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Re-evaluating private practice 401k

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  • Avatar drorth 
    Participant
    Status: Dentist
    Posts: 1
    Joined: 07/11/2019
    Splash Refinancing Bonus

    I’ve only recently discovered this site, but I’ve learned a lot reading through blog and forum posts.

    I currently have a small orthodontic private practice and have a 401k/Profit Sharing plan available for myself, my wife (employed by the office) and my staff. I’m currently in the process of doing my due diligence and re-evaluating the plan, fees, fund options, TPA fees etc.

    Here’s the thing, I now realize that the investment fees are high, and I also use an advisor – but returns have been good over the years, so I’ve let it go. Like a worn shoe, it’s comfortable to just let things go if they seem to be doing ok. Now that I have a little more knowledge from this and other sites, I am feeling like I need to start over. There’s a gut-wrenching fear of changing something that has worked over the years, combined with the uncomfortable feeling that I’ve probably significantly shortchanged my retirement due to the higher fees. I regret not finding WCI years ago!

    I will likely never be a DIY investor, as retirement is too close in the horizon and I don’t want to mess anything up. So, what would be the best way to proceed? My thought was to get another opinion from a fee only advisor and go from there. Any other suggestions on how to make a very difficult change like this?

    Thank you!

    #233561 Reply
    Liked by q-school
    Avatar Peds 
    Moderator
    Status: Physician
    Posts: 4452
    Joined: 01/08/2016

    Do it sooner rather than later.

    #233587 Reply
    Avatar jacoavlu 
    Moderator
    Status: Physician, Small Business Owner
    Posts: 2382
    Joined: 03/01/2018

    Start here

    https://www.bogleheads.org/wiki/Setting_up_a_401(k)_plan

    Also search for blog posts here on WCI written by Kon Litovsky

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

    #233600 Reply
    Liked by drorth, Peds
    Kon Litovsky Kon Litovsky 
    Participant
    Status: Financial Advisor
    Posts: 926
    Joined: 01/09/2016

    I’ve only recently discovered this site, but I’ve learned a lot reading through blog and forum posts.

    I currently have a small orthodontic private practice and have a 401k/Profit Sharing plan available for myself, my wife (employed by the office) and my staff. I’m currently in the process of doing my due diligence and re-evaluating the plan, fees, fund options, TPA fees etc.

    Here’s the thing, I now realize that the investment fees are high, and I also use an advisor – but returns have been good over the years, so I’ve let it go. Like a worn shoe, it’s comfortable to just let things go if they seem to be doing ok. Now that I have a little more knowledge from this and other sites, I am feeling like I need to start over. There’s a gut-wrenching fear of changing something that has worked over the years, combined with the uncomfortable feeling that I’ve probably significantly shortchanged my retirement due to the higher fees. I regret not finding WCI years ago!

    I will likely never be a DIY investor, as retirement is too close in the horizon and I don’t want to mess anything up. So, what would be the best way to proceed? My thought was to get another opinion from a fee only advisor and go from there. Any other suggestions on how to make a very difficult change like this?

    Thank you!

    Click to expand…

    It is always tough to make changes to something that seems to work fine.  So it is worth doing a comprehensive review just to see whether you are missing something important.  Fees and investment options are the easy one to go after.  However plan design and compliance are the hidden part that should also be examined closely.  A TPA should be in charge of the administration and compliance for you plan, and your adviser should be an ERISA 3(38) fiduciary in charge of investments (and they should also be providing comprehensive plan level advice to you on such things as whether your profit sharing is cost-effective and whether you should be adding a Cash Balance plan to the 401k). Making sure that your TPA is doing their job is important, as they usually don’t provide proactive advice, so you have to ask them the right questions to get the right answer back.

    There are many things to consider:

    https://litovskymanagement.com/2015/07/small-practice-retirement-plans/ (with a link to WCI articles)

    If you have a good TPA, that’s a starting point.  The main idea is that your plan should be set up in such a way that replacing service providers should not be hard.  For example, if you use independent TPA, an open-architecture record-keeper and an adviser (an ERISA 3(38) fiduciary), then any part can be replaced without any issues and without ‘losing’ the whole plan in the process. A small practice plan is just as complex as a plan for a big practice, however you don’t have enough support/oversight if your providers are not doing their job, so smaller plans usually have a lot more problems than larger ones.  If you follow the open architecture recipe, pick the best service providers and eliminate most if not all asset-based fees from your plan, that will at least guarantee that you don’t have to worry about administration and compliance, and that over time you will not keep paying higher fees for no added service. Some plans that have all of the above-mentioned components often do not have everyone working together as a team, and this can also result in a badly managed plan. Advice is really the main part of using a good retirement plan adviser and a high quality TPA (who should also be working together on your behalf), and this is what can make a big difference for docs with more complex retirement plan needs.

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

    #234341 Reply
    Avatar exces6 
    Participant
    Status: Resident
    Posts: 15
    Joined: 02/06/2019

    I haven’t done this myself, but looking into it a while back people on Reddit had good things to say about Employee Fiduciary. They can handle as much or as little as you want them to (e.g. they offer TPA services and recordkeeping). They apparently have access to Vanguard funds and other low expense ratio offerings that are en vogue these days (and can save your employees a lot of money long term).

    #235763 Reply
    Kon Litovsky Kon Litovsky 
    Participant
    Status: Financial Advisor
    Posts: 926
    Joined: 01/09/2016

    I haven’t done this myself, but looking into it a while back people on Reddit had good things to say about Employee Fiduciary. They can handle as much or as little as you want them to (e.g. they offer TPA services and recordkeeping). They apparently have access to Vanguard funds and other low expense ratio offerings that are en vogue these days (and can save your employees a lot of money long term).

    Click to expand…

    I have plans with EF. Would not recommend without a TPA. You end up having to do everything yourself because your plan coordinator is not exactly going to give you any advice, and you never have a direct access to a TPA. I also would not trust the quality of their designs. And forget combo 401k/Cash Balance plans, that’s off the table, you have to find an actuary on your own. So if you have a basic safe harbor plan with nothing else, they might be fine (though I would still not trust their compliance support as they are not really a TPA), but if you have a large practice and more sophisticated needs, get an independent TPA before looking for a record-keeper. And for larger plans I would use other record-keepers such as Ascensus as they don’t have any AUM fees (EF does). So before selecting your service providers consider what your plan’s needs are. If you are looking for advice, select the best service providers who can provide advice to you for a fixed/flat fee, and the choice of the record-keeper is secondary as all of them offer open architecture.

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

    #235766 Reply

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