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Retirement Accounts for Dentists Starting Out

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  • Retirement Accounts for Dentists Starting Out

    I am a dental specialist just finishing my first year of private practice (single, 30 years old). For dentists, it is highly unlikely for us to ever have a 401k offering from any work, being as though most people, especially in my specialty, work in small private practice settings vs large corps or hospitals. So from what I know, that limits us to basically IRAs, taxable accounts, and maybe solo-401ks until if and when we have our own practices with employees. I'd like this thread to be a conversation place for young dentists (general dentists and specialists) starting out.

    My situation: I plan on making a full contribution to my Roth IRA this year but would like to invest another 5-10k for retirement after looking at my budget for other short term goals and handling student debt. I do not have a company 401k from my main job but I do have some 1099 income (maybe about 4-6k in profits this year, can be conservatively 20-30k next year). I have not yet formed a LLC but may in the future. I was thinking about opening a solo-401k and then a taxable account after to meet my goal for this year. Next year I will most likely not be able to contribute directly to the Roth IRA and may need space for conversions, so I didn't look too hard into SEP or SIMPLE IRAs. I'm not sure how long I'll keep the 1099 income up or if I'll buy in where I'm working or if I'll just have my own practice and start to have employees. I like where I work now and am gaining a lot of good experience, so I plan on making a decision in a year or two. What happens if I stop the 1099 income or start to have employees? Would I ever need to pay myself through a W2 if I start the solo-401k to show employer vs employee contributions?  What happens if I decide to become a LLC for my 1099 work after opening the solo-401k? Should I wait on the solo-401k and just use a taxable account until I'm more certain? Any other thoughts?  Thanks!

  • #2
    I like the way you are thinking and you seem to have a good grasp of the issues. I need a bit of clarification on your questions.


    may need space for conversions
    Click to expand...


    What does this mean? You may need to move to backdoor Roth conversions?


    What happens if I stop the 1099 income or start to have employees?
    Click to expand...


    In what context? Can you still have a SOLO-k if you start your own business? A: Not when you begin to have eligible employees.


    Would I ever need to pay myself through a W2 if I start the solo-401k to show employer vs employee contributions?
    Click to expand...


    Not necessarily. You can have a SMLLC or sole proprietorship and calculate the contribution allowable based upon net profits.


    What happens if I decide to become a LLC for my 1099 work after opening the solo-401k?
    Click to expand...


    You just contribute through the LLC.


    Should I wait on the solo-401k and just use a taxable account until I’m more certain? Any other thoughts?
    Click to expand...


    It depends upon your financial plan, your other resources, and your short- and long-term goals. Financial planning would benefit you and/or a deep discussion about these issues with your CPA.
    Working to protect good doctors from bad advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

    Comment


    • #3





      may need space for conversions
      Click to expand…


      What does this mean? You may need to move to backdoor Roth conversions?




      Yes - for backdoor conversions





       


      What happens if I stop the 1099 income or start to have employees? 
      Click to expand…


      In what context? Can you still have a SOLO-k if you start your own business? A: Not when you begin to have eligible employees.




      If I choose to go full W2 or get employees, which in either situation I am not a sole proprietor w/o employees - do I have to get rid of the solo 401k completely or can I just let it sit without further contributions? Follow up: am I forced to make an employee 401k plan if the solo-401k exists even without making further contributions?






      What happens if I decide to become a LLC for my 1099 work after opening the solo-401k?
      Click to expand…


      You just contribute through the LLC.




      So is it essentially a paperwork change for the same solo-401k account? For example, name it "Dr Wigglytooth's solo-401k" to "Dr Wigglytooth, LLC's solo-401k" and all of the balances, funds, etc are the same?




      Thanks for your insights on these questions! I am in the process of interviewing CPAs and am trying to get some handle on my options before I go all in.


       

      Comment


      • #4




        If I choose to go full W2 or get employees, which in either situation I am not a sole proprietor w/o employees – do I have to get rid of the solo 401k completely or can I just let it sit without further contributions? Follow up: am I forced to make an employee 401k plan if the solo-401k exists even without making further contributions?
        Click to expand...


        You would either:

        • "Freeze" your SOLO-k. No more contributions, but you would retain control over the account. OR

        • Amend your plan document or start a new 401k.






        So is it essentially a paperwork change for the same solo-401k account? For example, name it “Dr Wigglytooth’s solo-401k” to “Dr Wigglytooth, LLC’s solo-401k” and all of the balances, funds, etc are the same?
        Click to expand...


        Yes, you would need to ask your custodian what the process is. Your account would remain intact, i.e. you would not have to liquidate your funds.

        Good luck on your CPA search. I have an article on finding a good CPA coming out in October.
        Working to protect good doctors from bad advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

        Comment


        • #5




          I am a dental specialist just finishing my first year of private practice (single, 30 years old). For dentists, it is highly unlikely for us to ever have a 401k offering from any work, being as though most people, especially in my specialty, work in small private practice settings vs large corps or hospitals. So from what I know, that limits us to basically IRAs, taxable accounts, and maybe solo-401ks until if and when we have our own practices with employees. I’d like this thread to be a conversation place for young dentists (general dentists and specialists) starting out.

          My situation: I plan on making a full contribution to my Roth IRA this year but would like to invest another 5-10k for retirement after looking at my budget for other short term goals and handling student debt. I do not have a company 401k from my main job but I do have some 1099 income (maybe about 4-6k in profits this year, can be conservatively 20-30k next year). I have not yet formed a LLC but may in the future. I was thinking about opening a solo-401k and then a taxable account after to meet my goal for this year. Next year I will most likely not be able to contribute directly to the Roth IRA and may need space for conversions, so I didn’t look too hard into SEP or SIMPLE IRAs. I’m not sure how long I’ll keep the 1099 income up or if I’ll buy in where I’m working or if I’ll just have my own practice and start to have employees. I like where I work now and am gaining a lot of good experience, so I plan on making a decision in a year or two. What happens if I stop the 1099 income or start to have employees? Would I ever need to pay myself through a W2 if I start the solo-401k to show employer vs employee contributions?  What happens if I decide to become a LLC for my 1099 work after opening the solo-401k? Should I wait on the solo-401k and just use a taxable account until I’m more certain? Any other thoughts?  Thanks!
          Click to expand...


          There is a perfect solution for what you are trying to do.  I described it here:

          https://www.whitecoatinvestor.com/improving-the-vanguard-individual-401k-with-a-customized-plan

          You can have a custom-designed solo 401k, roll all of your traditional IRAs into it, and once you have a practice, this plan turns into your practice 401k with just a few amendments without having to pay for another plan document (and without having to do anything at as far as opening other accounts).

          This is my article for DT on the type of 'pooled' plan that this solo 401k would become for you:

          http://www.dentaltown.com/Dentaltown/Article.aspx?i=393&aid=5411

          In fact, you will be able to contribute into your plan during the first year without including employees because you'll have 1 year of service and they won't.  This solution works for small practice owners and even for some partnerships.  The pooled account can be opened at Vanguard and there is no need for a record-keeper.
          Kon Litovsky, Principal, Litovsky Asset Management | [email protected] | 401k and Cash Balance plans for solo and group practices, fixed/flat fee, no AUM fees

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