Small practices can opt for simple, safe retirement plans

Practice Pointers. By Rita M. Schwager, AMNews contributor. Feb. 24, 2003.

PRACTICE POINTERS

Answers to questions about the business side of your practice

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Question Our three-physician practice has been together for a little more than two years. We don't have a lot of money to put into a retirement plan but would like to start making nominal payments for ourselves. What are some options available to a small practice like ours?

Answer In 2001 Congress passed the Economic Growth and Relief Reconciliation Act, which increased the amounts that individuals could put into their retirement accounts, making them more attractive to business owners. Two types of retirement plans that might be of interest to you are the SIMPLE IRA and the Safe Harbor 401(k).

Both plans allow for employees (including the doctors) to shift, or defer, a portion of their taxable salary to a retirement plan account. This deferred salary would not be taxable to the employee until that money is drawn out of the retirement account. In addition, both plans are easy to administer and are relatively inexpensive for the employer.

The SIMPLE IRA plan is available to employers with fewer than 100 employees and who don't have another qualified plan in place during the calendar year. Under this plan, each eligible employee will have an individual SIMPLE IRA account.

Employees are eligible to participate in this plan if they will receive at least $5,000 in compensation during the year and they received at least $5,000 in compensation from you in any two preceding years. You can elect to make the eligibility requirements less restrictive by making the dollar amount less or reducing the number of years (such as $4,000 and one preceding year), but you cannot make the eligibility more difficult to qualify for participation.