By Mike Fratantoro
By Mike FratantoroWhen it comes to retirement planning, orthodontists face the responsibility of choosing the right plan for themselves and their practice. But finding the appropriate plan, one that can maximize retirement savings for you and your staff, can vary from one practice to the next, and even change over time.
Every orthodontic practice’s needs are different, and according to Tom Zgainer, vice president of corporate retirement plans for Personal Capital, knowing your options and assessing your retirement goals are critical steps in choosing the best plan. “When a business owner comes to me and says I want to start a 401(k) plan, I put them on ‘pause’ and ask them what they want to accomplish, first. What are their individual and corporate objectives? How much do they want to contribute each year?” Zgainer says. “I say, ‘Let’s figure out what you want to accomplish, and let’s craft a solution around that.’ “
Personal Capital is a financial management company that advises individuals and businesses on choosing the most appropriate retirement plans. When consulting a doctor, Zgainer’s company conducts a “census” of the practice to determine its employee demographics, including ages, wages, birth dates, hire dates, and other factors. “We find that the census is what tells the story. We don’t presume, for example, that a 401(k) plan is going to be the best thing for them,” says Zgainer, whose company analyzes the information in order to design the plan type that best fits the business. “You can’t be sure of the best plan until you see the numbers on paper.”
When it comes to setting up a retirement plan for your business, Zgainer urges orthodontists to understand their options. Each plan differs in its contribution sources (employers, employees, or both), maximum salary deferral limits, vesting, and flexibility for additional contributions. Understanding your individual goals and the “census” of your business are critical to choosing the plan that’s best for you, Zgainer says. “Not all plan types are equal.”
Some of the most popular options for small businesses include traditional 401(k) plans (employee-funded, employer funding optional), SIMPLE 401(k) plans (employee and employer-funded), and SEP plans (employer-only). A SIMPLE 401(k) can be a good option for start-up businesses, but Zgainer cautions against their long-term practicality due to lower salary deferrals and limited options for additional contributions. “Your ability to accelerate your contributions for retirement are minimized,” he says. SEP plans, on the other hand, are funded only by employers. The contribution percentage must be equal for all employees, which means if the doctor wants to contribute 20% to his or her account, they have to give every other employee 20%. “That can get really expensive, from an employer contribution point of view,” Zgainer says.
Meanwhile, a traditional 401(k) plan is a salary-deferred retirement account funded by employees with optional contributions from employers. Although 401(k) plans have maximum contribution limits, these can be combined with additional contribution plans, such as profit sharing, defined benefit plans, cash balance plans, and new comparability plans, all of which allow employers to invest additional dollars into their retirement savings.
For orthodontists who do not have a retirement plan in place, Zgainer recommends focusing first on plan design and your individual and corporate objectives. “Get an idea of how much you can and would like to save, and work with someone who can illustrate the possibilities to you. You can always determine to what extent you want to fund the plan,” he says.
As for orthodontists with existing retirement plans, Zgainer recommends getting your plan assessed. “It’s a good idea to get an independent benchmark that compares your plan against others. Not just from a cost perspective, but to be sure that the design itself is working out the best it can for you.”
The right plan changes over time, according to Zgainer, and the same retirement options that make sense for you early in your career can soon change and affect your savings potential later in life. “One of the good things about retirement plans is that the older you get, the more aggressive you can actually become because as your years to retirement are minimized, you can accelerate contributions into certain plans,” he says.
“If you set up a plan 6 or 7 years ago, you may be able to create a fundamentally different savings plan now that you couldn’t then,” Zgainer says. “It pays to not simply let your plan age with you. Just like your patients, who come to you for check-ups, your retirement plan deserves regular check-ups as well.” OP
