Retirement Plans for Solo and Small Law Firms

Law Firm Retirement Plan

Utilizing the correct tax advantaged retirement plan program at a small or solo law firm is an important long-term planning decision for attorneys. There are many tax, recruitment, and succession planning benefits to utilizing the correct law firm retirement plan. Attorneys are not alone in this decision. Navigating the correct small business retirement plan options may be difficult given all the options and providers in this space.

Like any other small business, solo practitioners and small law firms need a suitable retirement plan for the founders and employees. In his article published by the ABA Law Practice Today Magazine, Frederic Behrens explains some nuances of different retirement plans that are suitable for small firm or solo attorneys. This includes different types of defined contribution (easier to setup) and defined benefit plans (potentially more tax benefits).

Retirement Plans Small Law Firms

Retirement Plans Solo Law Firms

Defined Contribution Plans

A defined contribution plan is the most common type of retirement plan. These are retirement plans in which the employer, employee or both make contributions on a regular basis (usually tax deductible, but Roth options are also available). Individual accounts are set up for participants and benefits are based on the amounts credited to these accounts plus any investment earnings on the money in the account. The employee bears the investment risk of defined contribution plans and portfolio changes will have an impact on future account balances. Many large employers offer these plans to employees and small firms have several unique options that have varying degrees of complexity:

  • Simplified Employee Pension Plans (SEP IRA)
  • SIMPLE IRA
  • Individual 401(k)
  • Small Business/ Group 401(k)
  • Keogh or HR-10 Plan

Defined Contribution Plans

A defined contribution plan is the most common type of retirement plan. These are retirement plans in which the employer, employee or both make contributions on a regular basis (usually tax deductible, but Roth options are also available). Individual accounts are set up for participants and benefits are based on the amounts credited to these accounts plus any investment earnings on the money in the account. The employee bears the investment risk of defined contribution plans and portfolio changes will have an impact on future account balances. Many large employers offer these plans to employees and small firms have several unique options that have varying degrees of complexity:

  • Simplified Employee Pension Plans (SEP IRA)
  • SIMPLE IRA
  • Individual 401(k)
  • Small Business/ Group 401(k)
  • Keogh or HR-10 Plan

Picking the Best Small or Solo Firm Retirement Option

When a retirement plan is available to employees in a law firm, the majority choose to take advantage of it and participate in the retirement plan. Today, offering at minimum a 401(k) plan is a fundamental component in a competitive benefits package and an important tool to recruit and retain talent. Retirement and succession planning must be part of your law firm administration.

There is no “one size fits all” solution and firms must review what is best for them. However, a formalized retirement plan program that embeds succession planning in firm management is preferable as it can be used to motivate a successful multi-generational workforce.

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By |2020-08-05T02:18:21+00:00August 5th, 2020|Blog|0 Comments

About the Author:

Frederic Behrens is a Director and Wealth Advisor with Round Table Wealth Management. Read Frederic's Biography >