Menu

Finally an owner … late to retirement planning … where to?

Home Retirement Accounts Finally an owner … late to retirement planning … where to?

  •  ThruTheForrest 
    Participant
    Status: Dentist
    Posts: 7
    Joined: 01/09/2019

    first post, so here goes!  Im a dentist and purchased / bought in to my current practice at 50% (only 1 partner) in late 2017.  i’ve been out for 5.5 yrs, but the first few yrs were very rocky, and retirement planning was last on my list of things to “get done”, and i didn’t know {profanity deleted by mod} about finances (thanks mom).  paid off tons of CC debt, moved a few times, got married, was unemployed for a short period, and bought a house.  but my 2018 was a fantastic year and i’m finally financially sound at this point. our practice is a s-corp with only two members, my partner and my self.  we do not have any profit sharing or retirement plans set up through the office (my partner doesn’t want to for a number of reasons, so that is currently not an option).  i want to set up retirement for my self (wife has hers through her work).  i have done my first backdoor Roth this month, but i dont know my options for doing a 401k.  im pretty sure i’ve read on here that i can get a solo 401k, but im not sure on the parameters on that.  i could very well incorporate myself, but i would not have an income.  I am a W2 through my office, and we do monthly distributions (K1).

    basically, where do i go from here?  last year i spent 30k on a truck for my wife and was able to save about 100k that is currently sitting in savings (wife wants a high “emergency” fund.  this account will be smaller once i know where to put the money).  i have 2 term life policies (personal and keyman), maxed out DI, and large umbrella personal insurance on all cars and house).

    mortgage is less than 200k remaining (we over pay and will pay off in 6 more yrs)

    student loans ~250k refinanced paying ~3k / mo (10 yr note)

    practice note ~800k paying 8100 / mo (7 yr note)

    savings / emergency ~100k

    taxes have been estimated and prepaid quarterly for 2018

    im new, and trying to absorb financially literacy as fast as i can read it.  thanks for your help!

    #179910 Reply
    jfoxcpacfp jfoxcpacfp 
    Moderator
    Status: Financial Advisor, Accountant, Small Business Owner
    Posts: 6382
    Joined: 01/09/2016
    im pretty sure i’ve read on here that i can get a solo 401k, but im not sure on the parameters on that.

    Click to expand…

    Any dental offices I’ve ever dealt with have employees. If that’s also the case for your office, a solo-k is not an option.

    I’m sure others will chime in with “where to go from here”. Financial planning would be very beneficial, but you can get a huge bump in financial literacy from this forum and may want to take a stab at DIY. And I’m sure you are working with a CPA for tax planning, projections, etc, right? S/he will be able to guide you, also.

    Congratulations on being financially set – and welcome to the forum!

    Johanna Fox Turner, CPA, CFP, Fox Wealth Mgmt & Fox CPAs ~ 270-247-0555
    https://fox-cpas.com/for-doctors-only/

    #179917 Reply
     ThruTheForrest 
    Participant
    Status: Dentist
    Posts: 7
    Joined: 01/09/2019
    im pretty sure i’ve read on here that i can get a solo 401k, but im not sure on the parameters on that. 

    Click to expand…

    Any dental offices I’ve ever dealt with have employees. If that’s also the case for your office, a solo-k is not an option.

    I’m sure others will chime in with “where to go from here”. Financial planning would be very beneficial, but you can get a huge bump in financial literacy from this forum and may want to take a stab at DIY. And I’m sure you are working with a CPA for tax planning, projections, etc, right? S/he will be able to guide you, also.

    Congratulations on being financially set – and welcome to the forum!

    Click to expand…

    2 docs, 9 employees.  but my office corp employs them, not me.  just like my self, I’m an employee of my office.  does that matter?  can i incorporate my self and do it?

    #179918 Reply
     jhwkr542 
    Participant
    Status: Physician
    Posts: 858
    Joined: 02/15/2016
    Earnest refinancing bonus

    If your business partner is completely against a retirement plan for the business, then you cannot open a solo 401k for yourself.  You’re left with Roth IRAs, HSA (if you have eligible healthcare plan), and taxable account.  With your loans, I’d probably not start a taxable account.

    #179920 Reply
    hatton1 hatton1 
    Participant
    Status: Physician
    Posts: 2737
    Joined: 01/11/2016

    Perhaps as you learn you can convince your partner to be on board about opening a practice 401k.  This will allow you to accumulate some retirement funds quickly.  You could to a SEP-IRA for a few years with a long vesting period for employees.  You could put more away with this but the downside is once employees vest you have to contribute not just match.  Also no backdoor roth.  Consider one of the financial planners recommended by WCI or taking his course.

    #179957 Reply
    triad triad 
    Participant
    Status: Dentist, Small Business Owner
    Posts: 190
    Joined: 04/29/2016
    You could to a SEP-IRA for a few years with a long vesting period for employees.

    Click to expand…

    he has to follow the same rules as the staff.  So if the requirement is 3 years, he has to be there 3 years as well before he can contribute to himself.  Since he bought into the office most likely there are staff that have been there longer then he has

    #179969 Reply
    nachos31 nachos31 
    Moderator
    Status: Physician
    Posts: 402
    Joined: 01/12/2016

    Not sure what rates your mortgage, practice loan, and student loans are but I’d throw extra money at the student loans and not the mortgage even if you were able to refinance the student loans to a really low rate.

    Can you explain the reasons your partner does not want to have a retirement plan? I’m guessing he doesn’t want to have to contribute to the employees?

    #179973 Reply
     ThruTheForrest 
    Participant
    Status: Dentist
    Posts: 7
    Joined: 01/09/2019

    Not sure what rates your mortgage, practice loan, and student loans are but I’d throw extra money at the student loans and not the mortgage even if you were able to refinance the student loans to a really low rate.

