Best account type for solo or a small group of physicians.

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jackal
Posts: 104
Joined: Thu Jan 14, 2010 7:24 am

Best account type for solo or a small group of physicians.

Post by jackal » Wed Aug 02, 2017 3:52 pm

Could someone help me figure out what a solo/ small group of physicians could use for tax deferred savings and the max annual limits and how to get there.
So far, from what I understand, it is basically a choice between a solo 401k and a sep ira and these could be Roth or traditional?
What are some third party administrators who you may recommend for these plans?

nervouscorps
Posts: 36
Joined: Sun Jan 05, 2014 8:01 pm

Re: Best account type for solo or a small group of physicians.

Post by nervouscorps » Wed Aug 02, 2017 5:20 pm

I own a small medical group and we ended up doing a 401K with Employee Fiduciary and are happy with it. We may explore down the line a Cash Balance Plan as we get bigger but for now the 401k everyone seems to be happy with.

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BolderBoy
Posts: 4173
Joined: Wed Apr 07, 2010 12:16 pm
Location: Colorado

Re: Best account type for solo or a small group of physicians.

Post by BolderBoy » Wed Aug 02, 2017 6:06 pm

jackal wrote:Could someone help me figure out what a solo/ small group of physicians could use for tax deferred savings and the max annual limits and how to get there.
So far, from what I understand, it is basically a choice between a solo 401k and a sep ira and these could be Roth or traditional?
What are some third party administrators who you may recommend for these plans?
If solo, then solo 401k with Roth option (even if you don't use it). If any employees or more than one partner, a traditional 401k with a Roth option. VG offers such (thru a secondary provider). Fidelity offers this in-house I believe. Schwab, etc. Lots of low cost choices.

I had my solo 401k with all three at some point, though I'm back with VG permanent now.
"Never underestimate one's capacity to overestimate one's abilities" - The Dunning-Kruger Effect

Spirit Rider
Posts: 9146
Joined: Fri Mar 02, 2007 2:39 pm

Re: Best account type for solo or a small group of physicians.

Post by Spirit Rider » Wed Aug 02, 2017 8:05 pm

A one-participant 401k can still be used with a multiple person partnership when there are no employees other than spouses. An S-Corp with multiple shareholder-employees is treated as a partnership for retirement plan purposes. However, the plan must be adopted by the partnership/S-Corp and the employer contribution percentage must be the same for all partners/employee-shareholders and their spouses.

The one-participant 401k will allow you to make a 2017 maximum employee deferral of $18K. In a partnership the maximum employer contribution is 20% of net self-employee income. With an S-Corp the maximum employer contribution is 25% of W-2 employee wages. Don't be confused, this is simply the way these numbers are calculated. They are both still 25% of compensation. There is also a 2017 annual limit of $54K that applies to the total of employee + employer contributions.

You do not need a TPA for a one-participant 401k plan unless you want special features such as the Mega Backdoor Roth. This feature is much less beneficial for doctors, because at there income they can usually reach the annual addition limit with just employee deferrals and employer contributions. Also, because at their income levels and marginal tax rates, pre-tax deferrals would generally be preferred to Roth deferrals and/or Mega Backdoor Roth. You then use a Backdoor Roth, because it is additional tax-advantaged space.

If you have non-spouse employees then you can not have a one-participant 401k. You must use a small business 401k and probably want to use a safe harbor 401k. Pretty much all of the above still applies. As mentioned, Employee Fiduciary is a good low cost TPA for a small business 401k with a limited number of employees.

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