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Guide Main | III. Personal Balance Sheet | Retirement Plans

Retirement Plans for Therapists in Private Practice

Picking the right Retirement Plan for both you and your Private Practice can be overwhelming. Helping you feel confident making this decision is what this article is all about!

The flexibility you have to choose your own Retirement Plan is actually awesome! You have great choices allowing you to reduce taxes AND save for your future! (Regardless of whether you ever intend to traditionally "retire.")

The challenge, of course, is knowing how to make the right choice โ€“ and having confidence in what you decide.

That's where this article comes in! ๐ŸŽ‰

An elegant view of pencils on marble.

After reading this article, you'll understand:

  • What Retirement Plans Are (and what they're not);
  • Tips for Selecting the Right Retirement Plan;
  • That an IRA is Often the Best Way to Get Started;
  • The Best Retirement Plans for Solo Practitioners;
  • The Best Retirement Plans for Group Practice Owners;
  • What happens if you pick the "wrong" retirement plan and want to change it;
  • The Great Tax Benefits of Retirement Plans;
  • How Taxes Reduce the Cost of Your Retirement Plan; and
  • What Investments to Hold in Your Retirement Accounts.

What ARE Retirement Plans Anyway? ๐Ÿค”

Let's start by defining what Retirement Plans are exactly โ€“ and equally importantly what they aren't.

Retirement Plans are Containers ๐Ÿซ™

Retirement Plans provide each plan "participant" a container in which to hold investments. These investments are intended to be used later in life โ€“ regardless of whether that's a traditional retirement or not.

๐Ÿ”–  In general, you can't access investments held within Retirement Plans until you're about 60 years old.

The container which a Retirement Plan offers is a certain type of account: a Retirement Account, naturally.

A Retirement Account is just one of the handful of different account types you can use to hold investments.

๐Ÿ‘‰  If that sounds confusing (or just interesting), check out this blog explaining the different types of investment accounts, including Retirement Plans.

Retirement Plans are NOT Investments ๐Ÿ“ˆ

As we just covered, Retirement Accounts are one type of account in which you can hold investments.

They aren't the actual investments themselves. 

First, you have to first pick the right Retirement Plan.

 THEN you have to pick the right investment to go inside it.

You'll often need to choose what investments to put in your Retirement Plan when setting it up. I walk you through how to make that decision toward the bottom of this page. ๐Ÿ‘‡

A Few Additional Things to Know about Retirement Plans ๐ŸŽ“

As you choose a Retirement Plan, you'll unavoidably encounter some jargon. To make it easier, you'll want to understand:

  • The difference between Retirement Plans and Retirement Accounts;
  • The distinction between Employer Contributions & Employee Contributions; and
  • What Retirement Plan discrimination is โ€“ how to avoid it.

๐Ÿ”–  If any โ€“ or all โ€“ of those terms are unclear, click here to read The 7 Retirement Plan Essentials for Therapists.

Free Retirement Plans Webinar! ๐ŸŽž๏ธ 

Join Accountant Julie Herres & me to learn all the ins and outs of Retirement Plans that you NEED to know!

PLUS get my free Retirement Plan cheat sheet! ๐Ÿ˜ƒ

๐Ÿ‘‰ Click here to gain immediate access to the recording!

Tips for Selecting the Right Retirement Plan

Selecting the best Retirement Plan for you becomes much easier once you know a few foundational things. So here they are!

Know how much you as the practice owner want to contribute ๐Ÿ”‘

How much you, as the business owner, desire contributing each year to your Retirement Account should typically be the driving factor in Retirement Plan selection.

๐Ÿ”– Pick the plan with the lowest annual contribution limit that meets your targeted annual savings.

In general, the higher the allowed annual contribution, the more complex and expensive the plan is. So stick with the cheapest and simplest plan that fits your retirement savings goals.

Your Income & Employees may Restrict your Retirement Plan Options

Your household income level (what's on your tax return) will impact your ability to use either a Roth or Traditional IRA. 

And if you have W-2 employees in your practice, they usually must be included in any Retirement Plan your practice "sponsors."

This inclusion will impact both the total cost of the plan as well as which plans make the most sense. 

