Any other pretax contribution in profit sharing private practice

[Aznbenz600]

Hello all.
I'm in a private practice with 6 other surgeons. We are given w2s and have a profit sharing plan and HSA. I plan on maxing out HSA contributions and the backdoor Roth. What other pretax options do I have? Is sep-ira an option for me?
Thank you!

[jfoxcpacfp]

No, you cannot contribute to a SEP IRA. Have you and the other owners looked into setting up a DB (Defined Benefit) plan? You could also look at amending your plan to allow a mega backdoor Roth, but that will not help you save taxes currently, only over the long term. And if you have other employees in addition to physicians (mid-levels, office manager, etc.) doubtful you'll realize much benefit.

You should probably have this discussion with the group's CPA.

[Aznbenz600]

Thank you for your response

[Caligas]

I believe she is referring to what is commonly called a “cash balance plan,” White coat investor has an excellent article on them.

In certain situations you can deduct your health care premiums IF they are paid post tax dollars.

If you have a side hustle such as chart review, expert witness, Uber driving etc you can do a separate 401k for this income.

[VagabondMD]

Caligas wrote:

I believe she is referring to what is commonly called a “cash balance plan,” White coat investor has an excellent article on them.

In certain situations you can deduct your health care premiums IF they are paid post tax dollars.

If you have a side hustle such as chart review, expert witness, Uber driving etc you can do a separate 401k for this income.

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I have yet to get into an Uber driven by a doc, and I will be surprised if I ever do. Most docs should probably understand that the math likely does not work for them, there are easier side hustles, and they probably should not need the extra dough that much.

I did get in an Uber last year driven by a newly minted lawyer, FWIW.

[Caligas]

Yeah, I was joking about the Uber part, needed a third example. Should have said “giving pharmaceutical talks.”

[litovskyassetmanagement]

Aznbenz600 wrote:

Hello all.
I’m in a private practice with 6 other surgeons. We are given w2s and have a profit sharing plan and HSA. I plan on maxing out HSA contributions and the backdoor Roth. What other pretax options do I have? Is sep-ira an option for me?
Thank you!

Click to expand...

If all of the physicians are maximizing their contributions at $54k each ($55k in 2018), you might be able to set up a Cash Balance plan for your practice.  However, this can be tricky and you will need to make sure that enough partners are interested in making extra deferrals into the Cash Balance plan.  It is too late to get one for 2017, but plenty of time to consider one for 2018.  Here's what I would recommend:

1) Get together a full census with partners and staff.  If you have no staff, setting up a Cash Balance plan is a lot easier than if you have non-HCE staff.

2) Survey partners on whether they would like to make extra contributions  (those are made the following year just like profit sharing, although it is possible to make those the same year). Each partner will specify how much they would like to contribute.

3) Get a design study done to make sure that the benefits justify the cost.  The biggest cost would be employer contribution, however, usually when adding a CB plan, % to owner for both plans is at the very least the same as with the 401k plan, and more often it increases because partners can contribute more for each $ they are contributing to the staff with both plans vs. just the 401k plan.  If you have no staff, Cash Balance plan is a no-brainer, again provided enough partners are interested.

4) Set up time to do an educational meeting with the partners to go over key Cash Balance plan provisions and how those apply to your specific situation. Because contributions are required and can only be changed once in about 3 years, partners have to commit to making contributions into the plan. As with profit sharing, not all partners have to participate, but you will need a critical mass to participate to make the plan worth it, and this will also depend on how many staff you have.

 

[Aznbenz600]

I will definitely bring up cash balance plan when I become a partner next year.

What's the breakdown of the 54k contribution you are referring to? I can't get a 401k so no 18k already. Please advise.

I review robotic videos for pay but maybe I should start uber so I can get a 401k for that!

[litovskyassetmanagement]

Aznbenz600 wrote:

I will definitely bring up cash balance plan when I become a partner next year.

What’s the breakdown of the 54k contribution you are referring to? I can’t get a 401k so no 18k already. Please advise.

I review robotic videos for pay but maybe I should start uber so I can get a 401k for that!

Click to expand...

Typically a 401k plan has the following:

-$18.5k salary deferral

-4% match or 3% non-elective contribution

-up to 25% profit sharing (all of the above adds up to $55k in 2018)

The only thing to remember is with a Cash Balance plan (that is not covered by PBGC) you are limited to 6% profit sharing, so the 401k portion will be lower than $55k in some cases.  For those who don't want to participate in a CB plan, they can get the full $55k 401k contribution instead.

Some 401k plans have profit sharing only (no salary deferral/match).  We typically recommend that PS only is not a good idea as that limits your overall contribution with a Cash Balance plan.