Tuesday, May 11, 2010

Dental Associate Simple IRA vs Traditional IRA Question

I'm [sadly] still an associate employee (looking diligently to find my own practice). I just wanted to double check: at the office I contributed fully in 2009 to a SIMPLE IRA (Vanguard fund) plan with employer 3% matching.

Prior to my eligibility of the SIMPLE IRA, I started a traditional IRA a few years back. Some questions, as I'm doing filling out my 1040:

1) I just wanted to double check, am I still eligible to contribute $5000 to my traditional IRA? I believe the IRS says I can still contribute to the traditional IRA (even though I have a work retirement plan) though it may not be tax deductible. I could have sworn though, I read somewhere that if I have a work retirement plan, I cannot contribute to a Traditional IRA; I think I misread something somewhere.

You can still contribute to a Traditional IRA.

2) How do you feel about converting traditional IRA to Roth IRA?

For me or you? ;-) It is a case by case decision. There are many variables and there are both tax and non-tax issues to consider.

3) Assuming I find a practice of my own in the future, is there anything I could anticipate for the future? Any current plannings on my part I could do NOW that could help assist in FUTURE retirement planning?

Build your post tax investments.

I figure I could at least add my wife as an employee to the future practice and contribute her the full $11,500 to a SIMPLE IRA plan. Would I have to use the same Vanguard fund I have?

No, AND you may find that there's a better plan than a SIMPLE.

Thanks Tim for the responses!

If you don't mind, can you elaborate a bit more on:

1) post tax investments? Are you referring to "conventional" mutual funds?

Accumulated savings from after-tax dollars. In addition to mutual funds, there are CDs, MM accounts, treasuries, savings accounts, etc.

2) What other plans may be better than a SIMPLE, assuming there are multiple employees in the future practice?

401k/PS plans. DB plans MIGHT be better, but it depends on the facts and circumstances.

The reason why I suggested building your after tax investments is that sometimes the operating profit of a practice MIGHT not support the ability of the owner to maximize their retirement plan contributions. HOWEVER, if they have an abundance of after-tax investments not being put to use, it MAY make sense to move those funds to the deductible retirement plan AND let the governments subsidize that transfer through income tax savings.

This first appeared on Dentaltown.

Send your questions to Tim Lott, CPA, CVA at tlott@dentalcpas.com

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2 comments:

SMU Cox Web Site said...

Another way to save on your income tax may be to take a look at your health plan. There is a new class of health plan out called HDHP (high deductible health plan) that allows you to contribute to a HSA (health savings account). Typically the premiums are very low. (Mine is $20/month)

Since the HSA dollars are pre-tax, I contribute what I would have paid for a "regular" health plan into my HSA.

HSA's have the added benefit of working very much like the Flexible Spending Accounts, that you may already be familiar with. However there are a few important exceptions.

1) HSA's can have fees so make sure that your HSA provider is competitive.

2) HSA's can generate interest and/or have investment options, so again make sure the provider you select is competitive.

3) HSA's that have a balance at the end of the year will roll over, unlike the old Flexible Spending Accounts.

Tim Lott, CPA, CVA said...

So true.