Tax and Investment Savings in Micropractice


(Robin Dickinson) #1

In the discussion of micropractice here @DrLauren wrote

So I thought this might be a great place to discuss some of those.

I personally love my SEP-IRA. What else lets you invest 25% of your income tax deferred up to $54,000 a year? I haven’t maxed that out yet but I’m definitely going to try!

Micropractice DPC model
(Wendy Schilling) #2

I’m still having difficulty figuring out how to navigate this Hint community. Please explain the SEP -IRA? Of course, I would need to have excess money before I start socking some away!

(Cynthia Villacis) #3

Just starting to look into options as I have to roll over some 401K money - guy from Vanguard was telling me about these - think that you have to give the same amount to yourself as well as employee’s if you have any? Sounds good for micropractice though w/o employees.

(Robin Dickinson) #4

@Wendy @CynthiaVillacis
A SEP is only good for a micropractice or someone who has a very benevolent heart towards employees because you have to invest the same percentage for everyone. But it allows you to invest up to 25% (20% before self employed tax is accounted for) into a tax deferred IRA, which then significantly lowers your taxable income for that year. When you are taxed on it, it will be in retirement when presumably your income/tax bracket will be lower and your mortgage paid off etc. Or at least that’s the thought behind the tax deferred plans.

If you start as a micropractice and then add employees, you can always switch to a different IRA at that point. Also, my understanding is that it’s percentage of income so that’s not nearly as much for someone you’re paying $10 an hour as it is for you.

Here’s more information from Wikipedia (which is not the be-all end-all of investing advice but at least has a nice concise definition):

(Lauren Hedde, DO) #5

We have a simple IRA and are just switching to a independent 401k because there are two of us so this may be irrelevant to you! But, here’s some info anyway! Since we’re co-owners with no employees, both allow us to invest for ourselves (or just one of us, based on who’s ready) because we have no employees. If you have employees, you can’t do these kind.

The 401k allows up to $18000 yearly “employee” (that’s me!) input and up to 25% salary match from “employer” (me too!) up to a total per year of $52k approx. All pre tax!

The simple only allows up to $12500 per year - I did this last year. Pretty easy/straightforward except you cannot contribute to any other IRAs for the year you do the simple and I think even the next calendar year too (meaning if you do a back door roth - where you contribute the $5500 I think it is to the traditional IRA post-tax and then transfer it tax-free to a roth which you can use someday tax-free).

For us the SEP was not an option because we are not solo.

One cool note, the 401k allows “spouses who are employees” to also get the same retirement savings benefits, but the MINUTE you add an employee you lose the benefits otherwise - go micropractice!

(Wendy Schilling) #6

These are great ideas for me. Yes, I am micropractice!