Retirement Planning a Key Component for Medical Practice Owners and Administrators
by TIM CRAIG
Starting and owning a new medical practice comes with a lot of costs that may make it difficult to think about one of the most important parts of a small medical business: the ending.
For many small business owners, thinking about retirement can seem like a distant dream, but it doesn’t have to be. Lorrie Delk Walker of Allen & Co. in Lakeland knows this from first-hand experience: before she started financial planning, she owned a small business.
“For me, I didn’t think about it at first because I was busy building my business,” says Walker. “All money was poured back into it.”
When she was able to start retirement planning, she was unaware of all the options available to her and it was frustrating when she found out. It still is.
“As a financial advisor, I still feel frustration for those 12 years where I could have been doing something more and something different had I only known something about it,” she says.
That’s one reason Walker thinks retirement planning is a key component to a thriving business, particularly for doctor owners of small medical practices.
Many small practice owners may not realize the availability and variability of the retirement plans. Many of these plans have been streamlined and are now relatively easy to integrate into their business. Walker highlighted several plans, including the traditional or Roth IRA, the SEP IRA, the Simple IRA, and the solo 401K.
Traditional or Roth IRA
The traditional IRA or Roth IRA may be great for small business owners who are just getting started and who may not have a lot of money to contribute or match, says Walker, but it does have its limitations.
“A Roth may be a great first start, but as you grow you can quickly outgrow the benefits of this plan,” Walker says in a recent blog post. “There are other plans that allow you to save a larger amount.”
This is an attractive option for small practices with no or few employees, according to Nerdwallet. The employer can contribute up to 25 percent of the employees’ pre-tax earnings or $57,000, whichever is less.
The SEP IRA gives the employer some flexibility, allowing them to decide how much to contribute, depending on factors such as profitability and cash flow. The plan can be set up if there is only one employee, or for sole proprietors, which may help keep the administrative costs lower than a solo 401k, according to Walker.
The Simple IRA may be a solution for practices of up to 100 employees. It gives employees the choice to contribute — or not — through their salaries. It also allows employers to make matching or fixed contributions, according to Walker.
This is an option for someone without employees, other than a spouse. The IRS allows the owner of the practice the ability to contribute as both employer and employee, according to Walker.
“As your own employer, you can make an annual contribution of up to 25 percent of your compensation,” says Walker. “This may be a good choice for those who want to save a lot of money for retirement or want to save a lot in certain years when income is more than normal.”
Whichever plan is used, small practice owners may not realize that retirement planning can also work as a recruiting and retention tool.
Financial planners agree that retirement planning is playing a bigger role in the hiring of new employees, with some benefits being used to recruit employees.
Whether it is starting a new plan toward retirement savings or conducting a review of a retirement current plan, the key is to start as soon as possible. Walker stresses that small medical practice owners should contact a financial planning professional to discuss the best option for their particular practice.
“Many small business owners aren’t aware of all of the options available to them,” she says. “A financial advisor can help you find the plan that meets your needs now and has flexibility as you build your future.”