Suggestions for setting up 401K retirement plans for medical practice

[oru.rd]

My partner and I would like to set up a 401K retirement plan for our medical practice. There are 2 physicians, 1 PA, and 9 other employees. I am hoping to get Bogleheads advice on the most efficient and cost effective way to set up a retirement plan for the practice. My partner is looking at a plan through a 3rd party company that costs $1000/year plus 1.25% AUM fees. The %AUM fee seems a bit high to me.

Ideally, I'd like to have access to Vanguard Mutual Funds as well as keep costs down. What are reasonable costs for setting up a 401K retirement plan for a small medical practice? Also, who can we partner with to help manage our retirement plan? Would appreciate the Bogleheads advice on this issue. Thanks!

[mhalley]

Sounds expensive. WCI recommends employee fiduciary I believe.

Employee Fiduciary has very low fees, $500 to start a new plan or for you, $1000 to convert an old plan. You would then pay $1500 a year (plus $30 a year for each employee above and beyond the 30 employees that the $1500 covers) plus 0.08% of assets under management. You have access to pretty much any investment you desire to put into the plan, including funds from 377 fund families (including Vanguard), all the ETFs on the market, or even a brokerage window run through TD Ameritrade (the same one used by HSA Bank).

https://www.whitecoatinvestor.com/your- ... qa-series/

https://www.employeefiduciary.com/

.08 sounds a lot better than 1.25!

[niceguy7376]

How about https://www.guideline.com/

[JamesSFO]

Given that you will be the largest contributors + savers in the plan I would be hesitant to sign up for such a large AUM fee. Vanguard/Ascensus also have plans. We use that service for our small law firm and since the partners are the biggest beneficiaries we chose to use Admiral funds and pay the higher service fee. Normally if you use investor shares, then the spread between Admiral and Investor defrays the administration of the plan. No AUM fees of any kind. But more like $2-3K/year.

We also layered on a defined contribution plan which is another $2-3K/year but all in we can shelter well more than $50K/year from taxes.

[JamesSFO]

I will also add to be able to save the most for yourselves you will likely need to add a safe harbor feature to your plan. Again, well worth it. We use the extra $ as a hiring inducement in communicating total salary to employees given that our pay is lower than larger firms but we cover 100% of employee health care and the 3% safe harbor it is a nice set of perks.

[mhalley]

Wow, Guideline is cheaper and has a great fund lineup and NO AUM. $500 setup, 8 dollars a month per employee, so 12 is $1152 per yr. Definitely looks worth checking out.

[boglechu]

Try paychex. I currently have 5 employees in safe harbor for $114/Mo.

The plan I have is guided choice which has about 20 preselected funds including schwab s&p, vanguard ideal, and dfa small cap.

Basic fee is 0.5%. If the participant selects guides choice robo advisor, it’s an additional 0.5%.

I integrate with my payroll.

[goGators]

Are these companies safe? What would happen to the investments if they go out of business?

[JamesSFO]

Are these companies safe? What would happen to the investments if they go out of business?

None of these companies directly hold your funds. All of them are third party administrators which partner with a financial institution to actually hold the funds.

For example, when we used Ubiquity (not recommended for many reasons), TD Ameritrade was holding our funds in a single pooled account, e.g. JamesSFO Company 401K Account. Looking at the TDA statements you only saw aggregates. If Ubiquity had gone under we would have had to look at reports to disentangle what was what.

Currently using Ascensus and Vanguard, Vanguard holds the mutual funds and Ascensus is the administrator. Under this plan, we do not ever see a company level account and each participant sees their holdings within their Vanguard account AND at a separate Vanguard-run site.

[boglechu]

The reason I like paychex is that it's 401k plan is competitively priced and it integrates with payroll. I was assigned one contact person that does my payroll each week after our office submits the numbers.

Each employee who participates can log online to adjust their 401k contributions.

What paychex is good for is if you wanted to set up a safe harbor 401k. you can also give standard profit sharing percentage to each employee. what it isn't good for is if you wanted to talk to a person to try to optimize the owner(s) contributions and wanted to try different methodologies since that would require a separate call to an 800 number of someone who isn't a dedicated person to your retirement account.

paychex also gives instructions on how to fill out the 5500 for each year. took like 10 minutes. i think if you found another company to run the 401k that charges 1%/year, they would do that for you.

funds are held by Mid Atlantic Trust Company and i get periodic statements from them.

