This next episode is the second of this particular series focusing on how to help private practice owners grow their businesses efficiently. For this episode I interviewed my close friend and colleague Lissa McNaughton. Lissa is a Senior Vice President and the Director of Retirement Services at Atlas Private Wealth Management. She is responsible for helping business owners maintain company retirement plans. Establishing a retirement plan can be an important process for any small business, especially for doctors needing to play catch-up in their retirement savings after training.

Lissa holds over thirty years of experience in the industry, and I thought it was best to let her speak for herself. Below I’ve provided a summarized version of our interview. If you would like to learn more about Atlas’ Retirement Plan Services, please visit us here.

I would encourage you to listen to full interview of this episode of ‘Planning on Call,’ the podcast, here:

Follow the links below to listen to The Atlas Advantage on Apple Podcasts, Spotify and Libsyn:

Apple Podcasts

Q: Let’s start with the basics – when we say ‘company retirement plans’ what does that mean?

A: When people talk about “retirement plans,” they typically mean, in the simplest terms, a vehicle that offers a tax-advantaged way to save for retirement. Many of us follow a path something like this: we work for 30 years or so… earning income that we use to pay our living expenses, but also hopefully to save and invest as well. Then we live another 30 years or so, creating an income to pay our living expenses from the savings and investments we accumulated during those working years. Financial advisors are the professionals that can help people target the most efficient and effective way to accumulate wealth during their working years. Then they can help people create a distribution strategy from their accumulated wealth in retirement.

Q: What makes these plans so important for long-term savings?

A: Often the first saving experience people might have happened when they are still a child – your parents or guardians possibly opened a savings account at a bank. This type of saving has its place, especially when developing habits in our youth, but it does not hold its weight for retirement planning on its own. A retirement plan can offer all kinds of benefits. Top of the list… is pre-tax savings opportunities – reducing current taxable income which could in-turn reduce a person’s current tax bill. I think, it is safe to say most individuals would like to pay less in taxes.

Second, you may to choose to forego pretax saving and make Roth IRA contributions instead. These contributions do not offer an immediate tax benefit but a future tax benefit – and sometimes a sizable future tax benefit!

A third benefit is tax-deferred growth. Whether you make pre-tax or Roth contributions, most money in retirement plans grows tax-deferred – meaning you do not pay tax each year as the account earns interest, dividends, or capital gains.

The fourth and fifth benefits are compounding and time. If you start investing for retirement early, you will not have to save as much because you’ll be leveraging compound growth and a longer-time frame.

Q: What are some of the types of retirement plans practice owners may encounter? 

A: So, remember I said in its simplest terms a retirement plan is a vehicle to save for retirement. The term “retirement plan” is an umbrella. There’s an array of different types of retirement plans to choose from. There are SIMPLE IRAs, SEP IRAs, SIMPLE 401(k)s, 403(b) plans, 457 plans, cash balances plans, traditional IRAs, and Roth IRAs. The appropriate retirement plan vehicle(s) are often dependent on the individuals’ employment status (self-employment or have employees). In some cases, depending on the circumstances, a person can even pair different types of retirement plans together, if their cash flow allows.

Q: Within each type of plan, there can be more options a business owner might have based on how their plan is constructed. What are some of those options to consider? 

A: The first step in the process is to figure out the business owner’s goals. Do they have employees? If so, knowing that they’ll have to contribute to each employee’s retirement plan… are they looking to provide a benefit that will help recruit and retain employees? Is the employer simply looking to accumulate retirement savings for themselves? Once the goals are clear, a financial advisor can collaborate with a third-party administrator to construct the plan. Third-party administrators are the folks that design retirement plans, file annual tax returns for the plans, and make sure that all compliance work is addressed.

A plan might allow for pre-tax and Roth contributions; it may have a profit-sharing component that may have safe harbor and discretionary features; it may have a matching contribution; it might be very flexible and allow for loans and in-service withdrawals; or it might be more restrictive – it all depends on what the business owner is looking to accomplish.

Q: There are a few different elements that make up the team needed to maintain a retirement plan. Can you walk through these?

A: This is the part that can sometimes be a little confusing… especially if you are new to the retirement plan world. If a business owner wants to start a 401(k) plan, they can use a financial advisor to help select the funds that will be available within the plan and to educate their employees on how to use the plans. They will also need a third-party administrator to manage the operational details – create the plan, file tax returns, and do the compliance work. A recordkeeper to maintain the books and make sure each participant’s money is accounted for properly. The recordkeeper also maintains the website and produces quarterly statements. Finally, the business owner will need a custodian – a place to keep the plan assets safe.

Q: Does this team need to be through one provider?

A: Typically, the financial advisor can act as the quarterback. The services can be bundled – meaning you get them all from one company or provider or they can be unbundled. Unbundling, if done correctly, can be beneficial in terms of fees.

Q: Let’s talk about costs… what costs can you expect? 

A: Well, we just went through the four typical service providers – financial advisor, recordkeeper, TPA and a custodian. All four will get paid a fee for the services they provide. That fee could be paid in-full or in-part by the business owner, or by the employees who participate… oftentimes it is some combination of the two.

Remember bundling and unbundling? In a bundled set up, you really do not have that flexibility to decide how the fees will be paid. Typically, the fees are added to the mutual fund fees, so participants end up paying the fees out of their accounts. Very often, the business owner has the largest account in the plan, so in the bundled set-up, the business owner is paying the lion’s share of the fees out of their account. In the case of unbundling, the fees have the potential to be paid by the business as a deductible business expense making it less expensive for the participants.

There is also the possibility for a tax credit for business owners, if eligible, who establish a retirement plan for the first time that can help offset the start-up costs of the plan. If eligible, that credit can be used for 3 years.

Q: From a business owner’s perspective, why are these plans so important?

A: I think by now, we’ve all heard the phrase “The Great Resignation”. Employment experts tell us that people are not looking for jobs, they are looking for careers. They ask prospective employers about culture and flexibility. Additionally, they want to know if there is a 401(k) with a match or a profit-sharing contribution. Today’s jobseeker is a careful shopper. As a business owner, offering attractive employee benefits as part of your compensation package can help you attract and retain talented employees.

An innovative retirement plan can help both the business owner and their employees accumulate wealth. As an employer, it can both bolster recruiting efforts and retention of great employees, and in the future, it can help encourage some employees to retire.

Q: Any last piece(s) of advice, specific to physicians starting or currently running private practices? 

A: The medical field is certainly unique. You know, my mechanic refers to me as one of his customers. Tim, you, and I have clients. But in medicine, I’m called a patient. Our business is built on a trusting relationship. But the doctor/patient relationship is even more personal. Turnover of staff in a doctor’s office can wreak havoc and leave the patients feeling unsettled and potentially looking for a new physician. Competent staff needs to be retained and rewarded. One of your biggest goals as a business owner may be to get your employees engaged and interested in their retirement plan. Everybody will benefit!

The views expressed in this recording and the accompanying blog are the personal views of the participants as of the date indicated. And do not necessarily reflect the views of Atlas Private Wealth Management, LLC (further known as “ATLAS”).

The information contained in this podcast was prepared for general information purposes only and is not a substitute for personalized financial advice. Although participants may discuss data, and content relating to financial planning, tax planning, estate planning, and other wealth management topics, any such information shared should not be construed as tax, accounting, legal, or investment advice.

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