Retirement savings options explained

Money in hand_x smallOne of the most common areas where we see dentists, young and old (but especially young), make questionable decisions is in the area of retirement planning.  A general rule to follow is that every young dentist who is working should save as MUCH as possible as EARLY as possible.  This is easier to do if you have money directly deposited each pay period into a retirement account.  The options for retirement accounts may seem daunting.  Here are a few options that you may have as you enter the workplace:

1)     IRA: Anyone who has earned income (wages) can open an IRA account.  Anyone with earned income can open a Traditional IRA.  A  Traditional IRA contribution is generally deductible if you have no other retirement plan options through your employer.  If a single person wants to contribute to a Roth IRA, the person will only be eligible to make a full contribution if they earn under $112,000 in 2013.  A Roth IRA is a wonderful option if you fall below the income limit because contributions grow TAX FREE until you withdraw the money at retirement age.  For 2013, you can make a contribution to a Traditional or Roth IRA of up to $5,500.

2)     SIMPLE Plan: This type of plan allows you to defer up to $12,000 in 2013 from wages.  A SIMPLE IRA plan provides small employers with a simplified method to contribute toward their employees’ and their own retirement savings. The employer is required to make either matching or non-elective contributions.

3)     SEP: A Simplified Employee Pension Plan (“SEP”) is a plan in which the employer makes contributions to retirement accounts owned by employees.  A SEP allows a deductible contribution of about 25% of earned income.

4)     401k Profit Sharing Plan: This type of plan allows you to defer up to $17,500 in 2013 from your wages.  Generally, an employer will match up to 3% of your wages, but eligibility may be tied to years of service.  For example, eligibility may not begin until you have been working for the employer for one year.

Depending upon your employment situation, you may or may not have access to one of these plans.  A personal IRA is ALWAYS an option, regardless of your employment situation.  The goal is to save AS MUCH as you can, AS EARLY as you can.

~Megan Hille, Esq., Pesavento & Pesavento

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