There never seems to be enough money to meet our current wants, and sometimes our needs as well. But you need to consider very seriously establishing a retirement plan for your new practice. It can never be too early to start a retirement savings plan, but it can be too late. The most popular plans are called “qualified” plans. These plans qualify under IRS for tax benefits in order to encourage savings. Most often the contributions are deductible from your income and are not taxed on their earnings until the accumulated funds are paid out at retirement. A 401k plan is a popular qualified plan option. To get these benefits there are rules that must be met on an on-going basis, so consulting an advisor is wise. There are plans sponsored by investment firms, banks, and others. Consider that the ABA Retirement Funds Program was created over 45 years ago and is designed to provide unique, full service 401(k) plans to the legal community.
You may also be one of the many lawyers who leave a large firm and go solo or move to a smaller firm. When this occurs you may wrestle with the options regarding the retirement savings you’ve accumulated in your employer-sponsored retirement plans. There are a variety of available alternatives to sort out. Many lawyers are inclined not to make a decision at all and simply leave the money in their former employers’ plans.
When changing firms you generally have four alternatives for dealing with the savings in your former firm’s retirement plan:
- Roll it into an IRA.
- Take a cash distribution.
- Leave the savings in the plan.
- Move it to the new firm’s plan (if there is one available).
If you have accumulated significant funds in a retirement savings account, such as a 401(k), and you are now planning to go solo or move to a smaller firm, be sure to work with a financial advisor to assist you in making a smooth transition. The advisor can help you decide which of the four options makes the most sense for your situation. Not doing it correctly can mean adverse tax events. If you are starting your own practice, you will want to take a transfer of funds into account when deciding on what form of retirement plan your new firm will establish.