My options:
Dfa Inflation Protected Securities I
Goldman Sachs Us Mortgages Inst
Metropolitan West Total Return Bond I
Prudential High Yield Z
Vanguard Short Term Federal Admn
Dfa Emerging Markets Core Equity I
Dfa International Core Equity I
Dfa Us Small Cap I
Goldman Sachs Large Cap Growth Insights Inst
Janus Henderson Triton I
Jhancock Multi-Index 2020 Preservation R6
Jhancock Multi-Index 2025 Preservation R6
Jhancock Multi-Index 2030 Preservation R6
Jhancock Multi-Index 2035 Preservation R6
Jhancock Multi-Index 2040 Preservation R6
Jhancock Multi-Index 2045 Preservation R6
Jhancock Multi-Index 2050 Preservation R6
Jhancock Multi-Index Income Preservation R6
Oppenheimer International Growth Y
Principal Mid Cap R5
Schwab S&P 500 Index
Vanguard Growth And Income Adml
Vanguard International Explorer Inv
Vanguard Mid Cap Index Fund Adml
Vanguard Windsor Inv
Money Market [?]
Federated Us Treasury Cash Reserves Inst

[goGators]

None of these companies directly hold your funds. All of them are third party administrators which partner with a financial institution to actually hold the funds.

Thank you James for the explanation. What about after-tax contribution for the purpose of mega-Roth back door conversion? Do you know any of these companies can handle that?

[Spirit Rider]

Thank you James for the explanation. What about after-tax contribution for the purpose of mega-Roth back door conversion? Do you know any of these companies can handle that?

After-tax contributions are subject to Actual Contribution Percentage (ACP) testing. With the typical census of a medical practice, Highly Compensated Employees (HCEs) will most certainly be restricted to a small after-tax contribution percentage.

On the other hand, medical practices are usually an ideal candidate for a safe harbor 401k plan with a New Comparability Method profit sharing. Usually requires a 5% profit sharing contribution. This satisfies the 3%+ safe harbor profit sharing option and provides additional safe harbor for the New Comparability Method.

This allows specific groups (professional, etc...) to receive a higher profit sharing percentage (3X+) than the 5%. Subject to cross testing, this could allow a higher earning physician the ability to maximize their annual addition limit (2017 = $54K, 2018 = $55K. This would be with pre-tax contributions, which are of a far greater benefit at a physician's marginal tax rate.

[goGators]

...this could allow a higher earning physician the ability to maximize their annual addition limit (2017 = $54K, 2018 = $55K. This would be with pre-tax contributions, which are of a far greater benefit at a physician's marginal tax rate.

Spirit Rider, I would like to confirm that with a New Comparability 401(k) Plan, one can, in 2018, contribute $55K PRE-tax to the plan and
NOT $18.5K PRE-tax + ($55K - $18.5K) POST-tax.

I had not heard about a New Comparability 401(k) Plan until your post. Thank you for pointing it out.

[Spirit Rider]

I was referring to the fact that physicians tend to be in higher marginal tax brackets. In those brackets it is usually better have pre-tax contributions. Any 401k participant has two limits whether they can reach them or not.

For 2018 they have an employee deferral limit of $18.5K. Employee deferrals can either be traditional (pre-tax) or Roth (post-tax). They then have an annual addition limit of $55K which consists of all employee + employer contributions. If they make the full employee deferral, this leaves $36.5K in additional contributions.

Employee after-tax contributions enable so called Mega Backdoor Roths for employees who have no other choice. Like a basic Backdoor Roth, the benefit is not that they are Roth IRA assets, but that they are additional tax-advantaged assets. On the other hand, employer contributions are always pre-tax.

A physician with a private practice will almost always be better of with a New Comparability Method profit sharing plan than after-tax contributions. This may allow them to have the full $55K in pre-tax contributions and still do a backdoor Roth. This is assuming the employee census and cross-testing makes this cost effective.

The New Comparability Method is less well known because it requires a fairly narrow set of circumstance. It generally works best for a small number of higher income individuals and a fairly small number of lower income individuals that can be placed in separate employee groups. It also requires a plan sponsor to be willing to give lower income employees a higher than average employer contribution.

[JamesSFO]

Our law practice uses the new comparability and we have a defined benefit plan layered on top, we can do just shy of $54K into the 401K and another 100K or so per partner into the defined benefit plan.