How to Supercharge Your Retirement Savings: Tax Time Strategies for Healthcare Professionals

Healthcare professionals, especially those who run their own practices, have specific challenges and needs when making decisions about their financial plans and retirement savings. 2020 was an unprecedented year for healthcare and dental practices, many of which were forced to shut down for several weeks (or longer) and put everything on hold during the pandemic. This has continued as the effects of the pandemic persist into 2021.

The federal government took steps to support healthcare providers, first passing the CARES Act, which offered some relief, and subsequently approving the American Rescue Plan Act (ARPA) in early 2021, which included additional benefits for healthcare providers.

If you’re a healthcare professional who runs your own practice or manages your own retirement accounts, you should take a fresh look at your year-end tax planning for 2021 and look for ways to maximize your tax-advantaged retirement savings accounts.

Did your practice receive any COVID stimulus funding, such as Paycheck Protection Program (PPP) loans? If so, you might be able to use some of this money to put toward retirement savings contributions. There are several types of COVID relief funds that healthcare professionals might have qualified for during 2021:

• Paycheck Protection Program (PPP): According to the Small Business Administration (SBA), healthcare providers received 12% of this funding initiative in 2021 before it expired on May 31. Some PPP funds can be forgiven if used for retirement contributions, because retirement contributions qualify as payroll costs that the PPP was intended to support. Loan recipients can apply for forgiveness until the maturity date of the loan. However, PPP funds can only be used for retirement contributions up to a maximum limit of 2.5/12 of the 2019 contributions for that shareholder. Keep in mind that forgiveness is not provided for employer contributions for retirement benefits accelerated from periods outside the Covered Period or Alternative Covered Period.
• Economic Injury Disaster Loans (EIDL): These loans from the SBA can be used for salaries, wages, and benefits such as health insurance and retirement. You can apply for an EIDL if you have received a PPP, but you cannot use funds from both loans for the same purpose. The SBA has extended the deadline for EIDL loans through December 31, 2021.
• Health and Human Services (HHS) Provider Relief Fund (PRF): Depending on when they were received, funds can be spent through December 2022 and can be used to reimburse eligible healthcare-related expenses or lost revenue attributable to COVID-19, but there are limits on executive compensation. If you are using HHS funds for executive salaries, you need to be able to show that the practice’s own cash (non-HHS money) is paying for any compensation over applicable limits. Additionally, expenses paid using other government assistance programs are ineligible for reimbursement from the HHS PRF.
• State-Level Payments: By July 1, 2021, 41 states had increased provider Medicaid payment rates via tools including State Plan Amendments (SPAs) to help cope with the COVID-19 crisis. The ARPA also included $11 billion in funds earmarked for states to help healthcare providers cope with the financial burdens imposed by the health crisis. States have used these to boost healthcare provider payment rates and boost workforce recruitment.

Even if you don’t use stimulus funds to pay for your retirement contributions directly, they can still free up additional cash toward retirement savings. Keep in mind that you can make employer retirement plan for 2021  until your tax return deadline for the 2021 tax year.

You might want to use this moment as an opportunity to re-evaluate your practice’s retirement plan. Which retirement plan is right for you and your employees?

• State-Sponsored Saving Plans: Oregon and California have state-sponsored savings plans that automatically enroll employees into a Roth IRA with a 5% payroll deduction from employee salaries on an after-tax basis. If your practice does not already have a qualifying retirement plan for your employees, these states require you to establish this type of plan. However, if you are already offering a qualifying employer-sponsored retirement plan (SIMPLE IRA, 401(k), Profit Sharing Plan, or Defined Benefit/Cash Balance Pension Plan), you don’t have to worry about this.
• SIMPLE IRA: This plan lets employers and employees contribute to Individual Retirement Accounts (IRAs) for employees. If you do not currently have a retirement plan for your practice, this might be a good way to start, however, contribution limits are reduced compared to 401(k) Profit Sharing Plans
• 401(k): This plan allows the employer or practice to match employees’ contributions up to a certain percentage of the employees’ compensation. There are some complexities to consider if you want to maximize your retirement savings as a practice owner/shareholder, however—you might want to choose a Safe Harbor 401(k).
• Profit Sharing Plan: A profit sharing plan is another way to enhance your practice’s 401(k) plan to help you and your employees save more for retirement. However, there are some complexities for assigning the profit sharing in a way that makes sense for your practice.
• Defined Benefit/Cash Balance Pension Plan: You can also add a Cash Balance pension plan to your practice’s 401(k) to save even more money for retirement, beyond the tax-deductible limits of the 401(k).

Aldrich Advisors can help you with retirement plan design to analyze your overall healthcare practice, discuss your financial goals, and create a custom retirement plan to suit the needs of your business, your employees, and your financial future.

Aldrich Advisors’ tax experts can help you utilize the stimulus funds available to you. Our retirement plan experts can help you achieve your retirement goals, show you your options, run the numbers, and visualize how much more you can save for retirement in a tax-efficient way. Learn more about your 2021 tax-planning options and help your practice with a better retirement plan design with your Aldrich Advisor.