You are earning a reasonable amount of money in your dental practice. You know that you need a retirement plan to secure your future. You have met with your consultants year after year and the only response you get to your questions is “If you want an IRS qualified retirement plan, you must not discriminate against your employees. They must have the same coverage as you.” After weighing the options that you have been given, you have come to the conclusion that your dental practice can not afford a retirement plan because of the additional costs needed to ensure that your employees and you are in the same position based upon the advice of your advisors. You have reviewed the studies that have been prepared for you and they reflect a large share of the deductible contribution allocated to your employees as well as to you. At this point, the decision to provide for your future and to reduce your current income tax problems have been put on hold because you can not afford the cost that you have been told is necessary for your employees’ share of the payment to a qualified retirement plan. You are frustrated and confused. Your personal income taxes keep getting higher and you have considered talking to an attorney about other areas of savings that are complicated and restrictive as to the control of the funds, such as irrevocable trusts and family limited partnerships. You don’t know what to do.
The following is intended to make you rethink your position concerning the ability to pay for and afford a qualified retirement plan contribution that you know is necessary to ensure your retirement.
If you had the advisors with the experience to design a qualified retirement plan that would provide for your future and that you could afford, it has been my experience that you would accept it. Designing a qualified retirement plan for a dental practice is a challenging and rewarding experience. An interview should be held between the dentist and an experienced retirement planner to discuss the ability to use eligibility requirements such as dates of birth, years of service, job classification and other areas of testing to determine who does not have to be included in the design format of a qualified retirement plan. Rather than starting with the theory of who must be included in the plan, the idea would be to develop a plan that meets all discrimination tests but works with the reverse concept of “ who does not have to be included” .
Once the determination has been made of the eligible employees, a study is prepared to see what contribution would be needed and the allocation of the contribution per employee, including the owner and key employees of the dental practice. Since there are many variations of retirement plans, the contribution level and its affordability are then discussed with the dentist-owner. It is important to keep in mind that a good planner does not merely look at the dental practice and its cash flow. The overall financial picture of the dentist is also needed because the concept of pretax funding is critical to the total well being of the dentist. The qualified retirement plan allows the ability to fund a retirement plan with the use of before tax dollars and most times substantially reduces the overall federal and state tax burden of the dentist who will contribute the largest share of the retirement contribution and should receive most of the benefit. Without knowledge of the personal financial picture of the dentist, the overview is missed and dollars will be wasted.
These retirement plans are not “boiler plate” designs for submission to the IRS. These are customized qualified retirement plans that are carefully designed for the dentist who wants to use every tool available to defer as much income as possible, build wealth as quickly as is affordable and live in a comfortable manner while the years of funding the retirement plan take place.
The advisor and dentist should discuss concepts such as the need for large personal savings accounts or investments. Retirement plans are immune from creditors. Personal investments and savings accounts are not. Retirement plans do not pay income tax on the accrual and accumulation of income and growth in their investment portfolio. As we all know, with a personal investment, unless it is a tax free bond or similar asset, the income is taxable when it is available to the investor. The ability to act as your own trustee and make all the investment decisions of the retirement plan is another feature that gives wide flexibility to a qualified retirement plan compared to an irrevocable trust, as an example, whereby you probably are prohibited from the investment control of the funds that you have advanced to the irrevocable trust.
Talk to an advisor who knows how to design a qualified retirement plan that is for the benefit of the contributing dentist and your ability to afford what you need will be available for you and your future. This is one tax shelter that the government wants to enhance. Many large businesses today are doing away with their retirement plans. You have an opportunity, using an expert in this field to be creative and start what others are ending in order to secure your future.
Bruce Bryen, CPA has successfully assisted dentists with their personal and financial matters for over thirty years. As a partner in The Snyder Group, he delivers creative strategies and prudent financial strategies to help dentists build and protect wealth at every stage of their careers. His extensive expertise includes financing, debt restructuring, retirement planning, and tax advising to help dentists keep more of what they earn. He can be reached at firstname.lastname@example.org. 1-800-988-5674.
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