Page 42 - June2019_BarJournal

BarJournal SOLO & SMALL FIRM

JULY/AUGUST 2015
FEaTUrE Financial Opportunities and

Considerations for Solo

and Small Law Practices

BY ELAINE M. STRAuB

olo and small legal firms face similar needed. Therefore, it is critical to understand can contribute to this plan. Employer
issues as any other small business. the different retirement plans and to choose contributions for employees are discretionary.
The focus, understandably, has to the plan that best matches the attorney(s’) Once assets reach a threshold balance, the plan
be on running and growing the goals and affordability. It’s also important to becomes subject to reporting requirements.
Spractice. Smaller practices do not remember that as the practice grows, needs and SEP IRA (Simplified Employee Pension
generally have the luxury of an in-house team opportunities may change and, thus, a different Individual Retirement Account). This plan
for support. Therefore, small firm attorneys need plan may become a better option. Please note as enables the solo practitioner to set aside high
to rely heavily on the support of other outside of this writing, Congress is considering enacting contribution limits for retirement, but the same
professionals. Some issues they face include legislation making it easier for smaller firms to amount must be contributed to each employees’
retirement income strategies, insurance coverage offer retirement plans. account with immediate vesting. Employee
(health, life, disability, long term care, business Retirement plans allow firm owners, as well contributions are a tax-deductible business
interruption insurance), business continuation as any employees, to save for retirement on a expense. Administrative costs are low without
and/or succession, as well as employee retention. tax-deferred basis. Offering a retirement plan reporting requirements.
Developing a sound plan based on your defined is a great method to retain employees. It’s also A SEP IRA allows for greater investments
goals will create the financial strategies to secure a way for the firm to reduce taxes and/or offset than possible with a Traditional or Roth IRA
the future of your firm, any employees, yourself, any plan costs because firm contributions to or a Simple IRA.
your family and heirs. This article, then, will employee retirement accounts are tax deductible. Simple IRA (Savings Incentive Match Plan
focus on the financial considerations to benefit Employer sponsored retirement plans are for Employees). Designed especially for firms
the firm owner(s) and any employees. established as a defined contribution or defined with 100 or fewer employees. It provides many
Health insurance is of critical importance. benefit plan. Most firms establish defined of the benefits associated with a 401(k), but
It is becoming increasingly complicated and contribution plans — a plan in which both the without the complexity, administrative costs
expensive and requires the services of a dedicated employer and employee make contributions to or reporting. Employers choose from two
professional. Depending on the size of the firm, the plan. In defined benefit plans (generally mandatory contributions to employees’ accounts
the Federal Government Exchange provides referred to as pension plans), only the employer with immediate vesting.
options for individuals. Additionally, several makes contributions, along with a promise to 401K. Designed for the smaller to larger
health insurance companies offer various plans pay the employee a set payout upon retirement. firm. The employees contribute to this plan up
for the individual and small groups. Your health Defined benefit plans are losing favor as firms are to the IRS annual deferral amount. Employer
insurance professional can work diligently to concerned about the legacy costs of supporting contributions are optional. When they do
structure the best plan for your firm. payouts over an indeterminate number of years. contribute, the matching portion is based
Many attorneys are so focused on taking care Several defined contribution retirement plans on a percentage of employee salary. The IRS
of their practice, they can neglect to plan for are described below. Regardless of the plan, annual deferral limit takes into account both the
their eventual retirement. Relying on the value deductions from salary are taken before taxes and employee and employer contributions.
of your practice through a sale or merger with invested among a selection of investment options. The attorney-employer(s) may wish to
another firm as the primary source of retirement Some plans allow for Roth IRA contributions contribute more than the annual elective deferral
funding may have some risks. (which are after tax). Federal tax laws limit the for themselves. This can be accomplished
Concerning retirement planning, there are total amount of annual elective deferrals that can by establishing a safe harbor provision — a
several different plans varying in terms of be made to a retirement plan for each employee tremendous plan design advantage, but there are
complexity. Each plan has different features, ($19,000 in 2019) with a $6,000 annual catch-up pitfalls. The safe harbor plan requires careful
benefits, required contribution amounts (by for individuals over age 50. Federal tax law also and ongoing administration to ensure that all
the employer firm), contribution limits, vesting limits the amount of compensation in computing compliance rules are properly followed. The costs
schedules, funding deadlines and reporting benefits and compensation. are far greater, but with a larger contribution to
requirements. The services of a plan record Solo 401(k). Designed for the sole employees’ accounts, the attorney-employer(s)
keeper and a plan administrator are generally practitioner. The practitioner and employees can set aside up to $56,000 in 2019.
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