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401(k) for Private Practice Physicians and Doctors

By Liz Sheffield

Just like other small businesses across the United States, private practice doctors and small medical offices need good retirement plans. Offering a 401(k) plan is an essential part of every organization’s competitive benefits package. In today’s war on talent, the 401(k) plan is a tool that savvy healthcare employers of every size use to recruit, retain, and engage talent.

We are experts in 401(k) plans and the various needs of small businesses in general, so that’s the perspective from which we’re writing this post. If you’d like a fellow doctor’s point of view, this article from The White Coat Investor doe s a good job of breaking down the pros and cons (the comments are a great read as well, if you’d really like to get into the weeds): Starting a 401(k) or Profit-Sharing Plan for a Small Practice

Even if you understand the value of offering a 401(k) plan, starting the process of finding the right plan and service provider can be intimidating. If you’re considering 401(k) options for yourself as a solo physician, or for your private healthcare practice, here are a few things to think about:

Offer a 401(k) for your private practice.

Sign up for an affordable and easy-to-manage 401(k) with Human Interest.

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What are the options for retirement investment plans?

The most popular prevalent types of plans include employer-sponsored 401(k) or 403(b), Solo 401(k), SIMPLE IRA, and Simplified Employee Pension (SEP) IRA. There are two commonalities among these types of retirement accounts:

  1. These are account types, not specific kinds of investments.
  2. Money grows tax-free while it’s in the account.

This article offers an extensive comparison of the various options. It also provides information about who the plans are for, who makes contributions, and associated contribution limits.

Why should small medical practices offer a retirement investment plan?

If you’re the owner of a private medical practice, you’re competing against large, hospital-affiliated practices for top talent. Whether you need another doctor, nurse, receptionist, or bookkeeper, to recruit and retain workers in your healthcare practice, it’s important to offer a 401(k) plan as a benefit. Today’s employees are concerned about their futures, and if you’re not providing them with a benefit that helps them save for their retirement, they’ll most likely choose to work for another employer who does.

Another reason to offer a 401(k) benefit is that it makes good business sense when you consider the tax advantages that employers receive when making contributions to employee accounts. Just like other employees, as a plan participant, you’ll benefit from the tax advantage of your personal account growth being taxed only at the time of withdrawal.

If you own multiple practices (e.g., dermatology, plastic surgery), be sure that you understand and seek legal counsel regarding the Controlled Group Rules set up by the IRS and Department of Labor. (A controlled group is defined as two or more corporations connected through stock ownership.) The rules were created to protect employees from a business owner establishing a separate 401(k) plan for another business and not offering those employees those benefits.

What HR and legal factors are involved when providing a 401(k) benefit?

In light of the rapidly increasing costs of running a medical office, the financial investment required to offer a 401(k) plan is an important factor to consider. Before you decide to offer this benefit, be sure that your business will be able to handle the impact of administration costs and other fees on your budget. Most small medical practices don’t have a full-fledged HR department or specialist, and low-cost providers like Human Interest can provide a sensible solution that doesn’t break the bank and will offload the HR work for you.

Because there are significant tax benefits through 401(k) retirement savings plans, the IRS wants to make sure that plans don’t unfairly benefit company owners (key employees) and highly-compensated employees (HCEs) over non-highly compensated employees (NHCEs). Medical practices typically have a high ratio of HCEs and NHCEs.

To confirm that the 401(k) plan doesn’t favor highly-compensated employees, it must pass a set of annual “non-discrimination” tests to verify that contribution rates meet established standards. The responsibility for conducting these tests falls on the employer.

Rather than deal with the hassles of non-discrimination testing, start-ups, and small businesses often opt to use a “safe harbor match” which requires companies to contribute according to one of three options, and exempts them from some of the non-discrimination tests. Read more details about non-discrimination testing and safe harbor matches here.

What are the risks of offering a 401(k)?

As I mentioned above, rarely does a small medical practice have an in-house HR expert who can manage 401(k) administration and field employee questions. And with concerns about malpractice and the potential for other large compliance claims in the back of your mind, you don’t want to add 401(k) management mistakes to your list of potential lawsuits.

Rather than attempting to manage the complexity of a 401(k) plan on your own, look for a provider like Human Interest that specializes in helping small businesses make retirement investments a reality for their workforce. Not only does this take the stress off your office team, but it’s also less likely that you’ll encounter the same legal risks if you find a fiduciary and provider that takes on liability for the administration.

With some research and a measured approach, providing a 401(k) plan doesn’t have to be overwhelming or expensive. Thanks to a well-managed plan, everyone in your small healthcare practice has an opportunity to profit from this benefit. A great provider and an easy-to-use online tool can automate 401(k) administration and help employees take the necessary steps to plan and save for their future.

Here’s an article from The White Coat Investor (a great site, we highly recommend it!) that addresses many of the valid and invalid objections to a 401(k) that many physicians may have: In Defense of the 401(k)