in a 529 college savings plan. Also, there is no tax on the money as it is withdrawn, as long as it is used for qualified educational purposes. The U.S. tax law allows an individual to make a lump sum payment of up to $65,000 to a 529 plan and spread the gift over 5 years without incur-ring any gift taxes. Roth IRA Rule Change. In 2010, there is a rule change that could affect high income clinicians. The rule change would allow dentists with income of over $100,000 to move a traditional IRA into a Roth IRA. This would make future Roth IRA with-drawals free of any federal income tax. Of course, the clinician would have to pay any taxes due on the transaction, but the IRS allows these taxes to be spread over two years: 2011 and 2012. Pension Plans/Retirement Plans. Today there are a variety of vehicles that can provide platforms for retirement savings. Traditional IRAs, SIMPLE Plans, SEP IRAs, 401k Profit Sharing Plans and Defined Benefit Plans all have their place depending on the size and prof-itability of a practice. Each of these types of plans has a different thresh-old of annual funding requirements, and just as important, matching provisions and requirements to qualifying staff. Establishing the right type of plan is dependent on such variables as the age of the doctor, the profitability of the prac-tice, the size and age of the staff, and the constancy of production. Plan 2010 maximum funding allowed for different types of retirement plans Age 49 & Younger Age 50 & Older Traditional IRA Limits 401K Limits SIMPLE IRA SEP IRA $5,000 $16,500 $11,500 $49,000 Defined Benefit Plans offer a variety of funding limits, based more on age, income and staff demographics. Although these plans are more complex and require more administration, the tax savings can be dramatic and well worth the extra paper work involved. Typically, a new practitioner would start his or her practice with a tradi-tional IRA (or Roth IRA). These types of accounts require the smallest annual contribution and no matching component or other obligations for any of the owners’ employees. Often the new practitioner will have signifi-cant educational or business loans; it is best to keep the targeted annual retirement contributions conservative and flexible. The traditional or Roth IRA will be the best plan for new prac-titioners. Establishing an IRA can easily be accomplished with a mini-mum of paperwork at any large finan-cial institution or bank. $6,000 $22,000 $14,000 $49,000 The next level of retirement savings is a SIMPLE IRA. Charac-teristics of a SIMPLE IRA are simi-lar to a traditional IRA only with higher levels of contributions (see above chart). However, the practi-tioner is obligated to match on a dollar for dollar basis up to 3% of the employee’s compensation. Both the IRA and the SIMPLE IRA allow for a decent starting point for pre-tax savings vehicles. Although Defined Benefit Plans are more complex, and are subject to stringent testing rules administered by the IRS, clinicians should not be deterred from establishing these plans with a competent actuarial accoun-tant. The proper mix of allowed contributions and plan design could minimize the quarterly tax bite from our friends at the IRS. In addition, providing a wonderful retirement plan for our valuable employees, keeps us all more competitive. It goes without saying what happy, moti-vated, and enthusiastic employees can do for our practices. In summary, please contact and utilize professional help for setting up and funding your office pension plan. A well-designed and thought out plan can mean years of finan-cial comfort and security for you, your staff and your loved ones. References 1. Shiff, P.D. and Downes, J., Crash Proof 2.0, How to Profit from the Economic Collapse, John Wiley & Sons, Inc., Hobo-ken, NJ 2009. 2.Yellen, P., Bank on Yourself, Vanguard Press, NY, NY 2009. Happy, motivated and enthusiastic employees can enhance your practice. 30 July/August 2010 JAOS 3. Fitz-Gerald, K., Fiscal Hangover, How to Profit from the New Global Economy, John Wiley & Sons, Inc., Hoboken, NJ 2009.
Journal of the American Orthodontic Society July-August 2010/Buyer's Guide: Page 30
