Best Retirement for a small practice

[Phys23]

Hi, my brother in law owns a small practice.   He is a non-physician, but is running a family medicine clinic with 1 physician full time and a part time physician (me).  I don't take a salary and just help out as much as I can (mostly admin).  They are doing well over the last several years (5).  He would like to create a retirement account.  He has 4 full time employees (nurse and 3 MA's) and then the 1 full time doctor.

What retirement account would be best for the group to maximize tax benefits?  This is his only income.  The employees aren't really interested in it, so this would really only be for the owner.

Would it be a 401k?  Is this something we can do by ourselves, or should we get a CPA or retirement account professional involved?

 

Thanks!

[jacoavlu]

What’s the goal? Maximum tax deferral for the owner? What’s the business structure?

[jfoxcpacfp]

Is his goal to maximize tax benefits or to maximize overall wealth? They are 2 different objectives and not necessarily complementary. As for getting a CPA involved, surely he is already working with one who can advise, no?

[Phys23]

Thanks for all the replies.

He is currently filing as an s-Corp.

I was thinking it would be the same to maximize tax benefit and wealth. Overall, it is to maximize wealth. The idea was that he could minimize taxes which would help maximize wealth.

Thanks!!

[Phys23]

Oh, and he does have a CPA that he has been working with. He didn’t really have any good answers for this. We are looking for another one now.

[jacoavlu]

How much does owner take in salary? And distributions?

How much is physician paid in salary?

And other employees?

And you are paid nothing?

Owner can’t establish a plan only for his or her own benefit. All employees will be participants.

[Phys23]

Currently the owner takes 75k in salary for his admin time.  He takes about 200k in distributions.

Physician is paid 200k.  Other employees are paid $15 per hour, at around 35k per year, outside of the nurse who is paid around 65k per year.

I am currently not paid anything, but as I just help out with some admin stuff.  Mostly talking to the physician.  I could always take a salary, but I don't right now.

I am fine with offering it with the employees, would we have to contribute to their retirement accounts as well?

Thanks!

[G]

Phys23 wrote:

Currently the owner takes 75k in salary for his admin time.  He takes about 200k in distributions.

Physician is paid 200k.  Other employees are paid $15 per hour, at around 35k per year, outside of the nurse who is paid around 65k per year.

I am currently not paid anything, but as I just help out with some admin stuff.  Mostly talking to the physician.  I could always take a salary, but I don’t right now.

I am fine with offering it with the employees, would we have to contribute to their retirement accounts as well?

Thanks!

Click to expand...

Your non-physician brother-in-law is taking 275k/yr administering a one physician family practice?  While it would be nice to have a retirement plan, one could argue to not change a single thing.

[jacoavlu]

You’ll need a professional for advice. Any 401k profit sharing plan is going to have a limit to employer contributions of 25% of compensation, and compensation equals salary, not distributions, so max profit sharing for the owner, absent of changes to the ratio of salary to distributions, is going to be $18,750. And there would be required employer contributions to all employees.

[litovskyassetmanagement]

Phys23 wrote:

Hi, my brother in law owns a small practice.   He is a non-physician, but is running a family medicine clinic with 1 physician full time and a part time physician (me).  I don’t take a salary and just help out as much as I can (mostly admin).  They are doing well over the last several years (5).  He would like to create a retirement account.  He has 4 full time employees (nurse and 3 MA’s) and then the 1 full time doctor.

What retirement account would be best for the group to maximize tax benefits?  This is his only income.  The employees aren’t really interested in it, so this would really only be for the owner.

Would it be a 401k?  Is this something we can do by ourselves, or should we get a CPA or retirement account professional involved?

 

Thanks!

Click to expand...

There are a number of things to consider.  First, the demographics might not be very favorable unless the staff is HCE, especially if they are relatively highly compensated.  Interested or not, if they are eligible, they have to get a share of the employer contribution proportional to their W2, age, etc. if the owner wants to maximize their contribution.

The only real way to determine the best plan is to look at the census of the practice and to do an illustration.  For example, SIMPLE IRA is a really good plan, but the cost might be high if staff participates (it would be zero if they don't):

https://www.whitecoatinvestor.com/the-ideal-retirement-plan-for-your-practice

On the other hand, a 401k can work out if the cost of employer contribution is reasonable vs. what the owner can contribute (ideally the maximum allowed). To determine whether a 401k with profit sharing would be a good plan would require an illustration.  This can tell us whether the cost of doing a 401k is justified vs. doing something like a SIMPLE IRA.  While SIMPLE limits are definitely lower, the cost is much lower as well, so when the staff is highly compensated but not HCE ($120k+) this can increase the cost of doing a 401k with profit sharing significantly. On the flip side, if the staff is HCE with a SIMPLE, you can't exclude them, so matching can get expensive as well, whereas with a 401k plan you have more freedom to minimize employer contribution using various methods. You can technically exclude all HCE staff from the plan, but that might not be a good idea.  In any case, first step to determining the best plan is doing the appropriate analysis.

[Andrew Musbach]

As @konlitovsky mentioned, the best way to look at this would be to see an illustration of different plan design options. I can't speak for all firms, but the firm I have worked with in the past wouldn't charge to show an initial illustration of your options. Once you have the census data (age, salary, etc.), a good illustration will show you both the $ amount and % of contributions that would go to the owner v. employees. From there, after factoring in the expenses from the plan design and administration, you can make an educated decision of what plan is best for your goals.