Simplified plan saves you money

Personal Finance. By David Mandell, amednews contributor. April 1, 2002.

PERSONAL FINANCE

A column offering help for your wallet

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Of the tax-saving strategies available to doctors, there is one that can be done at the last minute -- the Simplified Employee Pension IRA.

The SEP-IRA is a way for a self-employed individual to make IRA contributions for himself or herself, and any employees, without using a more complicated plan, such as Keogh.

Here are some answers to common questions about SEP-IRAs:

How much can I put away? There have been recent law changes that allow for up to 20% of adjusted gross income, with a maximum of $40,000 in tax-deductible contributions.

Does a SEP-IRA disqualify me from other plans? Because most physicians may have a variety of plans, it is of the utmost importance that you speak to a specialist about your individual situation before you attempt to implement a SEP-IRA.

Do I have to pay for employees? Yes and no. There is a vesting schedule that can be adopted. This will protect you from having to contribute for short-term, high-rollover positions in your office and will reward the long-term employees.

How do I implement a SEP-IRA? Once your financial adviser decides a SEP-IRA works for you, the easiest way to create one is to use a preapproved plan from one of the mutual fund companies. It is very inexpensive to adopt a SEP-IRA (maybe $100, compared with $2,500 for a profit-sharing plan).

Note: This column originally appeared in print as "You and Your Taxes."

Mandell is a financial planner, attorney, and co-author of "The Doctor's Wealth Protection Guide." He can be reached at 800-554-7233 or by email (dmandell@sbjlaw.com).