Retirement Savings Plans Abound for Business Owners

BY STEVE DINNEN

You’re a partner in a thriving medical practice. Or maybe you own a successful construction business. You’re very busy, very well paid and maybe not thinking much about a retirement savings account in the belief that it wouldn’t allow you to accumulate much money.

You may be wrong. True, a workplace 401(k) plan will let you set aside no more than $18,500 a year ($24,500 if over age 50). But what about a profit- sharing plan, which can work very well with a medical practice? There, the tax-deferred set-aside can top out at $60,000. Add that up over 25 years and you can accumulate some serious money.

Dennis Markway, founder and president of Johnston-based Iron Horse Wealth Management LLC, said business operators sometimes focus on building up what they can see around them now and set aside thoughts of retirement planning.

“Lots of owners don’t take time to wade through the variety of options available to them,” Markway said. And they may not realize that the retirement savings industry has become sophisticated in advising what kinds of plans they can establish that will produce long-term benefits to both their employees and themselves.

There is a long list of choices. Yes, there is the 401(k). A much richer variation is a Solo 401(k), which works for sole proprietors and independent contractors such as consultants. The 2018 contribution maxes out at $55,000, or $61,000 if you’re over 50.

In addition, there are SEP IRAs, which the employer funds, and SIMPLE IRAs, which the employee funds with a matching add-on by the employer. The SEP IRA has a relatively rich contribution limit of $55,000 for 2018.
The SEP-IRA approaches the richness of the profit-sharing plan, which likewise is employer-funded. These higher-limit plans are good retirement savings catch-ups for medical professionals, said Markway, since doctors and dentists may have great incomes but great college bills to pay down first. The same could hold true for lawyers.

For people who are throwing off a lot of cash once their careers are on a more solid footing, Markway said cash balance plans are a good choice. These are employer-paid, defined benefit plans, and the maximum annual benefit for a participant with at least 10 years of participation and a normal retirement age between 62 and 65 increased in 2018 to $220,000.

And if you want to get creative you can mix and match some of these plans. A Roth 401(k) plan can run at the same time as a 401(k). A SEP IRA and Solo 401(k) can exist side by side; ditto for a solo 401(k) and regular 401(k).

The list goes on. Whatever option you choose, just remember that if you’re a business owner, the benefits and tax advantages are too great to ignore.