For dentists who might be a bit behind in their retirement savings, there is a little-known option called a custom-built tax strategy plan, which provides an accelerated profit-sharing framework that surpasses a regular 401k retirement account with a defined benefit plan or pension. Find out if it's right for you.
As a dental practice owner, it’s easy to take your latest earnings and plow them right back into your practice. It makes sense—spend money now to make money later, and capitalize on the gains before the moment passes. Small business owners are masters at keeping an eye on their bottom lines because their companies are their livelihood, and more often than not, their life’s work.
The responsibility that comes with that burden encourages vigilance and surviving for the next day. But eventually, all practice owners will retire, whether they want to or not. To prepare for that day, there is strategy available that can boost retirement savings using an intricate but not very well-known process.
While a 401k is a godsend to those who plan ahead for retirement and can make steady contributions, many small business owners don’t have that luxury, especially early in their careers. If the equipment falls apart, an employee is injured, or anything else at all threatens the company, pulling capital out of a 401k may not be an option. Also, with a relatively small cap on maximum investment contributions, a regular 401k may not cut it when planning decades of retirement spending and medical bills. How can dentists make up that gap in a short period of time?
ENTER THE CUSTOM-BUILT TAX STRATEGY PLAN. This plan provides an accelerated profit-sharing framework that surpasses a regular 401k retirement account with a defined benefit plan or pension. With enhanced tax deduction potential, a business owner may be able to achieve 10 or 20 times the contribution limits of a regular 401k, which allows a small business owner to race to the finish line of retirement with every advantage he or she can get. This type of a plan even allows for employees to participate in the 401k plan, going as far as granting access to high-value employees who can share in some of the savings.
The advantages don’t stop there. As a business owner, you are not locked into an employer-sponsored framework. As with a generic 401k, vested employees can roll over their 401k funds into IRA accounts for continued tax-deferred status, ensuring that the contributions remain available for use. The benefits of using these tax-deferred accounts is that owners retain a great deal of control over the investment options available to them and can better protect the funds from lawsuits or bankruptcy.
Before I continue, I know you’re thinking; what’s the catch? Why doesn’t everyone take advantage of this type of planning? Why do most companies just use a regular 401k?
It’s true; this plan isn’t for everyone. It relies on small business owners who are profitable to maximize tax deferments. At the end of a long and successful career, many owners don’t know what their outlook is for the foreseeable future, at least in terms of predictable revenue flow. But many of those owners agree that an extra $1.5 to $2.5 million would be great to have during retirement. Those types of owners are the ones who benefit the most.
To take advantage of this plan alone is virtually impossible. Working with the right advisor who can help design a contribution schedule and navigate planning issues is critical to maximize the value of this strategy and without unintentionally running afoul of any IRS rules and regulations. Very few advisors know how to structure or administer these plans, so most just take the easy route of recommending a standard 401K plan. While this standard approach may be simpler and easier to understand, it does not adequately help profitable business owners who are paying too much in taxes.
Building and designing these plans is a specialty of Podell Financial Group. It goes hand-in-hand with the company’s commitment to custom tax strategies for business owners and the self-employed. They help design and manage these retirement plans for successful companies using tailored tax-advantaged designs to maximize deductions. Working with clients’ existing advisors, the company has been able to better position them with an enhanced financial position and increased control of their company’s profits.
When all is said and done, if you’re the type of business owner who wants to improve your future financial standing quickly and with confidence, these hybrid plans are an excellent option. Pick the right guide, and build a strong financial foundation to carry you through to your retirement goals.
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David Podell has been advising business owner clients for 15 years. He has been recognized in the industry as a top producer and is sought out by other advisors for his expertise in this area. He works with clients around the country and can be reached at (973) 227-8001 or [email protected].