Commentary: Avoid Putting Client's Tax-Qualified Retirement Plans in Jeopardy

Summary

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Suppose you help your client's medical practice open a one-room surgery center with two other nearby medical practices. All three medical practices are otherwise completely unrelated, and each practice owns one-third of the new facility. Would you be surprised to find out that you may have just put the tax qualification of the retirement plans of each of the practices in jeopardy?

Many health care professionals maintain a tax-qualified retirement plan as part of their practice. However, if a retirement plan loses its tax-qualification, then: (1) contributions to the plan may not be currently deductible; (2) the plan's investment earnings become taxable; and (3) owners covered by the plan may have to pay taxes on their retirement benefits before they receive them.

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Extract

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Commentary: Avoid Putting Client's Tax-Qualified Retirement Plans in Jeopardy

Among many other Internal Revenue code requirements, a tax- qualified retirement plan must cover a minimum percentage - generally 70 percent - of all of the practice's employees.

This minimum coverage test calcu...

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