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401(k)s Uncovered: What Dentists Get Wrong About Retirement Plans · The Millionaire Dentist™

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Hello everyone, Welcome to the Millionaire Dentists Podcast, brought to you by four
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Quadronants Advisory. On this podcast, we break down the world of dentistry,
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finances and business practices to help you become the millionaire dentists you deserve to be.
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Please be advised we do speak with an honest tongue and may not be
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safe for work. Hello and welcome. This is Casey Hiers back at the
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Millionaire Dentist Podcast in studio with co host Jared Bridgeman. What hi, Hi,
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Casey? How are you? That's a great color? Is at turquoise?
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Yeah? Baby, turquoise, bluish green like the jewelry from the Southwest.
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Yes, like in New Mexico. Tyler looks great on you. Thank
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you. We also have an esteemed guest with us today, mister cal Owen.
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My shirt doesn't quite bring out my eyes like Jared's does, but I'm
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still better looking. I mean, at least you're wearing clothes today, so
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I appreciate that. Cal tell us you're part of the four Quadron Advisory team.
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This is your first podcast opportunity. Yeah, tell us your role here?
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Yeah, thanks for having me, guys, So I work on the
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financial planning team here at four quadrants. So that encompasses both the business consulting
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aspects, you know, getting getting our doctors practices up and running at top
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level, as well as all of the success that we experience there gets poured
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over into their personal financial plan. So we're saving for retirement, we're accomplishing
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life goals, and and we're helping the doctors navigate those waters as they go
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through it. See Jared, he just he encompassed like a hundred podcasts in
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one sentence. He helps get the practice profitable, and then once you have
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those those successes, you have to then use it in the personal side and
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maximize it well. And that's why we don't really bring them on because I
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want to keep my job and keep the podcasting. Yeah, I was like
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all time, it's over dozens of podcasts. He just summed up right there.
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Damn genius. So cal I wanted to bring you on today to talk
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about this is something that you know, most people have at least heard of
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the term, kind of get that overall gist of it. But let's talk
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about retirement. Let's talk about four oh one k's and what the hell is
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that? What's a four one K plan. A four to one K plan
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is it's a tax qualified retirement plan, and there's a couple of different forms
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of that. And and really the benefit of the four one K compared to
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some other ones is, oh, you already lost me. What he's so
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smart? So I've been using the word for one K for decades, but
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I didn't know what it was, what the origin was. I like origin
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stories, like who's your favorite sports team, cal Indianapolis Colts? Baby?
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Okay, why Peyton Manning grew up watching him? He was like my hero
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growing up. That man just knows how to work hard. You see him
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on the sidelines, always reading his playbook, always study and always watching film.
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That guy was a great example of and he loved four one ks.
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You watch You watched him with family, right, Yeah, So there's your
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origin story. So four oh one K and your Colts fandom, that's your
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origin story. So what's what? I looked it up. I'm only going
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to bore the audience for about forty nine seconds. But why in the heck
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is it called that? That? That's been around for about fifty years.
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Oddly enough, it comes from the Revenue Act of nineteen seventy eight. It's
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the year I was born. Wow, useless information, you're that old.
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Yeah, he's great moisturizer. That's said, really good moisturizer. But yeah.
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Nineteen seventy eight, Congress passed a law known as the Revenue Act of
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nineteen seventy eight, and I guess we'll call it a loophole. But ultimately
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there was something in there that there was a specific provision added that it was
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recognized by a gentleman by the name of Ted Benna b E Nna. This
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segment known as section four oh one K in this tax law. Right,
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it's a section of a tax law in nineteen seventy eight that employees were given
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away to the first stock option a bonus compensation in a tax free manner.
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So Ted is who we have to think for this four to one K situation
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from the Revenue Act of nineteen seventy eight. Wow, Bill and pause.
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I thought that was big time. And I mean, cal fell asleep.
