Episode 111 Transcript – 2024 Mid-Year Retirement Plan Updates and Deadlines with Matt Ruttenberg

[00:00:04] Intro

[00:00:04] Evon: Hey, everybody. Welcome back to The Optometry Money Podcast, where we’re helping ODs all over the country make better and better decisions around their money, their careers, and their practices. I am your host, Evon Mendrin, Certified Financial Planner(TM) practitioner and owner of Optometry Wealth Advisors an independent financial planning firms serving optometrists all over the country.

[00:00:25] And thank you so much for listening. Really appreciate your time today. On today’s episode, we’re going to talk all about retirement plans in the practice. And I welcome back to the podcast, Matt ruttenberg of Life Inc. Retirement Services, a true retirement plan expert, and we dive into important changes.

[00:00:43] Some of the most important changes that you need to keep in mind for 2024 and 2025, when it comes to the retirement plan in the practice.

[00:00:51] But we also dive into important deadlines that you need to know. Especially, if you are planning to start a new, safe Harbor 401k plan for this calendar year, as well as profit sharing contribution deadlines and more. Hopefully, this is helpful for you, as you were thinking about next steps either in starting or mending your retirement plan.

[00:01:10] If you have any questions you can reach out to Matt or you can email me at podcast@optometrywealth.Com.

[00:01:18] If you just want to say a one-way message, you can actually click on the link in the show notes and you can send a text to our show here. So if you have any questions or thoughts about future episodes or just feedback, you can go ahead and send a one way message to me as well.

[00:01:31] I’m also going to add in past episodes.

[00:01:34] I’d done with Matt as well as episodes I’ve done on the SECURE Act 2.0 law. Because there’s a lot more to dive into related to retirement plans and recent changes. So hopefully those episodes are helpful to you. I mean, there’s even some changes we didn’t get into, for example, if you have a SIMPLE IRA plan of the practice, there’s potentially an additional 10% bump in your employee contributions, depending on the size of the business uh, in 2024 and beyond.

[00:01:59] So check out those episodes as well. You can find them at the education hub on my website, www.optometrywealth.Com. And while you’re there, check out all the other episodes and other blog posts, articles we’ve done.

[00:02:12] And if you’re curious about working with my firm Optometry Wealth Advisors to serve you and your family, you can also schedule a no commitment, introductory call. We can talk about whatever’s on your mind financially. And I can share how I serve optometrists, navigate those same decisions and some of these fun financial planning decisions nationwide. And without further ado here is my conversation with Matt Ruttenberg.

[00:02:41] Welcome back to the Optometry Money Podcast. I am your host Evon Mendrin, and on today’s episode, I’m excited to have back onto the podcast once again, Matt Ruttenberg with Life Inc. Retirement Services. Matt, thank you so much for coming back on.

[00:02:56] Matt: Yeah. Thanks again for having me. what are we on two or three

[00:03:00] Evon: This is, this is episode, this is number three. Yeah.

[00:03:03] Matt: All right. All right. Yeah. Thank you for inviting me back. I appreciate

[00:03:06] Evon: When we start to get to episodes four and five of you coming back, then we head into like co host territory. So. We’re, we’re, we’re getting there.

[00:03:13] Matt: And you mentioned you pass out like jackets for those. I think

[00:03:16] Evon: That’s right. That’s right. That’s right.well, I, I’m excited because it’s, we’re about mid year now as of recording, and as this episode will be released, we’re at mid year now, or just past mid year. And now we can really start to think about in terms of, Qualified Retirement Plans in Optometry Practices. What are 2024 updates that we should already be knowing about? And importantly, what are some deadlines that we need to keep in mind as we go towards quarter four and towards the end of the year. So I’m excited to dive into that and thought of no one better to talk about that with you.

[00:03:56] 2024 Updates and Changes to Retirement Plans

[00:03:56] Evon: So let’s dive into 2024 updates to 401k plans, cash balance plans, whatever it is for retirement plans in the practice that optometrists need to know about.

[00:04:05] Matt, what do we need to know about for 2024?

[00:04:08] Matt: Yeah. So we spoke about this before SECURE 2.0 was basically the largest change to the 401(k) industry that passed in the 11th hour of 2023. There’s some. There’s some updates that are now coming through that were on the agenda that came through on that, and they’re starting to approach in 2025, and then a few things that are already here that started in 2024.

