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  • Keogh plan through Merrill Edge?

    My wife just started as an attending in a private practice. The owner offers a "Keogh plan," which is administered as a "Merrill Edge Self-Directed BASIC Retirement Account (https://olui2.fs.ml.com/publish/content/application/pdf/GWMOL/BASIC-account-agreement-program-description-MESD.pdf)." I'm trying to figure out more about this plan and how it will fit in with her other plan (a 403(b) through the university where she takes one clinic a week). As far as I can tell, "Keogh plan" is not used much anymore, and is best described as a "qualified plan," specifically, of the profit-sharing variety (https://www.irs.gov/pub/irs-pdf/p560.pdf). Her employer told her he will put 10% of her salary into the plan (and will reduce her salary by this amount; as far as I understand it, that changes it to a 401(k), but whatever floats his boat). I also understand this will be part of the $54k rule, so we have to make sure that this Keogh plan and her 403(b) doesn't add up to more than $54k a year.

    Is there anyone out there that is familiar with this type of plan that can give me some insight?

    How about anyone who knows how to most effectively to use a Merrill Edge account to get money into a Vanguard fund, or some other suitable, low-cost fund?

    Thanks!

  • #2
    Ironically, though a couple of years old found this:  https://forum.mrmoneymustache.com/investor-alley/merrill-edge-for-vanguard-mutual-funds/

    I also found a old list of no-load mutual funds on Merrill Edge.  Some pretty compelling active management fund families if you are into that (also a lot I would not touch).

    It appears the only way to access Vanguard through Merrill Edge is via the ETF route.  Certainly, not ideal but manageable.  At $6.95 per ETF trade at Merrill, and depending upon your asset allocation, may want to execute purchases in a way that minimizes the number of transactions.

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    • #3




      My wife just started as an attending in a private practice. The owner offers a “Keogh plan,” which is administered as a “Merrill Edge Self-Directed BASIC Retirement Account (https://olui2.fs.ml.com/publish/content/application/pdf/GWMOL/BASIC-account-agreement-program-description-MESD.pdf).” I’m trying to figure out more about this plan and how it will fit in with her other plan (a 403(b) through the university where she takes one clinic a week). As far as I can tell, “Keogh plan” is not used much anymore, and is best described as a “qualified plan,” specifically, of the profit-sharing variety (https://www.irs.gov/pub/irs-pdf/p560.pdf). Her employer told her he will put 10% of her salary into the plan (and will reduce her salary by this amount; as far as I understand it, that changes it to a 401(k), but whatever floats his boat). I also understand this will be part of the $54k rule, so we have to make sure that this Keogh plan and her 403(b) doesn’t add up to more than $54k a year.

      Is there anyone out there that is familiar with this type of plan that can give me some insight?

      How about anyone who knows how to most effectively to use a Merrill Edge account to get money into a Vanguard fund, or some other suitable, low-cost fund?

      Thanks!
      Click to expand...


      Yes, these are antiquated profit sharing plans. And the owner is also giving nothing to the staff using this arrangement, which is also not particularly encouraging. I would dump this and start up a 401k plan with profit sharing, but because these are brokerage-only plans, some docs think this is 'cheap', and of course if you give nothing to the staff, this is indeed cheap.  Unfortunately, brokerage only plans expose the plan sponsor to significant fiduciary liability, and that's why it is not advisable to set up and to continue operating such plans.

      I don't believe the $54k rule applies to her 401k plan because she does NOT own the practice at 50% or more:

      "Participation in a qualified plan. If you par­ticipated in a 403(b) plan and a qualified plan, you must combine contributions made to your 403(b) account with contributions to a qualified plan and simplified employee pensions of all corporations, partnerships, and sole proprietor­ ships in which you have more than 50% control."

      If this is a SDBA (self-directed brokerage account) she should be able to buy any investment available on their platform, including mutual funds, though I would think that ETFs are going to cost lower than funds, so using Vanguard ETFs vs. funds might save some money.  Call up ML and ask for the commission schedule and they should be able to tell you exactly what you can buy on their platform (which is most ETFs/funds available). I've managed portfolios of ETFs before on ML platform, it is a bit expensive in terms of commission vs. say TD or Fidelity, but better than investing in high cost funds that are often available in investment menus for many practices.

       
      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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      • #4
        Kon, thanks for the reply, you obviously know what your talking about. However, some of it went a bit over my head. Do you mind if I ask some follow-up questions?

        "And the owner is also giving nothing to the staff using this arrangement" Do you mean that a Keogh plan precludes a business owner from offering a retirement plan to the non-physician staff? How so?

        "Unfortunately, brokerage only plans expose the plan sponsor to significant fiduciary liability, and that’s why it is not advisable to set up and to continue operating such plans." Are you saying my wife's employer would have fiduciary liability, or Merrill would? The documents I read from Merrill made it clear that if my wife opts to invest on her own, she will be forgoing any fiduciary obligations. Is that incorrect?

        "I don’t believe the $54k rule applies to her 401k plan because she does NOT own the practice at 50% or more." Interesting, I didn't read it that way, but your explanation does make sense. Regardless, it shouldn't be a problem, since she won't be getting close to $54k between her Keogh and her 403(b).