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I do love Billed. And then in nineteen eighty one the IRS updated four
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to one K rules. Let's fast forward to twenty twenty four. Well,
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twenty twenty four, I mean it's not uncommon, right, say what you
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will about taxes, but the government typically uses them to influence our behavior and
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they want their cut of it as soon as possible. Here in twenty twenty
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four, they actually recently a couple of years ago, released Secure Act one
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point oh. Last year in twenty twenty three they release Secure Act two point
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oh. There's a lot of changes to retirement plans and just in general.
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So four one k people can save money and not get taxed on it on
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the front end. Yeah, that's that's the big thing. Well, and
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they'll give you a they want to incentivize you to save, right, the
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government wants to incentivize you to save I don't try to interpret what the government
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wants. And if I go down that rabbit hole, I probably won't be
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on any podcasts. So we'll just I'll just say sure, sure. So,
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yeah, you are allowed to save that money, and it is tax
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deferred. So not only we'll tax free, you got to pay it just
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on the back end. You got to pay it on the back end.
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That's exactly right. And the government caps you on how much money you can
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put in there. Every single year. I was gonna say, go from
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like maybe twenty nineteen to like what they raise it every couple of years.
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In twenty twenty four, it's twenty three thousand dollars. It's twenty two five
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last year, right, yep. Yeah, if you're older than age fifty,
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they give you a bonus ketchup contribution another seven point five k. Okay,
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So then if you're over fifty this year, you can save thirty thousand,
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five hundred dollars. Nailed it, look at me. Okay. So
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we've kind of roughly talked about what a for one K plan is. This
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was a question I was told to ask because I'm not even sure what the
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question is in itself. But what is a plan sponsor? Plan sponsor is
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the business entity itself that sponsors the plan. Okay. Okay, so that'd
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be for US quadrants exactly, or you know, for the doctor of the
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dental practice that that owner, they are the plan sponsor for their employees.
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Okay. So not only does the four to one K allow a person individual
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to save money for the retirement, but it as a plan sponsor, you're
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enabling your employees to also save for retirement. And as a business owner,
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you're going to get some some tax credits for that as well. Okay,
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that's good specific into those. Number one, as a practice owner who doesn't
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have a four to one K in their practice, should they shouldn't they?
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What are some of the criteria generally speaking, And again we're not giving like
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anybody direct financial advice without knowing all of your situation, but generally speaking,
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like what what what what's that look like for a listener, maybe that doesn't
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have one. Well, depending on the state you live in, you may
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actually be forced into sponsoring some type of retirement plan, whether that's a four
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to one K, a simple IRA, et cetera. But for somebody who's
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doing the forcing, it depends on the state. Illinois, you know,
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right next door to us. I know they're a big one. There's a
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couple others as well and do and I'm assuming they know that whenever they form
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their alle word of the case may be or is it like two years down
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the road all of a sudden, the government's like, yo, where's your
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four to one K? Stuff? At they are giving new business owners like
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if you incorporate this year, they'll they'll give you like a grace period typically,
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but yeah, once you cross that, I hope you're in the now.
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Let's get to Casey what was your question? Again the kind of like
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sides stuff ones they're being forced to like what's that look like? For a
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yeah, like what so? Yeah? So? Again for a for a
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practice owner, let's say they don't have a four to one k in place
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yet, Like what why? Is there a reason why they would or wouldn't?
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What are the benefits? Just kind of line those out. The benefits
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of the four one K would be it's it's going to allow you as the
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practice owner, to save money for retirement, but it's also going to allow
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you to get a tax deduction on any match that you're paying yourself, as
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well as a tax deduction on any match that you're providing for your employees.
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Yeah. So it's a beautiful vehicle to save more yourself, to offer this
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to your employees, and to reduce your tax liability. Absolutely, gotcha.
