Why should you have a retirement plan?
You may be among the many Doctors of Chiropractic and business owners looking for an efficient way to work toward a comfortable retirement. If so, your search may be over. One of the best ways to save for the future is through a tax-qualified retirement plan. A qualified plan is designed to help both employers and employees accumulate wealth for retirement.
Many doctors and business owners have considered starting qualified plans for themselves and their employees, but various concerns have stopped them from taking the plunge. Some worry about costs. Matching employee contributions has some business owners fearing an exorbitant rise in their benefit costs. Others want to avoid administrative burdens, steering clear of the compliance and recordkeeping duties inherent in most qualified plans. Another deterrent may be a reluctance to stay abreast of regulatory changes that occur in the pension arena. Most practitioners would rather track their cash flow, personnel, services and product lines than esoteric pension rules.
Four sound reasons to set-up a plan.
However, by allowing concerns such as these to keep you on the sidelines, it may cost you the many advantages that qualified plans can offer you and your practice. For example, a qualified plan can help reduce your taxes. Any contributions you make on behalf of your employees are tax-deductible.
Second, setting up a qualified plan provides you with a systematic, tax-deferred method to help save for retirement. Contributions to a plan are taken out of your paycheck before taxes, so your taxable income is lower. Moreover, all investment earnings accumulate on a tax-deferred basis until you withdraw them from the plan. This allows contributions and earnings to compound at a faster rate than they would in a comparable taxable account.
Third, the administrative burden of a qualified plan can be reduced by retaining the services of a qualified third party administrator (TPA). A TPA generally handles the design, installation and administrative services for the plan, and is responsible for the reporting and disclosure requirements of a qualified plan. In addition, the TPA will generally keep you abreast of changes in legislation that may impact your plan.
Finally, a qualified plan may help you attract and retain quality employees. Many of today’s workers are aware of qualified plans and the benefits they can offer. Having such a plan may lead employees to view your practice more favorably and increase retention.
Do you have the right plan?
Five options to consider.
Numerous doctors and business owners who are wise to the values of a qualified plan have already established one. However, most practices and businesses do not remain static, so retirement plans shouldn’t either. A number of factors such as your personal goals for retirement, plans for expansion and the make-up of your work force can change over time. If your particular retirement plan doesn’t fit into the structure of your practice, you could be contributing thousands of dollars each year in unnecessary employee contributions and perhaps reducing your own retirement plan accumulations.
1. Deferred vesting/participation.
A variety of plan features can be used to adapt to your changing requirements. For example, perhaps you want to boost employee retention. A retirement plan with a deferred vesting feature may help. Deferred vesting requires employees to work a specified number of years before receiving full benefits. Likewise, deferred participation requires employees to complete a certain length of service before becoming eligible to participate in a plan. If your practice is the type of business in which some employees work for a short term, deferred participation can reduce your annual matching contributions while rewarding longer-term employees and you, the owner.
2. Pay scale exclusions/qualifications.
It’s possible that you may want to focus more on higher-paid personnel, yourself included. You can integrate your plan with Social Security. This allows you to make contributions at a higher level for amounts earned over the Social Security wage base, thus providing increased retirement benefits for the more highly paid. In the same vein, you may choose to exclude certain part-time employees, employees under the age of 21 and employees covered under certain collective bargaining agreements.
3. Age-weighted plans.
Maybe you desire the flexibility to either make or not make contributions whenever you want. A profit-sharing plan enables you to adjust contributions. Do you want to favor older employees including yourself? An age-weighted profit-sharing plan is structured to allow a larger, more significant share of contributions to be made on behalf of older employees.
4.The tiered plan.
Another option, the tiered plan, is designed to allow contributions to be allocated by job class or compensation category. As a result, greater contributions would go to a practice’s key employees, particularly owners. You can also combine different plan types to create the flexibility you want with maximum contributions.
5. The 401(k) options.
The increasingly popular 401(k) is a plan that allows employees to make contributions with pre-tax dollars through payroll deductions. The employer may choose to “match” part or all of an employee’s contributions within certain limits. If your company has fewer than 100 employees who earn at least $5,000 and you have no qualified plan at all, you might consider a Simple 401(k) plan. Simple plans were recently created with the passage of the Small Business Job Protection Act of 1996. These plans require employers to put in money either by matching contributions or through a non-elective contribution for all eligible employees.
As you can see, retirement plans come in all shapes and sizes, but a plan is only as good as its ability to meet the particular needs of your practicenow and in the future. In many cases, proper plan design can help minimize costs and improve flexibility. Finding the right plan and adjusting it periodically are well worth the effort. After all, considering the time and effort you’ve devoted to your practice, you deserve to reap the rewards of a comfortable retirement.
