Around this time of year, independent community pharmacy owners and small business owners alike start evaluating their retirement plan.  Wait... What? You don't do this?  Well don't worry, you are not alone.  In fact, you are in the majority.  The first sentence should read, "This is the time of year for business owners to start evaluating their retirement plan."

Working with independent community pharmacy owners, we see one type of retirement plan that is very popular, the SIMPLE IRA.  Its all in the name, simple to start and simple to maintain.  What pharmacy owners have found, however, is that when using a SIMPLE IRA, even when maxing out contributions, saving enough money to reach their retirement goals is not likely.  For that reason, many pharmacy owners have now started looking into moving to a 401(k).

The following is a simplified rundown of what you need to know about switching from a SIMPLE IRA to a 401(k).

1.  Terminating the SIMPLE IRA

• SIMPLE IRA retirement plans must be terminated at the end of the calendar year
• Some Financial institutions will require a 30-60 day notice to terminate the SIMPLE IRA without penalty
• A 60 day prior notice must be given to all participating employees that the SIMPLE IRA is being replaced
• A pharmacy cannot maintain a SIMPLE IRA and 401(k) plan in the same calendar year

To ensure the timing of everything, a pharmacy should start the process before the end of October.

2.  Starting a 401(k)

• Meet with an advisor specializing in 401(k) retirement plans
• Ensure that the plan will benefit the owner, while providing a way to better attract, retain, and reward their most valuable employees
• Customize the plan to reach personal and professional goals
• Take the time to fully understand the cost and fees associated with a 401(k) plan
• Run a cost-benefit analysis to ensure a 401(k) plan is a prudent investment decision for your pharmacy

Just having a 401(k) is useless if it is not the RIGHT 401(k) for you and your pharmacy family.

3.  Why bother?

• Max tax-deferred contributions that can be saved jump from $12,500 in a SIMPLE IRA to $53,000 in a 401(k) (sometimes more and updated annually)
• 401(k) plans have flexible designs that allow favor and reward to the owners and key employees
• Employees perceive a 401(k) as a greater benefit than a SIMPLE IRA
• Plan loan options are available in a 401(k)
• 401(k) plans allow for more investment options
• 401(k) plans are a great way to discover more tax-benefits for the pharmacy

When pharmacy owners find themselves not being able to save enough money for retirement through a SIMPLE IRA, it is time to look at new options through a 401(k) plan. 

Now that you know the basics, you can develop a plan based on your goals, needs, and objectives for retirement and your pharmacy.  Independently owned pharmacies are a critical part of our community, and ensuring their viability for future generations is critical.  Choosing the right retirement plan is of the utmost importance in a long list of crucial roles an owner must play. 

If you are a pharmacy owner and would like more information on how to optimize your retirement plan, please contact me at tyler@waypointus.com.  At Pharmacy401k we are here to educate and provide information on multiple retirement options to benefit pharmacies nation wide.  We offer a free workshop that includes a retirement plan design, cost comparison of your current plan, and one-on-one consulting from an Investment Advisor Representative.