Retirement plan options come in all shapes and sizes

As with fashion, what was right for you last year in retirement planning might be a bad fit or outdated now.

Changes to rules and regulations, and industry innovations, have paved the way for new types of retirement plans. That evolution, coupled with individual lifestyle changes, has prompted a growing number of professionals to reconsider whether they have the right plans.

"People are starting to learn more and ask better questions. You're getting people who are saying, 'I need to look at my retirement from a different point of view,' " said William Connington, a wealth adviser with Connington Wealth Management Group in Pine Brook, N.J.

For many physicians, this means looking at the retirement plans available to the self-employed. Though the mainstream plans -- 401(k), SEP IRA, defined benefit and SIMPLE IRA -- might sound familiar, some are being used in new ways.

One of the most popular plans is the 401(k), which allows employees to set aside tax-deferred income for retirement, with the employer often matching at least part of the contribution. Employees can set aside up to $14,000, plus another $4,000 if they are older than 50. Total contributions cannot exceed $42,000, or $46,000, depending on the age provision.

Traditionally, these plans have been used by companies with multiple employees.

But over the last few years, a new 401(k) designed for one-person businesses has entered the market. Known as a "single k" or "individual k," it works like a standard 401(k) but is less expensive, making it affordable to single-person businesses.

While traditional 401(k)s might cost between $1,000 and $2,000 to set up and another $2,000 to $3,000 in annual administrative fees, a single k typically costs about $500 initially and another $500 to $1,000 each year to maintain, said Steve Yeager, senior vice president of SYM Financial Advisors in Warsaw, Ind. Other experts said the plans could be even cheaper.

Yeager, who advises many physicians, said he hasn't seen widespread usage of these plans in medical practices, because most of them have more than one employee. But such plans might be a good fit for physicians doing solo work on the side, such as being consultants, he said.

A medical practice with multiple employees or with potential to grow significantly might benefit from the traditional 401(k). Bruce Fenton, president of Atlantic Financial, in Norwell, Mass., said such plans can accommodate growth and have become the standard among large businesses.

But Yeager said the costs of 401(k)s can be a disincentive to businesses of a smaller size. "If you're talking to someone who has one or two people, they may steer toward a SIMPLE IRA because you can keep those costs under $500," he said.

Yeager likens the SIMPLE (savings incentive match plan for employees) IRAs to "a good starting point plan." They are designed to be simple to administer, with relatively low fees. Like 401(k)s, they allow employees to defer income with the potential for employer contributions.

But Yeager said such plans are limited to a 2% or 3% employer match and $10,000 in employee deferrals, so they are not good for physicians aiming to maximize the amount they are socking away for retirement.

Another plan -- the SEP (simplified employee pension) IRA -- might be more appropriate. These plans allow an employer to put away the lesser of either 25% of compensation or $42,000.

Fenton said they are a good fit for physicians who are solo or who have just a few employees because they are fairly inexpensive and simple to manage. But they can become an administrative "headache" on a larger scale, he added.

Yeager said the downside of SEPs is that they are limited to employer contributions. And he said both SEP and SIMPLE plans have rules requiring some evenness among employer matches, which might scare away businesses with a wide gap between the highest and lowest paid employees.

While some plans enjoyed popularity in recent years, it appeared that defined benefit plans, often simply called pension plans, had been going by the wayside.

Though several experts said that remains true for big companies, an emerging trend is for such plans to be used by individuals.

Alan Goldfarb, director of financial strategies for Weaver and Tidwell Financial Advisors in Dallas, said the plans are attractive to older physicians in solo practices. "If you are an older individual with a large amount of money you're trying to shelter, it makes a lot of sense," he said.

With these plans, the employee gets paid a specified amount in retirement. So a self-employed physician who has only a limited number of years left to work might be able to funnel large portions of money into such a fund to meet the benefit in the appropriate time frame.

Goldfarb said under some circumstances, a self-employed person might be able to put up to $170,000 per year toward that fund. He said this is particularly attractive to physicians who might be trying to catch up at the last minute on retirement savings.

But he said the plans cost between $2,000 to $4,000 to start up. Also, he said they can become burdensome for businesses with multiple employees because of the obligations to fund the benefit. "It's potentially a big commitment." he said

Whichever plan is chosen, Connington said physicians should review their strategies annually with an adviser "to make sure they're on pace with what they want to do."