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How do you decide what to match? Some people match at different percentages to
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their employees. That's a pretty big question, and it really depends on each
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individual's situation. Some of it can come down to how much do you need
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to save and supporting yourself in that regard and selecting a higher match amounts that
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you can save more. Now, doing that, you're also going to have
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to be paid more out to any employees that are participating, so it can
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be a balancing act there makes sense. You mentioned there's different kinds of I
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guess classifications for a four one K now I've heard I've heard of a roth
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for one K. I'm not quite sure or what that is. What is
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that? So Casey mentioned previously that like with the traditional for one K,
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you don't pay any taxes on the front end. All that money grows over
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time, and then you do pay taxes on the back end. A wroth
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for one k similar to a wroth ira if you've heard of that, it
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kind of works in the opposite direction. You do pay taxes on the front
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end the money grows, but when you take the money out, you don't
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pay any taxes then, So would it be you're kind of banking on whether
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you think taxes are higher now or going to be hiring later. And that's
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that's the hard part, because you don't know what the government's gonna do,
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so take more money. Yeah, So control what you can control, right,
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And that's part of what we do with our clients here is is we
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know whether or not you know we can kind of project based on your current
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spending, current income, future needs and expenses down the road. Is it
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better to do traditional now or wroth now? Would you say, I mean,
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it's obviously we call it traditional. Does that tend to be the more
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standard or is it called traditional? Is because that was what kind of came
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first? Yeah, I think it's just because it's it's what came first.
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Well, I think what I'm hearing is your four to one K should be
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very custom. It should be customed to a lot of different factors. And
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there's not one lens to look through. There's not a one size fits all,
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absolutely, as is your entire personal financial plan. Yeah, and then
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we could ask all the time, oh, you know, do you guys
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do our four to one K? Well, yes and no. The strategy
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and the percentages and things of that nature. But is it by law or
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if you follow SEC guidelines you have to have a third party administrator. That's
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correct as well, casey. So for quadrants, we help people set up
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and manage their four O one ks. We do a lot of the investment
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advisory work, get it nice and custom for them, each person situation exactly.
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But there's also administration rules and regulation, et cetera. That has to
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be followed, and the government mandates that there's a third party administrator that has
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to be involved in that process. They handle all of that administration, They
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handle all that paperwork, They do things like send out quarterly statements, et
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cetera. But really what they're there for is to make sure that the plan
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stays compliant with laws and regulations. There's probably a fee for that nice service.
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Huh. Yeah, when it comes to four to one case, is
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there a required minimum for distributions? I'm asking that right. Yeah. So,
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so we mentioned earlier the government wants their money now, right, but
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they want you to save for retirement. So what they say is, as
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soon as you get to a certain age, you have to take what are
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called required minimum distributions. You have to pull some money out, you have
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to pay some taxes on it. Stupid, I'm not disagreed with you.
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So okay, So the government requires you to take out minimum distributions and what
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ages? What age is that used to be age seventy two? I mentioned
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early Secure at two point zero rolled around recently and changed some of those things.
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So as of one one twenty three, the rm D age was increased
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to seventy three. Okay, And is that just because like our age of
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retirement keeps raising. Yeah, people are, people are living longer, working
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longer. They well not America life expectancy has gone down recently for the first
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time or two in a long time, and inflation goes up, so therefore
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we have to work more. The mafia wants their cut. Damn it,
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where's my money? Yeah, that's another one too. I mean you talk
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about the mafia want their cut. They did increase the arm d age,
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but they changed how people who inherit money from a four to one k from
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an estate whatever. So you got five million and a four to one k
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you're you know, eighty three, and you leave it to said person,
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said person you used to be able to spend, used to be able to
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inherit that money and spend it over the rest of your life. Government change
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that you got to spend all of that qualified four one k ira money,
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et cetera in ten years. What if you want to spend that last time?
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I'm sure I could spend five million and like a year by all millions.
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Okay, yeah, checking, I got some places to mind. Yeah,
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I didn't know that that's that's interesting. What what other I guess thinking
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about our listeners, who you know, practice owners, you know on that
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side of things. What else about four one ks? Did you want to
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touch on a lot of the new changes if you already have a four to
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one K, just being aware of the new changes that are coming down the
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pipeline is the big thing to be aware of. We talked about the R
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and D age increasing already. We talked about the new ten years spend down
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rule for people inheriting iras. There's a lot there's a lot more new stuff
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coming as well, such as automatic enrollment is a big one. So currently
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there's usually some illegi ability criteria for entering a four to one K plan.