Weโ€™ll cover the details of those rules in just a moment. ๐Ÿ‘‡

Recruiting & Retention Benefits ๐Ÿค”

If youโ€™re a group practice owner, consider if the perk of offering a Retirement Plan might help you attract and retain employees. Increasingly, employees are recognizing the value of this benefit! 

That said, before you do a bunch of work to establish a fancy Retirement Plan, be sure itโ€™s something your employees will actually value โ€“ and use!

1099 Independent Contractors are not Eligible for Retirement Plans

If your group practice uses 1099 Independent Contractors, they are unable to participate in any Retirement Plan you offer.

Retirement Plan are for W-2 employees, not for contractors. 

Contractors are self-employed and have the option to establish their own Retirement Plan.

๐Ÿ”–  If all of your clinicians are contractors, you as the Group Practice Owner should choose one of the Retirement Plans that work for Solo Practitioners.

โš ๏ธ  But be careful! โš ๏ธ

States are increasingly bringing enforcement actions against employers who improperly classify employees as 1099 Independent Contractors. This is not a situation you want to get caught in.

Understand your stateโ€™s rules and consult with a qualified employment law attorney. 

Avoid Annuity & Life Insurance Retirement Plans

Do Retirement Plan built around annuities or life insurance sometimes make sense? Meh, maybe. ๐Ÿซค

Iโ€™m unconvinced, but I suppose almost anything is possible. 

Cold day in hell and all. ๐Ÿฅถ

What I DO know is that annuities and whole life insurance polices are far too often sold as the end-all-be-all when it comes to saving & investing.

And I call bullsh*it on that. Because it is. ๐Ÿ‘Ž

The truth is that while they earn salespeople big commissions, these types of retirement plans almost unavoidably leave YOU with less money.

An IRA is Often the Best Way to Get Started ๐Ÿš€

An Individual Retirement Arrangement (or "IRA") is the easiest way to get started saving for retirement.

An IRA is not โ€œsponsoredโ€ by your practice.

Rather, it's an account available to employees whose employers don't offer a Retirement Plan.

This separation from your practice makes an IRA easier to set up and maintain.

And while IRAs offer the lowest annual contribution limits, you can, in fact, save quite a bit!

๐Ÿ”– If you are under 50 years old you can save up to $7,000 in an IRA for 2024.

๐Ÿ”– If youโ€™re 50 years of age or older, you can save up to $8,000 in an IRA for 2024.

Note these limits are for 2024 โ€“ they typically increase a bit each year to adjust for inflation.

That maximum contribution is just that: a maximum. It's not an obligation! You can contribute just a few hundred dollars to your IRA if you want!

Rules & Restrictions to Know about IRAs

As with all Retirement Accounts, there are a lot of rules and restrictions to follow.

For IRAs, the primary rules relate to your personal household income โ€“ the income that shows up on your 1040 Individual Tax Return.

  • For Roth IRAs, your income level dictates whether you're allowed to contribute to a Roth IRA at all. Once your household income is above a certain level, you CAN NOT contribute to a Roth IRA. (That's when a Backdoor Roth IRA might be a good option.)
  • For Traditional IRAs your income level dictates whether your IRA contribution is tax deductible โ€“ or not. Even if you can't get the tax deduction, you are still allowed to contribute.

To understand those income levels and if they apply to your situation, see my blog post: 7 Facts Every Therapist Needs to Know about IRAs in 2024. ๐Ÿ“š

๐Ÿ”–  And you do want to follow all those rules!

The financial penalties are pretty painful if you donโ€™t! ๐Ÿ˜ฒ

Do NOT use a SEP-IRA or SIMPLE IRA!! ๐Ÿšจ

Despite the fact that SEP-IRA and SIMPLE IRA have IRA right in the name, they are ENTIRELY different than the normal or ordinary IRA we're talking about in this section.

Be careful that if you intend to fund an IRA you are NOT funding a SEP-IRA or SIMPLE IRA. If you accidentally do so, it may well cost thousands of dollars to fix this mistake. ๐Ÿ’ธ  Painful!

If in doubt, consult with a professional (like Turning Point)! ๐Ÿ‘‹

The Best Retirement Plans for Solo Practitioners ๐Ÿ‘จโ€๐Ÿ’ป

If youโ€™re a Solo Practitioner (or a Group Practice Owner without any W-2 employees) setting up a Retirement Plan is relatively easy!

Remember, you can always start with an IRA.

