Is your retirement plan losing substantially and you don’t know how to fix it? Are you worried about extending your time as a practicing dentist when you can retire comfortably?
With the stock market crashing on occasion and the outlook for the future not so bright, many dentists are wondering whether they are going to have to work additional years to catch up on their retirement savings. If you are still earning substantial monies and want a method to invest large amounts of money into the retirement plan, get big tax write-offs and have a chance to retire when you want to do so, follow this plan that will be laid out in this article.
Right now most dentists have a 401k profit sharing plan for various reasons, one of which is that they can’t afford to make contributions that would be on the higher side for the rank and file employees. They also are upset about the cost to adopt a more sophisticated retirement plan since it is much more complex than the 401k profit sharing plan and its annual costs to compute the contributions are much higher. However, let’s take a look at this sophisticated plan, commonly known as a defined benefit plan or a cash balance plan to see if it can get you to retire when you want to do so. I know that it can.
The defined benefit plan or cash balance plan.
Many of the high earning dentists have done away with this type of plan if they originally adopted it because of costs to continue it and the contributions for the employees. In today’s market place, it may not be a bad idea to look at it again since the contribution level is amazingly high. Discrimination testing can be used by adding a 401k to the plan and segregating employees by job classification and age so that the younger personnel will be in the 401k profit sharing plan and the owner and key older employees will be in the defined benefit or cash balance plan. For those who have never utilized this type of retirement plan for contributions, you may be surprised that a tax deductible contribution of $150,000 or more can be paid into this type of retirement plan.
It is sophisticated and uses the funds distributed to the participants as the goal and not whatever is in the retirement plan such as the 401k profit sharing plan, which is known as a defined contribution plan. With the defined contribution plan, the amount to contribute to the retirement plan is fixed as an amount that can’t go above a certain level. The defined benefit plan or cash balance plan contribution is not fixed. It is based on the age of the participant, the compensation of the participant and the earnings or losses in the retirement plan. It forces a much higher contribution to the retirement plan than the 401k profit sharing. This contribution will allow the defined benefit or cash balance plan to be funded much more quickly than a 401k profit sharing plan as the tax deductible contributions can exceed the $150,000 level suggested in this article.
The ins and outs of planning and implementation of the defined benefit cash balance plan.
There are many nuances to the adoption of the defined benefit cash balance plans in getting it up and running. As long as the dentist’s income is reasonably good and he or she is around 50 years old or older, this type of retirement plan is a must for the dentist to initiate and to talk to a dental CPA or actuary who knows what they are doing.
Without the ability to use legal discrimination, the plan won’t work. Adopting another 401k profit sharing plan may be a critical point to consider. Also, those in the know will have other ideas that can keep the costs of the annual contributions for the employees on the lower side. It is more expensive than defined contribution plans, but it also gives much larger deductions as well as allowing the investments to be made by the trustee of the plan, who can be the owner of the dental practice. This is unlike the 401k profit sharing plan where you must use mutual funds for the investments.
When you compare the adoption fees of the 401k profit sharing plan at about $4000-$5000 and then look at the defined benefit plan and cash balance plan at $7500 or more, there certainly is a big difference. There is also a big difference between the annual contributions to the plans where a 401k profit sharing may be in the $50,000-$60,000 range while the defined benefit cash balance plan may be well in excess of $150,000. This writer urges those who are extending their retirement dates, wondering how much longer they are going to have to work and also wondering how much they will have to live on when they do retire to have a consultation with an expert dental CPA who understands retirement plans such as the defined benefit plan.
The annual administrative costs are much higher as well. In 5 years, though, you can have almost $1,000,000 accumulated in the defined benefit cash balance plan and you can take care of the investments on your own, which will also save you a lot in administrative fees.
Don’t’ say no without a conference with an expert.
The experts in this type of planning can show you where you will be in 5 years with the tax savings you will incur so you can make the contributions without a change in your current life style and with the investments that you will be making. You will be acquiring stocks and bonds at today’s low end pricing rather than what you paid when your market values have shrunk so substantially over these past years since you paid so much more when the stocks were selling at higher prices. Your retirement does not have to be postponed with some good planning and using expert advice.