Retirement: Picking the Right Plan for You and Your Practice

Retirement plans are not one-size-fits-all. You need to think about your needs as well as those of your practice.

When you're running a business, the daily demands keep you plenty busy.

Not only do you have to worry about your patients, but you also have to pay bills and balance the books.

Along the way, don't forget about planning for your future.

That means you need a retirement plan.

“These plans can be great for owners who want to save money for retirement and save money on taxes,” said Amy Noel, a Boulder, Colorado-based certified financial planner.

Whether you're a solo practitioner or you have a practice with dozens of employees, and whether you want to save a lot or a little, there's a plan to suit your needs.

Here's some help to get started.

SEP IRA

SEP IRA is short for simplified employee pension individual retirement account.

It is funded solely by employer contributions and provides the employer flexibility so that in lean years, the contribution can be skipped, said Andrew Samalin, a certified financial planner with offices in Chappaqua, New York, and New York City.

He said for the SEP IRA, an employer can contribute up to 25 percent of compensation — which is about 20 percent of the Internal Revenue Service (IRS) Schedule C net income and based on maximum compensation of $270,000 for 2017—with a maximum of $53,000 per participant.

A SEP IRA must be offered to all employees who are at least 21 years old, employed for three of the last five years and who had compensation of $600 for 2015 and 2016.

So, if you have a lot of part-timers, they'd probably be eligible for the plan.

Because part-time employee wages would presumably make up a small percentage of overall wages, a SEP IRA would not be too expensive for the business owner, he said.

“Contributions must be based on the same percentage for all participants and are immediately vested,” he said. “An employer may use IRS Form 5305-SEP to set up the plan but the costs to administer are low.”

And a bonus? Tax benefits. The business owner can deduct no more than 25 percent of aggregate compensation for all participants.

SIMPLE IRA

Another option is the SIMPLE IRA, which stands for Savings Incentive Match Plan for Employees Individual Retirement Account.

"The SIMPLE includes anyone who makes over $5,000 as an eligible participant," Noel said.

Employees can defer $12,500 — or $15,500 for those over age 50 — and the employer is required to contribute each year by matching employee contributions up to 3 percent of compensation. Or, the employer can make a non-elective contribution equal to 2 percent of employee compensation up to annual limit of $270,000 ($5,400) in 2017.

Samalin said this plan may be less expensive than a SEP IRA because some of the employees may choose not to participate.

SAFE HARBOR 401(K)

The Safe Harbor 401(k)/Profit Sharing Plan has a higher cost of administration and a higher potential cost of funding for employees, but also allows for high contribution limits. You can use employee salary deferrals for these plans, and they're easier to administer than a traditional 401(k). Samalin said you can offer employee-vesting schedules to incentivize long-term employment and lower turnover.

Anyone who works more than 1,000 hours a year would be eligible, Noel said.

“So, if you have part-timers that work less than 20 hours a week, a 401(k) can be an option,” she said. "Typically, most employers will choose a Safe Harbor plan which mandates a 4 percent match for participants or a 3 percent non-elective contribution for all eligible employees.”

SOLO 401(K)

If you have no employees, or only your spouse works with you, you could consider a Solo 401(k).

These plans allow the business owner and spouse to contribute elective deferrals up to 100 percent of compensation as the employee, up to $18,000 for 2017, plus there's a catch-up contribution of $6,000 for those over age 50.

Then as the employer, the business owner may also contribute up to 25 percent of compensation or earned income.

“Total employee and employer contributions, not counting catch-up contributions, may not exceed $54,000 for 2017,” Samalin said. "Business owners must file Form 5500 after plan assets exceed $250,000."

With this plan, you can still contribute to a traditional or Roth IRA every year, too.

OTHER OPTIONS

You can always consider a traditional 401(k), but that's usually best for a business with several dozen employees because they're more expensive to maintain and have stricter reporting requirements than some other plans.

A defined benefit plan is another option, Noel said, and could be appropriate for those who want to aggressively save for retirement and who don’t mind the extra costs associated with the plan.

“This is not a good plan for a large group or one with many employees,” she said.

FLEXIBILITY

Because you may have trouble projecting your practice's income from year to year, you may prefer to choose the plan with the most flexibility.

Noel said a SEP IRA is the only plan that “truly has discretionary contributions.”

All the others have "substantial and reoccurring requirements," she said.

“A SIMPLE has an option that allows the employer to lower the contribution from 3 percent to 1 percent in two out of every five years,” Noel said. “This is helpful in this situation but the company still needs to fund the 1 percent.”

GETTING STARTED

Consider meeting with a certified financial planner who has expertise in small business retirement plans.

You can search for an adviser in your area on the websites of the Financial Planning Association at www.plannersearch.org or the National Association of Personal Financial Advisors at www.napfa.org.

You can also contact a plan custodian such as Vanguard or Fidelity.

"The laws are written to allow for employees to succeed alongside management when a retirement plan is set up," Samalin said. “As such, retirement plans are structured to require management to make contributions to an employee’s retirement if the employer is making contributions to their retirement.”