If you're looking to save $7,000 ($8,000 if you're 50+) or less each year, an IRA is going to be the easiest option.

Especially if you're just getting started saving into a Retirement Plan, the IRA is going to be a great place to start.

But before you run off and contribute to an IRA, be sure you understand the rules & restrictions! See my blog post for everything you need to know: 7 Facts Every Therapist Needs to Know about IRAs. ๐Ÿ“š

If youโ€™re looking to save a bit more, you have two good options: a SEP-IRA and an Individual 401(k). 

The SEP-IRA Retirement Plan

This is where we start to get into some math. But stick with me, it's not too painful!

The maximum you can contribute annually to a SEP-IRA is: 

  • 20% of your self-employed earnings (after all business expenses AND half of your self-employment tax have been subtracted); or
  • if you've made the S-Corp tax election, 25% of your W-2 salary.

As with the IRA, these are the upper limits: you can always choose to contribute a smaller amount. 

Often (but not always!) these SEP-IRA percentages will translate into a higher allowed annual contribution than what the โ€œplainโ€ IRA offers. But you do need to do the math to find out for sure.

The Solo 401(k) Retirement Plan

If you want to really max out your annual contributions, an Individual 401(k) is best โ€“ also known as a Solo 401(k). 

The Individual 401(k) will allow you to make the same 20% or 25% contribution the SEP-IRA allows...

๐Ÿ”–  PLUS an additional $23,000! ๐Ÿ’ธ

That $23,000 increases to $30,500 if youโ€™re 50 or older!

These limits are for 2024 and will likely be a bit higher for future years.

The SEP-IRA continues to be more popular than the Solo 401(k) and I'm not entirely sure why. I tend to favor the 401(k) option.

That said, it is a bit more work to set up. AND once the value of the investments in the 401(k) reach $250,000 you MUST file IRS Form 5500. You do NOT want to forget to do this, trust me. 

๐Ÿ‘‰  Confused? Want to know more?

Hear two financial experts explain everything about Retirement Plans for Therapists. Click here to get the free Retirement Plans recorded webinar!

PLUS: Watch for upcoming blog posts on the SEP-IRA and Individual 401(k)!  ๐Ÿ‘€ 

The Best Retirement Plans for Group Practice Owners ๐Ÿ‘จโ€๐Ÿ’ผ

If youโ€™re a Group Practice Owner with W-2 employees, figuring our the right Retirement Plan is a bit more complex.

Why? ๐Ÿค” 

Because those non- discrimination regulations covered above โ˜๏ธ typically require that your employees are included in the plan.

These regulations prevent business owners from setting up Retirement Plans exclusively for their own benefit โ€“ leaving their "rank and file" employees out in the cold (without a Retirement Plan).

Including your employees in the Retirement Plan can be great employee benefit, improving recruiting and retention. But it does mean more complexity and cost for you as the business owner.

There is the administrative burden of managing the plan AND the additional compensation expense of mandatory employer contributions.

๐Ÿ”–   If you're not sure what some of these technical terms (like "discrimination" & "employer contributions") mean, click here to read The 7 Retirement Plan Essentials for Therapists.

Remember that this requirement to include your employees applies only to W-2 employees โ€“ and not to 1099 Independent Contractors. 

If you don't have any W-2 employees in your practice, you can use any of the Retirement Plans for Solo Practitioners discussed above. โ˜๏ธ  In general those are more flexible, easier and less expensive โ€“ so use them if you can!

Remember, you can always start with an IRA.

If you're looking to save $7,000 ($8,000 if you're 50+) or less each year, an IRA is going to be the easiest option.

Especially if you're just getting started saving into a Retirement Plan, the IRA is going to be a great place to start.

But before you run off and contribute to an IRA, be sure you understand the rules & restrictions! See my blog post for everything you need to know: 7 Facts Every Therapist Needs to Know about IRAs. ๐Ÿ“š

If youโ€™re looking to save a bit more than an IRA allows, you'll want to consider the SIMPLE IRA or Safe Harbor 401(k). Keep reading! ๐Ÿ‘‡ 

Payroll Deduction IRA ๐Ÿซค

The employee IRA account attached to a payroll deduction IRA plan isn't any different from the "ordinary" IRA we just talked about.

The only difference is that as the employer, you automate the transfer of funds from your employees' paychecks into their IRAs.

