Now is a good time to set up qualified retirement plan

Practice Pointers. By Cathy B. Goldsticker, AMNews contributor. Oct. 15, 2001.

PRACTICE POINTERS

Answers to questions about the business side of your practice

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Question Our practice is considering establishing a 401(k) or SIMPLE plan. We have been practicing for many years but have never offered retirement benefits to our doctors and employees. When we considered the administrative costs and hassles of a retirement plan, our doctors always shied away from it.

We have heard that the recently enacted tax laws have changed the retirement plan arena and created additional benefits for the employer and employees. We have three doctors and 18 staff members who would be very pleased if we adopted a 401(k) plan. What are the changes and how would it affect our practice?

Answer One of the many goals of Congress when it passed the Economic Growth and Tax Relief Reconciliation Act of 2001 was to make saving for retirement more attractive, cheaper and substantial for the taxpayers. There are many provisions included in the new tax law that execute this directive and may convince you that now is a good time to set up a retirement plan.

First, a new nonrefundable credit is available for expenses your practice incurs in establishing a new qualified retirement plan.

This credit applies to plans established after 2001 and is equal to 50% of the first $1,000 in administrative and retirement/education expenses incurred by you for each of the first three years, with a maximum credit of $500 per year.

The credit is available to your practice because you did not employ more than 100 employees last year.

A nonrefundable credit is also available to your employees for their contributions to a 401(k) or SIMPLE plan, to encourage their participation in a tax-favored retirement savings account. [...]