        Overall, the gist I am getting from your reply is that the Keogh plan is not ideal for the business owner or the staff, but there shouldn't be any issues with my wife using it. Is that correct?

        Thanks again!

         

         

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        • #5




          Kon, thanks for the reply, you obviously know what your talking about. However, some of it went a bit over my head. Do you mind if I ask some follow-up questions?

          “And the owner is also giving nothing to the staff using this arrangement” Do you mean that a Keogh plan precludes a business owner from offering a retirement plan to the non-physician staff? How so?

          “Unfortunately, brokerage only plans expose the plan sponsor to significant fiduciary liability, and that’s why it is not advisable to set up and to continue operating such plans.” Are you saying my wife’s employer would have fiduciary liability, or Merrill would? The documents I read from Merrill made it clear that if my wife opts to invest on her own, she will be forgoing any fiduciary obligations. Is that incorrect?

          “I don’t believe the $54k rule applies to her 401k plan because she does NOT own the practice at 50% or more.” Interesting, I didn’t read it that way, but your explanation does make sense. Regardless, it shouldn’t be a problem, since she won’t be getting close to $54k between her Keogh and her 403(b).

          Overall, the gist I am getting from your reply is that the Keogh plan is not ideal for the business owner or the staff, but there shouldn’t be any issues with my wife using it. Is that correct?

          Thanks again!

           

           
          Click to expand...


          -Its just that THIS particular owner chose to take the profit sharing out of his staff's pay. So you get nothing from the company and invest your own money.  Better than nothing, but definitely not the ideal scenario for the staff. Probably better than excluding staff from the plan outright though, which also happens quite often.

          -Absolutely, your wife has zero liability.  The plan sponsor is holding the bag on that one, especially if he has NHCE staff.

          -That's a quote from somewhere, probably Fidelity (if I remember correctly). Yes the $54k limit applies only if you are the owner of your entity that sponsors solo 401k plan.  I should have saved the original, but at least now you have something to look up in the IRS regs.

          -Yes indeed, your wife would be just fine using it.

           
          Kon Litovsky, Principal, Litovsky Asset Management | [email protected] | 401k and Cash Balance plans for solo and group practices, fixed/flat fee, no AUM fees

          Comment


          • #6
            OK, thanks again!

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            • #7
              Ken's quote is from IRS Publication 571 Tax-Sheltered Annuity Plans (403(b) Plans), Chapter 3. Limit on Annual Additions.

              "Participation in a qualified plan. If you participated in a 403(b) plan and a qualified plan, you must combine contributions made to your 403(b) account with contributions to a qualified plan and simplified employee pensions of all corporations, partnerships, and sole proprietorships in which you have more than 50% control to determine the total annual additions."

               

              Comment


              • #8




                Ken’s quote is from IRS Publication 571 Tax-Sheltered Annuity Plans (403(b) Plans), Chapter 3. Limit on Annual Additions.

                “Participation in a qualified plan. If you participated in a 403(b) plan and a qualified plan, you must combine contributions made to your 403(b) account with contributions to a qualified plan and simplified employee pensions of all corporations, partnerships, and sole proprietorships in which you have more than 50% control to determine the total annual additions.”

                 
                Click to expand...


                Perfect, thank you!  I know I looked it up a while back, so I kept the quotation marks.  When this rule gets mentioned on WCI, the 50% ownership is omitted, and this can result in some confusion.
                Kon Litovsky, Principal, Litovsky Asset Management | [email protected] | 401k and Cash Balance plans for solo and group practices, fixed/flat fee, no AUM fees

                Comment


                • #9
                  SCPMG (Southern California Permanente Medical Group) which is Kaiser Permanente in Southern California provides a Keogh plan for their physicians.  It is s defined contribution plan.  In essence it is just like a 401K but through the use of the Keogh and the 401K, they can do a total of 54K into tax deferred retirement funds.  The main difference is that with this Keogh you must elect to contribute an exact amount each year or face penalties.

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                  • #10




                    SCPMG (Southern California Permanente Medical Group) which is Kaiser Permanente in Southern California provides a Keogh plan for their physicians.  It is s defined contribution plan.  In essence it is just like a 401K but through the use of the Keogh and the 401K, they can do a total of 54K into tax deferred retirement funds.  The main difference is that with this Keogh you must elect to contribute an exact amount each year or face penalties.
                    Click to expand...


                    Keogh is a rather complex plan with several variants (profit-sharing Keogh and money purchase Keogh):

                    https://money.howstuffworks.com/personal-finance/retirement-planning/keogh-retirement-plans.htm

                    From what I can tell, profit sharing is limited to 15%, and money purchase is 25%.  There are very few advantages of this over a traditional 401k plan, and more than a handful of limitations, that's why 1/3 of these plans are non-compliant and IRS is auditing them (as per the article).  There are probably not too many such plans left.

                    There is nothing in the form 5500 for SCPMG that identifies this plan as a Keogh though.  It looks exactly like any 401k plan would.

                     
                    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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