By Darren Royal
From the Spring 2018 Journal of the Colorado Dental Association
Dentists, like physicians, and other small business owners have similar concerns when setting up a 401(k) plan. They want to provide employees with an attractive workplace and a rewarding benefits package that includes a 401(k) plan, but they don’t have a dedicated staff member to assist with the details. Sadly, all too often, a dentist will not offer a 401(k) plan because they are expensive and there are a vast number of government rules and regulations that must be followed. Dentist owners already have their hands full running and growing their practices, so why would they want to set up a 401(k)?
Attract and retain top talent to stay competitive.
With the economy having largely recovered from the financial crisis and unemployment trending lower, many small business owners are finding it difficult to hire top talent. While a 401(k) plan might not be the deciding factor in determining whether a prospective employee accepts your job offer, a bad plan or no plan at all might be the tie-breaker.
Top talent expects to be well-compensated, and a quality 401(k) plan is part of a top-notch compensation package.
Financial wellness can help the bottom line.
Studies show that employees who are worried about retirement or other financial issues are less productive at work. Furthermore, a stressed out employee can experience health issues that, in the end, can drive up your practice’s healthcare costs.
Offering a solid 401(k) plan is a positive step for your employees on the road toward financial wellness. It gives the employee the ability to set up an automatic savings plan, by contributing through automatic payroll deductions. It also gives the opportunity to allow those contributions to grow tax-deferred, meaning there is no tax on the income generated from the investments from year-to-year.
Provide employees and employers with a tax-advantaged way to save for retirement.
Employees
Employees may contribute up to $18,500 per year and an additional $6,000 for those over age 50. The employer may offer a match to add to the employees’ contribution.
Employers
A 401(k) plan allows the employer to contribute up to $18,500 or $24,500 (if over 50) of their compensation. In addition, they can make a profit sharing contribution which may allow the employer to contribute up to 100% or their salary with total combined contributions not to exceed $55,000 or $61,000 for employers over age 50. Additionally, the employer has the opportunity to defer the taxes on the income generated by the 401(k). This may be beneficial assuming the dentist will be in a lower tax bracket during the withdrawal period than at present.
Business contributions and tax deductions.
Any employer matching contributions are tax-deductible as are any costs incurred by the employer in connection with offering the plan.
Traditionally, 401(k) options for small businesses have been limited due to high cost options with less than desirable investment options. Today, with advances in technology, there are a number of low cost, low-hassle options for dentists to consider. Offering a 401(k) plan is a win-win for a dentist’s practice because everyone wins—the dentist and the employees.
About the Author: Darren W. Royal is president and owner of Royal Wealth Management. Contact him at 720-733-9143 or darren.royal@lpl.com. Securities offered through LPL Financial, Member FINRA/SIPC.
This information was developed as a general guide to educate plan sponsors, but is not intended as authoritative guidance or tax or legal advice. Each plan has unique requirements, and you should consult your attorney or tax advisor for guidance on your specific situation. In no way does advisor assure that, by using the information provided, plan sponsor will be in compliance with ERISA regulations.
CDA Retirement Solution
The CDA is excited to announce its newest exclusive member benefit: The CDA Retirement Solution.
This program brings members 401(k) plans that they can use AND offer to their employees. These plans are easier to administer than traditional plans, reasonably priced and are supported by substantial well-known providers. The CDA Retirement Solution is a tool for your practice that allows you to offer a retirement plan to your staff, while reducing your administrative burden, transferring fiduciary risks, and potentially reducing costs. If you already have a 401(k) plan in place, The CDA Retirement Solution may still reduce the administrative requirements, risk and cost associated with your plan.
The CDA wants member dentists have more time to focus on what they love—helping their patients. This program provides a diverse offering of tools and services to build a pathway for your success as a dentist and as a business owner.
For more information on the program, contact CDA Executive Director Greg Hill at 303-740-6900 or greg@cdaonline.org.