In this episode of The Business of Practice podcast, Morgan Webb, CFP, CFS, EA, joined us to discuss retirement plans for small equine practices. Webb has been providing comprehensive financial planning and implementation services to families and business owners for the past 15 years.
SEP Plan
Many smaller equine practices don’t offer retirement plans for their employees due to expense, complexity, or simply not understanding their options. Webb said practices should consider the plan that works best at the present moment. New practices usually devote resources toward equipment purchases and other assets, so it might not be the right time to invest in a retirement plan. Once profits are steady, however, new practices can consider a SEP (Simplified Employee Pension) plan, which allows employers to set aside money in retirement accounts for themselves and their employees without the startup and operating costs of a conventional retirement plan. The contribution limit is 25% of each employee’s pay, up to $69,000.
SIMPLE IRA
As the business grows and adds employees, a SEP might become too expensive, as the employer’s contribution is substantial. At that point, Webb suggests a SIMPLE IRA for practices with a few employees. The practice can match up to 3% of the employee’s contribution (up to $16,000 in 2024). SIMPLE plans are so named because they are simple, with no administrative complexities and only small costs to the practice.
401(k)
Webb said a 401(k) plan becomes appropriate when the practice’s number of employees increases and the practice needs to allocate more money toward retirement increases. Contributions up to $23,000 are allowed, with an employer match up to 6% of the employee’s contribution. The downside of a 401(k) plan is the associated complex administrative requirements and increased expense to the practice. Other options for retirement include profit-sharing and defined benefit plans, she added.
ROTH 401(k)
ROTH plans are “a huge incentive for younger employees,” Webb said, noting that a ROTH 401(k) has no income limitations. Employers should also be aware that tax credits are available for employers that start offering a company retirement plan, which can total up to $5,000 for three years.
Final Thoughts
In closing, Webb said practice owners should not pour all their money into their business, but instead diversify into a retirement plan with the help of a financial advisor. Her advice for everyone is: “Decide to save, and start today.”
You can contact Webb at Morgan@estradawebb.com.
Related Reading
- Veterinary Wellness Briefs: Smart Financial Moves for Equine Practitioners
- How To Have a Conversation About Compensation and Benefits
- The 100 Penny Exercise: Understanding Practice Expenses
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