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Designing Your 401(k) Plan
Begin today to secure future advantages for you and your team
Establishing a 401(k) retirement savings plan for your dental practice can be easier than you think. By implementing a 401(k) plan, you will help your employees save for the future while also securing your own retirement.
A 401(k) plan is a defined contribution plan. With a 401(k) plan, you and your employees can save money toward retirement on a tax-deferred basis. Generally, no federal or state income taxes are paid on the savings or investment earnings until the money is withdrawn at retirement. However, any withdrawals before age 59½ may be subject to a 10% federal penalty tax.
Other key benefits include:
• A well-designed 401(k) plan can help attract and keep talented staff.
• Your practice would be entitled to a tax deduction on matching contributions.
• Contributions may grow through a variety of investments, such as stocks, bonds, and mutual funds.
• Participants may take their benefits with them when they leave the company, easing administrative responsibilities for you.
When establishing a 401(k) plan, one of your first decisions will be whether to set up the plan yourself or to consult a professional or financial advisor. Using an advisor helps simplify the set-up process, which includes:
• adopting a written plan document.
• arranging a trust fund for the plan’s assets.
• developing a recordkeeping system.
• providing plan information for eligible staff.
In creating a plan, you will also want to consider eligibility, vesting, and contribution limits. With respect to eligibility, it is not unusual to create a plan that has a waiting period before an employee can participate. Although not required by law, you may choose to match a portion of the contributions employees make. These matching contribution amounts vary widely (usually from 25% to 100% of an employee’s contributions). In traditional 401(k) plans, you can design the plan so that your contributions become vested according to a schedule. If a staff member leaves before your contributions are vested, he or she forfeits those amounts.
The IRS sets a maximum amount that an employee can contribute to a 401(k) plan in any given year. For 2013, that amount was $17,500. Employees older than 50 years are allowed to make catch-up contributions above the maximum amount ($5,500 in 2013).
A 401(k) plan is subject to a number of IRS reporting requirements. These include keeping the plan up to date with new laws, performing nondiscrimination tests, filing an IRS Form 5500 return each year, and providing benefit statements and other plan information to participants at least annually.
There are certainly many elements to consider when designing and implementing a 401(k) plan into your practice. An independent financial advisor can work with you to develop and maintain a solid strategy for your retirement plan.
About the Authors
Thomas Seiler and Patrick Seiler are senior vice presidents of investments at The Seiler Group of Raymond James, which delivers tailored investment strategies. The company can be reached at www.raymondjames.com/theseilergroup.