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Is Safe Harbor 401(k) the best plan for solo private practice with employees?

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  • litovskyassetmanagement
    replied
    Originally posted by griffin View Post

    I was planning on going with an online service ie ubiquity etc
    Any reccs?
    With maybe a handful reps for thousands of clients, don't expect to have anyone help you with anything. They also won't be advising you on anything (as the reps know very little), so you'll just need to figure everything out on your own. They'll certainly send you lots of checklists to complete and lots of automated emails. One big issue is that 401k plans don't have that much that can be automated away, it is a very people-intensive business because there is just too many details that need to be considered, and each individual situation is different, so getting good advice is very important. Low cost in this business means really low service, this is why my recommendation is SIMPLE IRA until you can max out a 401k plan, at which point you just hire a good TPA and a low cost record-keeper (as record-keepers are notoriously very bad as TPAs, although they perform some TPA functions). They also most likely won't be able to do profit sharing calculations (and definitely not optimized calculations, if they could do those), and if you ever want a Cash Balance plan - you can't even use them as they don't work with CB plans. You can certainly give them a try just to see what you don't want in a service provider, but it is a hassle to move plans around (you have to pay for another plan document as well as any startup fees for the new provider), so it is always best to stick with a set up that you plan on keeping for a long time.

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  • griffin
    replied
    Originally posted by jhwkr542 View Post
    You generally need someone to run the numbers for these. SR highlighted the 2 main options. You'd need a plan administrator/advisor anyways since these aren't DIY things.
    I was planning on going with an online service ie ubiquity etc
    Any reccs?

    Leave a comment:


  • litovskyassetmanagement
    replied
    Originally posted by griffin View Post
    So is Safe harbors the best option for me? Any others I should know of before I put this plan into gear.

    I have a 1099 physician to cover me for vacations.
    10 w-2 employees (myself and wife included).
    So a 1099 is usually excluded from both 401k and SIMPLE. However, depending on the ages of your employees relative to yours there could be different considerations here. Usually if this is a dental practice I would recommend starting with a SIMPLE, especially if staff is older than you and if your net income is below about $400k-$450k. If your net family AGI is well below $425k, you can take advantage of QBI deduction and minimize your W2 to maximize the QBI deduction. Once your income is larger, having a higher W2 might work out better to max out your employer contribution into the 401k. All of this has to be calculated via an illustration as each practice is different, so your numbers will not look like someone else's numbers.

    If your income is at least $400k-$450k and you are older than the staff, it might make sense to try a 401k with profit sharing but even then with 8 staff the numbers might not be great depending on other factors (such as your staff W2s). I would say that if you can't max out a 401k (income below $400k), SIMPLE is a really good alternative. Usually to max out the 401k your W2 has to be set at a relatively high number if your demographics is not favorable (older staff). With younger staff numbers might be much better in your favor and your W2 can be set to be lower. Again, all of this can be determined via an illustration. Worst case, if you are at a breakeven point, giving money to staff is preferable vs. giving it to the government.

    But even if you earn $450k+, demographics can be an issue (especially for dental practices), and the cost to you can be high. If your net income is much higher than $450k, it is often much cheaper to go for a Cash Balance plan (assuming you are at least 40 years old) as the cost of doing that is lower than the cost of doing profit sharing in the 401k in terms of employer contribution.

    In all cases a thorough analysis has to be performed, and if you do a SIMPLE IRA for a few years that would be preferable to doing a SH 401k without profit sharing at least until you can max out the 401k plan.

    Leave a comment:


  • jhwkr542
    replied
    You generally need someone to run the numbers for these. SR highlighted the 2 main options. You'd need a plan administrator/advisor anyways since these aren't DIY things.

    Leave a comment:


  • spiritrider
    replied
    It is always a cost benefit analysis. The two practical solutions are a SIMPLE IRA plan and a safe harbor 401k plan.
    • SIMPLE IRA:
      • Employee deferral limit (2022): $14K + $3K >= age 50.
      • 2% non-elective employer contribution or 100% match on the 1st 3% of compensation. The match can be reduced to 1% in any 2 of 5 years including the first two years.
      • Compensation limit applies to non-elective employer contribution, but not employee deferrals.
      • Several SIMPLE IRA custodians have no administrative fees.
      • Would interfere with Backdoor Roth.
    • Safe Harbor 401k:
      • Employee deferral limit (2022): $20.5K + $6.5K >= age 50.
      • Minimum 3% non-elective employer contribution or 100% match on the 1st 3% of compensation and 50% match on the next 2% of compensation.
      • Match can not be on more than 6% of compensation, but can be on more than 100% of compensation. I.e. 150% match on 6% of compensation.
      • Non-trivial startup and annual administrative fees.
      • However, you can claim a 50% startup credit up to $5,000 over the first three (3) years and a $500/year credit for three (3) years after beginning auto enrollment. The latter does not have to and may not be optimal to coincide with the startup credit.
    • Employee + employer contributions subject to the annual addition limit (2022 = $61K).

    Leave a comment:


  • Is Safe Harbor 401(k) the best plan for solo private practice with employees?

    So is Safe harbors the best option for me? Any others I should know of before I put this plan into gear.

    I have a 1099 physician to cover me for vacations.
    10 w-2 employees (myself and wife included).

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