This is not a Retirement Plan "sponsored" by your practice and there are no filing or regulatory requirements to speak of. Your only obligation as an employer is to accurately complete the money transfers in a timely manner.

I give this plan a meh because it doesn't allow you as the business owner (or your employees) to save more than if everyone just went out and opened their own IRA.

That said, most people DON'T go out and open their own IRA. So the Payroll Deduction IRA can be a nice perk to offer. And you can truthfully say you offer a Retirement Plan โ€“ without having to deal with a lot of expense and administrative work.

The Payroll Deduction IRA is, by the way, usually the default state-mandated Retirement Plan in those states that have such a law. More and more states are requiring employers offer at least a Payroll Deduction IRA. (If you offer one of the other Retirement Plans discussed here, you're typically exempt from having to do anything else.) Check this helpful post from payroll processing company ADP to see if your state is on the list. 

Just Say No: SEP-IRA ๐Ÿ‘Ž

While the SEP-IRA is an easy Retirement Plan with low administrative costs, it usually doesn't work well for group practice owners. (It can work just fine for Solo Practitioners, although I still favor the individual 401(k).

Why? Because the SEP-IRA only allows employer contributions โ€“ employees are not allowed to contribute from their paycheck into their SEP-IRA account.

Because every employee must receive an equal percentage of compensation contribution, it's difficult for you as the business owner to make a meaningful contribution to your Retirement Account without incurring a BIG expense in the form of a mandatory employer contribution into the accounts of all your employees.

So while the SEP-IRA might work ok... there are better options. ๐Ÿ‘‡

SIMPLE IRA: A Great Starter Plan for Group Practice Owners ๐ŸŒŸ

The SIMPLE IRA is great because it's just that: simple!

Plus, it allows employee contributions. That means both you and your employees can take money from your paycheck and contribute it to your SIMPLE IRA account.

๐Ÿ”–  For 2024, the amount each employee can contribute to a SIMPLE IRA is $16,000. If they're 50 or older, that $16,000 becomes $19,500. (That's known as a 'catchup' contribution for those of us of a certain age. ๐Ÿ˜ฌ)

An important point is that annual employer contributions are required. The employer contributions will be 2-3% of each employeeโ€™s compensation, although it can be reduced to 1% in up to two years of any 5 year period. 

The annual contribution limits, administrative costs and required employer contributions are all lower than those of the Safe Harbor 401(k). We'll cover that next!

๐Ÿ‘€  Watch for an upcoming blog post about the SIMPLE IRA for Group Practice Owners!

The Safe Harbor 401(k): Allowing GPOs to Save More ๐Ÿš€

When you're looking for annual contributions higher than those allowed by the SIMPLE IRA, it's time to consider a 401(k).

๐Ÿ”–  For 2024, the amount each employee can contribute to a 401(k) is $23,000. If they're 50 or older, that $23,000 becomes $30,500. (That's that 'catchup' contribution again.)

An important point is that โ€“ just like the SIMPLE IRA โ€“ annual employer contributions are required. The employer contributions will be 3-4% of each employeeโ€™s compensation. Note that range is 1% higher than the range for the SIMPLE IRA.

These mandatory employer contributions are a feature of the Safe Harbor 401(k). Technically, a "traditional' 401(k) is also an option โ€“ and in that traditional 401(k), employer contributions are NOT mandatory. 

HOWEVER a traditional 401(k) must pass complex discrimination tests โ€“ tests from which the Safe Harbor 401(k) is exempt. Many (although not all) small businesses will fail these discrimination tests, creating a mess for the business owner. Traditional 401(k)'s CAN work for Group Practice Owners, but you'll want to work closely with financial professionals to make sure it doesn't go south.

I know, this stuff is confusing. That's why I'm working on a comprehensive guide on 401(k)'s for Group Practice Owners. Keep a look out for that!  ๐Ÿ‘€

Cash Balance Plans: Saving TONS & Slashing Your Tax Bill ๐Ÿ’ธ

Are you already maxing out your 401(k) and still despairing at your sky-high tax bill? A cash balance plan may be just the right Retirement Plan for you!

Most folks believe that once they've put a 401(k) in place, they've done all they can when it comes to retirement plans and tax deductions. But that's not the case!

