It's prudent to establish a qualified plan as early as possible in one's career to assure a reasonably comfortable retirement.

FIRST OPTION TO CONSIDER

First - and easiest - is the IRA option. And the preferred starting IRA is the Roth IRA for those eligible (AGI less than $160,000 for married and AGI less than $110,000 for single). Roth IRA's grow tax-free, and you can withdraw your contributions (but not earnings) without penalty prior to age 59½. Your Roth contribution is not deductible, but it grows tax-free. If eligible, contributions can be $3,000 for 2002.

So, your FIRST OPTION is to explore the possibility of a Roth IRA for yourself and for your employed spouse and children.

SECOND OPTION TO CONSIDER

The second option is the regular IRA option. First, are you eligible to deduct the contribution? If you or your spouse is in a company retirement plan or your joint income is greater than $64,000 ($44,000 if single), you cannot deduct.

But you can contribute $3,000 in 2002, $4,000 in 2005 and $5,000 in 2008. All you need is "compensation." And your spouse and children can be on the payroll to allow them to have their own IRA's. So, your SECOND OPTION to consider is the regular IRA.

THIRD OPTION TO CONSIDER

The SIMPLE-IRA is probably the best third option. You can contribute up to $7,000 (tax-deductible dollars) of your salary in 2002. Additionally, the practice makes a contribution equal to the salary percentage deferred up to a maximum of 3 percent. By utilizing your spouse in the practice, an additional $7,000 of his/her compensation can be invested in 2002.

The advantages of a SIMPLE-IRA? Easy to set up, easy to administer, low staff funding costs, and progressively greater amounts for investment (e.g., $8,000 in 2003, $9,000 in 2004, $10,000 in 2005.). Probably an excellent choice for most dentists utilizing a spouse on the payroll. Certainly a good choice in the early years of practice.

FOURTH OPTION TO CONSIDER

The 401(k) Profit Sharing Plan is the next step up for those wishing to increase their tax-deductible contributions to a retirement plan. In 2002, the limit is $11,000, increasing $1,000 per year through 2006 to $15,000. A "loophole" in the new law allows a contribution of 100% of salary up to the allowable maximum. Thus, your spouse on the payroll can contribute up to $15,000 tax-deferred.

The rules and regulations for 401(k) plans involve significant setup and administrative costs, as well as a myriad of complex provisions (e.g., Keogh, "safe harbor"). Thus, professional help from experts in the 401(k) process is mandatory. The additional costs incurred may be justified if the dollars to be invested are significant and thus warrant the expenditure of time and money.

The 401(k) plan is NOT a simple plan and needs careful consideration with the help of a 401(k) expert.

FIFTH OPTION TO CONSIDER

This option is usually most appropriate for the older dentist (e.g., 45 or older) who wants to contribute more than $40,000 per year. This is known as the DEFINED BENEFIT PENSION PLAN.

This option allows you to accumulate up to $2,220,833 in order to fund a retirement at age 65. And this is in addition to other qualified plan accounts.

Differing totals for different retirement ages might be an attractive option for those wanting out by 55 or 62.

Obviously, this type of plan requires sophisticated planning to put into effect, and expert help - including actuarial help - is mandatory as the regulations are complicated.

We have briefly discussed five opportunities to accumulate funds for a comfortable retirement. We have by no means explored all the details of each nor is it our intent to do so. Each option has its own rules and regulations that must be addressed and adhered to. Further,there are other plans available, but I have chosen those I feel are most appropriate for dentists.

Regardless of where you are in your career path, one of these options is probably "right" for you. They offer exceptional opportunities to create a comfortable retirement.

Published in Dentist Money Digest / Sept/Oct 2002