NO MATCH DOESN'T MEAN NO GOOD
by Andrew D. Schwartz, CPA
The most surprising observation made by the Schwartz & Schwartz staff this past tax season was the number of people who opted not to contribute to their employer sponsored 403(b) or 401(k) plan because their employer didn't provide them with a match.
Most employers offer either a 403(b) plan or a 401(k) plan as a way to help their staff save for retirement. Not-for-profit hospitals and universities generally offer 403(b) plans. Most other businesses offer 401(k) plans. Besides the name, there isn't a big difference between these two retirement savings plans these days.
Amounts contributed to either of these plans reduce your taxable earnings and grow tax deferred. As an incentive for their employees to save, many employers provide a "matching contribution" to their staff.
If you're fortunate enough to work for a company that matches the salary deferrals you make during the year, make sure to contribute enough to the plan each year to max out your employer's match.
Let's say your employer matches 100% of the first 3% of your salary that you put away through your 401(k) or 403(b) plan each year, and 50% of the next 2%. If your annual salary is $60,000 and you contribute at least $3,000 (5% of your salary) during the year, your employer will make a matching contribution of an additional $2,400 into your account. Contributing less than 5% of your salary means that you're leaving some of your employer's money on the table.
Even if your employer doesn't match your salary deferrals, taking advantage of these tax-advantaged retirements savings plans still makes sense. Let's say you're in the 25% federal tax bracket and live in a state with a 5% tax rate. For each dollar that you sock away into your 401(k) or 403(b) plan, you'll cut your tax bill by $.30. It only costs you $700 in post-tax dollars, therefore, to have $1,000 growing tax deferred within your own retirement savings account
Not convinced? If there's no way you'll contribute to one of these plans unless you receive a match, why not tell yourself that the government is providing you with a match. For every $700 you contribute, the government chips in $300. And you get to keep the compounded earnings on the government's money for as long as it remains invested.
Need more convincing? The more you earn, the larger the government match. With a top federal tax bracket of 35%, the federal government will kick in almost $5,000 for high income taxpayers who max out their 401(k) or 403(b) plans this year. And if you live in a highly taxed state or locality, such as NYC with a combined state and city tax rate of 11%, it'll cost you as little as $.55 for every $1.00 invested, assuming you're in the top tax bracket. That sounds like a good match to me.
For 2005, you can contribute up to $14,000 into your 403(b) or 401(k) account through salary deferrals. Anyone 50 or older by December 31 can sock away an additional $4,000 this year.
Other advantages of these plans is that the money in your account is very protected from your creditors, which has a lot of value for people in the healthcare field these days. Plus, the money is somewhat accessible, since you can generally borrow half of your balance in your account - up to $50,000. You then pay back your own 401(k) or 403(b) account, plus interest, over no more than five years.
If you haven't signed up to participate in your employer's 401(k) or 403(b) plan yet, give it a try. Even it your employer doesn't match your deferrals, contributing to these tax-advantaged retirement plan is one of the best deals available to you during your working years.
HOW TO SAVE $5,000 ANNUALLY THROUGH ELECTRONIC HEALTH RECORDS
The majority of physician practices are holding back on electronic health records either because they doubt the benefits, they are waiting for features or they do not want to change their work flow. Yet in recent years, a savvy minority has learned they can save $5,000 or more per provider per year?net?and at the same time improve the quality of care.
Secrets of the savvy
The benefits of electronic health records are easily substantiated by reviewing the peer-reviewed literature and learning from the experiences of local deployments. The savings for physician practices come largely through eliminating chart pulls and transcription. Billings also improve a few percent through better documentation.
Improvements in the quality of care derive from the ubiquity of the record, the automation of clinical information flow and basic decision support for medical orders.
Plan for evolution
But aren?t these early deployments taking a risk because of emerging standards and features? These risks can be mitigated in at least three ways.
First, information technology professionals can provide designs and processes that will enable the system to evolve over time. Second, top vendors offer modular software packages that facilitate the addition of standards and features. Third, customization services and user forums are available that enable physicians to tune the packages for specific subspecialties.
Keep in mind that vendors evolve as well. The smallest players may have a lead in a particular specialty but likely other players will soon engineer similar functions if the market is significant. A good way to determine a company?s momentum is to ask how many releases they have had in the past year and what significant features they introduced.
Work through workflow
Yet even through the benefits are known and the technology is available, what ultimately makes a successful deployment is the understanding that the practice workflow needs to be re-engineered.
Although the physician who champions electronic health records will typically spend time on vendor selections, he or she needs to spend at least as much time instituting the processes that assure everyone in the practice uses the system productively. And as we are all reluctant to change, the plan generally needs to be phased-in. (For example, active patients should be converted first; technology-friendly employees should use the system first.)
Electronic health records should not be viewed as technology but rather a workflow change facilitated by technology. Understand that, and you are a step ahead in reaping the benefits.
E-Medicia, a New England company, specializes in information technology for physicians. The company's primary mission is to improve the qualify of healthcare through electronic health records, medical decision support and related applications. E-Medicia is vendor-neutral and works closely with each physician group to tailor a comprehensive strategy. We can be reached for questions or comments at (888) 211-0900 or by e-mail at email@example.com.
1. Bates, D.W. and A.A. Gawande, ?Improving Safety with Information Technology?, N. Engl. J. Med. 348, 2526-34 (2003).
2. Daigrepont, Jeffrey P. Automating the Medical Record, Second Edition. American Medical Association (2004).
3. Wang, S.J., B. Middleton, L.A. Prosser, C.G. Bardon, C.D. Spurr, P.J. Carchidi, A.F. Kittler, R.C. Goldszer, D.G. Fairchild, A.J. Sussman, G.J. Kuperman, D.W. Bates, "A cost-benefit analysis of electronic medical records in primary care," Am. J. Med. 114(5), 397-403 (2003).
TAX AND FINANCIAL PLANNING CALENDAR FOR MAYL, 2005
Saving and Investing
Good time to make semi-annual donation of clothing and household items to charitable organizations
If you participate in the NIH LRP, contact one of the MDTAXES CPAs to help you get back any additional taxes owed to you by the NIH
2004 & 2005 TAX FACTS
- For 2004 the standard deduction for a single individual is $4,850 and for a married couple is $9,700. A person will benefit by itemizing once allowable deductions exceed the applicable standard deduction. Itemized deductions include state and local income taxes (or sales taxes), real estate taxes, mortgage interest, charitable contributions, and unreimbursed employee business expenses.
- For 2004, the personal exemption is $3,100. Individuals will claim a personal deduction for themselves, their spouse, and their dependents.
- The maximum earnings subject to social security taxes will be $90,000 for 2005 up from $87,900 in 2004.
- The standard mileage rate is $.375 per mile for 2004, and will increase to $.405 per mile for 2005. .
- The maximum annual contribution into a 401(k) plan or a 403(b) plan is $14,000 for 2005. And if you'll be 50 or older by December 31, 2005, you can contribute an extra $4,000 into your 401(k) or 403(b) account this year.
- The maximum annual contribution to your IRA is $4,000 for 2005. And once you turn 50, you can contribute an extra $500 into your IRA this year. You have until April 15, 2006 to make your 2005 IRA contributions.