A cash balance plan is a great option if you currently have โ€“ or expect to soon have โ€“ a significant amount of free cashflow.  

๐Ÿ”–  If you're thinking of selling your practice in the next few years, the time is now to start smart tax planning โ€“ including evaluating the benefit of a cash balance plan!

The cash balance plan can be a very effective tool to reduce the HUGE tax bill when you sell. But you'll want to have the cash balance plan in place at least a few years BEFORE the sale (to make sure it qualifies as a non-discriminatory plan).

This is a VERY complex and technical maneuver, and you'll need a Retirement Plan professional (and actuary) to implement it. If this sounds like somethingfor you, contact me and I'll point you in the direction of some helpful resources.

๐Ÿ‘‰  Confused? Want to know more?

Hear two financial experts explain everything about Retirement Plans for Therapists. Click here to get the free Retirement Plans recorded webinar!

PLUS: Watch for upcoming blog posts on the SIMPLE IRA and 401(k) for Group Practice Owners!  ๐Ÿ‘€  

What happens if you pick the "wrong" retirement plan and want to change it?

I've seen many practice owners get stuck choosing a Retirement Plan, fearing they'll make the wrong choice.

If that describes you, I've got great news! ๐Ÿ—ž๏ธ

Switching Retirement Plans is usually fairly easy. ๐Ÿ˜ฎโ€๐Ÿ’จ

Yes, you can get into trouble if you're opening and closing different Retirement Plans every other year and there are rules to follow. 

But if you use one of the Retirement Plans covered here, in most cases you may simply close down the old plan, roll the funds from your old plan account into the new plan โ€“ and go about your merry way. ๐Ÿ˜—

โš ๏ธ  One word of caution: the specific way and payment transfer mechanisms you use to move funds between retirement accounts matters - a lot. 

Be sure and understand the nuances here before you pull the trigger. Some actions have unintended and painful tax consequences which can't be undone. This is a good time to consult with a financial professional! ๐Ÿ‘‹

๐Ÿ‘€  Watch for an upcoming blog post where I explain the ins and outs of managing former employer Retirement Plan accounts!  ๐Ÿ‘€

Free Retirement Plans Webinar! ๐ŸŽž๏ธ 

Join Accountant Julie Herres & me to learn all the ins and outs of Retirement Plans that you NEED to know! 

PLUS get my free Retirement Plan cheat sheet! ๐Ÿ˜ƒ

๐Ÿ‘‰ Click here to gain immediate access to the recording!

The Great Tax Benefits of Retirement Plans ๐Ÿ‘

The reason Retirement Plans are so great is because of the tax benefits they offer.

If we didn't care about this tax benefit, we could just invest through an "ordinary" taxable brokerage account โ€“ and avoid all these complex rules and procedures.

But there are great tax benefits of Retirement Plans โ€“ so let's make sure you make the most of them!

There are two different types of Retirement Accounts and they are distinguished by the tax benefit they offer:

  • Traditional Retirement Accounts allow you to reduce your taxable income today โ€“ which reduces your current-year tax bill; whereas...
  • Roth Retirement Accounts do NOT reduce today's taxable income, BUT enable you to never pay taxes again! ๐Ÿ˜ƒ (At least for the money held in that Roth account.)

Traditional Accounts Reduce Taxes Today โ˜€๏ธ

In a Traditional Retirement Account, the dollars you contribute generate an income tax deduction. 

The contributions come from your income, but are excluded from your taxable income. That means your tax bill will be LOWER. ๐Ÿ‘Š

And as an added bonus, you don't pay any income taxes on those Traditional Retirement Plan investments until you begin taking distributions out of the accounts. 

When you do start taking those distributions, you'll pay income tax on 100% of the amount you take out. In other words, the distributions from a Traditional Retirement Account are "ordinary  income" โ€“ much like the income you earn by working in your practice today.

Remember that you must wait until you're at least 59.5 years of age before you start taking these distributions โ€“ if you fail to do so, you'll owe both the taxes AND and an early withdrawal penalty. ๐Ÿ‘Ž 

Roth Accounts: Never pay taxes again! ๐ŸŽ‰

From a tax perspective, Roth accounts work in the exact opposite as traditional Retirement Accounts. 

With a Roth, you receive no tax deduction for the contributions you make. 