[00:04:37] most importantly, in my opinion, is the auto enrollment. piece of it, that is going to be mandatory in 2025. So for any new plans that started on basically from January 1st, 2023 and beyond, those are all now mandatory auto enrollment. What do I mean by that? That is basically you have to create an opt out plan instead of an opt in plan.

[00:05:05] So your employees, they log in, they say, I want. 4%, I want 5, hopefully more, 10, 15, but now they have to put zero if they don’t want it. Otherwise they will be put in for a specific number, 3, 5, 6. We actually can, mold that to however we want it to be. And that’s going to be coming up on, January 1st of 2025.

[00:05:30] Evon: So, I mean, this used to be something we’d talk about when we look at, okay, you’re going to have a Safe Harbor 401k plan, which most optometry practices do. What style of Safe Harbor plan do you want? Do you want the type that has that automatic enrollment? Do you want the more traditional Safe Harbor plan that does not have the automatic enrollment?

[00:05:48] Like, how does that change this conversation then? Do all matching types in the Safe Harbor plan simply have this automatic enrollment for employees?

[00:05:57] Matt: Yeah, it’s, it’s actually, so a lot of times on the menu of safe harbors that are around, there’s one called a QACA, Qualified Automatic Contribution Arrangement. but it’s basically, just a stamp if you want to look at it that way. You’re putting a QACA stamp and you can do that on any safe harbor.

[00:06:16] You can actually put that on any non safe harbor even. And all it is, is saying that I want to have this as an auto enrollment feature And they are actually giving you an extra 500 tax credit for the first three years of your plan to do that. And that’s actually been around since, 2019 on SECURE 1.0.

[00:06:36] So, we’ve been doing it since that came out just because it’s an extra 500 for the client. And you just need to maybe communicate that to the employee pool to make sure that they understand, like, hey, if you don’t want this, opt out,

[00:06:51] Evon: Gotcha. Yeah.

[00:06:52] Matt: it’s really, yeah, it is, it is a good safe harbor.

[00:06:56] Evon: and the, the obvious benefits to that are the additional credit as you, as you just mentioned, the additional tax credit. but also that it, it nudges employees to take advantage of the plan. And if, if we want our employees to be involved in the plan to save for their own retirement, this is a great nudge to get them to do that.

[00:07:15] Matt: And to, to actually add on that, as far as kind of a plan design inside, inside look, if you’re not doing a safe harbor and you want to do a traditional, you want more. contributions from your employees because a part of your annual testing does put that into place. So the more they put in, the more you can put in.

[00:07:40] So just a little side note on that. So having that auto enroll feature is great. next I, I do want to remind everybody, the tax credits that are available that did well, I guess, expanded in 2023. Are tremendous. They are, much larger than they used to be. you’re gonna get $250 per, non-high compensated employee that enrolls in the plan.

[00:08:04] So 250 up to $5,000, a hundred percent of your out-of-pocket expenses up to $5,000. That will wipe your out-of-pocket expenses out. potentially. And again, that $500 for the auto enrollment. So that’s $5,500. And then it’s an additional $1,000 per employee that earns under $100,000. That’s going to go towards their match or the employer contribution that you give them.

[00:08:33] So substantial four or five digit tax credit amounts that are coming. And those are for new plans that started in 2023 or beyond. Or if there was a plan that was shut down for three years prior to that, they can start it again. And they can get those tax credits.

[00:08:52] Evon: Got it. Yeah. And that’s, that’s huge. I mean, we’re often talking with clients about, they want to know, you know, should they use a SIMPLE IRA plan? Should they use a 401k plan? Especially for newer practices, relatively new practices. And with the tax credits, the, the conversations kind of moot now. I mean, as, as long as you see these tax credits sort of eat away much of, if not all of, The 401k administrative costs that you might consider anyways, the longer term solution from, from my perspective is usually going to be the 401k plan simply because of the additional amounts and features that it carries there. but now that you have those tax credits sort of eating away a lot of those administrative costs in those early years, it’s, it’s kind of really not, in my opinion, not really much of a debate anymore. I mean, I, I find myself saying those tax credits kind of point you in a direction of the 401k plan anyways. what are your thoughts on, on that, Matt? Do you kind of see it the same way?

[00:09:49] Matt: Yeah, absolutely. It, I, the best way to explain it is if, if it ends in the word IRA, it’s a very simplified, no pun intended, version of a retirement plan.