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You have to be x years old, you have to be employed for x
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amount of time a year, et cetera. A lot of plans say you
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have to be a full time employee, and then they get once they cross
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that threshold and they're eligible for the plan, they're allowed to opt in and
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participate starting next year. That changes they cross that threshold, you have to
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auto enroll your employees. Now, government says not enough people are saving for
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retirement and Social Security is not going to be enough for a lot of people,
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so you have to auto and roll them into these plans. Now,
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that doesn't mean they have to participate. It's not mandatory. They can choose
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to opt out, opposite of before where they had to opt in. But
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it is very important for plan sponsors business owners to be aware of when those
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eligibility dates are for people so they can make sure that they get enrolled and
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is there that's next year? Correct? Okay, is there a minimum if
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they so we're automatically opted in? Now, well, is there a minimum
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percentage that they are doing they were going to do unless they opt out.
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They started them at three percent of their compensation every year, I believe they
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increase it by one percent up to ten percent unless that employee A elects to
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stop at a certain threshold, et cetera. Any common mistakes or I guess
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let's call them bugaboos four one k's the practice owners Sometimes we see maybe was
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structured in a way that wasn't advantageous or I mean, are these sort of
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plug and play for the most part. I mean you've got to customize some
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very important details, match percentages, what you're putting in, how you're structuring
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some things, But are there any other sort of nuance to share about four
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to one k's. We try to, at least here at our firm curb
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that on the front end. Things that people can get themselves into trouble with
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are like loan provisions. Some four to one K plans allow you to take
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loans from your own balance before the for to pay taxes before it, to
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pay taxes on them. So this is different than me just straight taking money
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out of my four one K, right, I know, you get hit
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with some pretty So this example would be if you have a nine month stretch
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of poor cash flow, something happens, you need some money. You know,
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you don't want to put it on a credit card. You borrow from
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your four to one K and hopefully pay it back very soon. What what
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did you get hit with? Negatively, Well, they're going to charge some
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interest. What they're going to charge your interest to borrow your own to borrow
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your own money, not to mention like it is, it's messy, it's
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complicated. Then you got to pay that money back, which means you're probably
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not saving as much money. And really it just gets people in trouble with
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themselves. Now if you're really in a bind and you've exhausted all other avenues.
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Sure you can go that route, but it can be trouble and of
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defense. It's a last line of defense, sort of going to Vegas to
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like get paid, the play Russian roulette in front of degenerate gamblers. You
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shouldn't do it. But if your next option is that borrow from your four,
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I see you've been following my Instagram, so you can set the four
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one k up to not allow the loans though, to just eskew the problem
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altogether. So I mean it's it's so Hoover sets up the program is the
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one that gets to decide that. Yep, there are several things. That's
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they get to decide the eligibility ages and they're SMIRIS mandated minimums and maximums.
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What's what's the match percentage, et cetera. And that's that's one of those
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options available. Okay, So if a couple are over fifty, they can
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save sixty one thousand dollars, both of them maxing it and taking the over
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fifty catch up, and that's just their own elective deferrals. You know they're
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going to have the match on top of that, and then one of the
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other benefits of the four to one K plan in particular is that on top
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of your elective deferral and your employer match, employer can also do profit sharing.
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Oh, let's get into that. Profit sharing's discretionary. You know,
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if you're having a good year and you want to save some more for retire
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for yourself and you want to benefit your employees as part of that instead of
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paying yourself more to save it elsewhere and paying the government taxes paying to that
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profit share plan. If you're having a good year and if you're not having
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a bad year, maybe you don't have the option to do that, But
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that's kind of the beauty you decide to year if you do it or not.
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Yeah, that's kind of the beauty of the profit share plan within the
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four to one K. It's not mandatory every single year. It's completely discretionary.
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So if somebody's crushing it and pretty profitable, and that's when you look
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to that. Absolutely, like somebody that's struggling to get patients and maybe not
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has terrible cash flow, profit share is probably not going to be there their
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go to. Absolutely, it's more for somebody who's they're hitting a level of
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success and they're looking for some strategy. Absolutely, that's a great way to
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save more for retirement and benefit your employees. How much more can they say
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between per person, between your elective deferral, your employee, your employer match
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and profit share? Sixty nine thousand dollars a year per person? Nice with
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certain with rough four oh one k starting this year, there's no minimum distribution.
