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A new way to plan for retirement

March 1, 2011
You have a well-developed practice and you're contemplating retirement. But retirement laws have held back minimum funding of a pension plan ...

by Alan Clemens, MBA

For more on this topic, go to and search using the following key words: pension plan law, retirement planning, sales broker, ADS, Alan Clemens, MBA.

You have a well-developed practice and you're contemplating retirement. But retirement laws have held back minimum funding of a pension plan that would have allowed you to live as you wanted. However, now you can obtain both immediate cash and ongoing, noncash benefits by combining a newly defined benefit pension with an early sale of your practice.

The plan involves starting a new retirement program now, using cash from the sale of your practice to fund the retirement program and start living the "good life" earlier. In short, combining the sale of your practice with an employment contract from the buyer may very well produce a better result than continuing to work full-time and trying to sell at a later date.

Recent pension law changes enable a dentist to obtain the highest price for a practice while the practice is at its peak value. Much of the payment price can be deferred into a retirement plan, which will generate tax deductions for the retiring dentist. Actuarial funding levels for defined benefit plans can range from $30,000 per year to $200,000 or more per year, all fully tax deductible and all with the blessing of the IRS. The pension plan law allows the seller to make the maximum contribution without worrying about previous contributions to a defined contribution plan.

By selling the practice at its peak, the seller can obtain a much better price. The price can be negotiated so that part of the sale package includes continuing employment for the number of years needed to adequately fund the retirement benefits under the new pension plan.

This is where the services of an experienced sales broker are invaluable. The broker's task is to evaluate the practice, locate the buyer, and work out the transaction so that all parties benefit.

In the long run this means less stress and more vacation time for the seller. Using an employment arrangement instead of a partnership agreement can reduce legal costs and the level of future risk. At the same time, the purchaser will gain from being involved in a mature practice instead of working to revive a declining practice.

If necessary, the retiring dentist can live on other assets while funding the maximum into the pension plan. If the seller is married, anything the spouse earns from separate employment can also be used to cover living expenses during this time. Since a substantial amount of the monies paid to the dentist will not be in the form of current taxable income, this will put the dentist in a lower tax bracket – a tax strategy the accountant will love.

Benefits that the seller accumulates in the plan will be rolled over into an IRA when the seller actually retires. The funds can be stretched out over a number of years and even past the death of the retiring dentist with minimal tax consequences.

The retiring dentist stays on the new company's payroll. Payments that otherwise would be made to the retiring dentist for the sale of the practice go instead to fund the salary for the seller under the employment contract, and to fund the new pension plan. Since the retiring dentist is likely older than the other employees, the bulk of the pension plan contributions should be made on behalf of the retiring dentist. The result is that substantial monies go into the pension plan for the retiring dentist and are fully tax deductable by the practice.

The time to plan your retirement is long before you actually retire. Recent changes in the law now allow you to shorten that planning timetable. By taking advantage of these changes, you will be preparing for a better life for yourself and your entire family.

Alan Clemens, MBA, president of the Clemens Group, serves the states of New York, New Jersey, and Connecticut. Clemens is also a member of ADS, Practice Valuation Study Group, and has lectured nationally and locally on practice transitions for more than 35 years. Reach him at (800) 300-2939 or (888) 419-5590, ext. 212. Visit the company's Web site at Send him an e-mail at [email protected].

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