[00:10:01] If it’s 401k, you can get much, much more creative. And to, be more efficient and more advantageous for the business owner, meaning you can do different kinds of profit sharing calculations.

[00:10:15] You can be a little bit more creative with the match eligibility alone. You know, you only need to, your employees only need to make $5,000 in a year. To be eligible for the SIMPLE IRA, versus a thousand hours or more for the 401k. So that could, depending on your, your employee makeup, your employee pool, that could be a dramatic savings on what you end up having to give to your employer or to your employees.

[00:10:43] and it’s just, it just opens up the door to more creative plan design. So now that we have these, these tax credits that are quite substantial. you know, you can, you can create for the first three years, pretty close, three to five years, because they do drag on for five years. pretty close to a net zero plan design, if, if, if you wanted that.

[00:11:06] So, it’s very, very advantageous to lean towards 401k right now.

[00:11:11] Evon: What else, what else is on the docket for 2024 and beyond?

[00:11:14] Matt: know, that’s it for the changes right now. there’s a, a lot of things, that are kind of in the works. I do expect, so right now it’s a thousand hours or more eligibility. for the employees to be eligible for your 401k. The, there is a part time rule that is current for anyone between 500 to a thousand hours is eligible as long as they’re with you for three consecutive years.

[00:11:43] So they have to be with you for three years in a row at that hour. And then you can create a whole nother rule of eligibility. You don’t even have to match them. You just have to let them in the plan. That’s going to be shrunk down to two years consecutively. So not that it’s going to be a huge problem, huge cost extra, because you can make those, you can tweak those changes.

[00:12:02] it’s just going to be more of maybe a nominal annual fee because the more participants that you allow into a plan or that are in a plan, you’ll have an extra administrative cost potentially in that. but that is also on its way.

[00:12:15] Evon: Gotcha. Okay. anything else that we should know about this year and beyond?

[00:12:21] Matt: No, nothing, nothing else. that’s, that’s a big news, if you will, for, for 2024, 2025.

[00:12:27] Important 2024 Retirement Plan Deadlines

[00:12:27] Evon: Gotcha. So let’s talk about important deadlines. We’re kind of getting towards the end of the year. I know I’m getting all the emails from different providers for a 401k plan providers about deadlines towards the end of the year. What should we keep in mind if optometrists either well, if they’re wanting to adopt a new 401k plan or change their 401k plan or move from a SIMPLE into a 401k plan, what are some things we need to keep in mind as we go through the end of the year?

[00:12:53] Matt: Yeah, and honestly, maybe this first part of it, should probably be, I should recategorize it as other big changes for the 401k industry. But, moving from a SIMPLE IRA to a 401k is, there really is no longer a deadline involved. it used to be where you had to switch on the January 1st from a simple and quote unquote, graduate up to the 401k level.

[00:13:15] but now we can do mid year. So that deadline is actually no longer around. They just prorate the different contributions and things like that. So that has been wonderful because I don’t think, I don’t think the there’s anything worse. bigger of a headache than trying to time that properly and get everyone on the same page at the same time and switch everyone over at the same time.

[00:13:37] So that is no longer a problem, no longer a deadline, that we have to worry about, but let’s talk about the safe Harbor deadline.the safe Harbor deadline is, and always has been the, is October 1st. So your safe Harbor 401k, if you want to start a new one has to be done prior to October 1st. For the current year.

[00:13:59] So it’s 2024. If you want 2024 deductions, then you will for, for the employee. So that $23,000 that we all know and love, that has to be done by October 1st. It takes approximately 45 to 60 days depending on who the record keeper is and who the custodian is and the PR and, and how much of a job do you want to get into this and how much time you really wanna dedicate to,getting an up and running, but that’s around how long it takes to get a brand new plan up and running from scratch.

[00:14:33] There is a 30 day notice that you have to give to your employees. So that pushes you to September 1st to be able to get that notice out to your employees. And then there’s some obviously paperwork compliance and plan design conversations that have to happen prior to that.

[00:14:47] So I’m urging people August 1st is really a, a really important date, to take, start taking it seriously. beyond that part of it for the safe harbor. So there actually is a type of safe harbor that you can be late on, if you will. You can miss that October 1st deadline. and this is one of the options of the safe harbor.

[00:15:11] It’s called a non elective safe harbor. Non elective safe harbor means you’re going to give a 3 percent contribution to everybody who’s eligible. Now, there’s some certain designs that, why we want to use that for some higher level contributions with profit sharing. If you use this kind of safe harbor, that’s less that you have to give to your employees for profit sharing.