    Can you explain the reasons your partner does not want to have a retirement plan? I’m guessing he doesn’t want to have to contribute to the employees?

    Click to expand…

    that’s half of it.  he does more investing with real estate, etc, and has other avenues of monthly cashflow currently.  he’s been a dentist for 30yrs and has bought and sold a few practices in the past.  he has never had any “traditional” retirement funding, and with him retiring in 5-7 yrs sees very little benefit in starting now.  when i buy the remaining half when he retires then i have every intention to do it then.

     

    #179975 Reply
     jacoavlu 
    Moderator
    Status: Physician, Small Business Owner
    Posts: 1498
    Joined: 03/01/2018

    Any retirement plan has to be established by the Corp. You’re a shareholder-employee. As is the other owner. The office staff are employees. Any retirement plan has to cover everyone.

    Now, I’m not sure how the owners choose to allocate the income. The Corp income and distributions have to be allocated in proportion to ownership (50-50). But that doesn’t mean that you can’t allocate expenses on paper in an unequal manner. Just like you could pay a different salary to you versus the other owner. Or maybe your health insurance costs more or less than the other owner and is allocated to you and not them. And just because you have a retirement plan doesn’t mean that your co-owner has to participate.

    What I’m getting at is that if you really wanted to, the Corp could establish a safe harbor 401k-profit sharing plan. The expenses of the plan (administration, employer contribution costs to staff, etc) could be allocated to you and you alone, essentially taken out of your share of the pie, with no effect to the other owner. If you use a New Comparability cross tested plan, the other owner doesn’t have to contribute or get any profit sharing at all.

    Now this may not be worth it to you, in terms of cost vs benefit. But it’s not impossible.

    The Finance Buff's solo 401k contribution spreadsheet: https://goo.gl/6cZKVA

    #179980 Reply
    Liked by Zaphod
    Molar Mechanic Molar Mechanic 
    Participant
    Status: Dentist, Small Business Owner
    Posts: 264
    Joined: 10/29/2017

    Find a way to get the partner on board.  Some simple education might help.  My partner and I were far apart on investing strategy for our 401k (previously pooled) and DB plan.  I lost a lot of sleep, but finally showed him the numbers and he came around pretty quickly.  Your biggest hurdle is that for him to adopt the new plan, he will have to admit how much he’s cost himself over the years.

    You might want to get some quotes for the plan and see how the numbers stack up if you cover the entire match.  Personally, that would have been negotiated in before I bought in.

    #180048 Reply
    Kon Litovsky Kon Litovsky 
    Participant
    Status: Financial Advisor
    Posts: 812
    Joined: 01/09/2016

    Find a way to get the partner on board.  Some simple education might help.  My partner and I were far apart on investing strategy for our 401k (previously pooled) and DB plan.  I lost a lot of sleep, but finally showed him the numbers and he came around pretty quickly.  Your biggest hurdle is that for him to adopt the new plan, he will have to admit how much he’s cost himself over the years.

    You might want to get some quotes for the plan and see how the numbers stack up if you cover the entire match.  Personally, that would have been negotiated in before I bought in.

    Click to expand…

    That’s a great suggestion, but it depends on whether the numbers work in your favor.  If OP want to do any profit sharing, the cost of doing PS for 9 employees will probably be prohibitive for a single doc.  I would suggest doing a SIMPLE IRA instead, as the cost would be much lower.  If they have very high participation, a SIMPLE is also going to work out better than Safe Harbor 401k.  Only when the partner is ready to discuss doing 401k with profit sharing can they set up a plan like that for the practice.  Real estate investing is fine, but tax deferral is fine as well, and with the new tax law, he might be able to get an additional 20% deduction on any of his business income (other than W2) provided that he is in range to get the deduction (under $315k joint). He might not be happy paying for employees though, so in any case, there has to be an illustration done to show what his expected cost would be, and the benefits have to justify the costs.

    Kon Litovsky, Principal, Litovsky Asset Management | [email protected]
    -401k and Cash Balance plans for solo and group practices, fixed/flat fee, no AUM fees

    #180255 Reply
    Kon Litovsky Kon Litovsky 
    Participant
    Status: Financial Advisor
    Posts: 812
    Joined: 01/09/2016

    Not sure what rates your mortgage, practice loan, and student loans are but I’d throw extra money at the student loans and not the mortgage even if you were able to refinance the student loans to a really low rate.

    Can you explain the reasons your partner does not want to have a retirement plan? I’m guessing he doesn’t want to have to contribute to the employees?

    Click to expand…

    that’s half of it.  he does more investing with real estate, etc, and has other avenues of monthly cashflow currently.  he’s been a dentist for 30yrs and has bought and sold a few practices in the past.  he has never had any “traditional” retirement funding, and with him retiring in 5-7 yrs sees very little benefit in starting now.  when i buy the remaining half when he retires then i have every intention to do it then.

     

    Click to expand…

    Your only option at this point is to do Traditional IRA (which will be 100% deductible for you).  Don’t sweat it.  Pay down your debt, invest after-tax.  When the time comes you are never late to the party because you have the 401k with profit sharing and also Cash Balance plan available to you.  Just because you invest after-tax now and tax-deferred later does not mean that you are missing out on anything.

    Kon Litovsky, Principal, Litovsky Asset Management | [email protected]
    -401k and Cash Balance plans for solo and group practices, fixed/flat fee, no AUM fees

    #180256 Reply

Reply To: Finally an owner … late to retirement planning … where to?

In case of a glitch or error, please save your text elsewhere, clear browser cache, close browser, open browser and refresh the page.

you're currently offline

Notifications Mark all as read  |  Clear