19:08
Yeah. So the the WROTH for a one k's similar to the roth
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Ira, Right, the money you pay taxes on the front end, the
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money grows, you don't paying taxes when you take the money out. Now,
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with roth iras, they differed from roth for one k's where there were
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no required minimum distributions in Wroth accounts and a roth IRA account and a WROTH
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four one k. However, there used to be required minimum distribution traditional one
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k okay exactly. Now that's been taken away as of this year. Yeah,
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I should Yeah. With secure at two point zero they change that.
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Wroth for one k's now operates similarly to roth iras, where there are no
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arm D requirements. Is there any other option? Let's say someone needed to
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you know, we talked about the loans, we talked about getting danged if
19:53
you just take money straight out of your four to one K? Is there
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any other option for a quick fix cash? Yeah? That was another provision
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of the Secure Act two point zero starting in twenty twenty four. Uh,
20:07
there's an annual one thousand dollars emergency expense distribution that's allowed from the fore one
20:14
from your four to one K account without being charged that ten percent penalty.
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There used to be pensions, and then pensions seem to be must have been
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too good a deal for we the people, so then they went away and
20:23
then four to one k's kind of replaced them. I was just curious like
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that that trend. Four one ks give you more flexibility as an employer.
20:32
A lot of pension plans, those contributions are can be mandatory. How about
20:36
the from the ones twenty years ago? It depends on the setup, but
20:38
like a lot of them are, they're mandatory and they're expensive for the employer
20:42
to operate. So as a small business owner, especially, you know,
20:45
depending on what phase of your business life you're in, probably lucky there's not
20:49
a pension. Yeah, yeah, that that four one K owner exactly.
20:55
As a business owner, that four one K allows you to save a lot
20:57
while still retaining a lot of flexibilit Nice pop quiz. What's the origin of
21:03
the four to one k? It's nineteen seventy eight cases birth year TAXI?
21:11
Yes, good, good count anything else you think you need to remind?
21:17
Are our listeners out there? Anybody's already a plan sponsor at this time?
21:21
Yeah, with a lot of these new changes coming and Secure Act two point
21:23
zero, as a plan sponsor, you need to be aware of them and
21:29
so that way you remain in compliance. That third party administrator should be there
21:33
to be used as a resource for questions with that to make sure to help
21:37
you stay within compliance. But unfortunately having them doesn't release the plan sponsor from
21:45
liability or the responsibilities of staying compliant with Secure Act two point oh guidelines.
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And if people have questions about their particular four one K plans, who they
21:56
who should they talk to? Talk to? Their Maybe the third party administrator?
21:59
Yeah, third party administrator can answer a lot of questions. But if
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you have a savvy investment advisors like us, truly, we always are free
22:07
to ve. Yeah. And if you want to call Cal personally, I'll
22:11
give you a cell phone number right after this. Well, Cal thanks for
22:15
coming on and talking about this topic. I know the number of changes every
22:18
year, and there's a little doubles in the details, there's little tweaks and
22:22
things of that nature. But just wanted to give our listeners a broad overview
22:25
of four oh one k a minute of rich history and get into it a
22:29
little bit. So thank you for joining us, Thanks for having me.
22:30
Folks. Don't forget we are going to be in Nashville and in Colorado coming
22:36
up in the next two months. If you're interested in joining one of our
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events and here in casey speak, go to four Quadrantadvisory dot com slash events
22:42
and register. If you would love to give us a review and rate us
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on Spotify or Apple, Apple Podcasts wherever you listen to us, that'd be
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wonderful. Make sure to share it with all your friends and family and get
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your kids listening to they'll love this. So thanks a lot of guys.
23:00
That's all the time we have today. Thank you to our guests for their
23:03
insight and for sharing some really great information, and thank you to you the
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listener for tuning in. The Millionaire Dennis Podcast is brought to you by four
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Quadrant Advisory to see if they might be a good fit for you and your
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