Explore Your Retirement Plan Options
Four popular plans to help secure your financial future
These days, Americans are living longer and healthier than ever before. That's great news, but it also creates concerns. At a time of disappearing pensions and questions about the future of Social Security, it's no wonder more and more people fear outliving their assets. With all the time you devote to your day-to-day practice, it's important to keep an eye on the horizon--the retirement years when you (and your devoted staff) expect to be enjoying the fruits of all that hard work and training. If you haven't considered setting up a retirement plan, it's time to start. Here are some of the more popular options:
The 401(k) plan is the granddaddy of employer-sponsored retirement plans, and perhaps the most popular employee savings vehicle in the post-pension retirement world. With a 401(k), employees choose how much of their salary to contribute on a pretax basis, meaning they pay no income tax until they start removing the money in retirement. Although employee participation isn't mandatory, it may be the best chance you have to encourage your employees to save. You may sweeten the deal by offering to match a certain percentage of their contributions.
The plans do have drawbacks: Employee contributions are capped at $17,500 in 2013 (plus a $5,500 catch-up allowance for those 50 and over); they can be relatively expensive to administer; and you must demonstrate that the plan complies with "nondiscrimination rules"--meaning the plan doesn't favor your higher-paid employees. Still, for many practices, a 401(k) plan is a tried-and-true solution.1, 2, 3
A 403(b) plan is a close cousin of the 401(k), but designed specifically for nonprofit organizations, including hospitals. A 403(b) has the same contribution limits and catch-up provisions as a 401(k) and also allows participants to contribute pretax dollar--the hospital and not-for-profit corporation equivalent to a 401(k) plan. With a 403(b) plan you must comply with the same nondiscrimination rules that apply to a 401(k).4
SIMPLE 401(k) Plan
If your goal is simplicity and ease of administration, a SIMPLE 401(k) plan may be the choice for you. SIMPLE (short for Savings Incentive Match Plan for Employees) plans are open to any company with 100 or fewer employees. As with a regular 401(k), contributions are pre-tax, meaning participants won't have to pay income tax on the contributions. One shortcoming of the SIMPLE 401(k) is low employee contribution limits of just $12,000 for 2013 (employees over 50 may contribute an additional $2,500 catch-up). On the other hand, these plans are far easier to administer than 401(k) plans, and hence more cost-effective.5
Simplified Employee Pension (SEP) Plan
Though SEP plans are open to any size business, they are ideally suited to very small companies or sole proprietorships. As the employer or sole proprietor, you get to deduct contributions made for yourself or for employees. One thing that makes SEP plans so attractive to sole proprietors is the ability to donate up to 25 percent of compensation or $50,000 (for 2012). The high limit enables a self-employed person to accrue a higher total of savings for retirement than with most other methods.6
While it's never too late to start saving for retirement (and encouraging your employees to do so), wisdom dictates starting early and contributing regularly. The more you learn about these options, the better chance you'll have of setting yourself and your employees on a course to financial security.
5 http://www.irs.gov/Retirement-Plans/Choosing-a-Retirement-Plan:-SIMPLE-401(k)-Plan 6 http://www.irs.gov/Retirement-Plans/Choosing-a-Retirement-Plan:-SEP