Worth changing to private practice without a 401K plan?

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JB2013
Posts: 85
Joined: Mon Sep 12, 2016 1:04 pm

Worth changing to private practice without a 401K plan?

Post by JB2013 » Tue Sep 12, 2017 5:41 pm

Hi folks. I'm 32 years old early in my career working in the mental health field. I work in a satellite clinic that's connected with the hospital system, primary care, etc. I've been here for over two years and a few people have been landing jobs in a private practice setting with other clinicians working as independent contractors. Not until recently have I really thought about making the move because I get pretty good health insurance--$750 is my family deductible and once met only pay anywhere from 5-10% of services after that. My premium is $298 per month. There's also other perks with my work including CEU money of $1,000 per year, them paying for my license at $150 per year, case consultation which not all clinics might have, etc etc.

My current salary is around $88K per year. The 401K plan is they will match up to 50% up to 4% of my contributions. At the end of the year they also will contribute 4% of my total earned salary for that year (I can make more than 88K if I make more than what they pay me.)

With a private setting, there is no 401K, but the income has a much greater potential. One woman who recently had an interview said she gets 65% of the fee, and an average fee for a session is right around $160. I figure on average I would see around 25 clients per week. So this math works out to $104 per session, earning around $2600 per week, $5200 per pay period. With taxes taken into account my take home pay would be around $3,800 per pay period.

At my current job my take home pay is $2,411 per pay period with the 4% 401K contribution. With the private practice job that's $2,778 more money per month take home pay, which is quite significant. My only rub is the no 401K plan so I'd have to do everything in a Roth IRA which is maxed at $5,500 which I feel would hurt my retirement forecast. There also is no health insurance so I would have to purchase a plan from the market.

Can anyone help me discern purely from a financial point of view if this would be a wise move to make in my career? Thanks so much!

ThrustVectoring
Posts: 162
Joined: Wed Jul 12, 2017 2:51 pm

Re: Worth changing to private practice without a 401K plan?

Post by ThrustVectoring » Tue Sep 12, 2017 5:59 pm

As an independent contractor, you can set up a solo 401(k) or a SEP-IRA. You'd have to do the math to figure out how much you'd have to make in order to give an equivalent pay + benefits package as your current employer offers. Like, count employer matching funds the same as pre-tax income, count how much it'd take to buy a comparable health insurance package, how much money you'd have to save to make up for missing income during vacation, etc.

As far as retirement savings go, getting self-employment income and setting up a SEP-IRA or the like is a significant advantage for incomes between ~$50k and ~$200k, due to the increased retirement account contribution limits. The SEP-IRA lets you contribute the lesser of 25% of your income and $53k, and this can often be better than your employer's 401(k).

tl;dr - figure out how much you'd have to pay to replace your current employer's 401(k) and health insurance benefits and subtract it from expected earnings as an independent contractor. A SEP-IRA can largely replace a 401(k), and can have higher contribution limits, which is nice.

JBTX
Posts: 908
Joined: Wed Jul 26, 2017 12:46 pm

Re: Worth changing to private practice without a 401K plan?

Post by JBTX » Tue Sep 12, 2017 6:07 pm

Agree with TV, as an independent contractor you can set up your own plan.

It may make sense to talk to a good tax accountant to recommend what sort of legal entity you wish set up. Just as a sole proprietor, or something else? There are tax advantages and liability protection advantages of doing one thing vs another.

N10sive
Posts: 281
Joined: Thu May 05, 2016 6:22 pm

Re: Worth changing to private practice without a 401K plan?

Post by N10sive » Tue Sep 12, 2017 6:20 pm

Would you be strictly an independent contractor? Did your math including the complete social security tax?

I would also look at market plans. For a single person I was looking at $900 per month. For a Family with a good plan Id imagine its significantly more. Check out those things. IT sounds like an okay move, but just the job security of an independent contractor would give me some worry. Are you guaranteed to see those 25 patients a week?

mega317
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Joined: Tue Apr 19, 2016 10:55 am

Re: Worth changing to private practice without a 401K plan?

Post by mega317 » Tue Sep 12, 2017 6:31 pm

You certainly have to prepare for how your financial picture would change, but I wouldn't use that to make a decision. Is there a difference in the types of patients? Hours? Academic opportunities? You have to be happy with the work--that's much more important than the money.

aristotelian
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Joined: Wed Jan 11, 2017 8:05 pm

Re: Worth changing to private practice without a 401K plan?

Post by aristotelian » Tue Sep 12, 2017 6:50 pm

+1, you can do a solo 401k so you would not lose any tax benefits. In fact, you would be able to defer more money because you make your own "employer" contribution up to 25% of your net earnings.

You would lose your current effective 6% employer match, so you would need your private practice income to be 6% higher than your current salary to come out ahead.

JB2013
Posts: 85
Joined: Mon Sep 12, 2016 1:04 pm

Re: Worth changing to private practice without a 401K plan?

Post by JB2013 » Tue Sep 12, 2017 7:02 pm

N10sive wrote:
Tue Sep 12, 2017 6:20 pm
Would you be strictly an independent contractor? Did your math including the complete social security tax?

I would also look at market plans. For a single person I was looking at $900 per month. For a Family with a good plan Id imagine its significantly more. Check out those things. IT sounds like an okay move, but just the job security of an independent contractor would give me some worry. Are you guaranteed to see those 25 patients a week?
In this field you aren't guaranteed anything, lol. You could in theory have 4 no shows for the day which does happen. Just the nature of the work. My math did include social security tax. My 25 patients per week was an average. It certainly isn't a guarantee.

JB2013
Posts: 85
Joined: Mon Sep 12, 2016 1:04 pm

Re: Worth changing to private practice without a 401K plan?

Post by JB2013 » Tue Sep 12, 2017 7:04 pm

mega317 wrote:
Tue Sep 12, 2017 6:31 pm
You certainly have to prepare for how your financial picture would change, but I wouldn't use that to make a decision. Is there a difference in the types of patients? Hours? Academic opportunities? You have to be happy with the work--that's much more important than the money.
Hours are up to me so to speak. It's all up to how much I want to work. The type of patients is unknown at this point, but my guess highly similar, but it varies as some places have "specialties." I'm just trying to balance the money aspect with a sense of security. My paychecks would fluctuate with the private practice, whereas here they stay the same regardless how many I see per week or month. They work it out at the end of the year where maybe I lower my weekly draw from my salary to make up for money lost, or they give a payout if I earned more money. I got a $7,500 payout in January 2017 from more earned money than what they gave me. That was a nice bonus :)

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