[00:15:35] There’s a, there’s a whole nother conversation about that, that we can have. But, basically if you miss October 1st, you’re going to bump that non elective 3 percent up to 4. So now you have to give everyone 4 percent and then we can amend it for the, the, the following year back down to 3%. But if you miss that, you can still do it.

[00:15:54] It’s a little more expensive for you. but it is, it is eligible and it does help. Sometimes it’s a kind of a last minute thing that we do, in case someone missed that. So that’s, those are the basic. deadlines that are around the safe harbor

[00:16:07] Evon: Yeah. And that’s again, to get contributions for this current calendar year for 2024. not if you want to get it started January 1st, 2025 and beyond. So if you are trying to get a plan started for this calendar year, 2024, and get contributions in, employee contributions in for this calendar year, we gotta keep an eye on these deadlines, and, I appreciate you bringing up that little, little plan design tidbit there about the, the non elective match, because someone might be wondering why, why would we do that, right?

[00:16:37] I would rather just match the employee contributions, Let them contribute and then I’ll, I’ll match what they contribute. But as you mentioned, there is a reason, especially when you’re planning to do consistent profit sharing contributions that you might want to use that non elective match. So, if you want to get it done for this year, as Matt said, it’s a little more expensive, but that can be amended for the following year. so we’ve got some deadlines there. Starting August 1st. Yeah. That the very latest, maybe September 1st to get a new safe harbor plan up and running for 2024. What else do we need to keep in mind?

[00:17:11] Matt: Absolutely. So,before we spoke about the upside down, three layered wedding cake in one of the previous episodes, and this is how, this is the efficient plan, the most efficient plan design to get the most contributions into the ownership’s pocket basically. So, part of that design. So the very bottom is the 401k, the $23,000 that we just spoke about.

[00:17:33] Generally, that’s going to be a safe harbor. The middle layer and the top third layer are considered employer contributions. So that’s the money that’s going to come out of your Business’ corporate account, basically. It’s not going to run through payroll. It’s going to come out of the corporate account and that is going to be profit sharing or a defined benefit plan.

[00:17:53] Those have some deadlines coming up as well. So the safe harbor 401k, the very bottom layer is October 1st for the current year, but you don’t have to make any contributions for those top two layers until the following year before you file your taxes. for the previous year. So for example, we have a couple of deadlines coming up.

[00:18:17] If you have not filed your taxes and you filed extensions for 2023, you can still do contributions for 2023. Okay. So this has to do with how you’re filing your taxes.

[00:18:31] Evon: Yes.

[00:18:32] Matt: So if you’re an S corp, which most of the optometry industry is, A S they file as an S corp, September 15th is your deadline. That that’s your new deadline.

[00:18:44] If you file an extension, that is when you can implement and contribute towards 2023 for just that portion. You’ve already missed the deadline for the safe harbor, right? Cause that passed October 1st, of last of 2023, that’s already, that part’s gone that $23,000 we missed, but if you still want to do something for 2023.

[00:19:08] September 15th, we have to implement and contribute by that date, and you still get a deduction for 2023. then if you start a new plan for 2024 at that Safe Harbor, by that October 1st portion, you have until September 15th of 2025 to do those top two layers of that upside down three layered cake for 2024. So those are still approaching, even though they’re for the previous year, they are coming up. If you don’t file as an S corp and you’re just a LLC, Schedule C, that pushes to October 15th.

[00:19:46] Evon: Yeah. And for partnerships out there, I have husband and wife teams that co-own a practice, non husband and wife teams that co-own a practice. If you’re taxed as a partnership, same thing. You have a partnership tax return. That’s filed a month earlier, you need to keep that earlier deadline in mind for you as well.

[00:20:02] Matt: Yeah, and those are where the real large contributions come into play.

[00:20:05] Evon: Yeah, yeah, that’s, that’s where a lot, a lot of fun planning levers come into play there. not only from a, a tax planning perspective, but just for your own retirement planning perspective, you can, you can start to put in quite a bit more dollars. into those layers of the plan. And I’ll throw our past conversations, Matt, into the, to the show notes so they can get a feel and a listen for some of those additional employer contributions.

[00:20:31] so hopefully that will be helpful there. So we’ve got the contribution deadlines on the employer side. what other deadlines do we need to keep in mind?