You still pay income tax on all the money you earn. You just take a portion of those after-tax earnings and contribute it to a Roth Retirement Account. 

But โ€“ and here's the neat part โ€“ you never pay tax on those Roth account balances again. They can grow to be many multiples of your initial contribution โ€“ and all that money is free and clear of any tax.

Naturally there are a bevy of rules and regulations you'll need to follow to ensure your Roth accounts receive this amazing tax-free treatment. They're not too bad, but they ARE nuanced. 

BEFORE you begin taking distributions is a great time to consult with a qualified financial professional and make sure you don't stumble into any unwelcome surprises. ๐Ÿ‘‹

Just like Traditional Retirement Accounts, you must wait until you're at least 59.5 years of age before you start taking distributions out of Roth Accounts โ€“ if you fail to do so, you'll get hit with penalties. ๐Ÿ‘Ž 

Which Retirement Account is Better? Roth or Traditional?

This is the big question, and it's an important one!  To know when it's best to use a Roth or Traditional retirement plan, see my blog post all about that decision!

Taxes Reduce the Cost of Your Retirement Plan ๐Ÿ’ธ

As a business owner, it can be discouraging to realize how expensive it is to sponsor a Retirement Plan. 

There is no argument that it's a meaningful business expense. 

But there are several ways taxes reduce the true cost of the plan.

Retirement Plan Expenses are Business Tax Deductions

That means the Retirement Plan expenses you incur will reduce your taxable income โ€“ and therefore the amount of tax youโ€™ll pay. 

If your marginal tax rate (between Federal and state taxes) is 25%, each dollar you pay in Retirement Plan expenses will reduce your tax bill by 25 cents. 

That means the net, after-tax expense to you is โ€œonlyโ€ 75% of the total cost.

But wait thereโ€™s more! ๐Ÿ˜ฒ

Retirement Plans Allow You to Increase Your Deductible Retirement Plan Contributions

One of the primary reasons the more complex Retirement Plans are worth the trouble is that they allow higher annual contribution amounts.

If those increased Retirement Plan contributions are into  a traditional retirement account, that will reduce your tax this year!

Even if you use a Roth account โ€“ and therefore don't get a tax deduction this year โ€“ you'll still get the amazing tax-free benefits of the Roth in the future! 

When it comes to smart tax management, it isn't all about reducing your tax bill this year. Rather, it's about reducing your lifetime taxes paid.

Both Roth and Traditional Retirement Accounts are powerful tools to reduce that lifetime tax burden. ๐Ÿ‘

Tax Credits Further Reduce Retirement Plan Costs

In recent years, the Federal government has gone to great lengths to encourage small businesses to offer their employees Retirement Plans. One tool they've used is offering pretty darn attractive tax credits! ๐Ÿ’ธ

One tax credit program is for establishing a new Retirement Plan. The second is for establishing a Retirement Plan with an auto-enrollment feature.

๐Ÿ”—  Read more about the details of these Retirement Plan tax credits on this page of the IRS website.

A tax credit is literally a dollar-for-dollar reduction in the tax you owe. Itโ€™s like a coupon for โ€œ$500 offโ€ your tax bill.

These credits are likely to be a limited time offer though! You might want to consider adding that Retirement Plan a little bit sooner than you otherwise might.

What Investments to Hold in Your Retirement Accounts

Figuring out what Retirement Plan to use is complex enough!

But after you answer THAT question, youโ€™re immediately confronted with another complex matter: what investments to put IN that Retirement Plan.

Investing is, to be a sure, a complex and confusing arena.

๐Ÿ”— If you fancy a deep dive into the world of sensible investing, check out my Investing Page.

But if youโ€™re looking for quick guidance on how to invest with your shiny new Retirement Plan, youโ€™re in the right place!

What Sensible Retirement Plan Investing Looks Like

To invest successfully, we need investment portfolios with a few key characteristics:

  • Highly diversified (to include virtually every publicly traded company in the world ๐ŸŒŽ I'm not kidding!);
  • Passively managed (no stock picking, no market timing);
  • Low cost; and
  • Tax efficient.

Why do we invest this way?

Because decades of academic research demonstrate that it's the best way to achieve superior long-term investment returns.

In other words, this philosophy is an evidence-based approach to investing.

