Retirement Planning by Adam Cmejla of Waddell & Reed Inc.

As part of our continuing development, The Optometry Blog is proud to present an article written by Adam Cmejla who is a Financial Advisor for Waddell & Reed, Inc. who are based in Indianapolis.

Please note: This is an article written by a resident of the USA and is intended only for that market. If you are a resident of another country, please seek advice from an appropriate source.

If you’re an optometrist who owns their own practice or is a partner in a practice and you haven’t established a retirement savings plan, what are you waiting for? A retirement plan can help you and your employees save for the future. And you’ll be in good company–over 1 million small businesses with 100 or fewer employees currently offer workplace retirement savings plans.
Let’s first take a look at a number of the tax advantages that are advantageous for a business with a retirement plan.  A retirement plan can have significant tax advantages:
• Your contributions are deductible when made
• Your contributions aren’t taxed to an employee until distributed from the plan
• Money in the retirement program grows tax deferred (or, in the case of Roth accounts, potentially tax free)
• You may be able to claim a tax credit equal to 50% of the cost to set up and administer a retirement plan, up to a maximum of $500 per year for each of the first three years of the plan
• Certain low- and moderate-income employees may be entitled to a tax credit (”saver’s tax credit”) for a portion of their contributions to the plan
Currently, there are many different types of plans to choose from. Finding out which plan is going to be best-suited for your practice is very important.  Retirement plans are usually either IRA-based (like SEPs and SIMPLE IRAs) or “qualified” (like 401(k)s, profit-sharing plans, and defined benefit plans). Qualified plans are generally more complicated and expensive to maintain than IRA-based plans because they have to comply with specific Internal Revenue Code and ERISA (the Employee Retirement Income Security Act of 1974) requirements in order to qualify for their tax benefits. Also, qualified plan assets must be held either in trust or by an insurance company. With IRA-based plans, your employees own (i.e., “vest” in) your contributions immediately. With qualified plans, you can generally require that your employees work a certain numbers of years before they vest.
So, which plan is right for you and your practice?  With a dizzying array of retirement plans to choose from, each with unique advantages and disadvantages, you’ll need to clearly define your goals before attempting to choose a plan.
For example, do you want:
• To maximize the amount you can save for your own retirement?
• A plan funded by employer contributions? By employee contributions? Both?
• A plan that allows you and your employees to make pretax and/or Roth contributions?
• The flexibility to skip employer contributions in some years?
• A plan with the lowest cost? Easiest administration?
The answers to these questions can help guide you and your retirement professional to the plan (or combination of plans) most appropriate for you.  In the next couple of posts, we’ll discuss IRA-based and qualified plans and take a look at some of the requirements and details of each one.

Adam Cmejla is a financial planner located in Indianapolis, IN.  He can be reached via email at acmejla@wradvisors.com or (800) 878-4517.  Readers of the above post should not act based solely on the information provided.  Since the details of your situation are fact dependent, you should not proceed without first seeking appropriate advice from a tax professional, financial planner, lawyer or other professional.