CRNA business owners and freelancers tend to have very high incomes, but are busy and often unprepared when it comes to financial planning. Whether you plan to continue running your business well beyond traditional retirement age, or you aim to retire as soon as you’re able, planning ahead is key to your financial success. Do you have a plan for your business and your retirement?
While CRNA business owners and freelancers enjoy a higher salary than the average CRNA, many are still uncertain about their future or worried about having enough money saved. For one, CRNAs frequently have had to pay off significant student loan debt — often upwards of $100,0001. They also don’t normally enter the workforce until their late 20’s or early 30’s because of the additional required schooling.
Because of this, CRNAs often miss out on some of the benefits of compound interest and lose out on a few saving years. Additionally, as a business owner, CRNAs often are so focused on building and managing their practice that they forget to spend time on their own retirement strategies. Despite facing a few hurdles, there are several ways CRNA business owners can create plans to maximize their retirement savings to help them feel more confident in their future.
Maximize Tax-Advantaged Accounts
Tax-advantaged accounts are one of the most effective ways to save for retirement. Funds invested within a 401(k) plan grow on a tax deferred basis (meaning no capital gains taxes are due annually on any investment gains). Hopefully as a business owner, you’re either offering a 401(k) plan, or have a solo 401(k) plan if you’re a sole proprietor. This plan allows you to save up to $18,000 per year, pre-tax, or $24,000 if you are over the age of 50. If a CRNA business owner is in the 33%+ tax bracket, saving money for retirement before paying out taxes puts him or her in a great position to build wealth.
Open an IRA
Once you have maximized your 401(k), it’s time to turn your attention to personal retirement plans. You have a few different options.
Traditional IRA: a Traditional IRA is an individually-owned retirement plan that enables qualified individuals to direct pre-tax income toward investments that grow on a tax-deferred basis. Individuals can contribute up to 100% of their earned income into the account, as long as they don’t exceed the Modified Adjusted Gross Income (MAGI) limitations. For 2016, the amount an individual can contribute into a Traditional IRA is $5,500 for filers under the age of 50, or 100% of their taxable compensation for the same calendar year. For filers over the age of 50, the current catch-up provision applies, enabling them to save the greater of $6,500, or 100% of their income for the same calendar year.
Roth IRA: A Roth IRA is an individual retirement account whereby contributions are not tax-deductible (like with eligible Traditional IRAs), the earnings grow tax-deferred and get this, the withdrawals (subject to IRS guidelines) are tax-exempt. The maximum contribution for IRAs is $5,500 per year or $6,500 if you are older than 50, but both are subject to income restrictions.
Backdoor Roth IRA Option:If your income is above the cutoff amounts, there is still a few ways you can contribute to a Roth IRA. One option is a backdoor Roth transaction. You first contribute to a Traditional nondeductible IRA, which is available regardless of income, and then convert it to a Roth IRA. The IRS also allows you to convert after-tax contributions to a 401(k) into a Roth IRA.
SEP IRA: A SEP account (Simplified Employee Pension) is an IRA subject to some of the same rules and guidelines as a Traditional IRA account. A SEP IRA enables employers to contribute funds on behalf of their employees toward retirement, and for self-employed individuals, to make contributions on their own behalf, for their own personal benefit. One of the most important things to point out for CRNAs is that a SEP IRA can be set up in addition to a 401(k). For 2016, eligible parties can contribute the greater of 25% of their self-employed income or $53,000 into a SEP IRA. Catch up contributions do not apply for SEP IRA account holders.
Consider a Uni-K Plan
A Uni-K plan, or one-participant 401(k), is a traditional 401(k) plan covering a business owner with no employees and sometimes their spouse. With a Uni-K, you can contribute up $53,000 per year for those age 50 or older.
Setup a Defined Benefit Plan
In order to save more than what your 401(k) and IRA limit you to, you can setup a defined benefit plan. These plans have much higher tax-advantaged contribution limits and can be designed to fit the needs of almost any CRNA business. Depending on your age and income, a defined benefit plan allows you to set aside up to hundreds of thousands of dollars to fund your retirement, making it possible to save a lot, even if you have little time.
For example, let’s say you have an annual income of $450,000. You could contribute $182,200 to your defined benefit plan and $39,900 to your 401(k) for a maximum contribution of $222,100 in 2016. You would save $84,300 in taxes and, over the course of just 10 years with a 5 to 7% rate of return, you could accumulate upwards of $2.54 million.
Have a Plan for Your Business
According to a study conducted by the Guardian Insurance & Annuity Company, 35% of small business owners plan to rely on proceeds from the sale of their business to fund their retirement, yet only 17% have identified a potential buyer2. Whether retirement is one or five years away, it’s imperative you have a plan for your business. Work with your financial advisor to develop a succession plan, outlining how and where you will find a buyer, when you plan on selling, and how you plan to sell and for how much. Currently, private equity firms are actively seeking CRNA practices to purchase. CRNA Financial Planning can help you locate a buyer for your firm and maximize the value you receive for your practice.
If you’re concerned with not having enough money saved, CRNAs have the unique opportunity to continue working part-time as a freelancer. You’ll face less work than you would by continuing to manage your business full-time, but you can continue earning an income and have an opportunity to travel. Freelance, 1099 or travel CRNA positions exist across the continental United States. To locate these opportunities, consider leveraging staffing services or searching on job placement platforms such as www.gaswork.com. You can take an assignment for a month or six months in your chosen geographic locations. With these opportunities, you can keep your skill sets sharp, see the country, and earn a substantial income in the process.
However you decide to save for retirement, it’s important to work with a CERTIFIED FINANCIAL PLANNER™ practitioner who specializes in serving the unique needs and circumstances of CRNA business owners. A CFP® professional can develop strategies to help you maximize your retirement savings. Do you have questions? Call us at 855.304.3748 or email [email protected].
1 “Does it Make Financial Sense to Become a CRNA in 2016?” CRNA Financial Planning, https://www.crnafinancialplanning.com/blog/does-it-make-financial-sense-to-become-a-crna-in-2016
2“Guardian’s Small Business Owners Retirement Readiness Study Reveals Disconnect between Retirement Preparedness and Aspirations” The Guardian Life Insurance Company of America, http://www.reuters.com/article/ny-guardian-life-ins-idUSnBw115218a+100+BSW20141111
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.
About Jeremy Stanley
Jeremy Stanley is the founder of CRNA Financial Planning®. He has been providing advice and guidance for Certified Registered Nurse Anesthetists (CRNA) for over two decades. As a CERTIFIED FINANCIAL PLANNER™, Jeremy has met rigorous certification and professional standards set by the CFP® Board. He is committed to adhering to the principles of integrity, objectivity, competence, fairness, confidentiality, professionalism and diligence when dealing with clients. Jeremy is also the author of the book “The Wealthy CRNA,” which lays out a foundational roadmap for CRNAs to help them plan their financial future.
Jeremy Stanley is a financial professional with and Securities offered through LPL Financial, Member FINRA/SIPC. Investment advice offered through Private Advisor Group, a registered investment advisor. Private Advisor Group and CRNA Financial Planning® are separate entities from LPL Financial.