Wednesday, August 17, 2011
THERE’S MORE TO RETIREMENT PLANNING FOR SMALL PRACTICES THAN SEPS!
12:23 PM | 
Posted by
pensionfinancialservices |
For a time, it was a fashion for small businesses to be advised to use Simplified Employee Pension (SEPS) as an individual retirement account instrument for the purposes of saving for retirement and for the tax benefits. Any employee or employer qualifies—no matter how small the business, and the cost of starting a SEP is virtually nil. It’s easy to see why it sounds attractive to a small business.
But since the popularity of SEPS became automatic for some businesses, the retirement planning industry was busy creating new and more creative options that help an independent practitioner with a small staff make out much better in the longrun financially.
Because of the new opportunities, you can pay a big price for not staying up-to-speed on retirement planning instruments, particularly 401(k)s, and a specific type: Profit Sharing with New Comparibility plans. That ends up being the hidden cost of having a SEP. Wait till you see the numbers!
What are the downsides to a SEP? Example: You have a medical practice and you’re starting small: you (the doc) plus someone in the office and a nurse. Your gross salary is $300K; your receptionist is $30K, and your nurse is $45K.
Spin it into what happens in five years. If you have a SEP, you will be paying in 15% of the salary for all employees (including yourself). At the end of five years, your receptionist will have accrued $26,400; your nurse with $39,600, and you will have $215,600 (at an estimated 8% interest rate).
Does this sound good? Not really when you match it against a Profit-Sharing with New Comparability Plan.
In fact, if you had had that Profit-Sharing plan, assuming that you contribute the maximum contribution to the plan for your own salary of $49,000 per year, while your employees will get 5% of pay, in five years you would now have $287,300 in your account.
So if you run a small practice of any kind, IS THE RETIREMENT DOCTOR IN?
You know that you must manage your practice with the best supplies, software and practices possible – but are you taking care of your fiscal self?
Stay tuned for our next blog about Profit-Sharing Plans with New Comparability.
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