How to Find Investments Aligned with an Evidence-Based Philosophy ๐Ÿ”ญ

Today there are many companies offering investment funds which follow an evidence-based philosophy.

One of the leaders in the space is Vanguard.

Vanguard funds are a very good solution. For many years, I used a โ€œfour fundโ€ portfolio from Vanguard โ€“ and it served me well.

Today my investments are managed by my own financial planner and he uses Dimensional Fund Advisors funds.

Dimensional funds offer a small โ€“ yet meaningful โ€“ improvement over the Vanguard approach.

๐Ÿ”–  These "best-in-class" (IMO) Dimensional funds are the ones we use for our investment management clients at Turning Point.

But in the earlier stages of investing, following the Vanguard approach is great! ๐Ÿ‘

While there are vendors other than Vanguard โ€“ such as Schwab, Fidelity & Betterment โ€“ offering good funds... keep an eye on those fees!

I have yet to encounter a Vanguard fund with unreasonably high fees (although that doesnโ€™t mean one isnโ€™t out there). I canโ€™t say the same for any other financial institution I know of. โš ๏ธ

Exercise caution and healthy skepticism. And seek profession guidance (from a fiduciary, fee-only financial planner) when you need it! ๐Ÿ‘‹

Getting Started: Vanguard Target Date Retirement Funds ๐Ÿš€

If youโ€™re looking to keep investing for retirement simple, I love the ease of Vanguard Target Date Funds. 

You can put every cent of your retirement savings into a single Target Date Fund and Vanguard will do all the rest of the work for you.

Hereโ€™s how it works. ๐Ÿค“

You pick the year in which you think youโ€™ll retire (or begin taking distributions from your Retirement Account). Then find the Vanguard Target Date Fund with the year closest to your retirement year.

๐Ÿ”–  Vanguard Target Date Funds come in five year increments. 

Round up to keep your investments a bit more aggressively invested; round down if youโ€™d prefer a slightly more conservative approach.

For example, if my target retirement date were 2038, picking the 2040 fund would yield a slightly more aggressively invested portfolio, and picking 2035 would be slightly more conservative.

What do I mean by aggressive? More aggressive means a higher percent of the portfolio invested in equities. Equities offer higher expected returns, but also higher volatility.

โš ๏ธ  One final word of caution: because these funds are sometimes tax inefficient, I don't recommend holding target date funds in taxable brokerage accounts. That tax inefficiency doesn't matter inside of Retirement Accounts because of their tax-advantaged status (which is covered above). 

๐Ÿ”— Get started with Vanguard Target Retirement funds on this page of their website.

Thatโ€™s a Wrap ๐ŸŽฌ

If youโ€™ve made it to the bottom of this page, youโ€™re REALY eager to know the best approach to your Retirement Plan!

๐Ÿ‘‰  If you havenโ€™t already, be sure and sign up for the Free Retirement Plans webinar. ๐ŸŽž๏ธ

In that webinar, my friend Julie Herres and I cover these topics in more detail and answer Frequently Asked Questions we hear from therapists.

And if you have questions about how to best use Retirement Plans in your financial plan, give me a shout!

Standard Not Advice Disclaimer ๐Ÿ˜ฌ

Just a friendly reminder that none of the information included in these articles is financial, legal or accounting advice.

I don't know the specific financial circumstances of your life (or your private practice), so there's no way I can make blanket statements about what's right for you.

What I offer in these articles is a suggestion on how you might think things through and then decide (for yourself) what's right. 

For some topics, I've also included what I've learned works well for most people. But you're not most people, you're you. You might be in that minority where the general suggestions are the wrong approach. 

Take everything said here (and anywhere else online) with a grain of salt, and seek out professional advice if you suspect you need it. Of course, I'm always happy to have a no cost introductory conversation with you to see if I can help.

I don't want you to do anything that ends up causing you harm. I don't want that for you, and you don't want that for you. Take your time, think things through, be deliberate and seek out professional advice if you suspect you need it.

Turning Point is a registered investment advisor in the state of California. Please visit turningpointhq.com for important information and additional disclosures. This article is provided for general information and illustration purposes only. Nothing contained in the material constitutes financial, legal or tax advice; a recommendation for purchase or sale of any security; or investment advisory services. I encourage you to consult a financial planner, accountant, and/or legal counsel for advice specific to your situation. Read the full Disclaimer here.

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