[00:20:39] Matt: Yeah, so really the only other deadlines that we have to worry about right now that are relevant are if you already have a plan, if it’s already up and running. July 31st is when the 5500s are due, assuming you’re on a calendar year and not a fiscal year. So the 5500s are due on July 31st. if you are on an extension, you can do that, actually go out to October 31st.

[00:21:03] That’s the extension for the 5500s. If you do not do that, the penalties are bumped up to $750 a year with a cap of $1,500. So you basically have to do that for two years if you’ve missed a couple of years. That comes into play mostly if you had a solo 401k and you breached that $250,000 level which if you don’t know, you don’t really have to file a 5500 on a solo 401k until you reach $250,000 in your plan.

[00:21:35] And we’ve had some folks where they breached that 250 a few years ago and they forgot to file the 5500 on like a self directed solo. So we have to go back, fix that for them. and they have to unfortunately, pay that $1,500 penalty along with it. So, that is coming up. If you have over $250,000 in your solo 401k, it is time to file a 5500.

[00:21:57] Evon: Yes, for solo 401ks, this is really easy to forget or just not know that you need to do this. So, you hear a lot about the benefits of the solo 401k plan for independent contractor 1099 ODs. Potentially sub lease owners without W 2 employees, but you do not want to miss that deadline. It is expensive, it is not a crazy complicated form to fill out, or if you need to talk with your tax professional, maybe they can help you with that. Assuming you don’t have a plan administrator involved with the solo 401k, but Certainly just something you don’t want to forget. So keep that in mind. Time is of the essence for this year. And then give yourself a reminder every year moving forward. You know, this is something you got to do by that deadline.

[00:22:42] Matt: Yeah, absolutely.

[00:22:43] Evon: Perfect. we covered a lot in a short amount of time, Matt. Anything else we got to know about this year and beyond?

[00:22:50] Matt: I think, I think that’s it. You know, the, the biggest thing is, is don’t, don’t push back, those dates. If you have questions about if a safe harbor is right for you, just ask that question. There’s the best thing I can, the best way to explain what a safe harbor is, they are pre approved matching investing schedules that the IRS says, yes, this is now a fair plan to your employees.

[00:23:17] You can now max out. If you want to max out and you have employees, nine times out of nine, it’s going to be a safe harbor 401k.

[00:23:26] Evon: Yeah, simply because the owners are really the ones that, and the associate doctors are really the ones that benefit and use the plan the most. I mean, it’s just simply a matter of, how much, you know, differences in salaries and income and how much each person wants to put into the plan.

[00:23:42] So, that is usually the case.I will throw in again all of the links to our past conversations, Matt, into the show notes, as well as some episodes I’ve done specifically on the SECURE Act, especially SECURE Act 2. 0. So, listeners, you can hear about all the different parts of that huge law and all the different layers of which, all these rules start to implement each year.

[00:24:05] 2023, 2024, and beyond, as Matt mentioned. And, some of it’s been, deferred into, into future years. For example, one of the things that was postponed was the mandatory catch up for quote unquote high earners. So that was something that was supposed to take into effect this year, 2024, but was postponed to 2026. So for high earners, Over 50, your catch up contributions no longer are required, or at least not yet, are required to be Roth versus pre tax. So, take a look at all those show notes, take a look at all those episodes.

[00:24:40] Hopefully those are helpful as well. Matt, really appreciate you coming on once again. Where can people find you and follow you and just learn more about what you’re doing?

[00:24:48] Matt: Yeah. our website is LifeIncRS.com. So Life Inc. Retirement Services is what that stands for. LifeIncRS.com. we have a lot of tools on there. We have, there’s a tool in the dropdown menu, there’s a tools area and we, you can calculate what your tax credits are gonna be or, or close to be. It’s an estimate.

[00:25:09] and you can do that within. 20 seconds. And then if you’re not sure what kind of plan, we have something called the evaluator on there. a few questions we’ll, narrow down what is available for you and which kind of plan you should start looking at. Cause the retirement plan space is vast and trying to research every single one to see if every, which one of those are relevant to you can be daunting. So that, that tool is right there to help you narrow it down to two, sometimes three, but it’s all based on what, you know, kind of contributions you want to do. so feel free to head over there and, and, play with those, tools.

[00:25:42] Evon: Got it. Appreciate that, Matt. We will throw that in the show notes and for the listener, appreciate your time. We will catch you on the next episode. In the meantime, take care.