Everyone has heard the story of what their Starbucks addiction has cost them…….a jet plane, a small island, the potential to retire as a teenager. But all kidding aside, there is tremendous merit to saving early and often, as small as the contribution may be.
Of course, this information is nothing new but the challenge is how do I save? My belief is people don’t save, either due to a lack of discipline or simply not having the funds available. If you don’t have the funds, you don’t have the funds.
But if you lack discipline, the State of California is here to help you and your employees.
Starting June 30, 2022, if you have more than 5 employees, you are now REQUIRED to establish a retirement plan for your Veterinary practice. Not doing so will result in penalties.
- $250 per eligible employee if noncompliance extends 90 days or more after receiving a notice for failure to comply.
- $500 additional penalty per eligible employee if noncompliance extends 180 days or more after receiving a notice for failure to comply.
What are your options?
The state of California has created an easy to access retirement savings program known as CalSavers. There are no employer fees, no fiduciary liability and minimal employer responsibilities.
Your other option is to establish a retirement plan for your Veterinary practice, like a 401(K), SEP IRA, Simple IRA, etc.
CalSavers plan contributions can only be made post-tax. You may commonly recognize this as a ROTH IRA. As such, your savings amount must be within the ROTH IRA contribution limits set forth by the federal government.
For 2022, the contribution limits are $6,000 per year (and $7,000 per year when you are age 50 or older) as long as you earn at least $6,000 in wages. This limit applies to all of your IRA accounts in aggregate. In addition, your eligibility to participate is limited to certain annual income limits.
See a complete list of funds on the CalSavers website. As of April 2021, there were 16 investment choices (12 target date funds).
Per CalSavers, “the only administrative charge for CalSavers comes is in the form of an annual asset-based fee of approximately 0.825% to 0.95%, depending on your investment choices.”
Other retirement plans have merit, but in the interest of time, I will focus on the Simple IRA.
Quite the contrary to CalSavers, contributions can only be made pre-tax.
For 2022, the contribution limits are $14,000 per year (and $17,000 per year when you are age 50 or older). If an employee participates in any other employer plan during the year and has elective salary reductions, the total amount of the salary reduction contributions that an employee can make to all plans is $20,500 in 2022.
As the employer you must make matching contributions. This can come in two forms. A dollar-for-dollar match of employee contributions up to 3% of compensation or a flat contribution of 2% of compensation for all eligible employees regardless if they contribute to the plan or not.
Investment choices will vary based on investment provider.
Investment fees will vary based on investment provider.
How do you decide?
Ultimately, you’re best served with a side-by-side comparison of fees, investment choices, investment returns, etc.
But there will be immeasurable factors. Providing a match means greater costs but it can make your business more competitive in attracting and retaining top talent. Let’s discuss your options and figure out what is most appropriate for your business.
This piece is for educational purposes and is not a product recommendation.
Scott Ida, CFP®, CEPA is a partner with Open Advisors, LLC. He has over 17 years of industry experience with a primary focus on business owner clients. In particular, Scott works with numerous veterinary clients throughout San Diego. References available upon request. Please call 858-550-2867 or email firstname.lastname@example.org for a free consultation.
Dr. David Zanders, SDCVMA Member, has owned and managed 8 veterinary hospitals in his career and still works at Academy Animal Hospital in Solana Beach, CA. He is a veterinary business coach, advising both practice owners and practice managers.
Scott Ida is a registered representative of Lincoln Financial Advisors Corp., a broker/dealer, member SIPC, and offers investment advisory service through Sagemark Consulting, a division of Lincoln Financial Advisors Corp., a registered investment advisor, 4250 Executive Square, Ste 700, La Jolla, CA 92037. Phone: 858-550-2867. Insurance offered through Lincoln Marketing and Insurance Agency, LLC and Lincoln Associates Insurance Agency, Inc. and other fine companies. This information should not be construed as legal or tax advice. You may want to consult a tax advisor regarding this information as it relates to your personal circumstances. The content of this material was provided to you by Lincoln Financial Advisors Corp. for its representatives and their clients. Open Advisors is not an affiliate of Lincoln Financial Advisors.