Weighing the best retirement plan for practice, employees
Understanding various programs can help physicians make appropriate choice
Many retirement plan alternatives are available to help physicians and their eligible employees save for retirement.
For most business owners, a Simplified Employee Pension Individual Retirement Account (SEP IRA) was once the most cost-effective choice. Then, the Savings Incentive Match Plan for Employees (SIMPLE IRA) became a viable alternative.
Today, physicians may find that a defined benefit or 401(k) plan best suits their needs. To make an informed decision on which plan is right for a physician’s practice and employees, review the differences carefully before choosing.
This plan is flexible, easy to set up, and has low administrative costs. An employer signs a plan adoption agreement, and IRAs are set up for each eligible employee. When choosing this plan, physicians should know that it does not allow employees to save through payroll deductions, and contributions are immediately 100% vested.
The maximum an employer can contribute each year is 25% of an employee’s eligible compensation, up to a maximum of $265,000 for 2016. However, the contribution for any individual cannot exceed $53,000 in 2016.
Employer contributions are discretionary and may vary from year to year. With this plan, the same formula must be used to calculate the contribution amount for all eligible employees, including any owners. Eligible employees include those who are age 21 and older and those employed (both part time and full time) for three of the past 5 years.