Another option for independent contract physicians or small business owners.
457(b) or 403(b) Plan in Comparison
You may be thinking that you have a comparable plan in place, so why add another one? In comparison, it is important to consider additional retirement options available as a physician to speed up your retirement savings. You can have both.
Government sponsored 457(b) and 403(b) plans offered by state and local government for health care organizations are pre-taxed plans.
A 457(b) and 403(b) plan’s annual contribution for 2022 is $20,500. o If you are over the age of 50, you can also make an additional $6,500 (2022) catch-up contribution.
The 457(b) plan is not subject to ERISA laws so withdrawals before age 59 ½ are not subject to the 10% penalty tax imposed on a SEP IRA.
The 403(b) plan is subject to ERISA laws and therefore a withdrawal before the age of 59 ½ is subject to a 10% penalty tax.
Extremely rare to have matching contributions on a 457(b) plan.
The 403(b) may have a matching contribution option.
Participants of 457(b) and 403(b) plans can withdraw funds from their plan when separating from service or for a qualifying hardship.
After separation of service 457(b) and 403(b) participants may rollover their account into a Traditional IRA or an existing qualified retirement plan.
These types of plans are aligned with traditional investments, not alternative investments.
Completing a SEP IRA Adoption Agreement
The SEP IRA is typically a sole proprietorship limited liability company, which is the Adopting Employer Name below in Section 1 of the Adoption Agreement. You will also put your Adopting Employer Federal Tax ID# for tax reporting purposes to qualify under a SEP IRA contribution.
Section 2 defines the effective date of the Adoption Agreement. The effective date of the Adoption Agreement is typically the creation year of the SEP IRA and/or the first year you plan to make a contribution.
Section 3 is where it can get confusing, but if you follow the requirements as defined, you will make your way through the application with ease.
With sole proprietorship this may not matter much, but if you plan to add employees in the future this could be an important section to consider as you could end up paying more to employees than you intended; or, you can amend your Adoption Agreement later. The participants of the SEP IRA must be employed, but for how long is up to you before they become eligible.
This one is black and white and cannot exceed 21 years of age.
This section defines the rules you play by. The IRS requires Plan Sponsor to answer.
Contribution & Allocations
This section defines the contribution formula, whether it be discretionary or fixed percentage of earning formula. Discretionary formula allows the most flexibility to modification year over year. Just remember with multiple employees the discretionary formula does not imply you can contribute a different percentage per employee. It means that the percentage applied must be equal across all employees, including yourself.
Then you sign as the employer.
Since a SEP IRA falls under the criteria of a Traditional IRA, all participants will complete a Traditional IRA. This will accompany the SEP IRA as a participant.
A SEP IRA provides a reduction in taxable income, tax-deferred compounding income, higher contribution limits, and a practical way to save for retirement.