasonable price?

Thanks!

Click to expand...

Sure, we can put together a proposal for you.  My firm provides 401k and Cash Balance plan services to doctors and dentists.  I work with some of the best TPAs, record-keepers and actuaries available. We don't sell plans or platforms, and we always act in a fiduciary capacity. Please feel free to pm me.