• greenoakaccounting

Retirement options for private practice

Updated: Dec 6, 2021

Is it too early to be thinking about retirement?


No, no, no...


...and no.


Now’s the time.


Saving for retirement may sound like a lot of work, but it really isn’t at all.


And guess what?


Contributing to a retirement plan isn’t just good for your future, it’s good for your taxes right now. If you contribute to a tax deferred plan you don’t pay taxes until you take the money out after age 59.5. The funds grow tax-free until then!


There are lots of choices out there: 401k, Roth 401k, IRA, Roth IRA, SEP, or SIMPLE. Keep in mind that for Roth options, you contribute after-tax dollars, but your money is never taxed again. Sweet!


Let’s walk through a few of the options we often discuss with our clients.


First up? The big bad 401k plan.


Here are the facts:


With this option the maximum employee contribution is $19,500 in 2021 (+$6,500 catch up contributions if 50 years or older). The maximum the employer will match depends on the employer, but the maximum that both the employee and employer can contribute is $58,000 (or 100% of salary, whichever is less).


Let it be known that there are some management fees and sometimes fees for annual filing associated with a 401k so it might not make sense for a smaller business.


Our favorite part of a 401k? Tiered vesting and high contribution limits!


Have you ever heard of a Safe Harbor 401(k)? This plan has an employer match that is vested immediately, but it allows you to avoid most annual compliance tests. If you’re on the fence about an employer match, a Safe Harbor 401(k) isn’t a good option - the employer contribution is mandatory.


Next– let’s dive into the Simple IRA plan.


Here are the facts:


The maximum employee contribution is $13,500 in 2021 (+$3,000 catch up contribution if 50 years or older). Also, employers can contribute 2% of the salary, or can match contributions employees make up to a maximum of 3%.


Our favorite part: There are no annual filing requirements and it’s super easy (or should I say “simple”) to set up.


The next plan we’ll discuss?


SEP IRA.


This plan has no employee contribution! Employer contribution maxes out at 25% of wages. The best part of the plan–the $58,000 contribution limit. There is no annual filing busy work and there are also lots of no-fee options out there.


The downside?


In order to max the contribution for the owner of the business, all employees who are over 21 years old and have worked for the business for at least 3 years have to be given the same percentage, which can get really expensive.


Not big enough for a company plan? How about an Individual IRA or a Roth IRA? The 2021 contribution limit is $6,000 ($7,000 if you’re 50 or over). The traditional Roth is deductible on your personal tax return (subject to income limitations).


Keep in mind that no one plan fits all, so consult your financial advisor or accountant for more guidance.


Have more questions about retirement plans? We’re here for you! As accountants we aren’t able to set up a retirement plan for you but we help our clients talk through the options that work best for their practice.


 

This article is designed to provide information only and should not be considered legal or tax advice. Because of the complexity of the law and the variables in your own personal tax situation, you can’t rely on our advice specifically related to your unique circumstances. In order to get the best tax savings and legal advice available to you, you should consult with your own accountant, attorney or advisor regarding your particular facts and circumstances. GreenOak Accounting is an accounting firm that specializes in working with counselors and therapists in private practice. We provide monthly accounting & bookkeeping services, 1-time services and online courses. For more information on our specialized services for therapists please visit www.greenoakaccounting.com

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