There are many ways to pave the path to retirement, and choosing the right one can be challenging.
This is particularly true for medical doctors who must consider their own retirement goals as well as the benefits they wish to provide their employees.
A Savings Incentive Match Plan or SIMPLE plan is often a good choice for small business owners, including physicians who want the benefits of a retirement plan without some of the hurdles often presented by more traditional plans.
What is a SIMPLE 401K
A SIMPLE 401(k) is considered As the name suggests, the SIMPLE 401(k) is a retirement plan that is similar to a traditional 401K but can be a “simpler” option for some small businesses, including doctors.
Often compared to a SIMPLE IRA, the SIMPLE 401(k) plan allows small businesses the opportunity to engage in a straightforward retirement plan as long as they have 100 or fewer employees.
Doctors who choose the SIMPLE 401(k) are required to make contributions for each eligible employee. Any employee who is at least 21 years of age and has received at least $5,000 in compensation within two years of the prior calendar year are eligible for the plan.
For the 2020 tax year, employees can contribute $13,500 per year, and any employee over the age of 50 has the opportunity to make an additional $3,000 in “catch-up” contributions.
Doctors who choose this plan for their employees can make matching contributions up to 3% or make a non-elective contribution in the amount of 2% for all eligible employees.
Benefits of a SIMPLE 401(k) Retirement Plan
Here are some of the top reasons a SIMPLE 401(k) s the ideal investment plan for doctors:
- Tax Benefits: SIMPLE 401(k)s are tax-deferred, meaning funds within the account grow tax-free. In addition, doctors who choose to offer a SIMPLE 401(k) can deduct contributions, and doing so can often offset any administration costs.
- Non-discrimination testing: Unlike traditional 401(k) plans, SIMPLE 401(k) plans are not bound by non-discrimination rules – the likes of which can lead to significant set up and administrative costs.
- Easy and affordable: For many physicians, a traditional 401(k) can be difficult and costly to set up, especially since many of those plans are geared towards larger operations with a significantly higher number of employees. A SIMPLE 401(k) is typically easier to administer and often costs less when compared to traditional options.
- Immediate 100% vesting: Eligible employees will be 100% vested from the start. This means that they maintain full ownership of their contributions as well as those made by theirs. As such, a SIMPLE 401(k) provides account holders with the freedom to take distributions when eligible and otherwise manage their funds.
- Flexibility: Though the goal of any retirement plan is to save for the future, emergencies and hardships can occur. A SIMPLE 401(k) plan will allow employees to access funds through loans and hardship withdrawals as needed.
- Allows for alternative plans for unqualified employees: The IRS prohibits employers from offering eligible employees another type of retirement plan, but that doesn’t mean that ineligible employees must go without. With a SIMPLE 401k, employers can still offer an alternative plan to those who aren’t eligible.
- Attracts top talent: Employee benefits can be as important, if not more, than pay. And for physicians who don’t have the means to offer extravagant benefits packages, a SIMPLE 401(k) makes it possible to entice talent without breaking the bank.
Choosing the right retirement plan for your business can be difficult, but SIMPLE plans, including the SIMPLE 401(k) make it easier.
With a SIMPLE 401(k), your employees can benefit from an employee sponsored retirement plan while you benefit from a retirement package that is more cost effective and easy to administer.