As I’ve been giving presentations about business systems to dentists, I’ve discovered that there are six prevalent myths surrounding 401k retirement plans. In this brief article, I hope to help dentists who are also small business owners develop a better understanding of what is actually possible.
Myth 1: Fees for 401k Plans Are Similar
Based on research I have done and the dentists’ existing plans they have shared with me, there are marked fee differences between similar plans. In comparing two “young” plans with just over $200,000 invested for 16 employees I discovered a $3,000 difference in annual fees. This $3,000 annual fee difference represented a 60% increase in cost between the plans. The compounding effect of these fee savings over many years is hundreds of thousands of dollars.
Myth 2: Setting Up a 401k Plan Is Difficult
As dentists shop around for a plan, they often are told that it is difficult to set up a 401k plan that meets the government’s requirements for a broad investment strategy. I view this myth as a sales scare tactic. You can set up your own plan and easily meet the government’s standards. The federal government offers a plan for federal employees—the Thrift Savings Plan (TSP), which is a plan they can easily simulate.
Myth 3: Employers Must Hire a Professional Investment Advisor for 401k Investment Funds Selection
With every 401k plan, there are three responsible parties:
- The plan sponsor
- The plan administrator
- The investment platform provider
The plan sponsor is the dentist/employer and has the overall fiduciary responsibility for the plan. What does this mean? You are going to act in good faith to administer the plan. A hired financial advisor cannot assume this responsibility for you. The plan administrator creates the plan documents, completes annual audits, and prepares annual filings. The platform provider is the custodian of the financial assets and contributions. The platform provider maintains financial statements, updates them online multiple times per hour, and distributes summary statements to investors monthly.
Many dentists choose to hire a professional financial advisor/manager who helps participants select funds, provides investment education, and also acts as the plan administrator, shouldering the documentation and audit work that dentists and their office managers rarely want to do themselves. But some 401K providers have made these tasks easy to accomplish with automation – a robust plan can be designed and administered in as little as 15 minutes.
IN PART 2 OF THIS SERIES…I will present three additional 401k myths that are relevant to dentists as small business owners.
The journey to becoming a business-savvy dental professional is an investment in yourself, your team, and the well-being of those you serve. At The Pankey Institute, we’re committed to providing you with the knowledge and tools you need to thrive in every aspect of your practice. So, take the first step towards a brighter future, enroll in Mastering Business Essentials, and together, let’s build a path to success in dentistry that’s as fulfilling as it is rewarding. Your journey starts here.