Finance32: Dental School’s Missing Curriculum
Finance32: Dental School’s Missing Curriculum
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Starting a 401(k) Plan for Your Dental Practice: Is 2024 the Right Time?

Starting a 401(k) Plan for Your Dental Practice: Is 2024 the Right Time?

2/15/2024 11:54:18 AM   |   Comments: 0   |   Views: 19

Practice Integration Advisor and Wealth Management Team Leader Thomas Bodin, CFA, CFP®

The new year brings a unique set of economic and financial considerations for dental and medical practices contemplating a 401(k) plan for their employees. In this article, I’ll explore three key points to help you determine if now is the opportune moment for your business to embark on this important financial decision.

On a national scale

At the federal level, significant changes to retirement plan designs and financial incentives are underway. Increased access to retirement plans has been a focus of legislation over the past several years, and the SECURE Act and SECURE 2.0 sought to decrease or offset costs for small business owners. It also aims to relax certain testing rules to ensure more employees can access company-sponsored qualified plans without increasing costs to business owners.

Practice owners initiating a qualified plan may receive a tax credit of up to $5,000 per year for the first three years to offset administrative costs. This credit is based on the number of non-highly compensated employees for the year and can cover up to 100% of plan administrative fees.

There is also a tax credit of up to $1,000 per employee earning under $100,000 in annual compensation for start-up employer retirement plans, phasing out over five years. SECURE 2.0 further eases testing requirements, providing access to the deferral portion of a 401(k) for long-term part-time (LTPT) employees without requiring an employer contribution.

At the state level

States are increasingly mandating employee access to retirement accounts. In fact, 15 have introduced auto-IRA (individual retirement account) or state-sponsored multiple employer plans (MEPs) with accompanying employer compliance regulations. For employers who do not offer qualified plan access to their staff, they will need to assist employees in accessing these accounts, provide certain information to the state and remain in compliance with these programs. If you were avoiding a qualified plan because of a perceived administrative hassle, this reason may slowly disappear as states look to leverage small business owners to administer legislation to increase access to qualified plans.

Talented employees are your biggest asset

Amidst staffing challenges and wage pressures in the field of dentistry, hiring and retaining talent remain top priorities for practice owners. According to the Health Policy Institute at the American Dental Association, approximately 95% of respondents to their December 2023 economic survey found hiring a dental hygienist extremely or very challenging. For dental assistants, that figure was approximately 83% in 2023, down from 87% in 2022.

Why are employees voluntarily leaving practices? Dental assistants cite pay as the overwhelming reason to leave the profession. However, among hygienists, inadequate benefits, unhealthy culture and lack of advancement opportunities were named as the top three reasons for their departure, not salary. The introduction of a qualified plan provides an employee benefit that demonstrates your commitment to the future of your staff. This is an encouraging step to contributing to a positive culture while expanding benefits.

Not all 401K plans are created equally

Along with taking advantage of the federal tax incentives, staying in front of emerging state legislative trends and fostering and retaining staff, as a practice owner you have significant opportunities and flexibility to design a plan that provides you and your family significant tax benefits and accelerates wealth creation.

Dental and medical offices often have unique demographics that can be leveraged to create highly efficient plans for practice owners if they are working with an advisory team knowledgeable about their personal goals, practice cash flow and staff dynamics. This team should include a wealth advisor with experience in qualified plan design and a third-party administrator (TPA) knowledgeable in creating custom-designed plans for small business owners. The?practice integration advisors at Buckingham are happy to help you create a plan that benefits both your business and staff.?Schedule a conversation?with us today!

About the author

As a practice integration advisor, Thomas provides comprehensive financial advisory services to dental and medical offices, including tax, pension and retirement planning. He is motivated by a passion to help medical professionals connect the hard work they put into their practices with their most deeply held values and goals, all through Buckingham’s evidence-driven approach to true wealth management.

For informational and educational purposes only and should not be construed as specific investment, accounting, legal, or tax advice. Certain information is based on third party data and may become outdated or otherwise superseded without notice. Third-party information is deemed reliable, but its accuracy and completeness cannot be guaranteed. Neither the Securities and Exchange Commission (SEC) nor any other federal or state agency have approved, determined the accuracy, or confirmed the adequacy of this article. R-24-6816

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