Portfolio CHECK-UP

Name: David Jones, MD

Residence: Kentucky

Age: 42

Family: Married; two children

Years in practice: 8

Type of practice: Pediatrics

Annual income: $130,000

Savings: No savings specified

Financial concern: Dr. Jones and his wife, Evelyn, have not yet establishedany type of long-term savings and retirement plan. Currently, Dr.Jones is in private practice and Evelyn is employed by another professionalassociation (PA). Evelyn does plan, however, to terminate her relationshipwith her current employer and join Dr. Jones as his office manager sometimethis year. His main questions are, what type of plan can he establish, whatare his allowable contributions, and how much will this cost his PA?

The Finance Professor's Solution

Dr. Jones should establish a safe harbor 401(k) integrated pension andprofit sharing plan. Based on the current demographics of his employees, itwill cost him $48,482 to fund such a plan. Of this amount, $41,000 will gointo his name and the remaining $7482 will go to his three employees. OnceEvelyn joins his practice, $82,000 annually will go into their names and theremainder into his other employees' names. In 2004, 85% of the cost of theplan will inure to Dr. Jones' benefit, and beginning in 2005, once Evelynjoins the practice, nearly 95% of the annual cost of the plan will inure toboth Dr. Jones and Evelyn. Such plans are protected from creditors, all contributionsto the PA are tax-deductible, and all contributions grow on a tax deferredbasis. In addition, it is recommended that he implement a 6-yearvesting schedule for all plan participants. In other words, if an employeeleaves at the end of the first year, they are not entitled to benefits. Theemployees are fully vested in the plan benefits only if they remain in Dr.Jones' employ for at least 6 years.

For more information, call Mr. Kosky at 800-953-5508or visit www.assetplanning.net.

Stewart H. Welch III, founder ofthe Welch Group, has been ratedone of the nation's top financialadvisors by Money and Worth. Hewelcomes questions or commentsfrom readers at 800-709-7100 orwww.welchgroup.com. Reprinted with permissionfrom the Birmingham Post Herald.